National debt is basically where money comes from in the first place. Unless you are willing to change the most fundamental, basic nature of how modern money even works, you cannot run a (major) country without debt. It’s not even just a question of good or bad fiscal policy, it is literally mathematically impossible.
The US was on track to becoming debt free by 2030 under Clinton in 1999. Then Bush was elected and dramatically increased spending while simultaneously giving tax cuts.
TLDR: the last time someone that didn’t understand economics paid off the national debt, it didn’t end well.
If there is a finite amount of money you can print before suffering the effects of inflation, deficit spending allows you to increase the amount of money in circulation without just printing more. If I owe you 100 trillion dollars, you owe Japan 100 trillion dollars, and Japan owes me 100 trillion dollars, this is good for the economy. Yes, it probably sounds like voodoo magic. No, I’m not qualified to help with that.
Now, there is still an upper limit on how much debt is okay, generally tied to interest rates. We’re beginning to scratch that upper limit thanks to deficit spending during covid, but it’s by no means problematic and things would overall probably have been worse without the extra spending.
Maybe…but we did less during the financial crisis of 2008 and had a worse outcome. When we analyzed that data from 2008, we decided that it would probably work better if we spent more next time, which is what we did this time…and the result matched the prediction, which is pretty much how you prove something works scientifically. Make a prediction, test the prediction, and if the test results match your prediction, that is evidence for your hypothesis. So, the evidence we have says it’s probably better to increase deficit spending to avoid economic collapses. This isn’t a lab, so we can’t control for every variable to really prove it, and we probably never could…we can just keep evaluating our results after a problem and see if the changes we made resulted in a better or worse outcome than we predicted.
I meant, the way the debt was repaid was possibly what caused the crisis, it’s possible to repay a country’s debt through better economic policies as a very long term project instead of just selling land…
This is Modern Monetary Theory (MMT). I recommend “The Deficit Myth” by Stephanie Kelton
It helped me to realize that a federal government that’s in control of their own money doesn’t use or even have money, and basic terms that we take for granted mean something different in that context. A federal government creates money through spending and destroys money through taxes. It is necessary for a federal government to spend money in order for money to exist in the economy. So a national debt just means that the federal government is creating more money that is destroying
Very short, commercial banks loan money from national banks. That creates money. It has to be paid with interested. Where does the money for that interest comes from? From other loans. So the whole thing becomes an ever increasing pile of loans.
And government loans from national banks to spend money, so creating and distributing money. If government pays back the loans, money disappears.
And because the whole thing is loans on loans, if population would decrease (what is starting to happen) and growth stops, loans decrease and the whole thing starts to wobble.
Not very easily. Concise, easy to understand and correct explanations of how modern money (arguably since 1971) works are not easy to come by, and also the system just is a bit weird and counter intuitive. (Concise, easy to understand, but wrong explanations are, of course, all over the place. Almost everybody thinks they know how money works. Almost nobody actually does.)
One source that explains some of it would be “Debt: The first 5000 years” by David Graeber, but a) it’s a fairly lengthy book with quite a lot of historical background and b) it has a fairly strong politicial spin to it.
National debt is basically where money comes from in the first place. Unless you are willing to change the most fundamental, basic nature of how modern money even works, you cannot run a (major) country without debt. It’s not even just a question of good or bad fiscal policy, it is literally mathematically impossible.
The US was on track to becoming debt free by 2030 under Clinton in 1999. Then Bush was elected and dramatically increased spending while simultaneously giving tax cuts.
https://www.history.com/this-day-in-history/andrew-jackson-national-debt-reaches-zero-dollars
TLDR: the last time someone that didn’t understand economics paid off the national debt, it didn’t end well.
If there is a finite amount of money you can print before suffering the effects of inflation, deficit spending allows you to increase the amount of money in circulation without just printing more. If I owe you 100 trillion dollars, you owe Japan 100 trillion dollars, and Japan owes me 100 trillion dollars, this is good for the economy. Yes, it probably sounds like voodoo magic. No, I’m not qualified to help with that.
Now, there is still an upper limit on how much debt is okay, generally tied to interest rates. We’re beginning to scratch that upper limit thanks to deficit spending during covid, but it’s by no means problematic and things would overall probably have been worse without the extra spending.
At the same time, the way it was done might have been the issue, right?
Maybe…but we did less during the financial crisis of 2008 and had a worse outcome. When we analyzed that data from 2008, we decided that it would probably work better if we spent more next time, which is what we did this time…and the result matched the prediction, which is pretty much how you prove something works scientifically. Make a prediction, test the prediction, and if the test results match your prediction, that is evidence for your hypothesis. So, the evidence we have says it’s probably better to increase deficit spending to avoid economic collapses. This isn’t a lab, so we can’t control for every variable to really prove it, and we probably never could…we can just keep evaluating our results after a problem and see if the changes we made resulted in a better or worse outcome than we predicted.
I meant, the way the debt was repaid was possibly what caused the crisis, it’s possible to repay a country’s debt through better economic policies as a very long term project instead of just selling land…
Literally every Republican ever too.
Can you give a short explanation or give me something where I can read something about it? I’m not sure what to search for to find something useful
This is Modern Monetary Theory (MMT). I recommend “The Deficit Myth” by Stephanie Kelton
It helped me to realize that a federal government that’s in control of their own money doesn’t use or even have money, and basic terms that we take for granted mean something different in that context. A federal government creates money through spending and destroys money through taxes. It is necessary for a federal government to spend money in order for money to exist in the economy. So a national debt just means that the federal government is creating more money that is destroying
Very short, commercial banks loan money from national banks. That creates money. It has to be paid with interested. Where does the money for that interest comes from? From other loans. So the whole thing becomes an ever increasing pile of loans.
And government loans from national banks to spend money, so creating and distributing money. If government pays back the loans, money disappears.
And because the whole thing is loans on loans, if population would decrease (what is starting to happen) and growth stops, loans decrease and the whole thing starts to wobble.
Not very easily. Concise, easy to understand and correct explanations of how modern money (arguably since 1971) works are not easy to come by, and also the system just is a bit weird and counter intuitive. (Concise, easy to understand, but wrong explanations are, of course, all over the place. Almost everybody thinks they know how money works. Almost nobody actually does.)
One source that explains some of it would be “Debt: The first 5000 years” by David Graeber, but a) it’s a fairly lengthy book with quite a lot of historical background and b) it has a fairly strong politicial spin to it.