The British government has a plan to stop borrowing money

[tupac chopra]

You don't have limit on your credit card?

You can't possibly be that dense. I'm out.

It's a place to start. You will find that there are limits everywhere.....except in theory. But in reality they are there.

It's like the theory that people don't spend if they are worried the price is going down. Sometimes it's true sometimes it's not. Not to mention that everyone has different views of future prices.

 

[T.G.G. Moogly]

How does the Greek example fit your reasoning? Isn't national debt simply collectivized debt? Whether one says that debt is public or private is really academic because the same people possess the debt liability, don't they?

I truly fail to grasp the distinction.

Perhaps there is a limit to debt that is considered optimal and which does the things you explain. I don't know what that is. For me, knowing that there are households and employees where I work who's homes are up for sheriff's sale and who are declaring personal bankruptcy is reason enough for me to manage my debt and even eliminate it.

I cannot understand how my possessing 1 million dollars is the same as my owing someone 1 million dollars.

It's not. It's the same as someone owing you 1 million dollars.

If nobody owes anyone anything, then nobody has any money.

The government borrowing a million dollars is the same thing as the government creating a million dollars.

If the government stops borrowing, then thare is that much less money in existence.

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

The optimum total amount of money (ie the sum of private debt plus public debt) should ideally in theory be whatever amount is sufficient to produce zero real inflation - that is inflation equal to the rate of growth, which implies zero inflation in real terms. For psychological reasons, it turns out that it is very bad indeed if this falls below zero, so the target inflation rate should be a bit more than that; a little inflation is a good thing, because it stops people from wanting to keep their money in their mattresses, and encourages them to invest it instead.

A lot of inflation is not so good either; so it's all about balance. Right now, lots of people like you are paying off debt. So the total amount of money that exists is falling. But the amount of stuff being traded isn't falling as fast (and we would prefer it didn't fall at all) - so to keep money at about the same value (avoid deflation), someone needs to borrow, to make up for all the people who are paying off debt, and keep total debt (and therefore total money supply) close to what it was.

Right now, most economies need a bit of inflation, to get the guys with the cash to invest it in stuff and get things moving. The way to achieve that in a controlled way is to have someone borrow some money - and if the private sector won't do it, the government must.

The difference with government is that it is in control of its own income - the taxpayers don't get to choose not to buy.

Thanks for the response but I still do not understand. Could you address the part I have bolded in my original post? I have more questions but I'll wait until you've addressed the part I have bolded.

 

[bilby]

You can't possibly be that dense. I'm out.

It's a place to start. You will find that there are limits everywhere.....except in theory. But in reality they are there.

It's like the theory that people don't spend if they are worried the price is going down. Sometimes it's true sometimes it's not. Not to mention that everyone has different views of future prices.

Well, thank you for demonstrating that you have no idea about this subject; Now, if you would like to ... let the people who do have a clue contribute, that would be awesome. Yes, we all agree that the world is flat, 'cuz it looks flat, and that's all the evidence we need'.

Or do you have some more homespun wisdom to impart?

All that book learnin' doesn't teach folks nothin'. No learnin' is a match for my gumption.

 

[bilby]

It's not. It's the same as someone owing you 1 million dollars.

If nobody owes anyone anything, then nobody has any money.

The government borrowing a million dollars is the same thing as the government creating a million dollars.

If the government stops borrowing, then thare is that much less money in existence.

Less money means the money that exists is worth more - the process whereby money gets more valuable over time is called deflation, and it is bad because it discourages investment - why take a risk to increase your wealth, when you can get the same result by just holding on to your cash?

The optimum total amount of money (ie the sum of private debt plus public debt) should ideally in theory be whatever amount is sufficient to produce zero real inflation - that is inflation equal to the rate of growth, which implies zero inflation in real terms. For psychological reasons, it turns out that it is very bad indeed if this falls below zero, so the target inflation rate should be a bit more than that; a little inflation is a good thing, because it stops people from wanting to keep their money in their mattresses, and encourages them to invest it instead.

A lot of inflation is not so good either; so it's all about balance. Right now, lots of people like you are paying off debt. So the total amount of money that exists is falling. But the amount of stuff being traded isn't falling as fast (and we would prefer it didn't fall at all) - so to keep money at about the same value (avoid deflation), someone needs to borrow, to make up for all the people who are paying off debt, and keep total debt (and therefore total money supply) close to what it was.

Right now, most economies need a bit of inflation, to get the guys with the cash to invest it in stuff and get things moving. The way to achieve that in a controlled way is to have someone borrow some money - and if the private sector won't do it, the government must.

The difference with government is that it is in control of its own income - the taxpayers don't get to choose not to buy.

Thanks for the response but I still do not understand. Could you address the part I have bolded in my original post? I have more questions but I'll wait until you've addressed the part I have bolded.

Greece - indeed the entire EU, of which Greece is the most badly affected part - is a special case; a nation with no control of it's currency. The Greeks borrowed in Euros; the money thus created made the EU rich, but not evenly - Germany and France got richer, faster, than the southern nations and Ireland.

As a part of the EU, the Greek economy is (unlike typical national economies) NOT mostly internal. That made it less like a nation state, and more like a household. A state that controls its own currency has options that Greece does not - the Germans won't allow inflation in the Euro, and that leaves the Greeks in the shit, hence the talk of dropping out of the Euro. By floating a new Drachma, the Greeks could pay off their debts and get back into solvency.

Indeed, the Greeks couldn't have gotten into this mess so deep, had the loans made to them not been presumed to be backed by all of the EU - particularly Germany. Now that the Germans have suddenly decided to hang Greece out to dry, they are fucked.

 

[corpsman]

It's a place to start. You will find that there are limits everywhere.....except in theory. But in reality they are there.

It's like the theory that people don't spend if they are worried the price is going down. Sometimes it's true sometimes it's not. Not to mention that everyone has different views of future prices.

Well, thank you for demonstrating that you have no idea about this subject; Now, if you would like to ... let the people who do have a clue contribute, that would be awesome. Yes, we all agree that the world is flat, 'cuz it looks flat, and that's all the evidence we need'.

Or do you have some more homespun wisdom to impart?

All that book learnin' doesn't teach folks nothin'. No learnin' is a match for my gumption.

Tell me, sir, is applied assholery a required subject in the Oz? Or is it done in secret down by the sheep pens?

 

[Metaphor]

That is an interesting theory, but in practice the world doesn't work like that. Try telling your wife that you are going to wait to buy her a home because you think prices will be lower in ten years time.
In other words all you have is a theory which does not apply to the real world.

The reason that won't fly with my wife is that we don't currently have widespread deflation. Not because she wouldn't agree with me if we did.

Why buy a house today if it will lose value at a rate greater than the cost of renting the house?

There are unique non-investment reasons to buy a house, even when the housing service it provides to you could be bought more cheaply by renting.

For one thing, to never again have to have a vile, degenerate, lying, thieving, smug, incompetent, probably-kitten-eating real estate agent drag her loathsome body around your sanctuary, claiming your hob was 'greasy' (a hob that had been cleaned by Asians, mind) it's worth the price.

 

[dismal]

Why? Because we have produced a filled in hole instead of the nothing we got in #1?

Perhaps you should attempt the first part - what is growth?

Digging and filling the hole produced nothing but what you are forgetting about is that you paid people to dig and other people to fill. They have money in their pockets now and they want to go out and eat dinner after doing all that manual labor. So they are satisfying their hunger (something that did not happen in #1) and the people in the restaurant and all the way down to the farmer are getting paid money for something they did. So now those people have the ability to buy something and also the motivation to produce even more. Thus, we we can define your #3 scenario as economic growth. All other things equal it is something we want to do.

Don't the people I borrowed the money from have less money in their pocket? Don't they now not do whatever they would have done with that money if the government had not redeployed it into filled in holes? Wouldn't some of those people the government paid to produce filled in holes find some other use for their labor, producing something of value to someone?

We do not prosper by redirecting limited resources to things that create no value.

 

[T.G.G. Moogly]

Thanks for the response but I still do not understand. Could you address the part I have bolded in my original post? I have more questions but I'll wait until you've addressed the part I have bolded.

Greece - indeed the entire EU, of which Greece is the most badly affected part - is a special case; a nation with no control of it's currency. The Greeks borrowed in Euros; the money thus created made the EU rich, but not evenly - Germany and France got richer, faster, than the southern nations and Ireland.

As a part of the EU, the Greek economy is (unlike typical national economies) NOT mostly internal. That made it less like a nation state, and more like a household. A state that controls its own currency has options that Greece does not - the Germans won't allow inflation in the Euro, and that leaves the Greeks in the shit, hence the talk of dropping out of the Euro. By floating a new Drachma, the Greeks could pay off their debts and get back into solvency.

Indeed, the Greeks couldn't have gotten into this mess so deep, had the loans made to them not been presumed to be backed by all of the EU - particularly Germany. Now that the Germans have suddenly decided to hang Greece out to dry, they are fucked.

I guess I'll claim ignorance and continue to live my life debt free. That doesn't mean I won't take advantage of credit from time to time.

It just seems to me that nations are collections of households. Governments are taxpayers. Internal/External is a distinction is just do not believe is there. I'm reminded of the story about three persons - an engineer, a minister and an economist - trapped on an island and without food. When cans of food wash up on shore and they have no tools to open them the engineer tells them how he would open the cans to get the food. The minister tells them to pray for a miracle. The economist says, "imagine a can opener."

I do not doubt there is a place for borrowing and credit, which obviously produces debt. Where I think you and others are wrong is when you say that governments are different from taxpayers, that households are different from groups of households. To me this is 'pay no attention to the man behind the curtain' thinking. How is a government borrowing money any different than every taxpayer taking out a loan? Don't misunderstand, I'm not so naïve to not think there are ways to become fabulously rich if enough people swallow that line of reasoning, only that in the long run it fails for the vast majority of people.

 

[Horatio Parker]

Greece - indeed the entire EU, of which Greece is the most badly affected part - is a special case; a nation with no control of it's currency. The Greeks borrowed in Euros; the money thus created made the EU rich, but not evenly - Germany and France got richer, faster, than the southern nations and Ireland.

As a part of the EU, the Greek economy is (unlike typical national economies) NOT mostly internal. That made it less like a nation state, and more like a household. A state that controls its own currency has options that Greece does not - the Germans won't allow inflation in the Euro, and that leaves the Greeks in the shit, hence the talk of dropping out of the Euro. By floating a new Drachma, the Greeks could pay off their debts and get back into solvency.

Indeed, the Greeks couldn't have gotten into this mess so deep, had the loans made to them not been presumed to be backed by all of the EU - particularly Germany. Now that the Germans have suddenly decided to hang Greece out to dry, they are fucked.

I guess I'll claim ignorance and continue to live my life debt free. That doesn't mean I won't take advantage of credit from time to time.

It just seems to me that nations are collections of households. Governments are taxpayers. Internal/External is a distinction is just do not believe is there. I'm reminded of the story about three persons - an engineer, a minister and an economist - trapped on an island and without food. When cans of food wash up on shore and they have no tools to open them the engineer tells them how he would open the cans to get the food. The minister tells them to pray for a miracle. The economist says, "imagine a can opener."

I do not doubt there is a place for borrowing and credit, which obviously produces debt. Where I think you and others are wrong is when you say that governments are different from taxpayers, that households are different from groups of households. To me this is 'pay no attention to the man behind the curtain' thinking. How is a government borrowing money any different than every taxpayer taking out a loan? Don't misunderstand, I'm not so naïve to not think there are ways to become fabulously rich if enough people swallow that line of reasoning, only that in the long run it fails for the vast majority of people.

Countries that control their own currencies can devalue them, which makes their debt cheaper. That's the nub of how the Greek situation relates to this discussion. Greece has no control, cannot devalue, and so is crushed by the debt.

The process by which banks create money is so simple that the mind is repelled.

- John Kenneth Galbraith

 

[dismal]

I guess I'll claim ignorance and continue to live my life debt free. That doesn't mean I won't take advantage of credit from time to time.

It just seems to me that nations are collections of households. Governments are taxpayers. Internal/External is a distinction is just do not believe is there. I'm reminded of the story about three persons - an engineer, a minister and an economist - trapped on an island and without food. When cans of food wash up on shore and they have no tools to open them the engineer tells them how he would open the cans to get the food. The minister tells them to pray for a miracle. The economist says, "imagine a can opener."

I do not doubt there is a place for borrowing and credit, which obviously produces debt. Where I think you and others are wrong is when you say that governments are different from taxpayers, that households are different from groups of households. To me this is 'pay no attention to the man behind the curtain' thinking. How is a government borrowing money any different than every taxpayer taking out a loan? Don't misunderstand, I'm not so naïve to not think there are ways to become fabulously rich if enough people swallow that line of reasoning, only that in the long run it fails for the vast majority of people.

Countries that control their own currencies can devalue them, which makes their debt cheaper. That's the nub of how the Greek situation relates to this discussion. Greece has no control, cannot devalue, and so is crushed by the debt.

As opposed to places like Venezuela and Zimbabwe that are crushed by the devaluation.

 

[whichphilosophy]

The British government deciding to stop borrowing? Why, is it coming up to election time?

 

[beero1000]

Digging and filling the hole produced nothing but what you are forgetting about is that you paid people to dig and other people to fill. They have money in their pockets now and they want to go out and eat dinner after doing all that manual labor. So they are satisfying their hunger (something that did not happen in #1) and the people in the restaurant and all the way down to the farmer are getting paid money for something they did. So now those people have the ability to buy something and also the motivation to produce even more. Thus, we we can define your #3 scenario as economic growth. All other things equal it is something we want to do.

Don't the people I borrowed the money from have less money in their pocket? Don't they now not do whatever they would have done with that money if the government had not redeployed it into filled in holes? Wouldn't some of those people the government paid to produce filled in holes find some other use for their labor, producing something of value to someone?

We do not prosper by redirecting limited resources to things that create no value.

If I buy a house, does my net worth magically go down because I don't have that cash anymore? If a bank loans out money, does their net worth suddenly go down because they don't have that cash anymore?

Having someone owe you money is WORTH MONEY.

In other news, water is wet and there are still monkeys.

 

[T.G.G. Moogly]

Countries that control their own currencies can devalue them, which makes their debt cheaper. That's the nub of how the Greek situation relates to this discussion. Greece has no control, cannot devalue, and so is crushed by the debt.

So when a nation of households has too much debt it essentially transfers the debt to another nation of households?

I'm not trying to be snarky, I'm trying to understand.

 

[Horatio Parker]

Countries that control their own currencies can devalue them, which makes their debt cheaper. That's the nub of how the Greek situation relates to this discussion. Greece has no control, cannot devalue, and so is crushed by the debt.

So when a nation of households has too much debt it essentially transfers the debt to another nation of households?

I'm not trying to be snarky, I'm trying to understand.

Repaying loans isn't a law of nature; sometimes they go bad. That's why interest is paid, to compensate for risk.

If no loans go bad, there is no risk.

When debt isn't repaid, it's written off, disappeared. A loss, like a lost bet(which it is).

Countries with their own currency can't go completely broke, though, because, unlike households, they can create money. Back to the example of Greece, Greece doesn't have their own currency and can't create money.

 

[dismal]

Don't the people I borrowed the money from have less money in their pocket? Don't they now not do whatever they would have done with that money if the government had not redeployed it into filled in holes? Wouldn't some of those people the government paid to produce filled in holes find some other use for their labor, producing something of value to someone?

We do not prosper by redirecting limited resources to things that create no value.

If I buy a house, does my net worth magically go down because I don't have that cash anymore? If a bank loans out money, does their net worth suddenly go down because they don't have that cash anymore?

Having someone owe you money is WORTH MONEY.

In other news, water is wet and there are still monkeys.

Ah. Not sure what this has to do with my post.

 

[T.G.G. Moogly]

So when a nation of households has too much debt it essentially transfers the debt to another nation of households?

I'm not trying to be snarky, I'm trying to understand.

Repaying loans isn't a law of nature; sometimes they go bad. That's why interest is paid, to compensate for risk.

If no loans go bad, there is no risk.

When debt isn't repaid, it's written off, disappeared. A loss, like a lost bet(which it is).

Countries with their own currency can't go completely broke, though, because, unlike households, they can create money. Back to the example of Greece, Greece doesn't have their own currency and can't create money.

I understand all that. So we are in agreement I take it.

 

[Hawkingfan]

Don't the people I borrowed the money from have less money in their pocket?

They are getting that money back. Thus the term, 'borrowed'.

Don't they now not do whatever they would have done with that money if the government had not redeployed it into filled in holes?

No. Both goals are met. The holes get filled and the lender gets to do whatever they want with the money they are owed when they get it back.

 

[corpsman]

Countries that control their own currencies can devalue them, which makes their debt cheaper. That's the nub of how the Greek situation relates to this discussion. Greece has no control, cannot devalue, and so is crushed by the debt.

As opposed to places like Venezuela and Zimbabwe that are crushed by the devaluation.

You got that right. Zimbabwe, once the wealthiest per capita nation in Africa, now a third of the population are refugees from famine.

 

[dismal]

They are getting that money back. Thus the term, 'borrowed'.

Don't they now not do whatever they would have done with that money if the government had not redeployed it into filled in holes?

No. Both goals are met. The holes get filled and the lender gets to do whatever they want with the money they are owed when they get it back.

I didn't realize this point was so complicated. Let's try it this way:

Let's say I get a bonus from work of $50,000.

I am considering doing the following things with it:

1) Opening up a hamburger stand
2) Lending it to someone who wants to open up a hamburger stand
3) Buying a nice new car
4) Lending it to the US government so they can pay people to dig up holes and fill them back in
5) Spending most of it on a massive binge of booze and whores and wasting the rest

If I choose #4 it precludes me from spending it on #s 1, 2, 3 and 5.

1, 2, 3, and 5 also put money into people's hands and result in things being produced. The filed in holes have an opportunity cost which is all the other things that could have been done with the labor and capital.

 

[Horatio Parker]

Repaying loans isn't a law of nature; sometimes they go bad. That's why interest is paid, to compensate for risk.

If no loans go bad, there is no risk.

When debt isn't repaid, it's written off, disappeared. A loss, like a lost bet(which it is).

Countries with their own currency can't go completely broke, though, because, unlike households, they can create money. Back to the example of Greece, Greece doesn't have their own currency and can't create money.

I understand all that. So we are in agreement I take it.

I thought you didn't understand the difference between countries with sovereign currency and households.