Thursday, March 16, 2006

National Debt

Keep in mind - this is macro stuff, and has nothing to do with your test. I'm glad you're interested, though! :)

Inflation is a weird thing. Technically, it's a decrease in the value of your money - something that cost $1.00 last year costs, on average, $1.03 now (at 3% annual inflation). This is a good thing - it allows for growth. But our government has a fear of inflation almost as much as a fear of deflation (like during the Depression).

If inflation rises too fast, the government (the Federal Reserve, who controls our money supply) will step in and cut down on the money supply (usually by changing interest rates) in order to get it under control. There's a fear that hyperinflation could occur - and that's talking about something like 1000% annually (which has happened in the past in other countries).

If we just printed $6 trillion to pay off the debt, it limits the scarcity of money and cuts the value. If there are 6 trillion diamonds on the ground, having one diamond won't mean anything. It's the same idea. So - your money becomes worthless. Literally, if they print that much at one time.

The money is owed to people who have loaned money to the government in the form of Treasury bills & bonds. Those people would get some of that printed money in that case, but it would be limited - $1000 here and $2500 there. As the value of the money people had would drop, prices would rise - and probably quickly. Wages would not keep up with the prices, and we would see layoffs as companies could not keep up with their costs.

And with such a huge influx of money at one time, this would happen quickly.

Only a portion of the money is owed to US citizens - we do owe other countries, also, so the currency would be leaving the country, which is a whole different story.

'Course, this is all theory and may not happen at all. But I don't think that politicians are willing to take the chance.

Comments?

7 comments:

Reid said...

I get the inflation part of it, but why can't the government just look at how our money is being spent. If the U.S. Government made little cuts in lots of areas, that would probably get rid of some of the debt. Another thing I'm not sure about is, if the our country is in debt, than the money we use to pay that debt will just make us in debt again. Unless some changes are made our country will always be in debt. This angers me. A lot. Another option that we may have, even though people are naturally greedy and think about themselves and don't look at the whole picture, is that we the citizens, or buisnesses gave, lets say $20 to the government, that's it. 295,734,134 x $20 = $5914682680. I know that the debt increases exponentially but currently we are $8,272,817,047,993.08 in debt. Subtract the amount that I stated before from the debt and you get, $8266902365313.1. It may not seem like a lot looking at the total debt, but seriously, it took a big chunck out, and that was only $20. I know it may be a financial burden for some, but seriously, we need to do something about this debt, otherwise programs that are needed, such as social security and stuff will disappear. Another idea while I'm on my soapbox is regulate welfare. If people are using there welfare check to buy drugs and not to help them get on their feet again, seriously, that needs to stop. If the welfare check could somehow be regulated on how it is spent, I'm sure less people would need them because they would get on their feet a lot quicker. Illegal immigrants, not to insult them or anything, cost us somewhere around 3.1 million dollars in education alone. C'mon, money can be found all over, we as Americans just have to stop being greedy and start being smart. Otherwise, we'll pay in the long run. Thank you:).

gorman said...

What reid failed to realize about the immigrants is that even though they cost us a lot in the educational program, they also take a very low salary, which helps keep prices low for produce and the other products that they help produce. Im sure some of them maybe even get less than minimum wage. The only way to erase the debt is to raise taxes. There is no way people will be willing to give $20 to the government when they already pay a bunch to the government in the form of taxes as it is. The only other way i see us getting out of debt is if the other countries erase the debt and forget about it(lol not going to happen). WE could definetely cut back on some programs that are pretty useless in the government and we could cut back on careless spending, but this will only do so much. THe final line is that taxes are going to have to rise to erase the national debt

KM said...

Wow, you guys have great points!

I'm going to just throw something else out there for you - keep in mind that under the Clinton administration, the budget was balanced (taxes in equaled government spending) for the first time in decades, and the current administration is the first in history to cut taxes during war time, erasing the balanced budget (even a surplus for two years under Clinton, if I recall correctly) and creating a new deficit (which is added to the debt).

Deficit = annual spending is more than what's brought in as income

Debt = what is owed overall (all possible deficits)


This chart was kind of interesting - it's not colored by political party, but by who increased or decreased the debt during their administration:

http://zfacts.com/p/318.html

Surprising for JFK, LBJ, Nixon - the debt decreased during Vietnam. This is as a percentage of GDP, which shows the productivity. Notice the jump in the 1980's - trying to get out of that "stagflation" stuff.

KM

forsnic said...

going off of Km's comment...that is why i can't understand how bush managed to mess us up so much. although clinton had nothing wrt to natural disasters and wars so to speak if you want a shocker go to this site. http://costofwar.com/index.html ok so why can't bush just make more money to pay off our domestic debts, not give money to anyone else that they owe (such as countries, citizens) then the debt would be gone. it would just be nonexistent. there would be no more money printed for the average person. we are always gonna be in debt if the money isnt created. nothing any president can do will effectively reduce the debt. sorry to all of u who wanted to solve that problem. not gonna happen.

Reid said...

Yeah, in a nutshell, I know that all of my ideas were far fetched, and pretty unrealistic, but of course; I'm a dreamer. Anyway, what I'm really here for, is to say that, how will we pay back other nations, and the citizens that we owe? I finally know how to word this question. You can't pay someone with nothing. Increasing the amount of money in circulation, creates inflation. There is almost no way that we could get enough money, with the amount of money we are spending now, to pay off the debt. Maybe we should get rid of credit cards, I don't know. This is the thing that I really want to solve. This problem with debt that the U.S. has really pisses me off. Not to be a downer or anything but seriously, what's going to happen to us. We can't declare bankrupcy. I don't know, all I really know is that we should stop giving money away to other nations, because we don't have any of our own to give, and when we did help other nations, we saw little return for the favor. Eh, but that's politics for ya.

KM said...

Huh - interesting site, Nicki - I like the comparisons. You could have sent 12 million HS grads to college for 4 years on full scholarships for the same amount.

'Course, that would create more people with job skills but no jobs available in this world of college grads getting McDonald's jobs just to pay rent...oops...sorry...I'm not supposed to bring that up to young adults wanting to go to college...

Anyway - creating money to pay off domestic debt causes the same problem as the original post - more money entering the economy, causing inflation without commensurate wage increases. Costs rise, layoffs happen, stagflation again.

Sorry.

Joe hit it before - raise taxes or decrease spending. What politician is ready to say that, though?

forsnic said...

yeah i think joe is pretty much right on that one. it would pretty much be political suicide if you bring up raising taxes, so no one will vote for you, and your clever plan will never be carried out. and since the U.S. is a such a spendaholic we throw money at basically any piece of land with or without a government, it is going to be mighty hard to decrease spending.