Does debt really not matter

[50 Pence]

I've heard several times that national debt doesn't really matter and that having debt is the basis on which modern economics are formed. I always took these with a grain of salt but i would like to ask the knowledgeable people on TWC Political Academy is this true or not? Also if it is true what would be the point of collecting taxes at all. (I could see the point of this being that others are not afraid to give out loans to your nations as you have at least some ability to pay it back.)

[Col. Tartleton]

You can run a debt as long as you can guarantee that the interest you pay will not exceed the tax revenue indefinitely.

Basically, if I have 100,000 a year to cover my debt and my debts cost me 5% of their total in interest I can maintain up to 2 million in debt comfortably. Until I die and I leave 2 million in debt.

Countries don't have to worry about dying and leaving a massive debt, so they don't have exactly the same rules as individuals.

We have roughly 16 trillion in Debt (USA) but we're only paying 250 Billion for it thanks to our excellent credit score (thus a lower interest rate). However it seems it is growing faster than the economy is growing and that's unsustainable. Plus the money being spent isn't actually fixing the problem. Also as you increase the debt you insert more money into the economy which naturally reduces the value of the currency and further harms people who save their money.

If you're sensible about it it's not a big deal. If the economy and thus the tax pool is growing faster than the payments on the debt you'd never notice.

The Current Spending Rate for the US will cause problems in 5-10 years. So we have to cut back.

[50 Pence]

So it could be said that the US's current problem is spending too much money on things that don't help the economy. So basically the concept behind current economics is that a government can have debt as long as it is able to pay the interest on it. We can use this loaned money to build infrastructural projects/subsidize things, this creates more wealth by which the governemt in question can recoup the cost of the debt and do something similar to earning a profit.
Would this understanding be correct?

[Col. Tartleton]

Subsidizing business is bad as it skews profitability, competition, and performance, but yes infrastructure, specifically military spending (such as the US Interstate Highway System) is reasonable IMO.

The economy is best left to it's own devices. However a fairly large part of the economy, the military (and police, border patrol, FBI, etc.), is only functioning if the government is spending more on it.

Keynes basically assumes that spending in general stimulates the economy, but I think outside of the military spending all over the place is going to screw with the principle purpose of the economy, to provide people with the things they need at a low cost via trade and labor.

[50 Pence]

Thanks for the expaniation +rep.

when i can

[truth1337]

Debt doesn't matter in the sense that the debt is mainly to the privately owned national banks (e.g. Federal Reserve), for their creation of money out of thin air, i.e. the government must pay money for someone to create inflation. Before the private owned national banks, the state printed their own money and thus got the same effect (more money for the state at the expense of some inflation) WITHOUT the debts. So in reality all such debts should just be declared null and void, because they're illegal and invalid.

[Col. Tartleton]

Other way around chief. Debt is cool. Printing money is not cool.

If I take out a national debt I (the state) am effectively borrowing money from myself in the future at interest to the lenders.

The money is very real, it just doesn't exist yet.

When i print more money all I'm doing is reducing the value of the money in circulation to create more money. The total value of the money in circulation is the same. I can't introduce more wealth into the system by printing. I can introduce wealth into the system by borrowing, so long as my future growth is large enough to cover the future cost.

Fractional reserve banking is fine. The problem is people expecting that money to be secured by the government.

People want to gamble, keep the gains, and have their losses covered by someone else. It's absurd.

It's like people getting mad that the banks took the houses they were borrowing for back when they stopped paying their debts.

Just because the government did something foolish and bailed out the banks with taxpayer cash doesn't mean that anyone is entitled to that kind of deal.

[I WUB PUGS]

The answer? To some countries like Greece and Spain sure, most definitely. Honestly it matters to everyone except for the US.

We've rigged the system. Our currency is beyond the reserve currency, it literally is the only currency that matters. No entity can harm the US without fear of harming everyone. It's not like 70-100 years ago when the British Pound was the world reserve currency, people still relied on gold. Now instead of gold, central banks hold dollars.

The US can literally take on any debt it wants and if we really got into trouble we could probably just inflate away and not face terrible consequences. No we aren't quite inflating away completely with our latest monetary schemes, but the fact that everyone else relies on our currency to PRICE EVERYTHING IN THE ENTIRE WORLD means we can do whatever we want and other countries will suffer much more than we will.

So US debt is kind of a joke, we have rigged the system of international trade and banking to be completely reliant on the US Dollar. Is it right? No, not on any level. It's a poor example and it's not like the money we do create finds its way in the hands of your average American, they all go to maintain pet projects for officials to maintain votes in their areas.

I'm a big fan of some of the guys that talk about "The Day the Dollar Dies"; I even subscribe to Porter Stansberry who has given me some amazing and profitable advice, but the sensationalism that these guys hype is completely correct but totally unrealistic. In a functioning world, the US would be punished for QE1 and 2, you don't just get to artificially devalue your bonds and keep interests rates at rock bottom so you can borrow more and refinance your standing debt at lower levels, that's not cool, but we do it. The Chinese had legitimate gripes about us manipulating our currency while we yelled at them about theirs. The fear that oil would be priced in a basket of currencies or gold has gone away because the stable currency everyone thought would replace the dollar is in the crapper........yes I'm talking about the Euro.

So until there is a better option to replace the dollar, the US debt means nothing. The problem is that a lot of people are really pissed off about our policies and would LOVE to get rid of the dollar so they may in the future and we can't just keep doing what we're doing otherwise we'll end up with a mountain of unmanageable debt and the world will punish us by dumping dollars as the reserve currency.

Literally, if tomorrow the Saudis said "no we're not taking dollars anymore, only gold" the world implodes over night, like toast, game over. But this isn't going to happen because honestly, we would probably bomb the ers.

So debt should matter to everyone, and it does at the moment except for the US who is seriously in an economic twilight zone by itself, but that doesn't mean that eventually we will be brought back to earth. Plenty of people were looking at the Euro as a replacement just 2-3 years ago.