Need some Help debating sound money

Me:

Do you think borrowing is sustainable forever? What happens if China wants us to pay up?

We only owe China approx. 500 billion, our total debt is approx 15 trillion in actual debt... way more than that in proposed debt.

The Senate and House seem to have no intentions of stopping.

The only thing currently saving the USA is the dollar is world reserve currency.

This is going to change. The United Nations are already proposing a new world currency... IMF and such organizations already exist to take over if US collapse happens...

Him:

Yes. As long as the interest rate is lower than the inflation rate (which it is), then we aren't just borrowing money, we're being paid to hold their money for safekeeping. This whole debt "crisis" is a lie. Most of the current debt increase can be directly linked to the loss of incoming tax receipts from the recession, coupled with the increase in outlays for social safety net programs.

China already makes us "pay up". They hold treasury notes, which pay the holder interest over the course of the bond (1, 5, 10, 30 year etc). China may hold 1.2 trillion in US debt, but it will never be paid out all at once, nor is their a legal recourse for them to demand such.

Me:

So let me get this straight... you think borrowing money/printing money is sustainable forever?

That was my original post you quoted and commented on.

What's your solution, raise taxes during a recession?

Him:
Let me use an example on why borrowing money isn't such a terrible deal for the US govt right now:

A pack of gum costs a dollar.
I want a pack of gum... but not right now. I want it next year. So I put my gum money somewhere safe - US bonds.
I borrow a dollar from the US government, who promised to pay me back that dollar next year.
...
A year later I now have a dollar, courtesy of the US government/
Gum now costs 1.05.
The US government just made a nickel off me.

That scenario above? Its been happening during bond sales for the past 3 years.

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So is government spending/borrowing sustainable right now? Yes.
Eventually the recession will end, spending will drop, income will rise, and yes - maybe even taxes will rise. The top US rate on income was 90% back in the 50's when US growth skyrocketed - so clearly its not an issue.

There is no debt crisis. Its a make believe issue to keep the populace distracted from real problems. In the event of a real debt crisis, we'd just print a trillion dollar billl, tell China that we're even, and everything would cost 5-10% more. Big whoop.

Notice that the debt situation is unchanged from a year ago, when everyone was frothing over it. Yet its barely an issue during the campaign. That alone should tell you something.



Me:
Big Whoop?

Inflation is killing the American public right now. Gas prices are soaring, Food costs are up, and your in favor of more inflation?

You're in favor of stealing money from hard working Amercans and giving it to the 1% in Washington and Wallstreet?

Maybe you're not familiar with the 100 trillion Zimbabwean dollar?

That worked out well for them.

Central banks will always fail, because no group of men are smart enough to micromanage an economy.

I suggest you read a book by Hayek or Mises, they strongly disprove what you are saying.

Him:

Your confusing commodity prices and inflation. The Fed doesn't micromanage anything. Micromanage has a specific definition.

I suggest you read a basic book on economics.

No seriously.

Hayek has ideas that I disagree with, but they're all grounded in the same basic facts that Keynes spun his theories from.
You can't discuss economics in a straight face while spouting shit - and I do mean shit - like "what if china wants their money back". Learn the basics, and then you can argue your points with a firm grounding.


(any help appreciated)

When considering sound money vs. unsound currency keep in mind that sound money creates a free society where individuals are in control of their own destiny while unsound currency is fiat and gives government, or whoever is in charge of the money supply, power over the economy. That's the difference. Asset Money vs. Debt Society. Liberty vs. Tyranny.

"Gold, Peace, and Prosperity" by Ron Paul

There are basically two things that foreigners can do with dollars that they accumulate from us to keep from getting shafted by inflation, if they don't want to purchase goods from the US immediately.

One thing foreigners can do is invest their dollars in the US, building manufacturing plants and such and creating employment. They put their dollars to work, trying to accumulate more so that they can purchase an equal or greater value of goods in the future.

But what if foreigners don’t want to sit on a pile of cash that continuously loses value, and they don’t see any good investment opportunities in the US? They buy government debt. Every dollar from the trade deficit that Congress uses to fund its deficits is a dollar that is stolen right out of productive use in the economy. If Congress had balanced its budget years ago, it would have forced a tremendous amount of job creation in the US from foreign companies.

The government does not take the borrowed money and create jobs equivalent to a foreign company. A Japanese company that invests in the US and builds an auto plant actually creates wealth, in that case, a car. Wealth is stuff. Stuff is what increases our standard of living. What does the government do with borrowed money? It builds bombs. It hires people to kill foreigners with funny names. It hires goons with guns to sit on the border and keep Mexicans from walking across. All of these jobs allow people to consume goods, but they do nothing to create wealth. These people become wealth destroyers. This is one way that budget deficits harm the economy.

And if you want to call him an immoral piece of shit, paraphrase Rothbard:

"If I borrow money from a mortgage bank… he is the true owner of the money… and if I don’t pay I am robbing him of his just property. But when a government borrows money, it does not pledge its own money; its own resources are not liable… but ours. … public creditors are willing to hand over money to the government now in order to receive a share of tax loot… Both parties are immorally contracting to participate in the violation of the property rights of citizens in the future. Both parties… deserve the back of our hand… why should we, struggling Americans of today, be bound by debts created by a past ruling elite who contracted these debts at our expense? … I propose… out-right debt repudiation."

You could also point out that in 1950 the top tax rate was 91%, but tax receipts as a percentage of GDP was only 14.4%. The year before the recession started, 2007, the top tax rate was 35%, but tax receipts as a percentage of GDP was 18.5%. In other words, other taxes were lower back then. SS taxes were only 1.5% for both the employee and employer, and dividends at the time were exempt from taxation, which is how many rich people avoided taxation.

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Hayek has ideas that I disagree with, but they're all grounded in the same basic facts that Keynes spun his theories from.
You can't discuss economics in a straight face while spouting shit - and I do mean shit - like "what if china wants their money back". Learn the basics, and then you can argue your points with a firm grounding.

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He gave you your advice right there. The fact of the matter is that he has at least a little bit of learned economic knowledge, whereas you seem to mostly know political talking points.

That doesn't mean that he's right. The debt is unsustainable. You can't just borrow a trillion dollars every year and expect there to be no consequences, and you can't just print money irresponsibly like the Weimar republic did.

But what that does mean, is that he will be able to come up with retorts to issues you bring up much much faster than you'll be able to keep coming back here asking for consultation.

sound money is an essential limit on monetary expansion, which allowed to expand recklessly - as we have seen - destroys the purchasing power of the currency and strongly privileges those with first access to money (banks etc.)

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Originally Posted by Travlyr

When considering sound money vs. unsound currency keep in mind that sound money creates a free society where individuals are in control of their own destiny while unsound currency is fiat and gives government, or whoever is in charge of the money supply, power over the economy. That's the difference. Asset Money vs. Debt Society. Liberty vs. Tyranny.

"Gold, Peace, and Prosperity" by Ron Paul

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I know we both agree that pamphlet should be required reading; but this should be included in that required list
http://www.lewrockwell.com/paul/paul303.html
It explains a giant piece of the current puzzle.

some people just don't get it, just don't even bother. its like 2006-2007 and peter schiff was warning what was going to happen with the housing bubble and people think his a nut job. people who are rational are the only ones that can be saved. just make sure when it does happen, be all over him and say in your face and make him feel like an idiot.

Look up the thread "Advice to Geither". Its a post about monetary policy that is a speech Paul gave to the Treasury Sec.

"Yes. As long as the interest rate is lower than the inflation rate (which it is), then we aren't just borrowing money, we're being paid to hold their money for safekeeping. This whole debt "crisis" is a lie. Most of the current debt increase can be directly linked to the loss of incoming tax receipts from the recession, coupled with the increase in outlays for social safety net programs. "
This guy is full of shit and has a skewed definition of inflation. Like most Keynesians he sees rising prices as inflation instead of an increase in the money supply. Regardless the debt is not going up because of any of the reasons he lists. Simply debt is going up because the federal reserve keeps refinancing the debt with lower interest rates by printing money.

His scenario is THEFT. Don't even bother with it, he's arguing liquidity trap. Do you want it now, or do you want it later? I'm willing to pay more for my gum now then later! Additionally, hoarding, what does he think people are doing, shoving dollar bills under their mattresses? No, they put it in a bank and that bank invests it, cancelling out any exponential deflationary fears.


Just pound him on federal bankruptcy.

I'm cut and pasting Antony Davies' research as well as all the comments he and I have had over facebook. It usually shuts up people like the one you're talking about because it's empirical evidence (and adds strength to Austrian arguments against the mainstream), even Keynesians can't ignore it.

He's right on some points, China just can't simply sell all their dollars. I mean, they can, but it would just be really stupid of them to do so.

"Toppling the debt [by china] isn't the concern. The concern is the fact that the debt has reached a size such that the only way out is either (a) defaulting, (b) monetizing ["money printing"] (which is different from defaulting in name only), or (c) balancing the budget and waiting for the economy to outgrow the debt. Federal spending is now so great that, even if we cut everything except Social Security, Medicare, and the interest on the debt, we still wouldn't balance the budget. This makes option (c) appear unlikely. Raising taxes not only is politically charged but, historically, federal revenue has been a rather constant 18% of GDP regardless of tax rates. That leaves options (a) and (b). The numbers just don't work."

Additionally, a world currency isn't going to save us, that's the Keynesian dream (everyone inflates together, yay!). That won't save us either.

"A world currency won't help. That would be like trying to reduce the distance between New York and Chicago by measuring in kilometers instead of miles. Changing the unit of measure doesn't change the thing you are measuring. Taking Europe as an example, a world currency would likely make the problem worse. When government is the source of financial difficulties, replacing it with more government usually just makes the problem worse."

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http://www.antolin-davies.com/presen...s/spending.pdf

Here we show:

1. A one percentage point increase in both government spending and the average marginal tax rate is associated with a 0.85 percentage point decline in real GDP growth.

2. Even if the evidence had suggested that government spending stimulates the economy, the data seem to indicate that, as a practical matter, the government cannot get its timing right.


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http://www.antolin-davies.com/conven...sdom/spend.pdf

This is another stimulus spending power point.

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https://docs.google.com/open?id=1kSt...C6EZceTfoI7VmS

Here is a PDF showing the following:

"Projecting government spending (using the CBO's numbers), yields Federal bankruptcy in 35 years and operational bankruptcy is 25 years. The numbers assume that the approaching bankruptcy does not affect interest rates. It will cause interest rates to rise, so the actual timeline will be shorter. Bankruptcy occurs when interest on the debt equals annual tax revenue (IOW, all the government's revenue is spent just paying interest). Operational bankruptcy occurs when interest on the debt plus mandatory spending equals tax revenue. At this point, all the government's revenue goes to interest, welfare, Social Security, and Medicare. IOW, the government is reduced to an assisted living facility."

"I believe that the fear of deflation is a mythical monster created by a government to justify expanding the money supply for its benefit. Consider: Technological growth causes prices to fall. The government increases the money supply to counteract this deflation. In effect, the government is stealing the gains of technological growth for itself. The fear of spiraling deflation doesn't hold water empirically. Look at the computer industry. Prices (adjusted for quality) have been in massive free fall for decades, yet people continue to buy."


I'm also attaching videos:

http://www.youtube.com/watch?feature...&v=-BRJXvXOpPI
http://www.youtube.com/watch?feature=player_embedded&v=ID4xay5RITY
http://www.youtube.com/watch?feature=player_embedded&v=Q-w-8fXzwQE
http://www.youtube.com/watch?feature=player_embedded&v=XYoFf84mUV4
http://www.youtube.com/watch?v=Zo0h_AR_lJM&feature=relmfu

Find a chart of the declining return per dollar borrowed. Once upon a time, GDP grew at a rate of several dollars per dollar borrowed. That rate has declined steadily until it has reached a point of where now (or soon) it will be less than a dollar's growth per dollar borrowed. I can't find the chart right now, but I have seen it.

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Originally Posted by VoluntaryAmerican

Me:

Do you think borrowing is sustainable forever?

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No.

One day the bond holders will say "not at that price", and interest rates will start moving up significantly.
The government will either have to pay or say "Help us FED Reserve!!"

If the FED Reserve says "no way or we destroy the money", the government will default on its debts.

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What happens if China wants us to pay up?

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They are doing this by simply not rolling over their bonds. Slow and steady is the Chinese way.

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This is going to change. The United Nations are already proposing a new world currency... IMF and such organizations already exist to take over if US collapse happens...

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Why will this change?

Do not get yourself confused between MONEY and DEBT - the US can default on its debts and this impacts nothing of the use of money.

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China already makes us "pay up". They hold treasury notes, which pay the holder interest over the course of the bond (1, 5, 10, 30 year etc). China may hold 1.2 trillion in US debt, but it will never be paid out all at once, nor is their a legal recourse for them to demand such.

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Not true.
The Chinese can sell their T-bills on the market like anyone else.
Now, what would happen if they started to so with greater velocity?

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Him:
Let me use an example on why borrowing money isn't such a terrible deal for the US govt right now:

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His reply misses your question.
You asked if it was sustainable.

He answered that right now it was a good deal for the government.

He is right, it is a good deal - but it is not sustainable.

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Eventually the recession will end

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How will it end? By magic?

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, spending will drop,

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When has government spending ever dropped since 1946?

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income will rise, and yes - maybe even taxes will rise. The top US rate on income was 90% back in the 50's when US growth skyrocketed - so clearly its not an issue.

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No, it was not - it was 90% during the war and it was radically reduced in the 50's so it was clearly the issue!

Be careful when idiots make factual errors and use these errors to justify their crackpot theories.

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"I believe that the fear of deflation is a mythical monster created by a government to justify expanding the money supply for its benefit.

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Absolutely correct.

How about:
A pack of gum cost 25 cents when I was a kid in the 1980s.
A pack of gum now costs a dollar.
He says a pack of gum will cost $1.05 next year.

Why does everyone in America just accept this?!

It doesn't matter if inflation is minor. It's still inflation, it's still theft, and it still requires the entire country to plan their futures using parasite industries that exist for no other reason than to make it so middle class Americans can survive their savings getting slowly eaten away.
Those millions of people could be doing something productive - bettering our lives.
Instead, they're only helping us overcome an intentionally inflicted deficiency in our money.

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Originally Posted by fisharmor

Why does everyone in America just accept this?!

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Inflation or deflation or neither is neither "bad" or "good" - it is an effect, and can be used by humans like a tool.

Inflation erodes debt at a cost to lenders.

Deflation increases the value of capital at a cost to debtors.

The natural state of a productive, true free market economy is deflation.

I was just crunching some numbers the other day as I wanted to show some of my Facebook friends why I'm so obsessed with politics while they talk about the hunger games, etc.. I decided to show why only looking at the size and growth of the national debt isn't what they should be worrying about. It is the interest rates on the constantly maturing T-bills.

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We paid $454 Billion dollars in interest in 2011 for a debt of $15 Trillion, amounting to an average interest rate of 3%. *This is really, really good! *Interest rates are at historical lows! *To put it in context, we paid $359 Billion for our 2001 debt of $6 trillion, for an avg interest rate of 6%. *That's right, we increased our debt load about 150% and our interest payments have only increased about 25%! *That's weird....How about for the year 1991? *$286 Billion interest for $3.8 Trillion, for an avg 7.5% interest rate. *And 1981? *$95 Billion interest for $1 Trillion, an avg 9.5% interest rate.

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The optimistic CBO estimates that we will hit 5% again in 2015, and it will only go higher from there. They also estimate that it could go higher FASTER if certain factors come up, like the Federal Gov't not giving a crap about deficit spending and balancing the budget. But back to reality. What would 5% avg interest rates make our 2011 payments look like? $750 Billion dollars, or more then the Department of Defense budget, which itself is larger than the Military budgets of the rest of the world COMBINED.

Our Federal Reserve will have two options then. Try and keep interest rates low by adding more to the reserves of banks so that they can buy up our debt, which will cause hyper-inflation before long, or suck it up and let the country go bankrupt. Sound money mitigates and makes this whole complex area of monetary policy much more transparent. People like transparency right?

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Originally Posted by Acala

Find a chart of the declining return per dollar borrowed. Once upon a time, GDP grew at a rate of several dollars per dollar borrowed. That rate has declined steadily until it has reached a point of where now (or soon) it will be less than a dollar's growth per dollar borrowed. I can't find the chart right now, but I have seen it.

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http://i43.tinypic.com/351yaut.jpg