VinTek wrote:And dragging this thread back to the deficit...
Um...do we need to review the difference between the debt and the deficit again? See the title of your thread.
Right. I stand corrected.
DoingHomework wrote:Although there have been good points made on both sides in this thread and elsewhere, the simple fact is that an accumulating debt means we are living beyond our means. At times, such as right now when we are trying to stimulate the economy, this makes sense. I believe having some debt also makes sense when the economy and/or population is growing because it is usually necessary to fund long term projects, much like a mortgage is necessary for most individuals in order to buy a home.
But when carrying a huge debt becomes the norm, I think there is a problem. We could quibble about how to measure it (% of GDP, adjustments for GDP and population growth, etc.) but I'm not sure there is really anyone serious out there who is arguing that the long term policy of any country should be to carry massive debt.
So the question becomes...what are we will to do/sacrifice/etc. to eliminate the deficit so that we are making progress on the debt?
I personally think the "plan" pointed to by Vintek on several occasions, which was bipartisan both in its construction and rejection, would be a good start. But until we make some truly fundamental choices about the future role of the US in the world, we won't make any serious progress.
I think we can actually succeed under some very diverse choices - maintain superpower/world police status or not, come into the modern world regarding social programs or not, etc. - but until we actually make those choices, I don't see an chance of getting unstuck from the place we are now.
Elimination of the debt was a very real concern in the late 90s. Remember that time? The debt was going down so fast that it was projected to be eliminated in 2012. One problem is that if there's no national debt, then there are no US Treasury Bonds. NPR found a secret study on this problem that was written in 2000. They did a piece
on that document in October last year. The document in its entirety is linked there if you want to read it.
The article says the following about paying off the debt:
This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt there would be no more U.S. Treasury bonds in the world.
"It was a huge issue ... for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.
The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.
But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.
Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money.
Mortgage rates are tied to the interest rate on U.S. treasury bonds.
The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.
If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?
"I probably thought about this piece easily 16 hours a day, and it took me a long time to even start writing it," says Jason Seligman, the economist who wrote most of the report.
It was a strange, science-fictiony question.
"What would it look like to be in a United States without debt?" Seligman says. "What would life look like in those United States?"
Yes, there were ways for the world to adjust. But certain things got really tricky.
For example: What do you do with the money that comes out of people's paychecks for Social Security? Now, a lot of that money gets invested in –- you guessed it — Treasury bonds. If there are no Treasury bonds, what do you invest it in? Stocks? Which stocks? Who picks?
In the end, Seligman concluded it was a good idea to pay down the debt — but not to pay it off entirely.
"There's such a thing as too much debt," he says. "But also such a thing, perhaps, as too little."
Now I happen to be a finance geek, not a policy wonk. I don't know enough to intelligently agree or disagree with the study. But I do caution that we should always be careful what we wish for. Unintended consequences are almost a given when it comes to government policy. The trick is trying to figure out if the risks of inaction outweighs the risks of action.