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Old 08-04-2007, 12:41 PM
Nomad84 Nomad84 is offline
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Default 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]
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  #2  
Old 08-04-2007, 01:02 PM
Evan Evan is offline
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Default 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.
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  #3  
Old 08-04-2007, 01:21 PM
meditate89 meditate89 is offline
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Default 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.
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Old 08-04-2007, 01:50 PM
DcifrThs DcifrThs is offline
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Default 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
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  #5  
Old 08-04-2007, 02:14 PM
meditate89 meditate89 is offline
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Default 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.
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  #6  
Old 08-04-2007, 03:32 PM
emon87 emon87 is offline
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Default Re: Is the national debt a good thing or a bad thing?

[ QUOTE ]
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/

[/ QUOTE ]


Sensationalism like This is exactly why so many people assume national debt and defecit spending are bad...
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  #7  
Old 08-04-2007, 06:59 PM
meditate89 meditate89 is offline
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Default 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.
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  #8  
Old 08-04-2007, 07:07 PM
maxtower maxtower is offline
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Default 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.
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  #9  
Old 08-04-2007, 11:39 PM
r3vbr r3vbr is offline
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Default 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
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  #10  
Old 08-05-2007, 12:39 AM
Mandor_TFL Mandor_TFL is offline
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Default 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.
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