The British government has a plan to stop borrowing money

[ksen]

http://www.washingtonpost.com/news/...overnment-has-a-plan-to-stop-borrowing-money/

Yet, in the United States and elsewhere, the idea of putting an end to borrowing altogether has often had broad appeal. And last week, British parliamentarians voted to do just that. Under the new rules, the U.K. government must spend less than it receives in taxes beginning 2020, except when the economy is soft -- that is, if the rate of growth has been below 1 percent on average over the past year.

Under the plan, which was approved by the House of Commons, the U.K. would slowly pay down its national debt of 1.36 trillion pounds ($2.1 trillion).

Leave it to conservatives to want to stop government borrowing while interest rates are at or near 0%.

Also, how long for the bond markets to collapse when the UK stops issuing bonds, or the US for that matter if the US conservatives get their way?

 

[Nice Squirrel]

Borrowing money makes sense since it provides for growth.

 

[SimpleDon]

http://www.washingtonpost.com/news/...overnment-has-a-plan-to-stop-borrowing-money/

Yet, in the United States and elsewhere, the idea of putting an end to borrowing altogether has often had broad appeal. And last week, British parliamentarians voted to do just that. Under the new rules, the U.K. government must spend less than it receives in taxes beginning 2020, except when the economy is soft -- that is, if the rate of growth has been below 1 percent on average over the past year.

Under the plan, which was approved by the House of Commons, the U.K. would slowly pay down its national debt of 1.36 trillion pounds ($2.1 trillion).

Leave it to conservatives to want to stop government borrowing while interest rates are at or near 0%.

Also, how long for the bond markets to collapse when the UK stops issuing bonds, or the US for that matter if the US conservatives get their way?

Deficit spending by a sovereign government is the only way to boost private savings and to avoid excessive private debt. In other words the government not borrowing means that the private sector has to increase their debt.

Conservatives say that the same rules apply to governments that apply to a business and an individual, that too much debt is bad. But they are wrong, as they always are. If you don't allow expenditures to exceed tax receipts not only will you not deficit spend you will reduce government spending to enable you to roll over existing bonds when they mature, if you consider this spending. Which they do.

Every pound of reduced government debt is a pound of reduced private savings and a corresponding increase in private debt or decrease in GDP. There is no way around it. Just like government spending increases the amount of money in the economy and the amount of private savings and the amount of economic activity that these bring, an increase in relative taxation to pay down the debt brings a reduction in private savings and in the economic activity because it reduces the amount of money in the economy.

This is the very best and fastest way to cause a depression. Surer and faster even than deregulating the financial sector and allowing them to cause a financial crisis like we had in 2008.

 

[SimpleDon]

The Bank of England was started in ~1700 with a loan of £1½ million from London merchants that has never been paid back. Do you know why it has never been paid back?

Show

There is not enough money in the entire British economy to pay back the loan and its interest.

 

[SimpleDon]

If you doubt that a national debt can't be paid back without causing a serious contraction of the economy and you are absolutely convinced that I am wrong then your job should be easy to prove it. Simply tell me where the money will come from to buy back the bonds that constitute the national debt if it doesn't come from private savings and increases in private debt. Tell me when the US has paid off a part of the national debt themselves, (without a significant positive trade balance, when other nations are helping,) without causing a major depression within a few years.

Is everyone in agreement that money is created by debt? And that money is destroyed by paying back debt? Do we need to review fractional reserve banking yet again? How it creates money out of thin air?

That money is,

1. A medium of exchange.
2. A store of value.
3. A measure of value. (sometimes expressed as "A unit of account" when economists want to be obscure, which is almost always.)

Do we have any Austrian economists here? Who only accept number one above because the two other properties of money makes a hash out of their reasoning for the supposed superiority of the gold standard as a monetary system.

That there is no sentient quality of money that would provide it with memory about where it came from? A memory that causes it to behave differently because it was spent by the government, not by a more acceptable economic actor. A memory that prevents the money spent by the government from boosting the economy by creating more demand?

 

[Loren Pechtel]

Borrowing money makes sense since it provides for growth.

Except it's used for current spending, not growth.

 

[ksen]

Borrowing money makes sense since it provides for growth.

Except it's used for current spending, not growth.

When else is spending for growth supposed to occur if not currently?

 

[SimpleDon]

Borrowing money makes sense since it provides for growth.

Except it's used for current spending, not growth.

What do suppose causes growth if not current spending? Magic?

 

[dismal]

Except it's used for current spending, not growth.

What do suppose causes growth if not current spending? Magic?

Define "growth".

For example, which of these scenarios results in more growth,

1) The government does nothing.
2) The government borrows $10,000,000 and sets it on fire
3) The government borrows $10,000,000 and pays 100 people to dig a big hole, then borrows another $10,000,000 and pays 100 people to fill in the hole

 

[ksen]

That one's easy: #3.

 

[Perspicuo]

I don't understand economy. If money is just a fiction we invented, why do we need to swim in debt to make things work?

(I probably just asked the only question economists can't answer.)

 

[Nice Squirrel]

I don't understand economy. If money is just a fiction we invented, why do we need to swim in debt to make things work?

(I probably just asked the only question economists can't answer.)

Shh, you're pulling the curtain off the void.

 

[bilby]

I don't understand economy. If money is just a fiction we invented, why do we need to swim in debt to make things work?

(I probably just asked the only question economists can't answer.)

It's not that difficult; Money is what people exchange for commodities. But money in the future is a commodity in itself - it's generally worth less than money right now, of course, because folks would rather have a dollar today, than a dollar in five years.

If you give me a dollar, I give you a tin of beans. Simple.

If you give me 95c, I will give you a tin of beans next year. Slightly more complex - but I'm sure you can see how and why that contract works. If you grow beans, you can have a lot of money next year when you sell the beans; or you can have a bit less money today - the two amounts have roughly equal value.

If you are a bank, you give me 95c, I will give you $1 next year. A $1 and a "tin of beans" are essentially the same thing, so this is obviously equivalent to the previous deals. The bank don't want beans, but when I sell the beans for $1, I can pay that to the bank.

The beans are not yet grown, much less baked and canned. So the 95c is a loan - it is the current (expected) value of a future item.

But if need that 95c to buy fuel for the tractor to grow the beans, then the fact that you made the loan is the cause of the future value - no loan, no beans.

Multiply up by every item in the economy, and it is obvious that debt massively increases our ability to make stuff, and that by becoming indebted, we enable the creation of value that otherwise it would not be possible to create.

 

[fromderinside]

Multiply up by every item in the economy, and it is obvious that debt massively increases our ability to make stuff, and that by becoming indebted, we enable the creation of value that otherwise it would not be possible to create.

Societies produce, protect, and provide support for citizens. Citizens cost to become productive citizens. Assume government responsible for costs to make citizens productive. Print money to pay those costs. Societies cost to protect themselves. So print money for those costs.While we're at it print money to support infrastructure and citizens. Now there's a pile of money.

Citizens work produce things which they sell. Tax profits from those activities to provide support for continued infrastructure in which citizens conduct business and work Tax incomes from work and profit to pay for support for citizens in societies.

No need to borrow.

If society wants exchange with other societies,their citizens and their products set up exchanges where trades are accomplished.

I'm not of the sort who actually believes economic practices are needed to operate societies. those practices should be set up by citizens within societies and between societies. Government needn't be part of borrowing and lending. It need only provide limits and controls for those practicing it with their citizens as part of their charter.

Ta da.

 

[bilby]

Multiply up by every item in the economy, and it is obvious that debt massively increases our ability to make stuff, and that by becoming indebted, we enable the creation of value that otherwise it would not be possible to create.

Societies produce, protect, and provide support for citizens. Citizens cost to become productive citizens. Assume government responsible for costs to make citizens productive. Print money to pay those costs. Societies cost to protect themselves. So print money for those costs.While we're at it print money to support infrastructure and citizens. Now there's a pile of money.

Citizens work produce things which they sell. Tax profits from those activities to provide support for continued infrastructure in which citizens conduct business and work Tax incomes from work and profit to pay for support for citizens in societies.

No need to borrow.

Yes, there is.

Citizens cost to become productive citizens. Then, years later, they pay taxes. You can only have now, and pay later, if you borrow - that's what borrowing IS. Borrowing bridges the gap between dependant child and productive adult, allowing more to be spent on the education and raising of productive citizens, who are then in turn more productive. It's a cycle; it isn't necessary, but it is massively productive. It's the difference between the standard of living in the industrialised world, and the standard of living prior to the advent of agriculture and trade.

Sure, it's possible to live without debt. But it's not possible to have a developed world economy without debt. If you want to live like people lived 8,000 years ago, then eliminating debt and money is fine.

But money IS debt - you can't have one without the other - so to live without debt means living without money.

If society wants exchange with other societies,their citizens and their products set up exchanges where trades are accomplished.

True. But either they do this using money, or they trade goods directly - barter.

I'm not of the sort who actually believes economic practices are needed to operate societies.

Well it's probably a good thing that reality doesn't give a fuck what you believe then.

those practices should be set up by citizens within societies and between societies.

They are

Government needn't be part of borrowing and lending. It need only provide limits and controls for those practicing it with their citizens as part of their charter.

Ta da.

I am fascinated by the idea you have that 'governments' and 'societies' are somehow totally unrelated entities.

Here is a society. I want to trade with that society; but there's fucking millions of them, which makes negotiations impractical. So I get them to appoint or elect a small group to be their representatives. Now I can do a deal with their representatives. Because that's much better than dealing with a nasty government. Yuk. We all HATE government. I will only deal with society, through that society's representatives. Who are clearly a TOTALLY different thing from a nasty government.

 

[Loren Pechtel]

Except it's used for current spending, not growth.

When else is spending for growth supposed to occur if not currently?

The question is what long term assets are being bought with it?

 

[bilby]

When else is spending for growth supposed to occur if not currently?

The question is what long term assets are being bought with it?

Why is that the question?

People who have money spend it in ways they want it to be spent; the people that it passes to as a result do the same. This process repeats until the debt is repaid, and the money is thereby destroyed.

It is quite unlikely that no long-term assets will be built by anyone in that chain of transactions. And there is no particular reason to require that any long term assets are bought by the first or second party to spend the cash. In fact, if the 'small government' brigade are to be believed, the government wastes money on assets that are not as valuable as what the people would have chosen to buy instead - so it is better to give the money to lots of people to spend as they please than it is to use it to build a highway, bridge, or airport that perhaps will see less use than was expected. Of course, if the government does buy a bridge, then lots of bridge construction workers end up with the cash, so the problem largely solves itself.

 

[fromderinside]

Societies produce, protect, and provide support for citizens. Citizens cost to become productive citizens. Assume government responsible for costs to make citizens productive. Print money to pay those costs. Societies cost to protect themselves. So print money for those costs. While we're at it print money to support infrastructure and citizens. Now there's a pile of money.

Citizens work produce things which they sell. Tax profits from those activities to provide support for continued infrastructure in which citizens conduct business and work Tax incomes from work and profit to pay for support for citizens in societies.

No need to borrow.

Yes, there is.

Citizens cost to become productive citizens. Then, years later, they pay taxes. You can only have now, and pay later, if you borrow - that's what borrowing IS. Borrowing bridges the gap between dependant child and productive adult, allowing more to be spent on the education and raising of productive citizens, who are then in turn more productive. It's a cycle; it isn't necessary, but it is massively productive. It's the difference between the standard of living in the industrialised world, and the standard of living prior to the advent of agriculture and trade.

Sure, it's possible to live without debt. But it's not possible to have a developed world economy without debt. If you want to live like people lived 8,000 years ago, then eliminating debt and money is fine.

But money IS debt - you can't have one without the other - so to live without debt means living without money.

If society wants exchange with other societies,their citizens and their products set up exchanges where trades are accomplished.

True. But either they do this using money, or they trade goods directly - barter.

I'm not of the sort who actually believes economic practices are needed to operate societies.

Well it's probably a good thing that reality doesn't give a fuck what you believe then.

those practices should be set up by citizens within societies and between societies.

They are

Government needn't be part of borrowing and lending. It need only provide limits and controls for those practicing it with their citizens as part of their charter.

Ta da.

I am fascinated by the idea you have that 'governments' and 'societies' are somehow totally unrelated entities.

Here is a society. I want to trade with that society; but there's fucking millions of them, which makes negotiations impractical. So I get them to appoint or elect a small group to be their representatives. Now I can do a deal with their representatives. Because that's much better than dealing with a nasty government. Yuk. We all HATE government. I will only deal with society, through that society's representatives. Who are clearly a TOTALLY different thing from a nasty government.

Societies run the gamut from families to tribes to common cause to regional groupings for common purpose. Governments are collections of societies joined by a common set of principles and operating instructions in a defined and defended territory as a compact. When a collection of societies agree as a government to such a compact the societies retain their identities under the compact.

Nice dream on two counts. Firs one can put money into a bank to be drawing the name of individuals being educated, infrastructured, social serviced, and defended. No need to pay back what is already monied , no need to borrow. the amounts printed are corrected for changes in needs and times and the will of the governed. The second dream is that government and societies are unrelated. Some societies are formally structured as cities, counties, school districts, etc. Others are formalized by charters. All are sub subservient to the government in which they choose to be a part.

We only disagree on the mechanisms necessary to operate. I separate economy from government in that government sets up the rules of the road and provides the environment for commerce including rules for money changing, the money used, and the rules for exchange between participants in the economy. The economy has borrowing and debt. Individual can participate in taking on debt but government only has the power to print money for specified purposes.

Its not much of a stretch really. Just separate economy from government in mechanisms for financing their activities.

Government may indeed by nasty , but it is an essential part of the life of every individual, every society, every region, every function, carried out within the territory of the government. Governments operate according to different financial rules and purposes than do ecomomies. It does not seek profit. Economies do seek profit. In economies there is a place for Shylock and room for Scrooge and selfishness. In government there is no place for either Scrooge or Shylock.

 

[bilby]

Yes, there is.

Citizens cost to become productive citizens. Then, years later, they pay taxes. You can only have now, and pay later, if you borrow - that's what borrowing IS. Borrowing bridges the gap between dependant child and productive adult, allowing more to be spent on the education and raising of productive citizens, who are then in turn more productive. It's a cycle; it isn't necessary, but it is massively productive. It's the difference between the standard of living in the industrialised world, and the standard of living prior to the advent of agriculture and trade.

Sure, it's possible to live without debt. But it's not possible to have a developed world economy without debt. If you want to live like people lived 8,000 years ago, then eliminating debt and money is fine.

But money IS debt - you can't have one without the other - so to live without debt means living without money.

If society wants exchange with other societies,their citizens and their products set up exchanges where trades are accomplished.

True. But either they do this using money, or they trade goods directly - barter.

I'm not of the sort who actually believes economic practices are needed to operate societies.

Well it's probably a good thing that reality doesn't give a fuck what you believe then.

those practices should be set up by citizens within societies and between societies.

They are

Government needn't be part of borrowing and lending. It need only provide limits and controls for those practicing it with their citizens as part of their charter.

Ta da.

I am fascinated by the idea you have that 'governments' and 'societies' are somehow totally unrelated entities.

Here is a society. I want to trade with that society; but there's fucking millions of them, which makes negotiations impractical. So I get them to appoint or elect a small group to be their representatives. Now I can do a deal with their representatives. Because that's much better than dealing with a nasty government. Yuk. We all HATE government. I will only deal with society, through that society's representatives. Who are clearly a TOTALLY different thing from a nasty government.

Societies run the gamut from families to tribes to common cause to regional groupings for common purpose.

Yes. So what?

Governments are collections of societies joined by a common set of principles and operating instructions in a defined and defended territory as a compact. When a collection of societies agree as a government to such a compact the societies retain their identities under the compact.

Yes. So what?

Nice dream on two counts. Firs one can put money into a bank to be drawing the name of individuals being educated, infrastructured, social serviced, and defended. No need to pay back what is already monied , no need to borrow. the amounts printed are corrected for changes in needs and times and the will of the governed.

This is incoherent. I literally cannot imagine what you are attempting to say here.

The second dream is that government and societies are unrelated. Some societies are formally structured as cities, counties, school districts, etc. Others are formalized by charters. All are sub subservient to the government in which they choose to be a part.

Yes, that's exactly what I was just saying. A government is just a word meaning 'the representatives of a society'. I was being sarcastic in accepting your treatment of the two things as though they were different.

We only disagree on the mechanisms necessary to operate.

I have no idea whether I disagree with you, because you have yet to say something sufficiently coherent for me to disagree with it.

I separate economy from government in that government sets up the rules of the road and provides the environment for commerce including rules for money changing, the money used, and the rules for exchange between participants in the economy. The economy has borrowing and debt. Individual can participate in taking on debt but government only has the power to print money for specified purposes.

So now you are back to the bizarre idea that the government is somehow a separate entity from the society? You are making no sense at all.

Its not much of a stretch really. Just separate economy from government in mechanisms for financing their activities.

What? That is how it already is. Are you conflating governments with central banks? I am still struggling to grasp what you are even trying to say; it makes no sense.

Government may indeed by nasty , but it is an essential part of the life of every individual, every society, every region, every function, carried out within the territory of the government.

No shit, Sherlock.

Governments operate according to different financial rules and purposes than do ecomomies.

You appear to be using the word 'economy' as a synonym for 'private business'. If that's the case, then you need to stop, because they are not synonymous.

It does not seek profit. Economies do seek profit.

Economies don't seek profit.

In economies there is a place for Shylock and room for Scrooge and selfishness. In government there is no place for either Scrooge or Shylock.

I suspect you have some kind of idea you are seeking to convey, but you appear to be using words in a unique and non-agreed way, so you may as well be speaking Chinese for all the good it is doing you in getting your point across.

 

[Loren Pechtel]

The question is what long term assets are being bought with it?

Why is that the question?

People who have money spend it in ways they want it to be spent; the people that it passes to as a result do the same. This process repeats until the debt is repaid, and the money is thereby destroyed.

It is quite unlikely that no long-term assets will be built by anyone in that chain of transactions. And there is no particular reason to require that any long term assets are bought by the first or second party to spend the cash. In fact, if the 'small government' brigade are to be believed, the government wastes money on assets that are not as valuable as what the people would have chosen to buy instead - so it is better to give the money to lots of people to spend as they please than it is to use it to build a highway, bridge, or airport that perhaps will see less use than was expected. Of course, if the government does buy a bridge, then lots of bridge construction workers end up with the cash, so the problem largely solves itself.

You've tried this before--take it to it's logical conclusion and the government should borrow infinite sums and turn the world into a utopia.