Do nations need to run up Debt?

TaxHavenSite

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Almost every single nation has been running up huge debts for over 50 years. Is it possible to run a nation without spending more then what you are taking in income though taxation,and profits from state companies?
 


Sariel

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Almost every single nation has been running up huge debts for over 50 years. Is it possible to run a nation without spending more then what you are taking in income though taxation,and profits from state companies?
No, because the non-government will not be able to save and the economy would be stuck in a deflationary high unemployment state. Adam Smith said that no nation has ever paid of their national debt. Why? Becasue the national debt is the non-government sectors wealth i.e. saving of financial assets.

The state does not have to issue debt it can let the credit build up as reserves at the central bank. A sovereign government that issues its own freely floating non-convertible currency i.e. not pegged to any other currency does not have any solvency problems.

As you can see now in our economy, the government are borrowing and the private non-government sector are saving. Do you see the link? When a government pays down its debt, it is reducing the wealth the private sector has. The US has been able to achieve a government surplus 7 times in its history and each was followed by a depression. The last time was in the years around the turn of the millenium and was followed by a recession because the George Bush government expanded the national debt. Depressions are usually preceded by a reduction in the national debt. So when our government tries to reduce the national debt you now know that a recession/depression is going to follow. Surpluses are bad for the private sector and deficits are good as long as the state doesn't try to prevent the non-government sector from trying to pay down its debt.
 
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Slippers 2

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Sariel

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But isn't unchecked spending,and wasteful spending just as bad?
As bad as what? When the government spends it just brings real resources to the public domain. Unchecked spending pushing the economy beyond its limits i.e. full capacity will produce inflation. When you say the government spending is wasteful spending that money still goes in to the private economy and is recorded as an increase in non-government sector saving.
 

rockofcashel

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Democracy is the problem.

One of the ancient Greeks derided the Athenian model of democracy with the simple but devastating revelation, that once the populace realised that they could effectively vote themselves wealthy by proxy i.e. supporting the politician who promised to give them the biggest share of the national wealth, then states were always eventually going to bankrupt themselves.

In many cases, countries tried to put checks and balances on this, by trying to balance budgets.. but in most cases, it simply failed
 

Iarmuid

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Almost every single nation has been running up huge debts for over 50 years. Is it possible to run a nation without spending more then what you are taking in income though taxation,and profits from state companies?
Yes I think it would be possible but a whole sale change in the monetary system to a credit based system would be required - but it would not meet the ideological or monetary bias of some - to paraphrase and bastardize Bill Clinton somewhat - its about the economic surplus stupid.

Betrand Russel gives a partial and somewhat vieled explanation in his work - In Praise of Idleness if your interested.

YouTube - Bertrand Russell - In Praise of Idleness pt 1 of 4

More food for thought here

Fed Chairman: "Taxes For Revenue Are Obsolete."

Beardsley Ruml, Chairman of the Federal Reserve Bank of New York stated, "Taxes for revenue are obsolete." Here is the famous paper he read before the American Bar Association during the last year of World War II, reprinted from American Affairs, January, 1946 issue.

As stated by the Editor, "His (Ruml's) thesis is that given (1) control of a central banking system and (2) an inconvertible currency, a sovereign national government is finally free of money worries and need no longer levy taxes for the purpose of providing itself with revenue. All taxation, therefore, should be regarded from the point of view of social and economic consequences."
http://www.curiousevidence.com
 
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Sariel

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Democracy is the problem.

One of the ancient Greeks derided the Athenian model of democracy with the simple but devastating revelation, that once the populace realised that they could effectively vote themselves wealthy by proxy i.e. supporting the politician who promised to give them the biggest share of the national wealth, then states were always eventually going to bankrupt themselves.

In many cases, countries tried to put checks and balances on this, by trying to balance budgets.. but in most cases, it simply failed
Sovereign governments that have a monopoly on their currency cannot bankrupt themselves if they issue their debt in their own currency.
 

rockofcashel

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Sovereign governments that have a monopoly on their currency cannot bankrupt themselves if they issue their debt in their own currency.
And if they are completely and utterly self sufficient from their own resources.. which is practically no country on earth, in history, ever..

So, unless you can convince your trading partners to accept your sea shells in return for their goods.. you're back to square one
 

Sariel

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Yes they can, Zimbabwe for example.
All hyperinflations have been preceded by large output gaps such as occurred in Zimbabwe when Mugabe took over the land. Too much money and nothing to buy.
 

Sariel

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And if they are completely and utterly self sufficient from their own resources.. which is practically no country on earth, in history, ever..

So, unless you can convince your trading partners to accept your sea shells in return for their goods.. you're back to square one
Well it depends if they want to save in your currency or not. If you want to exploit your own natural resources you don't need to have foreign currency debt. Education is the most important thing that a government should concentrate on so countries can become self sufficient. But you are correct if you are a small country that needs to import food for survival but that does not prevent the state from issuing debt. Once your trading partners agree to save in your currency the trick is done.
 

Man or Mouse

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And if they are completely and utterly self sufficient from their own resources.. which is practically no country on earth, in history, ever..

So, unless you can convince your trading partners to accept your sea shells in return for their goods.. you're back to square one
Has it not dawned on many yet that we are in fact actually back at square one?
 

TaxHavenSite

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The markets beg to differ, government debt = non-government saving.
When government debt keeps increasing,the interest percentage keeps increasing,once it reaches around 20% of the annual national debt,then a nations credit rating starts to decline,which means people are less likely to buy government bonds that the nation is trying to sell.
 

Padraigin

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Several points:

Being in debt to others is a form of self-enslavement. If you value your freedom, avoid putting yourself into a financial obligation owed to others.

Creditors have ways and means to control you - always.

Never pledge anything of value to creditors. Just like investors are always at risk of losing their money, debtors are always at risk of losing whatever they pledged as collateral.

Living within your means is not just a virtue, but desirable on its own merits. People, companies, and governments do not get into trouble when they live within their means.

Slow, steady growth is more sustainable and healthy than fast growth, something which is just as true for economies as it is in the natural environment.

Trade balances matter. Never import more than you export, and become as self-sufficient as possible so that you can avoid expensive imports of any necessities.

Bottom line: No, nations do not need to run up debt. They should avoid it.
 
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Squire Allworthy

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The markets beg to differ, government debt = non-government saving.
But in what country?

If governments print money supply goes up. If it does so faster than the supply of goods you get inflation.

If you are a self contained unit fine (in a narrow sort of way) but if you trade need to purchase abroad then internationally the value of your currency drops.

Printing to pay is theft. It is expecting something for nothing. In reality it simply reduces purchasing power.


The other devil in the mix is interest.

Governments should live within their means, three card tricks are just that tricks. There is no magic. A country is only as wealthy as the goods and services its population produce.
 
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