"Living Beyond Our Means..."

[Solitaire]

"The credit card is maxed out!"
"There is no money left!"

The above and no doubt more slogans are constantly parroted by politicians and economists to the public to justify existing or future rises in taxes and/or cuts to government funded services.

Well... It's really about distribution. You need workers to work on your government projects which you pull out of the private sector. The solution to this problem isn't to create more workers to fill those roles, but instead to raise inflation through money printing. The end result is the people wind up with less.

Okay. Let's see the point by point.

The ideas behind this are:

(1) Government spending is funded by taxes.

This is wrong. Government spending is largely funded by the creation of money by the central bank, which the government controls. Tax is just used to cancel out most of the money spent into the economy by the government. Without government spending there would be no money to pay tax. The amount of spending that isn't cancelled out by tax is called the deficit and adds to something called government debt.

A properly run central bank provides a monetary base equivalent to the needs of the people in the economy. If the population expands, let us say, the central bank prints up and inject new money to support the average salary of the new population. If the population declines, on the other hand, the central bank will remove the proper amount of money from the economy to keep things on an even keel.

So there isn't any cancelling out. And money will be there to pay taxes.

(2) Any government spending beyond what is raised through taxes must be borrowed from the private sector.

This is technically correct, but is a legal requirement rather than fundamental. I.e., the government could change the law and fund all its spending from money created by its central bank. The only losers would be those who get paid the interest.

Dude, that's literally Zimbabwe or Venezuela or Argentina. (The Trump administration thinks this way and want to bring back the inflation of the 1970s with, of course, wage and price controls.)

The real losers would be the workers. The laws of supply and demand would drive up prices faster than wages. The people loaning money would quickly raise interest rates on the loaned money to make up for the inflation and the non-linear effects of the inflation on the loan. Basically, with inflation you wind up with a smaller economy.

(3) The private sector will demand ever higher interest on its loans to the government if it thinks there is a higher probability it will not get repaid.

This is merely a consequence of (2). Remove (2) and, in principle there is no limit on how much money a government with its own central bank could spend. It could run a deficit every year and let its debt rise forever.

This is literally the opposite of Modern Money Theory, which says you can reasonably raise government debt at the rate of economic growth.

But isn't debt bad? Don't we all have to live within our means? Yes, but for a government that can create money the means are not money, but resources. Beyond physical land, one of the biggest resources a government has at its disposal are its citizens. By investing in its human resource a government can make its citizens more productive. By investing in infrastructure a government can make its land more productive.

Alas, often governments run up debt because it's seen as free money. It's not. It's exactly like seed corn. Governments crowd out the private sector borrowing which forces other borrowers out the market. You never see the houses not built because people cannot get the money for a loan. The same for business and industry. Credit is literally the lifeblood of economies.

Clearly the government just giving every one of its citizens a gazillion tokens would lead to massive inflation and make those tokens worthless. But if the government spent on things such as public health, infrastructure, education, childcare, social care, etc. it would allow (and stimulate) the economy to grow. The other side to the coin is that when the government cuts spending on those things its citizens become sicker, stupider and more tired and stressed.

Maybe. You need intelligent people in government to make the right moves, which right now isn't the case in the United States.

Another aspect to this is that if the population gets larger then government spending should increase. For example, as healthy young men and women of working age trek from the global south this is increasing the human resources in your country. Given the demographics of most developed countries this is probably a very good thing if we invest in and make use of these additional human resources.

It depends, the government needs to look at the needs of the country and decide whether they can support the added population. Growth for growth sake doesn't work.

Government debt is just a number. It should not determine or constrain what the government does or does not do. Only real resources constrain the government.

It's not just a number. It's the worker's life savings. You take that away from them and you force them to work harder and longer during their lives.

 

[Ivor the Engineer]

Your formula is flawed; for starters r+0.5 is adding 50% to the rate, not 50 basis points. Let's use your example, where the base rate is 5%. If we have a billion dollars in both loans and deposits, then we receive 55 million in interest and pay out 45 million, netting 10 million. If the base rate is 7% instead, we receive 75 million in interest and pay 65 million, netting 10 million again. The bank makes precisely 1% because that is the spread between what it charges borrowers and what it pays depositors.

Apologies for the error. That's what I get for rushing out a post. However, there's a much more massive mistake I made: In my calculations I assumed loans were the mirror opposite of deposits! While the interest on deposits compounds, loans (from respectable lenders) at least have the interest paid back on a regular basis. Mortgages typically also have the principal being repaid over the term of the loan. This means that we are both wrong, but I am more so!

Rather than risk making another typo in a formula I've used a couple of online calculators for loans and savings.

Using an example of £1M over 25 years with base rates of 5% and 2% and with loans offered at bate rate + 0.5% and deposits at base rate - 0.5%:

For a loan with principal repayment:

@5.5% the interest paid would be £842,262
@2.5% the interest paid would be £345,850

For a deposit:

@4.5% the interest paid would be £2,005,430
@1.5% the interest paid would be £450,950

At 5% base rate the profit for the bank is £842,262 - £2,005,430 = -£1,163,168.
At 2% base rate the profit for the bank is £345,850 - £450,950 = -£105,100.

So what this means (ignoring other factors such as interest paid on central bank reserves) is that as the base rate rises a commercial bank would want to increase its loans to deposits ratio and/or not increase the interest paid on deposits.

The mistake you made was setting 'n' in the formula for amount after n units of time at interest rate 'r' ( = Principal . (1 + r)^n ) to 1 and only considering the case where it is linear. Only under this special case does the difference equal the spread. With n > 1 the straight lines become curves and a 1% difference in interest rate leads to more than 1% difference. E.g.,

£1M over 25 years:

@4% the interest paid would be £1,665,840
@5% the interest paid would be £2,386,350

The difference in interest paid at 4% and 5% is £720,510, which is 72% of the £1M deposited.

 

[Ivor the Engineer]

Banks don't lend money that has been deposited. They create new deposits when they make loans. And any interest they pay on transaction accounts is minimal.

I never said they did. But they do have to pay interest on deposits and earn interest on loans.

 

[psionl0]

While the interest on deposits compounds, loans (from respectable lenders) at least have the interest paid back on a regular basis. Mortgages typically also have the principal being repaid over the term of the loan.

This is not realistic. As the bank receives loan repayments, they will make new loans. Similarly, depositors will make withdrawals from their accounts. Thus, compounding is not relevant. Only the outstanding deposit or loan principal matters to the bank. These will vary depending on market conditions and interest rates as set by the central bank.

I never said they did. But they do have to pay interest on deposits and earn interest on loans.

Banks don't offer interest on checking accounts where I live. In fact, they usually charge fees for them.

 

[Ivor the Engineer]

Well... It's really about distribution. You need workers to work on your government projects which you pull out of the private sector. The solution to this problem isn't to create more workers to fill those roles, but instead to raise inflation through money printing. The end result is the people wind up with less.

Why does government funding pull workers out of the private sector?

Okay. Let's see the point by point.

A properly run central bank provides a monetary base equivalent to the needs of the people in the economy. If the population expands, let us say, the central bank prints up and inject new money to support the average salary of the new population. If the population declines, on the other hand, the central bank will remove the proper amount of money from the economy to keep things on an even keel.

So there isn't any cancelling out. And money will be there to pay taxes.

Taxes cancel out government spending. It's a simple accounting identity: Spending - Tax Revenue = Deficit.

Dude, that's literally Zimbabwe or Venezuela or Argentina. (The Trump administration thinks this way and want to bring back the inflation of the 1970s with, of course, wage and price controls.)

Not necessarily.

The real losers would be the workers. The laws of supply and demand would drive up prices faster than wages. The people loaning money would quickly raise interest rates on the loaned money to make up for the inflation and the non-linear effects of the inflation on the loan. Basically, with inflation you wind up with a smaller economy.

The laws of supply and demand are not laws in any sense of the word. That aside, there is no law that says governments not borrowing from the private sector automatically leads to inflation.

This is literally the opposite of Modern Money Theory, which says you can reasonably raise government debt at the rate of economic growth.

It is not the opposite of MMT. If the government spending in excess of tax revenue leads to sufficient economic growth then the deficit is perfectly manageable because the ratio of debt to GDP stabilises. On the other hand, does reducing or removing government funding for things such as childcare, healthcare and education make people more productive?

Alas, often governments run up debt because it's seen as free money. It's not. It's exactly like seed corn.

You're going to have to explain this more because I have no idea what you're trying to say.

Governments crowd out the private sector borrowing which forces other borrowers out the market. You never see the houses not built because people cannot get the money for a loan. The same for business and industry. Credit is literally the lifeblood of economies.

How does the government crowd out private sector borrowing by not borrowing from the private sector?

Maybe. You need intelligent people in government to make the right moves, which right now isn't the case in the United States.

I agree. If the USA continuously elects economically incompetent leaders then its economy will collapse.

It depends, the government needs to look at the needs of the country and decide whether they can support the added population. Growth for growth sake doesn't work.

In developed countries with aging populations young healthy immigrants should be welcomed with open arms. Old people are expensive to keep around.

It's not just a number. It's the worker's life savings. You take that away from them and you force them to work harder and longer during their lives.

It is just a number. By itself it is meaningless. It's certainly not the worker's life savings.

 

[Brainster]

Apologies for the error. That's what I get for rushing out a post. However, there's a much more massive mistake I made: In my calculations I assumed loans were the mirror opposite of deposits! While the interest on deposits compounds, loans (from respectable lenders) at least have the interest paid back on a regular basis. Mortgages typically also have the principal being repaid over the term of the loan. This means that we are both wrong, but I am more so!

Rather than risk making another typo in a formula I've used a couple of online calculators for loans and savings.

Using an example of £1M over 25 years with base rates of 5% and 2% and with loans offered at bate rate + 0.5% and deposits at base rate - 0.5%:

For a loan with principal repayment:

@5.5% the interest paid would be £842,262
@2.5% the interest paid would be £345,850

For a deposit:

@4.5% the interest paid would be £2,005,430
@1.5% the interest paid would be £450,950

At 5% base rate the profit for the bank is £842,262 - £2,005,430 = -£1,163,168.
At 2% base rate the profit for the bank is £345,850 - £450,950 = -£105,100.

Not sure why you are introducing amortization at this point, but you do see that your example has the bank making a worse "profit" (really a larger loss) at the 5% base rate versus the the 2% rate--the opposite of what you claim should happen.

So what this means (ignoring other factors such as interest paid on central bank reserves) is that as the base rate rises a commercial bank would want to increase its loans to deposits ratio and/or not increase the interest paid on deposits.

Yes, but I would assume they would want to do both those things regardless of the base rate.

The mistake you made was setting 'n' in the formula for amount after n units of time at interest rate 'r' ( = Principal . (1 + r)^n ) to 1 and only considering the case where it is linear. Only under this special case does the difference equal the spread. With n > 1 the straight lines become curves and a 1% difference in interest rate leads to more than 1% difference. E.g.,

£1M over 25 years:

@4% the interest paid would be £1,665,840
@5% the interest paid would be £2,386,350

The difference in interest paid at 4% and 5% is £720,510, which is 72% of the £1M deposited.

We are getting into the weeds here. Yes, the different in interest earned could be more at higher rates, but there are a couple of issues. First, higher rates imply higher risk, so that extra net interest is not free. Second, banks in general are not in the long-term lending business for the simple reason that they are not in the long-term borrowing business. There's a very specific problem with lending long and borrowing short; it's called duration risk, which is what led to the demise of Silicon Valley Bank a few years back. Yes, they do make some long-term loans (like home mortgages) but they have ways of hedging their risk there (and frequently resell the loans after a few years of seasoning).

 

[Ivor the Engineer]

Why do you want to be paid in your government's currency? The first answer that comes to mind will probably be something like "because that's what everything I need and want to buy is priced in." But why are those things priced in that currency? It's because the people selling them also want to be paid in your government's currency. So why do they want your government's currency? The real answer to the question is that you and they have to pay tax to your government. And your government will not accept goods, services or any virgin daughters you may have as payment of tax. Your government insists you and everyone else under its jurisdiction pay tax in its currency, so you better have some of that currency when the taxman comes calling.

Tax gives fiat currency value.

Again, tax has nothing to do with paying for anything. The government has an unlimited supply of its currency. When a financial crisis hits the government can literally create money and put it in the accounts of banks to stabilise the system. It can restore confidence in banks by guaranteeing deposits of customers with its infinite supply of money.

Acting in accordance with MMT is fine when particular privileged subgroups (some may even go as far to call them classes) of society need bailouts, but for everyone else the supposed laws of neoclassical economics apply. What if it could be proven the laws of neoclassical economics were false, or only true under absurd conditions? What if neoclassical economics completely ignores important parameters that have both social and economic effects? Surely universities would stop teaching neoclassical economics as useful for understanding and managing the economy? In mean, economics is a science, right? They wouldn't ignore, bury and gloss over such things to maintain their beliefs, status and career prospects?

 

[dirtywick]

i'd also add the government guarantees all private debt can be repaid in it's currency, which is also a really important feature

 

[steenkh]

Why do you want to be paid in your government's currency? The first answer that comes to mind will probably be something like "because that's what everything I need and want to buy is priced in." But why are those things priced in that currency? It's because the people selling them also want to be paid in your government's currency. So why do they want your government's currency? The real answer to the question is that you and they have to pay tax to your government. And your government will not accept goods, services or any virgin daughters you may have as payment of tax. Your government insists you and everyone else under its jurisdiction pay tax in its currency, so you better have some of that currency when the taxman comes calling.

I believe that in Denmark there is a law that you have to accept payment in Danish kroner. You may pay in any way you and the shop agrees on, but the state currency has to be a possibility.

 

[psionl0]

Again, tax has nothing to do with paying for anything. The government has an unlimited supply of its currency. When a financial crisis hits the government can literally create money and put it in the accounts of banks to stabilise the system. It can restore confidence in banks by guaranteeing deposits of customers with its infinite supply of money.

The oft repeated claim that the government is not like a household because it can print money so therefore the rule book can be thrown away doesn't really stand up to scrutiny.

Sure the money supply needs to be able to grow to accommodate economic growth but there is a limit to how much money can be printed before the consequences become dire for the currency. There is no shortage of examples of governments resorting to the printing press to finance their expenditure (including the Confederate states). The inevitable result in each case is that the currency became worthless.

So in general, governments have to borrow most of the money they need to cover their funding shortfalls. And (like a household) there is a limit to how much they can borrow before government debt becomes a problem. There is no shortage of examples of what happens to countries that have too much debt. Their bonds assume a "junk" status and when that happens, the government has to go cap in hand to international financiers for an affordable loan. These loans are usually only given on the condition that the government adopts strict "austerity" measures.

So far, the US has avoided the worst of the consequences of its massive government deficits - mainly because the USD is seen as the defacto reserve currency of the world. But with people like Trump in the driving seat, we may yet see that even the US has a limit to how much debt it can acquire.

 

[dirtywick]

I believe that in Denmark there is a law that you have to accept payment in Danish kroner. You may pay in any way you and the shop agrees on, but the state currency has to be a possibility.

of course. it’s hard to imagine how a legal system would function if litigants were allowed to insist on repayment of debt of their choosing and reject dollar settlements.

 

[psionl0]

I believe that in Denmark there is a law that you have to accept payment in Danish kroner. You may pay in any way you and the shop agrees on, but the state currency has to be a possibility.

"Legal tender" means that a creditor is obliged to accept government issued currency to settle a debt. It doesn't mean that a vendor is required to sell something for that currency. They may prefer to barter with something different instead. (I suspect that it works that way in Denmark too).

 

[Ivor the Engineer]

The oft repeated claim that the government is not like a household because it can print money so therefore the rule book can be thrown away doesn't really stand up to scrutiny.

No one is claiming the rule book can be throw away, so that's a strawman. What they are claiming is that government debt is not the same as personal or business debt and that government spending comes first and that of the several things tax is used for, funding government spending is not one of them. That's it. MMT does not recommend running deficits or surpluses. It's merely a description of reality.

Sure the money supply needs to be able to grow to accommodate economic growth but there is a limit to how much money can be printed before the consequences become dire for the currency. There is no shortage of examples of governments resorting to the printing press to finance their expenditure (including the Confederate states). The inevitable result in each case is that the currency became worthless.

So in general, governments have to borrow most of the money they need to cover their funding shortfalls. And (like a household) there is a limit to how much they can borrow before government debt becomes a problem. There is no shortage of examples of what happens to countries that have too much debt. Their bonds assume a "junk" status and when that happens, the government has to go cap in hand to international financiers for an affordable loan. These loans are usually only given on the condition that the government adopts strict "austerity" measures.

So far, the US has avoided the worst of the consequences of its massive government deficits - mainly because the USD is seen as the defacto reserve currency of the world. But with people like Trump in the driving seat, we may yet see that even the US has a limit to how much debt it can acquire.

You have it back to front: the bond market needs the government. The government does not need the bond market. Where else could institutions and wealthy people put their money with more certainty of being paid than the government with its unlimited supply of money?

At what government debt to GDP ratio do the dire consequences kick in? 75% 100%? 105%? 200%? 250%? 1000%?

MMT suggests that rather than the size of government debt, what should affect government spending and taxation is inflation. The absolute value of government debt is not something that needs to be controlled or specifically reduced. It's just measure of how many government tokens have been injected into the system and not yet destroyed by taxation. If inflation is too high then some tokens need to be removed. This can be done by reducing government spending and/or increasing taxation. More government tokens being injected into the system does not automatically lead to inflation. It can lead to economic growth as well.

 

[psionl0]

of the several things tax is used for, funding government spending is not one of them.

This is semantic nonsense. Government spending is financed in 3 different ways: printing money, borrowing money and taxation. Without government spending, there would be no need for taxation.

You have it back to front: the bond market needs the government. The government does not need the bond market. Where else could institutions and wealthy people put their money with more certainty of being paid than the government with its unlimited supply of money?

Who is going to buy bonds designated in a currency that is subject to hyper inflation?

At what government debt to GDP ratio do the dire consequences kick in? 75% 100%? 105%? 200%? 250%? 1000%?

Are you suggesting that the government debt to GDP ratio can be infinite?

MMT suggests that rather than the size of government debt, what should affect government spending and taxation is inflation.

This is overly simplistic. Governments can finance their spending in a non inflationary manner by taxing their citizens or borrowing from them. Taxation needs to take into account both inflation and government debt.

The absolute value of government debt is not something that needs to be controlled or specifically reduced. It's just measure of how many government tokens have been injected into the system and not yet destroyed by taxation. If inflation is too high then some tokens need to be removed. This can be done by reducing government spending and/or increasing taxation. More government tokens being injected into the system does not automatically lead to inflation. It can lead to economic growth as well.

This is a fantasy scenario. Governments almost always run deficit budgets regardless of the state of the economy. Some use MMT to justify this saying that "government is different to households". Any long term consequences that might arise from amassing too much government debt or too much currency debasement is someone else's problem.

 

[Ivor the Engineer]

This is semantic nonsense. Government spending is financed in 3 different ways: printing money, borrowing money and taxation. Without government spending, there would be no need for taxation.

Completely wrong. Government spending is funded by the government creating money. Tax funds nothing. Tax removes tokens from the system. Government "borrowing" is in fact the government offering savings accounts with guaranteed a payout. Something only a currency issuer can offer.

Who is going to buy bonds designated in a currency that is subject to hyper inflation?

You might want to do some research into the conditions that hyper inflation occurs.

Are you suggesting that the government debt to GDP ratio can be infinite?

I'm suggesting that there is no meaning to the ratio. Japan is not on the brink of collapse because of its ~250% debt to GDP.

This is overly simplistic. Governments can finance their spending in a non inflationary manner by taxing their citizens or borrowing from them. Taxation needs to take into account both inflation and government debt.

Why government debt? I think there is a limit to government debt, but the absolute magnitude is completely unimportant and unknowable. To sustain a system forever requires an infinite amount of energy, but only a constant amount of power (energy per unit of time). Similarly, systems can only accept and convert energy at a certain rate (power) before bad things happen.

This is a fantasy scenario. Governments almost always run deficit budgets regardless of the state of the economy. Some use MMT to justify this saying that "government is different to households". Any long term consequences that might arise from amassing too much government debt or too much currency debasement is someone else's problem.

It's reality. All life on earth depends on the deficit spending of the sun. Are you overly concerned by the total number of Joules emitted by the sun? In some ways governments are better than a sun because there is no physical process that limits the amount of debt they could have, other than enough binary digits to accurately record it.

 

[psionl0]

Completely wrong. Government spending is funded by the government creating money. Tax funds nothing. Tax removes tokens from the system.

More semantic tomfoolery. Even if the government spends the money before they receive it (and there is no indication that the government does that) it doesn't change the final equation:

E = T + B + C where
E is government spending
T is government taxation
B is government borrowings
C is government created money

Government "borrowing" is in fact the government offering savings accounts with guaranteed a payout. Something only a currency issuer can offer.

What orifice did you pull that piece of err..reasoning from? Don't you know that governments borrow money by selling bonds? (And they don't need to be a "currency issuer" to do that. Consider the EEC). I don't know anybody who has a "savings account" with the government.

You might want to do some research into the conditions that hyper inflation occurs.

You might want to do some research into the conditions that hyper inflation occurs.

I'm suggesting that there is no meaning to the ratio. Japan is not on the brink of collapse because of its ~250% debt to GDP.

So based on a single data point, you have concluded that the government can rack up incredibly high levels or debt? Maybe Japan is just an outlier. After all, most of the Japanese government's debt is to its own citizens.

To sustain a system forever requires an infinite amount of energy, but only a constant amount of power (energy per unit of time). Similarly, systems can only accept and convert energy at a certain rate (power) before bad things happen.

It's reality. All life on earth depends on the deficit spending of the sun. Are you overly concerned by the total number of Joules emitted by the sun?

This pseudo-scientific analogy explains nothing.

In some ways governments are better than a sun because there is no physical process that limits the amount of debt they could have, other than enough binary digits to accurately record it.

And there we have it. The government can rack up unlimited debt and there will be no consequences.

You are obviously shilling for Trump and his "big beautiful bill".

 

[Ivor the Engineer]

More semantic tomfoolery. Even if the government spends the money before they receive it (and there is no indication that the government does that) it doesn't change the final equation:

E = T + B + C where
E is government spending
T is government taxation
B is government borrowings
C is government created money

The highlighted is wrong. The government both does and has to spend money before it can tax any of it's currency back. Time's arrow has a direction.

In your equation T and B are completely at the discretion of the government because it is a currency issuer rather than a currency user. A government doesn't have to borrow from anyone else to issue its own currency. A government with its own currency doesn't have to tax anyone to issue its own currency. These are facts and are not up for debate. If you deny them you are simply deluding yourself.

What orifice did you pull that piece of err..reasoning from? Don't you know that governments borrow money by selling bonds? (And they don't need to be a "currency issuer" to do that. Consider the EEC). I don't know anybody who has a "savings account" with the government.

Savings in a bank go in the liabilities column of the bank's balance sheet. Government liabilities (=bonds) are equivalent to non-government savings. In the UK we have NS&I. In the US you have this. I own premium bonds and could also save money with the government. You now know someone with a savings account with the (British) government. You probably know many people with US treasury bonds as well.

You might want to do some research into the conditions that hyper inflation occurs.

I have. Often it involves governments taking on lots of debt in a currency they can't issue. This is the main reason the Eurozone is a disaster waiting to happen: the national governments that have adopted the Euro have all become currency users rather than currency issuers. That's one of the main factors that screwed Greece.

So based on a single data point, you have concluded that the government can rack up incredibly high levels or debt? Maybe Japan is just an outlier. After all, most of the Japanese government's debt is to its own citizens.

It only takes a single data point to show that a model is wrong. You will note that unlike Greece, Japan is a currency issuer rather than a currency user and its debt is in its own currency.

This pseudo-scientific analogy explains nothing.

What's pseudo-scientific about it? To be more precise it should be the amount of the sun's energy the earth has absorbed minus the amount it has emitted. Note that the sun didn't and doesn't have to receive any of the earth's emitted energy back to shine. Where the analogy breaks down is that a sun only changes its power output, whereas a nation's government can both issue less currency over time and destroy it using tax.

And there we have it. The government can rack up unlimited debt and there will be no consequences.

You are obviously shilling for Trump and his "big beautiful bill".

Not at all. I think government debt will stabilise. The reason I think this is because I don't believe economies can grow forever, thus at some point the average number of government tokens flowing in over time will have to equal the number of government tokens flowing out to maintain a steady state, thus government debt will stabilise at some level. What level government debt stabilises at is completely unimportant.

 

[psionl0]

The highlighted is wrong. The government both does and has to spend money before it can tax any of it's currency back. Time's arrow has a direction.

You are so busy mounting a spirited defence of Trump's "big beautiful bill" that you are not willing to deal with the reality.

Why do you think that the government shuts down if it can't raise its debt ceiling? The answer is that it has to have the money in its accounts before it can spend it. Sure, in theory, the government could make withdrawals regardless of whether the accounts had a positive or negative balance but the rules don't allow them to do so.

 

[Ivor the Engineer]

You are so busy mounting a spirited defence of Trump's "big beautiful bill" that you are not willing to deal with the reality.

Trump's big beautiful bill has nothing to do with this thread. If you want to talk about specifically that then start a thread about it (if there isn't one already). In this thread we're talking about government debt and spending.

Why do you think that the government shuts down if it can't raise its debt ceiling? The answer is that it has to have the money in its accounts before it can spend it. Sure, in theory, the government could make withdrawals regardless of whether the accounts had a positive or negative balance but the rules don't allow them to do so.

The government decides what arbitrary level the debt ceiling is. I.e., having a ceiling is for political point-scoring and nothing to do with sound economics. It's also a reflection of how politicians believe (and get the public to believe) government debt is qualitatively the same as personal debt. This is most likely because they have been involved in business finance, or been misled by someone with an economics degree who themselves has been misled.

The government could pay off all its debt tomorrow if it thought it was a good idea. Indeed, in the past governments have run surpluses or balanced the budget, which is equivalent to sucking money out of a growing economy, and then bad things have happened. The reason is that when a government sucks money out it drives a rise in private debt and makes the economy susceptible to asset prices.

If you want to understand how money is actually created and the role of government debt, Steve Keen explains it in this and other videos. What's good about his approach is that he uses double entry bookkeeping throughout, so you can see exactly where everything comes from and goes to. It will probably take repeated views and some drawing of tables on paper or in a spreadsheet to understand it because he goes through it pretty quickly!

 

[The Great Zaganza]

any argument depending the Debt Ceiling is by definition an argument d absurdum