First, I am NOT a blithe MMT advocate like bilby. Maybe his view is correct, but I think a severe reckoning may lie ahead. Debt may disappear not by repayment, but by devaluation of the dollar.
Where I differ from Lumpen is that the Congressional debt ceiling is a ridiculous mechanism to attempt to reign in deficit spending.
Perhaps, but it's the only mechanism there is, and we all know the Reds & Blues will never agree on any other to replace it. So for now, replacing it with a better mechanism is a fantasy. But rejecting the debt increase now is a realistic possibility, and when it happens, the situation will change and a new better mechanism could become possible which could put a reasonable limit to the chronic deficits. And we do need such a mechanism, as is clear from the pattern of increased debt for the last 90 years.
There's no way to prove what the proper deficit/revenue should be, or debt/production, or debt/GDP. But some ratio needs to be agreed to, which stays constant rather than to keep going upward, as the debt/GDP ratio has kept going up steadily. The consensus 30 or 40 years ago was debt/GDP = 80% maximum. There's no reason why we should not agree on some such standard, and adopt some process to keep it at that level, overall, with allowance that this would be the norm (average), during non-emergency times. Or probably it should be only 60 or 50% -- whatever there can be a consensus on.
This horse has been beaten to death; and by now I can just agree to let Lumpen be wrong.
translation: we must worship at the altar of ever and ever higher debt, with no possible way to limit it, and all discussion of this must cease.
No, the reality is that sooner or later the Congress is going to reject the automatic increase of the debt, because there has to be something that puts a limit to it. We do not need to submit without question to the dogma of higher and higher debt without limit.
Excess debt is bad regardless who owns it.
Maybe. For some values of "excess."
But if my house catches fire and I ask to borrow my neighbor's water-hose to put the fire out, I'll be disappointed if he says "Sorry old boy. You'd exceed your debt ceiling!"
translation: the gov't must grant to everyone whatever they demand, no matter what it is and no matter how much it costs. There can be no limit to what gov't offers us, at our demand, because if it withholds anything at all from us, it might just be that water-hose we need in order to put out the fire.
Moreover, the extent that the gov't debt is owned domestically is the extent to which repayment is not a national macroeconomic problem since it involves a redistribution from taxpayers to domestic bond holders. Currently, US citizens and institutions own just a little over 70% of the Federal debt which means that repayment would involve the US sending 30% of the debt over time (around $6 trillion) outside the country. Which would represent a drain on our economy.
This is a key point, often ignored. Japan's debt is much larger than the U.S.'s, as a percent of GDP, but is NOT a big issue because it is owed to themselves.
Just repeating this slogan doesn't make it a fact. The debt, as a problem because it's too high, does just as much damage to the economy regardless whether it is owed to them damn foreigners or is owed to ourselves. To keep chanting over and over that the debt doesn't matter because we "owe it to ourselves" is no different than Hindus chanting "Hare Krishna, Hare Krishna" over and over.
The fact that it is a future liability which legally must be repaid is just as true and problematic either way. Either way future taxpayers must make good on it or turn to even more borrowing, and more and more without limit.
When dollars of interest are paid to American debt-holders, the American government can recover some of those dollars via taxation.
There is no need to "recover" them. If the American government needs a little more tax dollars than it's getting, it can just increase this or that tax. There's no need for it to "recover" those particular dollars of interest paid to the damn foreigners.
There are many possible sources of more tax revenue, and many taxes which can be increased a little, if a little more revenue is needed. There is nothing lost to the country just because some interest was paid to a foreigner who bought a bond. As long as we needed the money paid for the bonds, it's just as well that it came from a foreigner as from a citizen. There's no loss because a foreigner bought the bond and received interest, and nothing gained if we could have substituted an American in place of that foreigner.
Presumably all citizens pay some taxes in return for some benefits they gain as citizens. Since foreigners do not get those benefits, which are a cost, there's no reason to tax them to pay for those benefits. They are a lower cost to America than the American citizen enjoying the benefits of citizenship.
But if it's true that Japan really does own much real debt from other nations, like China owns much U.S. debt (because of buying U.S. bonds), then let's have some additional information about that.
Google led me directly to
https://www.investopedia.com/articles/markets-economy/090616/5-countries-own-most-us-debt.asp
Japan is the foreign country owning most U.S. Treasury debt, followed by China and the U.K.
OK, you get a gold star for teaching me that Japan holds the most U.S. debt, with China being 2nd. I had thought China was 1st.
(So far, this is just a list of large economies, but the list continues with Ireland, Luxembourg, Switzerland and ... the Cayman Islands! Such holdings are a tribute to the tax avoidance strategies of profitable corporations and the super-rich.)
Deficit, debt, trade imbalance, capital account, etc. — these measures are related to each other. (China buys much dollar-denominated paper because it must do something with the many dollars it gets from the goods it sells us.) But the single most specific figure I was focusing on is
Net international investment position. Scroll to the table and click on the NIIP clickable to see astounding numbers. The U.S. NIIP is Negative $14 Trillion. Spain is in 2nd place with $1 Trillion. (Spain is higher than U.S. as percent of GDP, as are several weak economies.) At the other end of the table, see Japan and Germany each with NIIP's of Positive $3 Trillion.
Forty years ago, the U.S. had the largest POSITIVE NIIP.
Paul Krugman has said that the Current Account Deficit (or Trade Deficit) is more of a concern than the government budget deficit. Krugman is certainly better informed than I am. How does his expertise compare to yours, Lumpenproletariat?
Can't you explain WHY he says it's more of a "concern"? You just believe anything he says because he's your guru who can't ever be questioned? All the outcries I hear about the trade deficit are focused on the "jobs! jobs! jobs!" hysteria, and the paranoia that Japan and China etc. are "stealing our jobs" and other such nonsense.
Is that also Krugman's "concern"? If not, then tell us what it is. Because if it's just the same old "trade deficit" babble, forget it. There is nothing wrong about the trade deficit! China (or Japan or whoever) is free to increase their prices anytime they want and to stop subsidizing American consumers. It's not really our problem at all. We benefit from the cheap labor -- and it's as simple as that. American consumers are the winners in the cheap foreign labor phenomenon. Just as we benefit from the immigrant labor.
Only what is owed and must be repaid according to an agreed schedule in the debt contract is debt which must be repaid and causes a problem for taxpayers and constitutes the national debt. Regardless whether foreigners own assets, or anyone owns them, this ownership of something is not "debt" which obligates someone to repay someone.
This topic is made unnecessarily more complicated if you start injecting other issues into it, like ownership of assets, or commitments to pay something which are not a contract binding a "debtor" to pay a "creditor" -- if there's no such contract binding the borrower to repay the lender, then it is not debt and should not be mixed into the topic of what to do about the national debt or about the high annual deficits.
Stock in Coca Cola imposes an obligation on that corporation —
Yes, they owe dividends etc. to the stockholders, whatever is in the contract. But that's not the national debt which is owed to the bondholders, not to SS recipients or other recipients of gov't benefits.
. . . it must share any dividends with ALL shareholders. It is a different sort of obligation than the mortgage they owe on their office building, but proper abstraction yields insight.
Whatever is in the contract. It's not the same as recipients of gov't benefits, which are not contractual, not part of the national debt, where there can be default if bondholders are not paid when it's due.
The U.S. was once in a situation akin to Japan's: it was a net creditor nation, not a debtor. The U.S. went from being the world's biggest creditor to the world's biggest debtor in a very short period of time under the reign of Ronald Reagan
It sounds again like this refers to the trade deficit and not to real debt.
It referred to the NIIP — Wiki's page linked above. Your focus on "real debt" is confused.
No, the national debt is real debt, owed to the bondholders, and if it's not paid it's a default which hurts our credit and discourages future bond-buyers, which is not the case if SS or other federal program suffers a cut.
If China owns a mortgage on U.S. real estate, is that "real debt"?
Of course. It's subject to the property laws in that state, the taxes, etc., the same as any citizen owner.
If "real debt" is bad then, assuming China forecloses on a delinquent debtor and ends up owning the real estate does the "badness" vanish?
Of course not. Except that "real debt" is not necessarily bad. It's just that in some cases a debtor mistakenly borrows too much, and this excess debt is a problem, maybe a mistake that shouldn't have happened. The problem of it is the same regardless if a party to the debt is foreign, even a foreign country.
Nitpick: To the two main owners of government debt — (a) US citizens and private institutions, (b) foreign banks, individuals and institutions — should be added a third: (c) agencies of the US government. This third group includes simple funds like SocSec but also central banks whose debt ownership has ballooned recently.
If this means that SocSec commitment is also debt, that is false. This is not debt which has to be repaid in order to avoid default. The recipients are not creditors who must be repaid legally in the way that bondholders (creditors) have to be repaid. So this is not part of the national debt.
IANAL and don't know what recourse, if any, pensioners would have if SocSec checks were cut in half, or zeroed out altogether.
An individual pensioner would have a legal recourse if treated differently than others. But as a group they have to accept whatever terms the lawmakers impose. If there are cuts, that does not violate any contract with them.
But they have ways to complain and protest and get "their voices" heard.
But you seem very concerned for the welfare of U.S. taxpayers. How do you feel about the welfare of U.S. retirees?
You mean the ones in the future, 20 or 30 years from now, who will suffer from the excess debt we're imposing onto them today?
We should care about all the retirees, and others, now and in the future, who have to pay the excess debt of their predecessors.
