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Do deficits matter?

Discussion in 'BBS Hangout: Debate & Discussion' started by Air Langhi, Aug 18, 2019.

  1. Air Langhi

    Air Langhi Contributing Member

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    I always thought having a big deficit was a bad thing. This would lead to higher borrowing costs higher interest payments etc. You figure dollar would be worth less.

    But none of this stuff is happening. Yields are crashing. Dollar is getting stronger. Inflation is less than 2%. I know we have some smart people on the board can anyone explain what is happening?
     
  2. fchowd0311

    fchowd0311 Contributing Member

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    Not an economist. What to me is happening is that Americans are just spending more based on credit rather than actual income they have.

    That is what is propping up the economy. Is it a coincidence that Americans have accumulated the most private debt in history? Auto loan defaulting is at an all time high. Mortgages are being handed out like candy. People are financing smartphones and televisions.

    It's all going to crash when people start defaulting in unison.
     
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  3. B-Bob

    B-Bob my celli weighs a ton
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    The following seems logical to me. It's just mass psychology. As long as the world around us thinks the American economic prospects are pretty good, relative to other nations, then you can go on having debt as long as you want. (Though, practically, the interest payments will start to weigh down what you can actually get done domestically, year to year. In fact, that is arguably already happening, though we just take on more debt to buy what we want, e.g. military and tax cuts for corps, etc.)

    Money is the same way, right? A dollar bill or a gold coin or a sea shell only have value if other humans agree they have any value. It's all just a psycho-social kind of transaction.

    Deficits matter exactly when the mass psychology says they matter. If we occasionally make even slight progress toward responsibility (e.g. if you ever get a democrat in the white house with a GOP legislature for a few years, based on history), then the rest of the world seems to shrug at our debt.

    Argentina? Different matter entirely. I think their debt just got downgraded from B- to CCC. Yikes. Nobody has high hopes for them.

    edit: yeah, mass defaulting (on student loans, for instance, which is on the rise already) could have a big psychological shock of course, as per post above mine.
     
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  4. Invisible Fan

    Invisible Fan Insider Newsletter™ 2X Diamond Member

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    You peoples economism is showing.

    #All Deficits Matter
     
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  5. dachuda86

    dachuda86 Member

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    only if you can't kick the can to your children.... damn boomers
     
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  6. Air Langhi

    Air Langhi Contributing Member

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    What is happening at the government level is the opposite. If you have a lot of debt your credit rating will go down and you will have a higher interest rate.The government is pilling on debt left and right and their interest rate is going down.
     
  7. Major

    Major Member

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    I suspect the issue is economic inequality. All of the new money generated over the past decade - and the majority of it since since the 1980's - has gone to the extreme wealthy. That money has nowhere to go - some goes into the stock market, but only so much. The rest goes into safe government debt. All that money going into government debt is driving yields down, and has been possibly doing so since the 80's. That's why you see this phenomenon worldwide in the "safety" countries, regardless of how much debt countries those are racking up - Japan, US, Germany, etc. You even saw it in places like Greece until there was a real chance they wouldn't actually pay out.
     
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  8. Deckard

    Deckard Blade Runner
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    Hey! Watch that broad brush. Put our two kids though college, house paid for, cars paid for. Some of us aren't responsible for the national debt. Want to know the most obvious way to see what that debt's done to the good old USA? See what a dollar will buy you. Back in the 1960's it would buy a hell of a lot. Now? Not so much.

    Hate to beat a dead horse (so of course I am), but the last president to have a budget surplus was a Democrat, Bill Clinton. It's not impossible. With the booming economy we have today (thanks, Obama!), we should be near to, or running a budget surplus. Are we? No, we are not. Why? Insane, gigantic tax cuts for people and corporations that didn't need them. It's not Rocket science.
     
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  9. rockbox

    rockbox Contributing Member

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    Deficits are not inherently bad especially when we can print money, but most economist agree that 3 percent of GDP is what we should be targeting while the economy is growing. We are at 4 percent right now. If we go into a recession, we have very little wiggle room with interest rates as low as they are and deficits as high as they are.
     
    #9 rockbox, Aug 18, 2019
    Last edited: Aug 18, 2019
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  10. glynch

    glynch Contributing Member

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    Not really. Wiggle room for what? That is old school thinking based on when the dollar was backed by gold or silver.
    Y'all should check out Modern Monetary Theory. As Alan Greenspan testified to, before Congress
    the US government cannot go broke since it can print its own money and the only practical limit is whether the potential capacity of the economy can produce to make the amount of money the US Government creates be backed up by goods and productivity.

    Greenspan tutoring Paul Ryan the lol alleged big brain of the GOP Congress.


    Modern monetary theory
     
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  11. JuanValdez

    JuanValdez Contributing Member

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    I hope to not find out.
     
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  12. Rashmon

    Rashmon Contributing Member

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    [​IMG]
    How soon we forget...
     
  13. Invisible Fan

    Invisible Fan Insider Newsletter™ 2X Diamond Member

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    One of the primary causes of the 2008 global financial collapse.
     
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  14. rockbox

    rockbox Contributing Member

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    Deficits are backed by our bonds. If no one is will to buy the bonds, then **** hits the fan. At some point, the bonds become junk.
     
  15. Redfish81

    Redfish81 Member

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    Deficits don't matter when you are the big kid on the block, but that can change quickly.

    However, if China and other countries formed a really strong alliance they could put a serious hurting on us economically. The problem they face though is they need us for their economies to work. As other countries like India and countries in South East Asia continue to develop it could be a problem because it opens up more market share that China can lean on instead of us. South East Asia has double the population we do in the US. China is pouring money into Cambodia and other nearby countries buying up real estate,etc.

    I'm not happy with how we spend money. Especially when every candidate running only talks about spending even more money on social programs. We aren't even paying for what we have now and are going to double down? Sounds like hitting the accelerator towards a cliff.
     
  16. dmoneybangbang

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    We are essentially undergoing Modern Monetary Theory (MMT). It’s all a big experiment!!!!

    I would certainly argue that profits have been pulled forward. As long as we have endless growth we should be good!
     
  17. juicystream

    juicystream Contributing Member

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    Simply put, at some point they do, but at that point we are all f***ed.

    If our bonds aren't worth anything, that will mean our cash isn't either.
     
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  18. glynch

    glynch Contributing Member

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    A few years ago the International Ratings Agencies downgraded US debt and nothing happened. The Euro Bankers have practiced austerity for years, effecting their economies negatively. Japan has had super high deficits for several decades without the dire results predicted. Sure there is an probably an upper limit probably, but in a world with millions of unemployed folks and unused capacity their fears are akin to another favorite teaching the snake oil of trickle down "supply side" economics. A sincerely held belief for many, but just another way for the wealthy to control the world, hoard wealth, aided by the average person who had biz economics in highschool, college or econ as talked about in all the press from the WSJ and Fox and Friends.
     
    #18 glynch, Aug 20, 2019
    Last edited: Aug 20, 2019
  19. Deckard

    Deckard Blade Runner
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    You aren't happy with how we spend money? Want to know what the accelerator actually is that heading us towards "a cliff?" It isn't the social programs you made a point of mentioning. It's the incredible tax cut that trump and the Republicans in Congress pushed through, yet another tax cut in a long list of tax cuts. Tax cuts that made the huge gap between the percentage of the economy owned by the middle class and the working class even smaller than it is now, compared to what is controlled by the small and yet hugely wealthy "one percent" that trump is allegedly a part of. A tax cut that benefited the Republican administration, including most of those that have been appointed to the cabinet by trump, the wealthy members of Congress, many who happen to be Republican, and the wealthy who donate to said Republicans and the corporations that have been making out like bandits because of those tax cuts.

    Blaming the deficit on social programs was entirely predictable. Several of us here predicted it when the most recent, unneeded and ludicrous tax cut was passed. That instead of raising taxes, the Republicans and the administration would, after the dust settled, start calling for "cuts in social programs." Who benefits from those social programs? The poor, the less well off, the working class, and the middle class. Not the wealthy, who don't need them, certainly not the administration actually busy driving us off that "cliff." With all due respect, you should open your eyes a bit more. There is a lot to see, and perhaps you aren't seeing a lot of it.
     
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  20. rocketsjudoka

    rocketsjudoka Contributing Member

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    The problem with stuff like Modern Monetary Theory, rebranded Keynesian, is that it only works as long as the Dollar keeps it's commanding position in regard to currency and the US can remain the top economy. Once people lose faith in that all of that will come crashing down.
     
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