Bill Lear wrote: >>> If the U.S. [government's] debt is 90% of GDP, is it valid then to say that >>> is >>> similar to a household that earns $100K per year having a $90K debt? >>> I realize of course that households cannot tax and cannot print >>> money...
me: >>One difference is that the US government owes a lot of money to >>itself, i.e., to its own agencies such as the Federal Reserve and the >>Social Security system. Another it that the US government owes a lot >>of the money that's left (roughly half) to the folks that officially >>own it, i.e., the citizens of the US. Bill: > Ok, but is the relationship that I mentioned above more or less correct? not exactly, since who one owes money to is crucial. > Example: > > If the US Government was [sic] a family, they would be making > $58,000 a year, they spend $75,000 a year, and are $327,000 in > credit card debt. > > What's wrong with the picture above? in addition to my previous points, the US government -- and private corporations -- are assumed to be (in effect) immortal in the accounting, so that neither the government nor corporations t have to pay off their debts. My family has to do so, since we're going to die. (Both the US government and private corporations usually "roll over" old debt, retiring old debt by issuing new bonds.) another thing is that if the US government borrows to spend it can have two effects: first, it can boost aggregate demand, which leads to increases in tax revenues and a decline in transfer payments (with no new legislation needed), which reduces its "over-spending." No family can do this. Second, US government borrowing can (and sometimes does) finance real investment in infrastructure, education, basic research, and public health, which increase the ability of the US economy to produce goods and services (often by creating real assets owned by non-governmental agencies), so that the deficit is smaller when measured at full employment (the "fiscal dividend"). One problem here is (as Jim O'Connor pointed out) is that though the government's real investments provide a lot of benefits for the economy, the economy often does not respond in kind, privatizing those benefits. To some extent, the US government's debt is like a family's mortgage debt (not its credit card debt) since it corresponds to real assets. (And the real assets of the US government are mostly not subject to the results of the crash of the housing bubble.) Though it turns out that the financial net worth of the US government is negative, most accountants do not see this as a problem. As “The Budget of the United States Government: Analytical Perspectives 2007” notes, The [Federal] Government … has access to other [non-financial] resources through its sovereign powers. These powers, which include [the power of] taxation, will allow the Government to meet its present obligations and those that are anticipated from future operations ... (p. 178) -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
