Is the national debt a good thing or a bad thing?
 

I don't really want to get into a discussion involving the government borrowing to pay debt or otherwise never truly reducing the debt (and therefore making it irrelevant). What I do want to discuss is whether or not carrying a substantial national debt is a financially wise thing to do. I bring this up because I've always thought of the national debt as a bad thing and I've always thought the budget should be balanced. But should it?

I suppose I should explain the series of opinions or realizations that led me to ask this question. First, on a personal level, I've always thought it wise not to spend money I didn't have. This is/was for several reasons (financially), but the most important two were that (1) anything I buy now with borrowed money will decrease in value - sometimes to zero, such as for services - and yet I will still have to pay for it based on its original price, and (2) I had no income or little income that I could count on to pay off the debt. Now that I am out of college and in the "real world", my views on debt are different. I think most of us can agree that buying assets that are expected to appreciate in value (ideally at a higher rate than the interest rate of the loan) can be a wise use of debt. The same can be said about using borrowed money to start or grow a profitable business. My outlook on debt has also changed as a result of stable job that generates sufficient excess income to easily make debt payments if I decide to borrow money.

So what does this have to do with the national debt? I wonder if carrying a national debt is really a bad thing. If borrowing can allow us to start, grow, or maintain a business for financial gains, can it also allow us to start, grow, or maintain government programs that benefit us financially (or more directly, to provide assistance or incentives to businesses for the good of the economy)? I guess I don't see why not. Are we leveraged enough? Maybe we could see more benefits by using more leverage, although at some point that may raise risk levels to unacceptable levels. Would it be a (somewhat) fair comparison to look at the national debt (about $9bn) as a percentage of GDP (about $13bn) and compare this ratio to a variety of businesses (and their debt/annual earnings ratio)? I'm not really sure where I'm going with this other than I'd like to see some discussion as to why the national debt is good, bad, or neither and whether it should continue to grow or stop growing in the future.

I'm curious to see what you guys thing [img]/images/graemlins/smile.gif[/img]

Re: Is the national debt a good thing or a bad thing?
 

Debt is not inherently bad, mostly for the reasons you've already figured out.

I'll wait for Barron to come in and reference finance texts I've never heard of for hte more complicated answer.

Re: Is the national debt a good thing or a bad thing?
 

The debt is 'good' for our government because they can print massive amounts of money, create massive inflation, and then the debt will become much more manageable...

The debt is 'bad' for citizens because the purchasing power of their dollars is severely eroded.

The government is indirectly taxing all of us by printing so much new money. I can't really judge if our debt is a good thing or a bad thing per se; it is what it is. And it works pretty effectively to be honest. But I wish we were taking on debt to improve things in our country instead of going to kill tons of people in other countries.

However, if we take over Iraq and pillage all of their oil, it will be well worth all of the human lives, money, and resources we have sacrificed. Government spending caused by the war has surely stimulated our economy, but it's not like all of this debt is secured by assets we used it to purchase... it's sort of like our government is using credit cards to pay for a vacation, with no plans to pay it off any time soon. Sure, vacations are fun, but at the end of the day, you have nothing to show for the money you spent- except a bunch of dead bodies.

Re: Is the national debt a good thing or a bad thing?
 

national debt is different than business debt.

the government spends the borrowed money on things that a business would never think of (welfare, military etc.). but, that spending has a very large value to the citizens of the country for which it is spent.

so long as the desire to hold claims on the future ability to tax and generate revenue remains high, the system will continue to work.

the problem eventually is that you need to keep issuing more debt to pay off the interest you owe on teh previous debt, thus our national debt has nearly doubled in 7 years (i think in 2000 it was like 5trillon? and now it 9trillion). obviously we've had some extenuating circumstances, but what happens when the sheer amount of the debt overtakes GDP? at some point, the faith that the US govt can tax to pay off all debts will fall and a rush for the exists may ensue. THAT would be bad since the US would be forced to inflate its way out and that would reduce the desire to hold the debt (and increase the borrowing costs) in the future once things are back on track.

debt can be a bad thing if used improperly (over-leveraged funds etc.)

overall i'd think a national debt is a good thing. i haven't read up on this so i can't add anything technical from some unknown book (sorry evan [img]/images/graemlins/frown.gif[/img] )

Barron

Re: Is the national debt a good thing or a bad thing?
 

i can't really vouch that the information on this site is 100% accurate / legit but it seems to be.
Might be worth checking out if you're interested in knowing a bit more
http://www.brillig.com/debt_clock/

Although a lot of government spending is worthwhile and provides great value to the citizens of its country, nobody would debate that gov'ts are inefficient and often squander vast amounts of money on endeavors that create little to no value to most of its citizens.

Re: Is the national debt a good thing or a bad thing?
 

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i can't really vouch that the information on this site is 100% accurate / legit but it seems to be.
Might be worth checking out if you're interested in knowing a bit more
http://www.brillig.com/debt_clock/

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Sensationalism like This is exactly why so many people assume national debt and defecit spending are bad...

Re: Is the national debt a good thing or a bad thing?
 

I agree, the site is certainly slanted towards the viewpoint of its creator...

I certainly think it's important for all of us to know more about our debt so that we may help to influence how our government spends our money... seems only fair. For example, I'm all for the gov't spending money on heavily padded no bid haliburton contracts, but I just get an upset stomach thinking of all the old people we're paying to take care of and keep alive- shame we can't just execute them all instead.

But i'm not trying to imply that the debt is bad! I just wish we were putting more money into say... wars, and less into schools.

Re: Is the national debt a good thing or a bad thing?
 

One problem with deficit spending is that is places the burden of current service payment on future tax payers. This is ok in some circumstances. Future generations would be happy to go into debt to win a war because otherwise the country might not exist. But debt shouldn't be used to pay for expenses that don't benefit the future generations. Thats the problem I see with a lot of the current deficit spending. We are borrowing money to pay for the day to day gov't expenses and this debt will have to be paid back by people who received no benefit. Its an unsustainable practice.

Re: Is the national debt a good thing or a bad thing?
 

I'd say it depends on your credit. Since US has the best credit, it can borrow at ridiculously low rates, and then grow investment

Re: Is the national debt a good thing or a bad thing?
 

And remember the vast majority of the new Debt created in the last 7 years was due to tax cuts on the wealthy rather than spending increases. So the debt we are incurring is not necessarily done so for the good of the majority. ( major road construction etc. ) Rather the wealth of the super rich has increased dramatically leading to some dramatic demand increases for products and services catering to them. A side benefit that does work for the majorities favor is the rich will invest in private enterprise which can be highly beneficial for the public.


Overall a shifting of the financial burden to the future so that the current generation of rich can be richer. An interesting case of how this works out is the Gates Foundation. Bill Gates saves millions of dollars each year due to the tax cuts. He then chooses how this money will be spent for the good of the world. Rather than the US Govt.

Re: Is the national debt a good thing or a bad thing?
 

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And remember the vast majority of the new Debt created in the last 7 years was due to tax cuts on the wealthy rather than spending increases.

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so, you're telling me that the cost of bush's tax cuts are not only "vastly more" than the cost of the war in iraq, but also vastly more than all additional bush govt spending in the past 7 years?

please show cites so i can verify that, because on the surface, that sounds like total rubbish.

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So the debt we are incurring is not necessarily done so for the good of the majority. ( major road construction etc. )

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right, but (and i'll play devils advocate here...i do believe in a fairer tax) which portion of the population PAYS for those things that help the majority (like roads)? if you look at the distribution of tax receipts from the IRS by income level, a ridiculously large majority come from those with over some large minimul level of income (i think it's put at >100k).

then place that the distribution of wealth of US taxpayers over the tax receipts distribution and you see that the minority pay for the majority. so why shouldn't they get a break if it still results in the few paying for far more of everything for the majority?

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Rather the wealth of the super rich has increased dramatically leading to some dramatic demand increases for products and services catering to them.

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right, that tends to happen during massive bull market runs as we've had in the past 5 years. that gain in wealth is not due to tax decreases. if you decompose their increases in wealth, i'd wager a not "drastic" % comes from tax reductions.

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A side benefit that does work for the majorities favor is the rich will invest in private enterprise which can be highly beneficial for the public.

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there's tons more but yes thats 1.

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Overall a shifting of the financial burden to the future so that the current generation of rich can be richer. An interesting case of how this works out is the Gates Foundation. Bill Gates saves millions of dollars each year due to the tax cuts. He then chooses how this money will be spent for the good of the world. Rather than the US Govt.

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i can't tell what your point is. are you saying gates puts the money he saves in taxes into the foundation? are you saying that "interesting" means "unique" among the rich or something? what does "interesting" mean in your context above?

the foundation has billions, not millions. didn't buffet pledge like $40billion in shares of BH when he dies?

further, the foundation is possibly the largest single privately held aid thing, right? what one is bigger?

their investment strategy is also great because, unlike some charitable organizations, it doesn't plan to exist for more than 50 years or something. so it plans to earn the maximum amount it can from investing, and then pay out more than that every year.

Barron

Re: Is the national debt a good thing or a bad thing?
 

Very well put... it is amazing that people can't seem to comprehend HOW MUCH the rich pay in taxes...

Someone making 150k per year is probably paying more in taxes than the people that whine about it make in a year. They obviously get a larger absolute break from a tax cut

Re: Is the national debt a good thing or a bad thing?
 

If the Rockefellers and Morgan's and the rest of the scumbags didn't control the money supply and the federal reserve and lend the $ to the gov't at interest the income tax most pay would be a fraction of what it is. Income tax was created when the bankers got control of the money supply.

Re: Is the national debt a good thing or a bad thing?
 

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The debt is 'good' for our government because they can print massive amounts of money, create massive inflation, and then the debt will become much more manageable...

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Wait. The government can print money, yet it is in debt.

So you are saying that the government handles its debt by printing money but not to pay off the debt itself, but to erode the debt via inflation of the money supply.

You are missing the vital piece of the puzzle. Money is created by debt, infact in the present system the majority of money is debt. The money supply is inflated by the government debt itself. The vast majority of the money borrowed by the Government didnt exist until they borrowed it, the act of borrowing creates money.

Borrowing/Debt creates alot more money than government printing. It is worth noting that under the present system if there was no public and private debt, there would be virtually no money.

Re: Is the national debt a good thing or a bad thing?
 

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If the Rockefellers and Morgan's and the rest of the scumbags didn't control the money supply and the federal reserve and lend the $ to the gov't at interest the income tax most pay would be a fraction of what it is. Income tax was created when the bankers got control of the money supply.

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where do you people come from?

seriously... i may use logic to answer posts but then come to an incorrect conclusion, but at least i'm applying some thought.

taxes came from the US govt's inability to finance required spending (first income taxes were for the civil war, repealed a few years afterwards).

income taxes were always WAY higher on those earning more money. for instance for almost 20 years (1945-1964) the marginal tax rate on income over $200k was over 90% (reaching 94% in 1945).

taxes then came down over time and spread out. today, taxes only apply to about 2/3rds of the population and the lowest earners pay no taxes (that 1/3) and in fact receive a subsidy.

anyways, heres a few questions:

1) how do rockefellers & morgan's (and the res tof scumbags...btw, who are they?) control the money supply and the fed?

2) when does the fed lend money to the govt?

3) even if all this is true, how doesthat increase the tax most people pay by multiples? (even if the multiples are small)

and as to your last point, as mentioend above, income tax was not created when bankers got control of the money supply. it was created as needed by the govt to finance needs (mostly wars. this theory is very solid and you can see marginal tax rates increase during times of war and decrease during times of peace or times of detante during the cold war when defense spending was high).

also, tax rates i would bet have little correlation to the level or changes in money supply when you decomose growth out of that.

Barron

Re: Is the national debt a good thing or a bad thing?
 

Its an interesting question. An economics professor described it in college to me basically like this:

Somethings in life are acceptable to be in debt over. Almost everyone is in debt making payments on their house for a number of years. A lot of people are making car payments for a number of years. Even student loans are viewed as acceptable debt. So why isn't it acceptable for the United States as a country to be in debt over things as important as social security and having the money to fight a war(whether you agree with the war or not)?

He didn't give me his opinion on the subject, but i think what he was suggesting was indifference. In that, its not really hurting the country as long as the debt doesn't go too far, but its not really helping the country either.

Re: Is the national debt a good thing or a bad thing?
 

According to Ken Fisher, deficits which add to the overall debt, tend to be a good thing for the stock market.

If you look back at the past few decades, rising deficits usually were a leading indicator of upward movements in the stock market, whereas, budget surpluses were followed by downturns.

Fisher is politically conservative, so one might suspect that his views are skewed. However, he is a highly respected money manager.

Re: Is the national debt a good thing or a bad thing?
 

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According to Ken Fisher, deficits which add to the overall debt, tend to be a good thing for the stock market.

If you look back at the past few decades, rising deficits usually were a leading indicator of upward movements in the stock market, whereas, budget surpluses were followed by downturns.

Fisher is politically conservative, so one might suspect that his views are skewed. However, he is a highly respected money manager.

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Government spending in excess of taxation stimulates the economy in the short term !? NO WAI !?

Re: Is the national debt a good thing or a bad thing?
 

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I'd say it depends on your credit. Since US has the best credit, it can borrow at ridiculously low rates, and then grow investment

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Very true, but how long will that last?

Re: Is the national debt a good thing or a bad thing?
 

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I'd say it depends on your credit. Since US has the best credit, it can borrow at ridiculously low rates, and then grow investment

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Very true, but how long will that last?

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Until we run out of "smart bombs", so pretty much forever.

Jimbo

Re: Is the national debt a good thing or a bad thing?
 

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I'd say it depends on your credit. Since US has the best credit, it can borrow at ridiculously low rates, and then grow investment

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Very true, but how long will that last?

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Until we run out of "smart bombs", so pretty much forever.

Jimbo

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And that mentality in the US is exactly why it wont last forever.