A serious question about our economy and the national debt.

[weed]

I'm not studied up on economics in any way though I can understand the basics of supply and demand, the effect of unemployment and the theory behind the trickle down.

What I don't understand is how the national debt affects our economy. No one seems to mention much the cost the conflict in Iraq is going to cost us but I know it's increasing our deficit daily. Now we're talking about needing several hundred thousand troops in post-war Iraq for goodness knows how long. Got to pay for that, too.

The less taxes the IRS collects, the more the debt accrues, right?

The higher the debt, the less the US$ is worth, right?

I've heard that war is good for the economy because supplies are needed (that increased demand thing) but the US gov. is still paying for it, aren't they? Increasing the debt? Doesn't that kind of negate the good stimulus part of it?

So how is our economy going to survive the war?

 

[Guest]

 

[weed]

Ahhh, the national debt.


I think it would be paid off if we collected all the money other countries owe us.

We borrow from one, to give to another.

WAr has always had a way of helping the economy, maybe thats why Bush is so desperate?

Tax cuts encourage people to spend, if they spend, the economy grows.

Doesn't the national debt affect interest rates though? People won't want to spend if the interest rates are too high.

 

[Guest]

 

[Tungwagger]

I'm not studied up on economics in any way though I can understand the basics of supply and demand, the effect of unemployment and the theory behind the trickle down.

What I don't understand is how the national debt affects our economy. No one seems to mention much the cost the conflict in Iraq is going to cost us but I know it's increasing our deficit daily. Now we're talking about needing several hundred thousand troops in post-war Iraq for goodness knows how long. Got to pay for that, too.

The less taxes the IRS collects, the more the debt accrues, right?

The higher the debt, the less the US$ is worth, right?

I've heard that war is good for the economy because supplies are needed (that increased demand thing) but the US gov. is still paying for it, aren't they? Increasing the debt? Doesn't that kind of negate the good stimulus part of it?

So how is our economy going to survive the war?

If war is good for the economy wouldn't that mean that (dare I say it?) trickle down economics might actually work?

Reagan proved that reducing taxes increased the revenue generated to the Federal Government, unfortunately we had a cold war to fight which increased spending at the same time..

Hell, even JFK advocated reducing taxes to generate more revenue. But nobody on the left questioned his motives because he was a good Democrat...

 

[badasschick]

I wish some people would realize that the national debt was created to pay for wars. Hamilton, the first Treasurer created the debt to pay for the revolutionary war, but alas the country got into another and yet another conflict before it was paid off, and thus it grows.

 

[Boreal_Dork]

Yes, the national debt typically does have a major effect on overall interest rates. The more dollars that are put into buying treasuries, the less dollars that are available to invest elsewhere, so consumer and corporate interest rates rise. However, at this time, the high national trade deficit is currently indirectly financing the budgetary deficit. We are getting $45 billion a month in goods from the rest of the world that we cannot pay for, and since they need to put the money somewhere, the foreign nations (primarily Asian) invest in US treasury securities and stocks, keeping US interest rates artificially low and stock market prices artificially high...

Nice way to enjoy artificial prosperity, as long as the rest of the world is willing to fund it...

(there was a decent article about this in today's Wall Street Journal in layman's terms, if you are interested.)

 

[alltherage]

The impact of National Debt depends on why the Dept exists, and whether it is a strutural problem or one born of special circumstances. For example, if the country were in a depression the federal government might run deficits in order to pump more money into the economy and put people to work. Or, as is the case now, it could cut taxes on the wealthy, screw working americans, neglect healthcare until it falls apart, go beat the hell out of third world countries all the while claiming to have the best interest of its citizens at heart. Bushes deficit and national debt looks more and more like a structural creature and if it is interest rates, jobs and productivity will be inpacted.

 

[eagleyez]

Re: Re: A serious question about our economy and the national debt.

If war is good for the economy wouldn't that mean that (dare I say it?) trickle down economics might actually work?

Reagan proved that reducing taxes increased the revenue generated to the Federal Government, unfortunately we had a cold war to fight which increased spending at the same time..

Hell, even JFK advocated reducing taxes to generate more revenue. But nobody on the left questioned his motives because he was a good Democrat...

Reagan was a puppet put in office to feed the private interests that got him elected...slush money and tax cuts for the biggees, a good ass reaming for the rest of us...I mean cmon, remember the 80's.

fact..more indictments in the Reagan Administration that any in history except US Grant...In 1870's, Grant was drunk on his watch, Reagan was upstairs sleeping while the inmates ran the asylum...daddy bush included....

Now Bush Jr playing the same game-blow the budget, explode the deficits, the new evil empire du jour is Iraq... then watch the economy go further in the dumper..

IMHO...



edited to say ..Keensian economics AKA trickle down, was first tried in the 20s under Coolige Harding Hoover...led tothe depression..

WW2 got us out the depression
along with the innovative and courageous leadership of FDR...

Bush-FDR,,um not even on the same page...

 

[weed]

Re: Re: A serious question about our economy and the national debt.

If war is good for the economy wouldn't that mean that (dare I say it?) trickle down economics might actually work?

Reagan proved that reducing taxes increased the revenue generated to the Federal Government, unfortunately we had a cold war to fight which increased spending at the same time..

Hell, even JFK advocated reducing taxes to generate more revenue. But nobody on the left questioned his motives because he was a good Democrat...

I don't get the trickle down comparison to war - war helps the economy by increasing demand on the arms' and other industries. That's more of a supply and demand, need more workers, need more industry thing than a give the upper classes more money to spend thing, isn't it? Trickle down is based on the idea that the upper classes will invest more not that the economy will demand more in my understanding.

I'm not here to get into a poli-tongue lashing. I know I have a leftist understanding of things but if someone could explain it to me different so it made sense I would listen.

 

[weed]

I wish some people would realize that the national debt was created to pay for wars. Hamilton, the first Treasurer created the debt to pay for the revolutionary war, but alas the country got into another and yet another conflict before it was paid off, and thus it grows.

Faster than ever, it seems.

 

[HeavyStick]

http://www.publicdebt.treas.gov/

 

[weed]

Yes, the national debt typically does have a major effect on overall interest rates. The more dollars that are put into buying treasuries, the less dollars that are available to invest elsewhere, so consumer and corporate interest rates rise. However, at this time, the high national trade deficit is currently indirectly financing the budgetary deficit. We are getting $45 billion a month in goods from the rest of the world that we cannot pay for, and since they need to put the money somewhere, the foreign nations (primarily Asian) invest in US treasury securities and stocks, keeping US interest rates artificially low and stock market prices artificially high...

Nice way to enjoy artificial prosperity, as long as the rest of the world is willing to fund it...

(there was a decent article about this in today's Wall Street Journal in layman's terms, if you are interested.)

If it's paying for the deficit why are they having to dip into federal pension funds and talk of getting rid of the debt limit?

And if the dollar value decreases will other nations want to continue to invest in our securities?

And isn't inflation going to come into to it with gas prices up up up and probably going to go up further if/when war actually hits?


Is there a link? I would like to check it out, thanks.

 

[eagleyez]

Re: Re: Re: A serious question about our economy and the national debt.

I don't get the trickle down comparison to war - war helps the economy by increasing demand on the arms' and other industries. That's more of a supply and demand, need more workers, need more industry thing than a give the upper classes more money to spend thing, isn't it? Trickle down is based on the idea that the upper classes will invest more not that the economy will demand more in my understanding.

I'm not here to get into a poli-tongue lashing. I know I have a leftist understanding of things but if someone could explain it to me different so it made sense I would listen.

Economist Keene postulated and wrote the theory that giving tax incentives and regulatory loopholes to big companies and wealthy investment entities would create a stampede of job creation and re-investment, thus the benefits, obvious for those directly getting them, would also "trickle down" to the masses in our economy.

It was attempted in earnest in the 20's under Hoover . Harding, Coolidge admins... and precipitated the tinsel economy of the roaring 20's. vast speculatory wealth from wall street...

its never worked, except in Keene's book, but the fat cats got rich and then turned tail when things got tough...sound familiar?

its the mantra of the Repubs...has been ever since...

hope this helps a little...

 

[HeavyStick]

http://www.publicdebt.treas.gov/opd/opdpdodt.htm

 

[weed]

The impact of National Debt depends on why the Dept exists, and whether it is a strutural problem or one born of special circumstances. For example, if the country were in a depression the federal government might run deficits in order to pump more money into the economy and put people to work. Or, as is the case now, it could cut taxes on the wealthy, screw working americans, neglect healthcare until it falls apart, go beat the hell out of third world countries all the while claiming to have the best interest of its citizens at heart. Bushes deficit and national debt looks more and more like a structural creature and if it is interest rates, jobs and productivity will be inpacted.

That's what worries me. The economy is bad with low interest rates now before impact has hit.

 

[patient1]

I've heard that war is good for the economy because supplies are needed (that increased demand thing) but the US gov. is still paying for it, aren't they? Increasing the debt? Doesn't that kind of negate the good stimulus part of it?

So how is our economy going to survive the war?

Economics can be anybody's guess , because the psychology isn't always predictable.

It could stimulate the economy if it makes people feel safe again.

It could utilize idle production capacity ( for example, the chartering of idle planes & pilots to airlift troops & supplies.), rather than laying those people off & having them draw money as long as they continue to produce nothing.

War also drives technology- The last time was a big boost to Ratheon because of the Patriot missle. So it increased their sales & interest in what anti-missle defenses might be possible.

It forces development of medicine, too. Burn & trauma treatments.
Our anti-biotic industry was basically spawned to treat & prevent infections in World War II.

The Spanish-American War precipitated the Panama Canal.


So, it is possible that amid all that destruction & waste, that some capital will be put to more efficient use than normal.

Our economy survived World War II , this is nothing in terms of % of productivity, budget, etc.


Then there's the issue of newer technology in post-war Iraq resulting in plentiful & cheap oil to pay for the war, or stimulate the world economy.


It depends how the war goes, & for how long. It depends how people re-act to it.

It's a risk.

 

[ma_guy]

Any real discussion of debt and it's effects is well beyond what can be done on a forum like this but "debt" isn't always a negative. People take out car and home loans everyday and very few people ever consider those to be "bad debt". The overall government debt only becomes a major concern when it reaches levels where it hinders the governments ability to react - i.e. fund emergencies and provide necessary infrastructure.

Pretty much any nation can easily support a debt of less than 8% of their GDP. Anything between 8% and 12% runs into the caution range and over 12% is usually considered bad.

 

[weed]

Thanks for the info. everyone...food for thought.

The first link is a bit busy for me right now but I'll get back to it, Heavy.

Now I've just a bit more reading of a more pleasurable nature left in me and I'm off to bed.

 

[Blindinthedark]

Any real discussion of debt and it's effects is well beyond what can be done on a forum like this but "debt" isn't always a negative. People take out car and home loans everyday and very few people ever consider those to be "bad debt". The overall government debt only becomes a major concern when it reaches levels where it hinders the governments ability to react - i.e. fund emergencies and provide necessary infrastructure.

Pretty much any nation can easily support a debt of less than 8% of their GDP. Anything between 8% and 12% runs into the caution range and over 12% is usually considered bad.

But home and car loans are a bad debt in a way seeing as you usually pay double what the item is worth by the end.

That's money that could have been spent else where and what with depreciation you could actully lose money on your investment.

On the otherhand you wouldn't have a house or car otherwise.

 

[eagleyez]

Thanks for the info. everyone...food for thought.

The first link is a bit busy for me right now but I'll get back to it, Heavy.

Now I've just a bit more reading of a more pleasurable nature left in me and I'm off to bed.

but if you find youself needing something to put you to sleep later..

any text on Economics is sure to do it....zzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzzz....

 

[LovetoGiveRoses]

I don't like seeing debt either. But, we have to deal with this war situation. Spending in the rest of the economy, except for "pet" projects in education (I'm in favor of) and a couple other areas, is remaining fairly flat. If we can be done with this war quickly and minimize the cost (or offset it with some revenue) of ongoing "maintenance", then things should spring back nicely.

The economy is in a funk in part, due to the uncertainty of the situation with Iraq. Uncertainty, of course, means that there are questions about the best use of resources (markets are a mechanism for allocating resources). Also, with uncertainty comes risk.

 

[ma_guy]

But home and car loans are a bad debt in a way seeing as you usually pay double what the item is worth by the end.

That's money that could have been spent else where and what with depreciation you could actully lose money on your investment.

"Good Debt" and "Bad Debt" are determined by the lender, not the borrower and it has nothing to do with what else could have been done with the money. It is the amount you borrow not the interest you pay back on that borrowed amount. If you take out a $20,000 car loan the debt is never more than $20,000. What you pay back to the bank is Debt + Interest.

While that may not be the most cost effective means of getting a car for you, from the bank's prespective as long as the car retains a value equeal to or higher than the outstanding debt it's a good debt. If you default they can repo the car, sell it to someone else and get their money back. (Which is why many banks won't give you a loan right now on pieces of crap like the Hyundai and Kia lines.. They don't hold any value..)

 

[LovetoGiveRoses]

But home and car loans are a bad debt in a way seeing as you usually pay double what the item is worth by the end.

That's money that could have been spent else where and what with depreciation you could actully lose money on your investment.

On the otherhand you wouldn't have a house or car otherwise.

With a home loan..you get ownership of the "asset' earlier (than saving up and purchasing it for cash) and that asset can appreciate (though they sometimes depreciate). If you purchase a $100K home with 20% down, and it appreciates 20% in a year, then you have a $120K home with $40K that is yours (and about $80K less the principle that you've paid that's still owned by the bank...so that debt is often good...

How many people are there who are paying a $1000/month morgage on a place that would cost $1800 to rent? Lots probably.

 

[LovetoGiveRoses]

Someone above complained about tax reductions going to the rich... the tax cuts are going to the people who pay taxes...at the end of this new tax approach, only the top 50% of earners will pay any income tax at all. Do you want to give tax cuts to people who don't pay taxes? That's not a tax reduction plan, it's another income redistribution plan.