04-06-2003, 02:27 AM
Hi,
Editing a post to correct minor errors or to add a trivial point is one thing. Editing it to actually put in the information for your argument is something else. Since your post will continue to show as read, how will we know when you've edited it? Much better to post a new post when you add that material.
As to the whole paying down the debt debate, I know that there are many factors to consider, including intangibles like how the market is behaving. Which is why economic models are both complex and notoriously incorrect.
The "we own a lot of debt to ourselves" argument is flawed. It is flawed because no matter how one looks at it, the interest is still paid. That interest amounts to a tax cut to the holders of those bonds, but it still means a reduction in revenue or increase in expenses (take your pick). It is true that if the government tried to pay back that portion of the debt in a short period it could increase the value of those bonds. However, that portion of the debt could be reduced by simply not issuing as many bonds as are retired. That would not have much of an impact on the market if the plan were spread over twenty to twenty five years.
And, even if what you say about the bond debt is valid, that still does not address the remainder of the debt. That remainder is still a considerable amount and servicing it (Why can't politicians just say "paying the interest" like the rest of us do?) represents a fair chunk of the annual budget.
The problem with a large debt (over 25% of the budget is simply to service that debt) supported by a strong currency is that the whole is a house of cards. If the perception of the American economy is lowered, or if enough nations take actions against the USA in retaliation for trade or other grievances (the Iraqi war comes to mind) then the strength of that currency can drop. That reduces the support for the debt, making the economy look even weaker. That can go into a spiral into recession and even depression. In either case, part of the recovery process would be increased government spending leading to a larger debt. Part of that would be offset by the accompanying inflation, but the overall effect would still be a worsening of the situation for all, government and individuals alike.
Again, the situation is complex. Much more complex than the simple models I used to refute an argument also based on simple models.
BTW, looking forward to what your textbooks have to say ;)
--Pete
Editing a post to correct minor errors or to add a trivial point is one thing. Editing it to actually put in the information for your argument is something else. Since your post will continue to show as read, how will we know when you've edited it? Much better to post a new post when you add that material.
As to the whole paying down the debt debate, I know that there are many factors to consider, including intangibles like how the market is behaving. Which is why economic models are both complex and notoriously incorrect.
The "we own a lot of debt to ourselves" argument is flawed. It is flawed because no matter how one looks at it, the interest is still paid. That interest amounts to a tax cut to the holders of those bonds, but it still means a reduction in revenue or increase in expenses (take your pick). It is true that if the government tried to pay back that portion of the debt in a short period it could increase the value of those bonds. However, that portion of the debt could be reduced by simply not issuing as many bonds as are retired. That would not have much of an impact on the market if the plan were spread over twenty to twenty five years.
And, even if what you say about the bond debt is valid, that still does not address the remainder of the debt. That remainder is still a considerable amount and servicing it (Why can't politicians just say "paying the interest" like the rest of us do?) represents a fair chunk of the annual budget.
The problem with a large debt (over 25% of the budget is simply to service that debt) supported by a strong currency is that the whole is a house of cards. If the perception of the American economy is lowered, or if enough nations take actions against the USA in retaliation for trade or other grievances (the Iraqi war comes to mind) then the strength of that currency can drop. That reduces the support for the debt, making the economy look even weaker. That can go into a spiral into recession and even depression. In either case, part of the recovery process would be increased government spending leading to a larger debt. Part of that would be offset by the accompanying inflation, but the overall effect would still be a worsening of the situation for all, government and individuals alike.
Again, the situation is complex. Much more complex than the simple models I used to refute an argument also based on simple models.
BTW, looking forward to what your textbooks have to say ;)
--Pete
How big was the aquarium in Noah's ark?