[Flatline]

Keeping the spending on the same level, doesn't seem like a durable strategy.

Keeping spending on the same level is what kept USA from a complete meltdown. Europe that went the austerity path failed beyond any prediction. The banking meltdown that happened in USA ended up affecting Europe more because of their crappy economic policies of austerity.

[Doc Holliday]

these countries are broke, they can't keep spending what they don't have so you either take the pain now for better growth management in the future or you just get screwed even worse. If you can't cut now then when? in the good times? all these government programs are funded by revenue taken from the private sector. The more you tax them the worse it will be. Take the lumps now.

Isn't the point the things just get worse and worse? "Taking your lumps" means people not eating, crime rising, civil unrest and global destabilization. History clearly has proven that austerity never works during depressions/recessions.

[Divvy]

Keeping the spending on the same level, doesn't seem like a durable strategy.

Except both Spain and Ireland had very low budget deficits going into the crisis. Their problem was excessive private sector debts, so how would reducing government spending help at all in their situations?

[TedNindo]

Credit is destroying the world and the cheap credit right now is even worse. I wonder how the US will be affected by this. Americans hardly have any savings and the country has more dept then the EU. It's pretty funny that this is all still aftershocks from the 2008 housing bubble in the US. I'm Belgian, I'm also somewhat worried. But I'm not THAT worried. We are very connected to the German economy.

I don't know what the mentality is in other parts of the world but for a lot of people overhere it's still to not spend what you don't have and to not live above your income. We actually save a lot of money instead of spending money we don't have. Credit cards are hardly used overhere and loans are used for cars and houses.

[Cyan]

If you can't cut now then when? in the good times?

Uh, yes? This is Keynesian econ 101. Spend in the bad times, cut in the good times. Calm the boom-bust cycle.

[Kabouter]

Uh, yes? This is Keynesian econ 101. Spend in the bad times, cut in the good times. Calm the boom-bust cycle.

Which works great in theory, but in how many democracies does that actually work as intended? In good times, people don't see the need for tax increases or austerity measures. They figure that will just end the good times. Not to mention that if a state has been fiscally irresponsible, that often leads to structurally fiscally unsound behaviour. That is, if large deficits are allowed to exist during bad times, states are more likely to overspend during good times because politicians and people alike have gotten used to running those deficits. It's very hard to fight against these issues, because they are inherent in democracy. Perhaps if education did a better job in this area I suppose.

[Cyan]

Which works great in theory, but in how many democracies does that actually work as intended? In good times, people don't see the need for tax increases or austerity measures.

Right, this is basically theoretical, since no one wants to make cuts ever. It was just kind of funny how 'claw worded it.

[iamblades]

Keeping spending on the same level is what kept USA from a complete meltdown. Europe that went the austerity path failed beyond any prediction. The banking meltdown that happened in USA ended up affecting Europe more because of their crappy economic policies of austerity.

That's all well and good, but that's completely ignoring the point.

The USA was able to keep spending high because people were willing to lend to the USA because the USA has a history of being credit worthy and many countries want to keep the USA a successful export market rather than a competitor for manufacturing. Also America can just print money if they really need to.

No one was willing to lend to Greece in that situation, and they couldn't print money and inflate their way out of debt, because they do not control the monetary policy of their own currency. Do you really expect Germany to say 'sure, go ahead keep spending, matter of fact, spend more, we will keep financing your deficits in perpetuity. Matter of fact, don't even worry about collecting taxes, we got it covered.'?

[SlipperySlope]

Federal expenditures probably kept a lot of Gafers from standing in bread lines. Keynesian economics have been an unqualified success in this crisis for the US.

Has it? The US has been footing an, at best, slow recovery, at a cost of 1.6 trillion a year in deficit spending. And that anemic recovery is starting to slow down again.

This government spending mess started under Bush. He saw the surplus and said "Ooh! Money!". We simply cannot afford this level of government deficit spending. And the longer we hold off on reducing it, the harder it will be to not fall off the cliff.

We never fixed the issues surrounding the 2008 recession. We just propped up another bubble to hide the problems. Much like the 2000 recession, the housing market was propped up to absorb the crash of the tech bubble. Each time the bubble gets bigger and bigger.

I don't necessarily support sudden and harsh austerity. That's too much of a shock to the economy. But spending does need to come down, if we want to avoid default of our own. If we could shave, say, 100 billion off our deficit each year, that would help things. Would it bring us into recession? Probably. But I'd rather take a recession today than a depression later.

[Jonm1010]

Which works great in theory, but in how many democracies does that actually work as intended? In good times, people don't see the need for tax increases or austerity measures. They figure that will just end the good times. Not to mention that if a state has been fiscally irresponsible, that often leads to structurally fiscally unsound behaviour. That is, if large deficits are allowed to exist during bad times, states are more likely to overspend during good times because politicians and people alike have gotten used to running those deficits. It's very hard to fight against these issues, because they are inherent in democracy. Perhaps if education did a better job in this area I suppose.

Well I guess it would depend on the country and time table right?

I mean America in the 90's saw a boom in growth during the tech bubble and managed to reduce its deficit as well. Same thing during the post world war periods.

I get the sentiment that it can become politically difficult to reduce spending after its been authorized but it's also true that most proposals of spending increases to stimulate are temporary in nature. There wouldn't be a need to vote to stop them, they would just naturally run their course and then cease to exist once finished. To which spending would return to what it was tracking prior to the stimulus.

[AlteredBeast]

The EU was always bound to fail in my eyes. The fact that sovereign nations would have to lobby another body for monetary help in times of emergency was the tinder box waiting to explode. Sure, during the 2000's when everyone was loving life (except, incidentally, the dollar) the Euro looked amazing. Now that the world economy is tanking, the hard-hit countries are unable to adjust due to bureaucracy.

RE: America reducing its deficit, that is a myth. America's deficit hasn't gone down since 1957. The so-called surpluses of the late 90's were due to using excess money in the Social Security Trust Fund to pay for what would have been higher deficits. The total debt still grew, though.

[Lagspike_exe]

Right, this is basically theoretical, since no one wants to make cuts ever. It was just kind of funny how 'claw worded it.

You don't need to cut. If you're growing at 3% yearly and have a deficit of 2% of GDP you will start lowering your debt/GDP.

[2San]

Keeping spending on the same level is what kept USA from a complete meltdown. Europe that went the austerity path failed beyond any prediction. The banking meltdown that happened in USA ended up affecting Europe more because of their crappy economic policies of austerity.

The Euro hardly has the same position as the dollar which is even preferred currency in some countries over their own currency(when a country's currency goes to shit, their going to momentarily trade in dollars). The only reason USA gets away with their stuff is because of the dollar place as world trade currency. That it affected us longer was to be expected the one who gets hit the worst bounces back the fastest, this holds true for pretty much all financial crises that has happened in the past. Deficit spending sounds fun in theory, but it's essentially screwing up the future generation in favor of the current one, while USA seems fine with doing that Europe simply isn't(to the same extend, EU is fine with spending as well, but things where getting pretty crazy). Where the cuts too harsh or maybe at the wrong places? Sure, but to say they weren't needed is pretty short sighted imo.

Except both Spain and Ireland had very low budget deficits going into the crisis. Their problem was excessive private sector debts, so how would reducing government spending help at all in their situations?

Well how much should be cut or at all really depends on the country, but if you look at Europe action should have been taken. Or we where simply setting us up for another crisis. That things where to harsh at places is clear now, but hindsight is 20/20.

Which works great in theory, but in how many democracies does that actually work as intended? In good times, people don't see the need for tax increases or austerity measures. They figure that will just end the good times. Not to mention that if a state has been fiscally irresponsible, that often leads to structurally fiscally unsound behaviour. That is, if large deficits are allowed to exist during bad times, states are more likely to overspend during good times because politicians and people alike have gotten used to running those deficits. It's very hard to fight against these issues, because they are inherent in democracy. Perhaps if education did a better job in this area I suppose.

Indeed, the Netherlands actually has a pretty decent system in place that even if politicians don't do anything spending gets toned down when it's good and spends more when it's bad(which made the additional cuts seem really harsh). We still need adjustments here and there though(like retirement age).

[Jonm1010]

Has it? The US has been footing an, at best, slow recovery, at a cost of 1.6 trillion a year in deficit spending. And that anemic recovery is starting to slow down again. This government spending mess started under Bush. He saw the surplus and said "Ooh! Money!". We simply cannot afford this level of government deficit spending. And the longer we hold off on reducing it, the harder it will be to not fall off the cliff. We never fixed the issues surrounding the 2008 recession. We just propped up another bubble to hide the problems. Much like the 2000 recession, the housing market was propped up to absorb the crash of the tech bubble. Each time the bubble gets bigger and bigger. I don't necessarily support sudden and harsh austerity. That's too much of a shock to the economy. But spending does need to come down, if we want to avoid default of our own. If we could shave, say, 100 billion off our deficit each year, that would help things. Would it bring us into recession? Probably. But I'd rather take a recession today than a depression later.

And what makes you think that spending cuts in a slowing recovery that has very stagnate private employment growth won't just compound the current problems and make things worse?

Is this a confidence fairy argument? Or are you just putting a(no offense, ridiculous) high priority on debt reduction over recovery?

[catfish]

Eh? No, they should've ditched the Euro to begin with. Wouldn't have prevented all their problems, but they'd be on their way back up by now.

but if they ditched it to begin with.... who would have paid for all the debt fueled spending during the big 'holy fuck free cash' party greece had when they were LET into the euro in the first place?

Greece purchased all this misery with poor choices. Now Greece is going to try and pretend it's all germanys fault.

[iamblades]

And what makes you think that spending cuts in a slowing recovery that has very stagnate private employment growth won't just compound the current problems and make things worse? Is this a confidence fairy argument?

It's just a reality, where is the money going to come from to finance these debts?

When is the situation predicted to turn around?

Double digit annual deficits are unsustainable, either you stop spending and deal with the consequences of the deficit spending bubble bursting, or you keep spending until you are forced to default and the pop of the bubble bursting is just that much bigger and more painful.

I don't think any of the austerity proponents were for it because it would improve the economy of Greece, they were for it because it's better than a massive default that could threaten to spread to other nations.

[SlipperySlope]

And what makes you think that spending cuts in a slowing recovery that has very stagnate private employment growth won't just compound the current problems and make things worse? Is this a confidence fairy argument? Or are you just putting a(no offense, ridiculous) high priority on debt reduction over recovery?

Let me repeat myself:

Would it bring us into recession? Probably. But I'd rather take a recession today than a depression later.

[Jonm1010]

It's just a reality, where is the money going to come from to finance these debts? When is the situation predicted to turn around? Double digit annual deficits are unsustainable, either you stop spending and deal with the consequences of the deficit spending bubble bursting, or you keep spending until you are forced to default and the pop of the bubble bursting is just that much bigger and more painful. I don't think any of the austerity proponents were for it because it would improve the economy of Greece, they were for it because it's better than a massive default that could threaten to spread to other nations.

Why is our(America's) deficit unsustainable in the short term right now? What metrics are you using to base this on and feel free to post them.

Let me repeat myself:

I think you are going to need to explain things out better because you make the assertion that other bubbles have been propped up in the wake of the housing bubble, implying a hand leading them. Then you go on to seemingly say that any attempt at short term deficit spending to stimulate the economy will lead to a depression, another unqualified assertion. I have read nothing that indicates that people are going to stop purchasing our t-bills anytime soon. Making what you seem to be implying a very strange conclusion to draw.

[teh_pwn]

When Ron Paul talks about the government and banking system being corrupt and that it reduces productivity by creating mal-investment, I get him. But then he goes on "inflation is theft", "gold is the best investment" tirade and he completely loses me.

Any long term investment should be stocks, which are inflation proof because businesses adjust prices to compensate for inflation, because they earn the most. After a 10 year horizon, even if you sell at a trough of a recession you pretty much break even because of the amount of money gained in 10 years. If banking weren't corrupt there would actually be a viable savings account that poorer people could stash money short term and be immune to inflation.

Modest amounts of inflation encourage businesses to spend or invest rather than sit on cash.

[iamblades]

Why is our deficit unsustainable in the short term right now? What metrics are you using to base this on and feel free to post them.

Whose deficit? I'm talking about Greece mostly here.

The US deficits are ok for now, but short term sustainable is the same thing as unsustainable.

Keynesian economics is only sustainable if the periods of deficit are balanced by periods of surplus or the deficits are financed by substantial inflation.

[Frankfurter]

UK, who recently adopted an austerity strategy, is also in a recession. The first in decades. Greek issue is of course more complex than just austerity vs. pump more money. But their debt did skyrocket after austerity was implemented. http://upload.wikimedia.org/wikipedi..._1999-2010.svg

Actually, Greece's debt started skyrocketing in 2007 or 2008, i.e. before the austerity measures were implemented (in 2010).

US GDP has kept rising, while many European countries still have lower GPD than they had in 2008, and unemployment is lower than Europe's. Overall we've done much better and it's because we didn't cut spending at the Federal level. Things aren't great in the US, but they'd be much worse if we had tried European style austerity.

It would be interesting to not compare the EU (or the Eurozone) as a whole, but rather take the Central + Northern European countries of the Eurozone (Finland, the Netherlands, Belgium, Luxembourg, Germany, Austria) and compare this "N Europe" with the US. Now I haven't checked the numbers, but I'm pretty sure that "N Europe" wins against the US in unemployment levels, debt to GDP ratio, GDP growth rate per person and in terms of budget deficits for the last few years (and in quite a few of those figures quite handily).

I really just don't understand the logic of people like slipperyslope. I mean do these people not realize that cutting spending has consequences during a period of low private employment growth? If the private sector is unable to absorb those people that will be layed off as a result of spending cuts you INCREASE unemployment and reduce revenue. Furthermore you INCREASE consumption of government safety net programs and increase a burden on the various governments. Be it state, local or federal. Cuts don't occur in a vacuum and in a time of such low employment they have very harsh costs. It's not to say everything is sacrosanct but in a period like this it is a very delicate game to play. We see what drastic austerity has done in various countries under these circumstances and I just don't follow why people think the outcome will be so different here?

I think everybody understands the simple logic that by cutting expenditure you are not exactly helping your economy in the short run. The problem is that on the other hand you seem to fail to realize that countries like for example the US can't continue like they are doing atm forever. The US debt to GDP ratio has increased from about 40% in ~2000 to about 100% in 2011 and is bound to increase even more. And that is with an economy that was actually pretty robust for most of that time (i.e.: this was the time when, if anything, the debt to GDP ratio should have been decreased).
Now you may say that you can still borrow for cheap, so why not continue to do so and just continue to increase that debt to GDP ratio? Well one pretty important reason would be that the more a country is indebted, the less possibilities it actually has to fullfill all its tasks. Germany, to give one example for a country that has really, really low costs for borrowing money, spends more than 1 out of 6 Euros just for interest on bonds. I.e. instead of spending 6€ to build streets, help unemployed people (etc. etc.), we spend 5€ to do all that and 1€ to pay for the interest. Japan, at a debt to GDP ratio of ~200% might very well be at sth. like 1 yen out of 3 that is being spend for interest.
Whatever you spend now to get your economy going will cost you money in the future and people seem to forget this simply logic when they say that we just need to spend a few trillions here or there to finally get this crisis under control.

[Jonm1010]

Who's deficit? I'm talking about Greece mostly here. The US deficits are ok for now, but short term sustainable is the same thing as unsustainable. Keynesian economics is only sustainable if the periods of deficit are balanced by periods of surplus or the deficits are financed by substantial inflation.

My entire line of conversation has been about why slipperyslope is advocating austerity in America right now when it's not necessary and will lead to further hardship.

If the political willpower were there we could finance large short term stimulus packages that would bring down unemployment and raise GDP and would phase out over time. I don't know enough about Greece to comment on their economic policy.

[Jonm1010]

I think everybody understands the simple logic that by cutting expenditure you are not exactly helping your economy in the short run. The problem is that on the other hand you seem to fail to realize that countries like for example the US can't continue like they are doing atm forever. The US debt to GDP ratio has increased from about 40% in ~2000 to about 100% in 2011 and is bound to increase even more. And that is with an economy that was actually pretty robust for most of that time (i.e.: this was the time when, if anything, the debt to GDP ratio should have been decreased). Now you may say that you can still borrow for cheap, so why not continue to do so and just continue to increase that debt to GDP ratio? Well one pretty important reason would be that the more a country is indebted, the less possibilities it actually has to fullfill all its tasks. Germany, to give one example for a country that has really, really low costs for borrowing money, spends more than 1 out of 6 Euros just for interest on bonds. I.e. instead of spending 6€ to build streets, help unemployed people (etc. etc.), we spend 5€ to do all that and 1€ to pay for the interest. Japan, at a debt to GDP ratio of ~200% might very well be at sth. like 1 yen out of 3 that is being spend for interest. Whatever you spend now to get your economy going will cost you money in the future and people seem to forget this simply logic when they say that we just need to spend a few trillions here or there to finally get this crisis under control.

you also need to acknowledge that a not insignificant amount of debt from 2000 to 2011 is because of the recession. Less employed means less revenue. Less employed means more social services being used, which mean higher costs.

And of course stimulus has costs in the future which is why it is key to address those costs once the economy is recovered. I don't think anyone is ignoring that aspect.

Not to mention doing nothing has consequences all it's own. For instance had America NOT spent the money to bail out the banks the cost would have been far greater than the bailout price in the short and long term. I'm not saying that not passing stimulus right now will have the same effect because it won't(as far as I have read) but given our ability to sustain this level of deficit spending for the short term I see no reason why we should risk the fragile recovery we have going to chase after a problem that doesn't need fixing at the moment and has potentially severe consequences to the recovery if it is chased.

Ideally America's path should be a heavy does of short term stimulus to feed the recovery, followed by a healthy level of spending reductions once the economy is recovered. The next best thing would be to stand pat and hold out any spending cuts til the economy has better recovered.

[Chris1964]

Don't get me wrong, but I definitely don't buy that. There is no reason for a Greek politician to inflate the budget deficit of your own country and make it dependend on foreign support. Unless we are expecting that said politician was out of his mind.

Actually, Greece's debt started skyrocketing in 2007 or 2008, i.e. before the austerity measures were implemented (in 2010).

It's not an angelic world and (Greek) politicians aren't angels. Debt was artificially inflated so that country joins DNT, the decision was taken before the elections of 2009. Economy of Greece has entirelly collapsed after austerity.

[SlipperySlope]

Why is our(America's) deficit unsustainable in the short term right now? What metrics are you using to base this on and feel free to post them. I think you are going to need to explain things out better because you make the assertion that other bubbles have been propped up in the wake of the housing bubble, implying a hand leading them. Then you go on to seemingly say that any attempt at short term deficit spending to stimulate the economy will lead to a depression, another unqualified assertion. I have read nothing that indicates that people are going to stop purchasing our t-bills anytime soon. Making what you seem to be implying a very strange conclusion to draw.

You're thinking too short term. It's short term thinking that created these problems. I'm thinking in 10 year spans. How much longer do you think we can support $1.6 trillion deficits? It's too big of a number to simply grow out of.

What bubble popped up? This one:

[KHarvey16]

How much longer do you think we can support $1.6 trillion deficits? It's too big of a number to simply grow out of.

Exactly what prevents us from running a deficit for as long as we have to? Explain the process by which it becomes bad.

[Dax01]

Yeah, because spending more is really helping the US :/ (hint, since the recession began, yearly federal expenditures have increased by $600 billion).

Hint: Since the stimulus ended, the US has been pursuing austerity as well, though not to the same degree. Budget showdown in 2011, debt ceiling deal, stimulus ending, etc. Austerity at the state and local level (jobless rate would be about 7% without cuts at state level). You can't just look at the federal deficit and conclude "we're spending too much!" 2011 and onward has been austerity pretty much.

Edit: Also, medium term deficits would be solved if we left all the Bush tax cuts expired.

[DonasaurusRex]

You're thinking too short term. It's short term thinking that created these problems. I'm thinking in 10 year spans. How much longer do you think we can support $1.6 trillion deficits? It's too big of a number to simply grow out of. What bubble popped up? This one:

well how much is the debt gonna go down when we stop paying for Iraq and Afghanistan that should help more than cutting cheap shit, nothing comes close to our military expenditure.

[TedNindo]

Exactly what prevents us from running a deficit for as long as we have to? Explain the process by which it becomes bad.

So running the US is like playing a super version of Sim City with money cheats?

[KHarvey16]

So running the US is like playing a super version of Sim City with money cheats?

It's better: the currency all of our debts are due in is controlled by us!

(that is also not an answer to my question)

[2San]

Exactly what prevents us from running a deficit for as long as we have to? Explain the process by which it becomes bad.

The moment when you actually can't pay back your contractual debts or when you devalue existing contracts(by inflation, printing money) that lending money to the USA becomes uninteresting.

This is the problem that's most relevant though:

I think everybody understands the simple logic that by cutting expenditure you are not exactly helping your economy in the short run. The problem is that on the other hand you seem to fail to realize that countries like for example the US can't continue like they are doing atm forever. The US debt to GDP ratio has increased from about 40% in ~2000 to about 100% in 2011 and is bound to increase even more. And that is with an economy that was actually pretty robust for most of that time (i.e.: this was the time when, if anything, the debt to GDP ratio should have been decreased). Now you may say that you can still borrow for cheap, so why not continue to do so and just continue to increase that debt to GDP ratio? Well one pretty important reason would be that the more a country is indebted, the less possibilities it actually has to fullfill all its tasks. Germany, to give one example for a country that has really, really low costs for borrowing money, spends more than 1 out of 6 Euros just for interest on bonds. I.e. instead of spending 6€ to build streets, help unemployed people (etc. etc.), we spend 5€ to do all that and 1€ to pay for the interest. Japan, at a debt to GDP ratio of ~200% might very well be at sth. like 1 yen out of 3 that is being spend for interest. Whatever you spend now to get your economy going will cost you money in the future and people seem to forget this simply logic when they say that we just need to spend a few trillions here or there to finally get this crisis under control.

[KHarvey16]

The moment when you actually can't pay back your contractual debts or when you devalue existing contracts(by inflation, printing money) that lending money to the USA becomes uninteresting.

"Creating" money does not necessarily cause inflation or currency devaluation. We can see that right now.

[SlipperySlope]

Hint: Since the stimulus ended, the US has been pursuing austerity as well, though not to the same degree. Budget showdown in 2011, debt ceiling deal, stimulus ending, etc. Austerity at the state and local level (jobless rate would be about 7% without cuts at state level). You can't just look at the federal deficit and conclude "we're spending too much!" 2011 and onward has been austerity pretty much. Edit: Also, medium term deficits would be solved if we left all the Bush tax cuts expired.

http://nbcpolitics.msnbc.msn.com/_ne...erity-yet?lite

The CBO reported this week that federal spending for the first seven months of fiscal year 2012 “was about the same as it was during the same period last year,” accounting for shifts in the timing of certain federal payments.

The austerity plans don't go into effect until the end of this year, unless Congress stops it (which I think it will)

[Jonm1010]

You're thinking too short term. It's short term thinking that created these problems. I'm thinking in 10 year spans. How much longer do you think we can support $1.6 trillion deficits? It's too big of a number to simply grow out of. What bubble popped up? This one:

And Im still not sure you are understanding the connection between spending cuts and the recovery.

To borrow from Krugman

Question : Is there an accurate first order calculation that can describe the impact of increasing/cutting government outlays on jobs? I've always used a very basic assumption (mostly for mathematical ease) to assess the impact at $100k of spending per job...as a result, my best estimate for assessing the impact of balancing the budget through spending cuts alone would cost our country ~15M jobs (assuming our deficit is $1.5T)...how accurate/inaccurate would you characterize this analysis? Answer (nytimeskrugman): Accurate I don't know. But a rule of thumb would run something like this: multiplier of around 1.5, based on a growing body of empirical work. So $100 billion in spending cuts would reduce GDP by $150 billion or one percent. Christy Romer says that's about a million jobs. So, one million jobs for each $100 billion of spending cuts. But wait, that's not the whole story: because spending cuts shrink the economy, they reduce revenue, so $100 billion of spending cuts probably reduces the deficit only something like $65 billion. Now, the deficit is more like $1.2 trillion (I think -- won't check now) than $1.5 trillion. But even so, by my calculation this says that trying to eliminate the deficit with spending cuts would lead to the loss of around 18 million jobs. Unless, that is, the confidence fairy makes it all better

The point I am trying to make, which is echoed by Krugman here, is that spending cuts lead to job losses and a reduction in growth. If the private sector is not able to absorb those losses, and given current hiring trends they arent, chasing spending cuts right now will in all likelihood severely jeopardize the recovery. And you have still failed to provide tangible evidence other than assumption as to why our deficit level is on some sort of precipice and can not be put off til we've recovered.

[TedNindo]

It's better: the currency all of our debts are due in is controlled by us! (that is also not an answer to my question)

Not rly into economics but. But who keeps giving the US the money? What if that money starts to inflate to lower its worth to pay of the depts?

Just some real questions, even if they are stupid.

[Dax01]

The austerity plans don't go into effect until the end of this year, unless Congress stops it (which I think it will)

That didn't disprove what I was saying. I know the terms for the debt ceiling deal don't go into effect until the end of 2012, but my point remains the same: Since the 2010 elections, the US has stopped focusing on spending and has focused on reducing the deficit. All the while unemployment remains high. We're pursing austerity too otherwise we would've passed the American Jobs Act.

[KHarvey16]

Not rly into economics but. But who keeps giving the US the money? What if that money starts to inflate to lower its worth to pay of the depts? Just some real questions, even if they are stupid.

No one has to give us the money, that's the nice thing. We control the dollar and everything we owe is due in dollars, so we can never ever go bankrupt and there is never the chance we can't pay our debts(of course this doesn't prevent politicians screwing everything up by not allowing the government to make the "payments" but that's another story).

The reason "printing" money isn't raising inflation now is because of the situation we find ourselves in. That can change, certainly, but it won't change over night and we'll know when it does.

[Jonm1010]

Not rly into economics but. But who keeps giving the US the money? What if that money starts to inflate to lower its worth to pay of the depts? Just some real questions, even if they are stupid.

There was a very helpful chart floating around a while ago showing where all our debt is held and by whom, cant find it at the moment though.

[SlipperySlope]

you also need to acknowledge that a not insignificant amount of debt from 2000 to 2011 is because of the recession. Less employed means less revenue. Less employed means more social services being used, which mean higher costs. And of course stimulus has costs in the future which is why it is key to address those costs once the economy is recovered. I don't think anyone is ignoring that aspect. Not to mention doing nothing has consequences all it's own. For instance had America NOT spent the money to bail out the banks the cost would have been far greater than the bailout price in the short and long term. I'm not saying that not passing stimulus right now will have the same effect because it won't(as far as I have read) but given our ability to sustain this level of deficit spending for the short term I see no reason why we should risk the fragile recovery we have going to chase after a problem that doesn't need fixing at the moment and has potentially severe consequences to the recovery if it is chased. Ideally America's path should be a heavy does of short term stimulus to feed the recovery, followed by a healthy level of spending reductions once the economy is recovered. The next best thing would be to stand pat and hold out any spending cuts til the economy has better recovered.

Our current deficit compared to GDP is around 10%. Deficit, not debt. Our economy is currently expanding at a rate between 1 and 2 percent, and is actually slowing down.

How much longer do you think we can keep up this deficit spending? Once investors think it's an unsafe investment, it's over.

Edit - I might be wrong on the GDP growth. It might be between 2 and 3 percent. Forgot.

[2San]

"Creating" money does not necessarily cause inflation or currency devaluation. We can see that right now.

It by definition does. Something(which can be growth, extreme faith in the dolar, etc.) is simply acting as counter balance, to hide this. You conveniently ignored Frankfurter's post as well.

No one has to give us the money, that's the nice thing. We control the dollar and everything we owe is due in dollars, so we can never ever go bankrupt and there is never the chance we can't pay our debts(of course this doesn't prevent politicians screwing everything up by not allowing the government to make the "payments" but that's another story). The reason "printing" money isn't raising inflation now is because of the situation we find ourselves in. That can change, certainly, but it won't change over night and we'll know when it does.

Heh, it's pretty much this reasoning what hit Japan so hard. They ignored the warning signs. People make up pretty interesting theories, which does not reflect what happened in the past at all. The dollar has crashed hard before and it's this type of reasoning what makes me think it'll happen again. Since you are ignoring the current warning signs.

[iamblades]

Not rly into economics but. But who keeps giving the US the money? What if that money starts to inflate to lower its worth to pay of the depts? Just some real questions, even if they are stupid.

The majority of the US public debt is still held by US citizens in the form of bonds, last I checked, anyone can buy these bonds though, certain foreign governments buy a lot of them for currency exchange reasons, China and Japan mostly.

If we start using inflation to pay off those debts, people will be less likely to lend, which means the government will have to pay higher interest rates on it's debt. Which is when things can turn into hyperinflation, if you are borrowing at increasing interest rates just to be able to service your debt, shit can go south real fast.

[Jonm1010]

Our current deficit compared to GDP is around 10%. Deficit, not debt. Our economy is currently expanding at a rate between 1 and 2 percent, and is actually slowing down. How much longer do you think we can keep up this deficit spending? Once investors think it's an unsafe investment, it's over. Edit - I might be wrong on the GDP growth. It might be between 2 and 3 percent. Forgot.

Again, I'm looking for tangible evidence that suggests we will in short term not be able to finance our debt.

You can't make an assertion and expect it to be accepted without evidence. You are continuing to fail to provide any.

[iamblades]

No one has to give us the money, that's the nice thing. We control the dollar and everything we owe is due in dollars, so we can never ever go bankrupt and there is never the chance we can't pay our debts(of course this doesn't prevent politicians screwing everything up by not allowing the government to make the "payments" but that's another story). The reason "printing" money isn't raising inflation now is because of the situation we find ourselves in. That can change, certainly, but it won't change over night and we'll know when it does.

No, the fed hasn't really turned to 'printing' money yet, because there are still ample amounts of lenders who are plenty willing to lend to the federal government.

[KHarvey16]

It by definition does. Something(which can be growth, extreme faith in the dolar, etc.) is simply acting as counter balance, to hide this. You conveniently ignored Frankfurter's post as well.

You are over simplifying inflation. Defining it as simply more money just assumes more money equals less value per unit, which is not always necessarily true.

Heh, it's pretty much this reasoning what hit Japan so hard. They ignored the warning signs. People make up pretty interesting theories, which does not reflect what happened in the past at all. The dollar has crashed hard before and it's this type of reasoning what makes me think it'll happen again. Since you are ignoring the current warning signs.

Huh? I'm not sure why you'd think Japan argues in favor of your position and not mine.

[Lagspike_exe]

Our current deficit compared to GDP is around 10%. Deficit, not debt. Our economy is currently expanding at a rate between 1 and 2 percent, and is actually slowing down. How much longer do you think we can keep up this deficit spending? Once investors think it's an unsafe investment, it's over. Edit - I might be wrong on the GDP growth. It might be between 2 and 3 percent. Forgot.

Take a look at Japan.

[2San]

You are over simplifying inflation. Defining it as simply more money just assumes more money equals less value per unit, which is not always necessarily true.

The direct effect of printing money is inflation, feel free to point a source that teaches otherwise.

Huh? I'm not sure why you'd think Japan argues in favor of your position and not mine.

Are you going to argue that Japan is in a dandy and fine position? They're still in the same recession that hit them in 90's(ok they somewhat recovered mid 00's, but went crap again with the global crisis).

[KHarvey16]

The direct effect of printing money is inflation, feel free to point a source that teaches otherwise.

Not necessarily. Again, your problem is your apparent need to oversimplify.

[iamblades]

You are over simplifying inflation. Defining it as simply more money just assumes more money equals less value per unit, which is not always necessarily true.

It's more complicated that just more money, surely, but the money supply is the key factor in inflation.

If the money supply grows with GDP growth(which represents the demand side) then inflation should be minor, but if the money supply grows much faster than the demand, you get inflation.

[TedNindo]

The majority of the US public debt is still held by US citizens in the form of bonds, last I checked, anyone can buy these bonds though, certain foreign governments buy a lot of them for currency exchange reasons, China and Japan mostly. If we start using inflation to pay off those debts, people will be less likely to lend, which means the government will have to pay higher interest rates on it's debt. Which is when things can turn into hyperinflation, if you are borrowing at increasing interest rates just to be able to service your debt, shit can go south real fast.

Isn't that the problem though? How is the US going to pay off those debts without inflating? Is that even possible at this point or at some point in the future? It just feels like the whole world economy is being held on life support and ready to die any moment now.


( edit: thnx for the reactions btw. I'm hardly knowledgeable about this subject but I do think it's fascinating and I'm trying to alteast understand how everything works on a lower logical level. )

[iamblades]

Isn't that the problem though? How is the US going to pay off those debts without inflating? Is that even possible at this point or at some point in the future?

Well if the debt stops growing soon enough(which is what this whole debate is about), GDP growth should be enough to pay down the debt over a long enough period because the government pays such low interest on it's debt.

If things continue as they are, the debt will quickly(as in within the next 5 years) reach the point where a period of inflation is unavoidable.