Global reset ~ what would happen if all national debt was reset to zero? I know it’s a crazy thought experiment...

[Amorphos]

Experiment 1; Global reset ~ what would happen if all national debt was reset to zero? I know it’s a crazy thought experiment...

I was just wondering what would happen if all national debt was reset to zero? This could possible occur as a short term freeze on all national debt payments [or the interest].

I am just asking this as a thought experiment to see what I can draw from the idea of economies without national debt. It seams that on the one hand investors would obviously stop contributing to governments, and banks would fail ~ as perhaps they should have been allowed to when the crunch happened. You then nationalise the banks when they are worth nothing [rather than buying them at great cost and adding massively to the debt], and make an agreement to pay back the national debt when the economies have picked up.

You never know, if we get a double dip and have already tried to spend our way out of it ~ and hence used up all our resources, then there may come a time when we have to consider such notions as the only plausible way out, short of communism etc.

Experiment 2; If during the boom we had paid off the national debt, then stopped the practice of it, wouldn’t economies be far better off? Instead of paying our income tax to the investors, it would go into a national pool for interest free investing. Currently the interest gives the investors a return which then gives them more money to invest, but it also gives everyone the debt to which that interest is paid via income tax .
I think a world without national debt would be more stable. We wouldn’t have the debt + massive exponentially increasing interest to pay, economies wouldn’t grow so much but would be more steady and reliable?

Anyways, I am just trying to understand economics better.

[hellheaven1987]

1. The reset would screw the banking, which directly screw middle class saving.

2. Pay higher tax, then your government would have more budget and does not need to borrow.

[Thorn777]

Pay higher tax

Try and sell that today.

[hellheaven1987]

Try and sell that today.

Then stop complaining your national debt is too high.

[Thorn777]

Im not even complaining. I think my country's debt is exaggerated for political means anyway, like cutting at the welfare-state while you can, which is far mores sellable than raising taxes.

[Amorphos]

1. The reset would screw the banking, which directly screw middle class saving

If a bank just kept your money safe [rather than running off with it and playing roulette] that issue could be resolved. The govt has just saved itself trillions of pounds [by removing the debt] and so can easily give middle class savings back. I would think the upper class investors would loose most in the short term anyway.

2. Labour said to pay higher tax and lost the election. I think they were being very dumb to announce a national insurance hike just before an election, but then I think they are not that dumb, so why did they do it? My conspiracy theory is that there are no parties and is only one govt. …or they really are that dumb doubtful though.

Then stop complaining your national debt is too high.

Its also immoral*, and may cause a worldwide crash which we have no means to pay back. We used it to get ourselves out of the banking crisis [don’t seam to have happened quite yet], but what can we use to get out of too much debt?

*where the principle is that ‘property is paramount’ then how can this be true for the investor and the payer of income tax.
Why is that if we borrow from the banks we pay an interest, if we bail them out by drawing from the nat-debt we pay an interest on that ~ both ways we are paying the interest.

[hellheaven1987]

If a bank just kept your money safe [rather than running off with it and playing roulette] that issue could be resolved. The govt has just saved itself trillions of pounds [by removing the debt] and so can easily give middle class savings back. I would think the upper class investors would loose most in the short term anyway.

The problem is that banks lend those savings to foreign government as debt, so if those governments chose not to pay back, those banks would not able to recover enough fund to pay their customers back. It would cause a series chain-effect that people rush to get their cash out, but banks simply have nothing to give them.

[Amorphos]

The problem is that banks lend those savings to foreign government as debt, so if those governments chose not to pay back, those banks would not able to recover enough fund to pay their customers back. It would cause a series chain-effect that people rush to get their cash out, but banks simply have nothing to give them.

good point!

The savings are miniscule compared with the nat-debt, unless you mean the investors in nat-debt would not get their money back. Those govts would not be in debt and we would also not be in debt ~ would the whole thing not balance out in a most beneficial way? Sure the investors in nat-debt would loose out in the short term, however their money which they initially invested could still be owed to them if it was merely froze ~ so as to not create more debt via interest, so once the economy picks up we could get their money back to them.

We could say that the money they invest originated in our money via income tax, which is 20% of our incomes, so who’s money is it?

[hellheaven1987]

The savings are miniscule compared with the nat-debt, unless you mean the investors in nat-debt would not get their money back.

Of course those investors would not get their money back; if a nation can pay back the debt you think they would not pay it back and need a defile for that??

Sure the investors in nat-debt would loose out in the short term, however their money which they initially invested could still be owed to them if it was merely froze ~ so as to not create more debt via interest, so once the economy picks up we could get their money back to them.

So when the economy is going to pick up?? What if it never pick up??

Most people and me don't like empty promise and all "economy would be good one day" theory.

We could say that the money they invest originated in our money via income tax, which is 20% of our incomes, so who’s money is it?

Yes, 20% of your income for foreign government budget, I love that; what if those foreign governments told you "sorry, we are not going to pay your money back"??

Not to mention the fact that people simply ask too much from their government, much more than the budget can afford. Sure, the easiest way is to cut those policies, but that also means losing voting tickets.

I always thought Athens during Classical Greek Age is a great example how democratic nations can screw up badly.

[Theseus1234]

Im not even complaining. I think my country's debt is exaggerated for political means anyway, like cutting at the welfare-state while you can, which is far mores sellable than raising taxes.

Except for the masses of people it gives money to. Try telling selling that idea to them.

[Thorn777]

Except for the masses of people it gives money to. Try telling selling that idea to them.

It works in the US, and its not like they ain't trying here in Germany. Try and get a dental fix on welfare. It used to be all teeth good enough, now the last of each row don't count when you don't have 400+ Euro's per teeth(don't ask why). Or try and heat your house on welfare. It used to be all inclusive, but now you can only heat some quota based on a laughable fix pulled out someones ass, so people on welfare can either freeze for a couple of months each year or pay 200 or so out of their own empty pockets.

And its not like they do things at once or very obvious, that would upset people indeed, they do little by little and disguised with neoliberal half-truth rhetoric, and one day Berlin is like Detroit.

Raising taxes always sounds bad rhetorically, a "heating quota on welfare folks to benefit the environment" sounds great....

[Exarch]

wot about do what kruggman is suggesting the US do like what they did with japan back in the 80s
essentially asking their creditors to take a hit

[roy34543]

National debt has nothing to do with banks. Most of them dont lend any money to the state whatsoever, those who do lend private money . Most national debt is either financed by
A- The people within that state , in which case the national debt isnt nearly as much as a problem. this is why japan isnt as worried about its crazy-level debt as it shoul dbe

B- Foreign countries, this is a lot more worrying of course, Since you effectively owe a lot to another country.
They cant really complain most of the time if a country defaults though, thats part of the risk, even with countries and the US, that doesnt mean its smart to default though.

I dont think a global reset is possible though, it would screw too many countries like China over. Besides a global reset would also significantly effect currency reserves, By lending money to the US china devalues their currency , If the debt was removed the yuan would rise almost instantly.

[Amorphos]

hellheaven1987

Of course those investors would not get their money back; if a nation can pay back the debt you think they would not pay it back and need a defile for that??

Absolutely they would not, it has been around for hundreds of years and they want the debt to exist because it centralises money. In the past it was the only way we could fund the royal navy to the extent needed to build an empire ~ which took 1/5th of the budget. I presume today it fulfils a similar function but more in terms of global investments, he who has most gains most n all that.

So when the economy is going to pick up?? What if it never pick up??

Its like any household, take away its debt and it will prosper massively. Once back on track it would be able to pay back its debt far more. It would be better quickly as people would have much more money and a renewed confidence.

Yes, 20% of your income for foreign government budget, I love that; what if those foreign governments told you "sorry, we are not going to pay your money back"??

As far as I know our taxes in Britain go to pay investors in our economy, most are probably british but sure many are foreign. The way I see it its all a global circle, so one deficit would balance another’s, and as I say it would only need to be short term [although I would prefer it if all nat-debt was removed].

Not to mention the fact that people simply ask too much from their government, much more than the budget can afford.

Well govt shouldn’t promise so much then. The thing is that it is the bankers fault that we are in the mire, it is they who should pay or at the very least hold off for a while.

Personally I think the system is full of corruption and doesn’t work, so we need to think of a more stable and less immoral alternative.

roy34543

National debt has nothing to do with banks. Most of them dont lend any money to the state whatsoever

I thought investment banks had a lot to do with it? Either way their money is gained from us via income tax, they don’t have the right to our property, so a simple freeze at the least would be reasonable.

If the debt was removed the yuan would rise almost instantly.

The markets would soon adjust.

[Viking Prince]

National debt has nothing to do with banks. Most of them dont lend any money to the state whatsoever, those who do lend private money . Most national debt is either financed by
A- The people within that state , in which case the national debt isnt nearly as much as a problem. this is why japan isnt as worried about its crazy-level debt as it shoul dbe

B- Foreign countries, this is a lot more worrying of course, Since you effectively owe a lot to another country.
They cant really complain most of the time if a country defaults though, thats part of the risk, even with countries and the US, that doesnt mean its smart to default though.

I dont think a global reset is possible though, it would screw too many countries like China over. Besides a global reset would also significantly effect currency reserves, By lending money to the US china devalues their currency , If the debt was removed the yuan would rise almost instantly.

There are 3 purposes of soveign debt:

1. Fund shortterm government deficit spending (or buy back when funds are in surplus) which also provides a very liquid market for corporations to park capital that needs to stay liquid. Banks can fail and deposit insurance is not adequate for commercial operations. Most Sovereign debt is domesticly or corporately held. This is a safer parking place for liquidity than a bank. I have done treasury functions for two companies and both kept substantial liquidity in T-bills.
2. Another purpose of government debt is to fund necessary and immediate needs over and above the current government's capacty to raise funds (war, Keynsian stimulus, etc.)
3. The final purpose is to act as a cushion of international trade. Developing countries need substantial investment in infrastructure to develope the economy. Often the government projects are considered capital projects and thus bonds are an appropriate means to fund the national projects (ports, roads, telecommunications, etc.) After the infrastructure is in place and world trade commences, there will be a time that companies will create a huge trade surplus. If the currency is converted to local currency, this will stress out the local currency valuation and over heat the local economy.

Look at the chaos that was created by the mere fear of some smaller Mediteranean countries might default on their Euro based debt. The bulk of Sovereign debt is privately held. Wipe out the debt and you wipe out the savings either directly or indirectly to the individuals holding the bonds. Even US issued debt held by China is really held by the citizens of China as a savings.

If all sovereign deby is extinguished, you are simply advocating a return to Merchantlism. Malthus would be proud. A return to a world where everyone is self sufficient and there are no gains from trade since there is no means to store the gains in a liquid and safe manner.