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Topic: Don't bother paying down the debt
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thwap
rabble-rouser
Babbler # 5062
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posted 15 November 2005 12:51 PM
I guess my thread title is stupid.I meant: "Don't get silly about funnelling resources to paying down the debt ahead of time." Basically, the growth of the economy will take care of the problem all on its own.
From: Hamilton | Registered: Feb 2004
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Crippled_Newsie
rabble-rouser
Babbler # 7024
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posted 15 November 2005 01:10 PM
quote: Originally posted by Bacchus: Thanks tape for the summary. Anyone know what the consequences of deafulating, elinminating, printing more money to just pay it off now etc would be (the last was in jest but you get the drift)
If the government defaults on its bonds, the cost a future borrowing would go through the roof. Also, investment potfolios of individuals would be seriously degraded-- most especially people close to retirement age, since the safety of government bonds is so ballyhooed that they are perhaps the most stable of all investments. Stable investments with low returns like bonds attract those who already have a nest-egg, and are willing to forgoe the prospect of large returns in order to preserve their gains. Likewise, government default would cause corporate portfolios to take heavy losses, leading to a lack of fluidity and thence to a cash crisis in some large businesses. Certainly businesses that are cash-poor undertake less capital investment, and as such overall growth (and particularly overall job growth) in the economy would be adversely affected. [ 15 November 2005: Message edited by: Tape_342 ]
From: It's all about the thumpa thumpa. | Registered: Oct 2004
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Dex
rabble-rouser
Babbler # 6764
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posted 15 November 2005 01:31 PM
quote: Originally posted by Bacchus: I didnt think it was stupid thwap, I honestly dont know much about the national debt or how it works in realityThanks tape for the summary. Anyone know what the consequences of deafulating, elinminating, printing more money to just pay it off now etc would be (the last was in jest but you get the drift)
Defaulting isn't really an option because the consequences would be catastrophic, particularly if we were to default on foreign-held debt. The effect would be similar to announcing to the bank that you no longer intend to make your car or mortgage payments. In a government's case, foreign debt holders may or may not be able to repo a loan, but they sure as hell will never lend you money again, nor will they extend you credit when doing business in their country. It would send foreign investors heading for the hills as well, because they much prefer investing in countries where their investments can't be wiped out with the stroke of a pen.Just as with people, having low debt and a healthy fiscal situation has a lot of pleasant perks for nations and provinces/states. You can borrow money whenever and wherever you want. You can shop on credit (for example, you may have cash on hand to buy concert tickets, but find it easier to put them on your credit card instead of paying in cash). To the extent that your credit situation deteriorates (either as a nation or as a province), people are less likely to lend you money, and those that do will charge you more interest. At their worst, Canada and several of the provinces got to the point where the debt levels were so high that they had to borrow money just to pay the interest on the outstanding debt while at the same time taking on more debt. It would be like putting your car payments on your visa, paying only the minimum payment on your card, and then trying to take out another car loan. As well, for Ontario at least, its credit rating was decreased dramatically. This meant that the interest rates Ontario was paying on outstanding debt went up dramatically as well. So, Ontario couldn't even afford to meet its 'minimum payment' (covering interest), and it was facing a downward spiral of increased interest costs that could only be paid for with more borrowing, which led to higher interest rates, which lead to more borrowing, and so on. As with personal bankruptcy or defaulting on a loan, it took a long time to repair the damage. It took more than 14 years for Ontario to restore its credit rating and return to status as a super-low risk borrower. Printing money has been used in the past to pay off debts, but it is extremely risky. The more money that is in circulation, the higher inflation is. The less money that is in circulation, the lower inflation is. So, if you print a whole pile of money, you may be able to chop off a bunch of debt but the resulting inflation (or even worse, hyperinflation, such as what happened in Germany during the 20s), is unpredictable and the cure is often worse than the cold because inflation can cause an economy to grind to a halt. In general developed nations don't resort to printing money as a way out of a bad fiscal situation. Edited because I screwed up the timeframe of Germany's hyperinflation. Sorry [ 15 November 2005: Message edited by: Dex ]
From: ON then AB then IN now KS. Oh, how I long for a more lefterly location. | Registered: Aug 2004
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arborman
rabble-rouser
Babbler # 4372
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posted 15 November 2005 05:12 PM
I can see a value in eliminating the debt - there is a savings in interest payments that are foregone.This is particularly important when you stop assuming that the economy will grow forever - which the initial argument states. Nothing lasts forever, even economic growth. It could very possibly last another 50 years, or another 2, but the end to limitless growth will eventually arrive. At that point, we want to owe as little as possible. Debt to finance infrastructure and services can be worthwhile, like a mortgage can be worth it in the end. Debt to pay for dinner out is not such a good idea - and unfortunately a fair amount of our existing debt results from Liberal and Conservative irresponsibility in the 70's and 80's. Eliminating that debt can be worthwhile - however, doing so as a matter of faith can be counterproductive - it must be done rationally. If we incur long term costs to pay off short term debt, it's a fool's bargain. Cutting access to education and health services only means more costs in the long-term as our productivity and workforce degrades, and people become burdened with personal debt. Removing pork is a worthwhile goal. Removing infrastructure is stupid. It's too bad the anti-debt evangelists have difficulty distinguishing the two. [ 15 November 2005: Message edited by: arborman ]
From: I'm a solipsist - isn't everyone? | Registered: Aug 2003
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arborman
rabble-rouser
Babbler # 4372
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posted 15 November 2005 06:34 PM
quote: Originally posted by jrootham: If you look at a longer historical perspective in Europe, say 400 years, you notice that deflation causes misery and triggers wars. Most people think this is a Bad Thing.
I agree - which is why it's a good idea to be prepared for it if it does happen, which eventually it will. I'm not saying I'm opposed to ongoing perpetual growth - I am just saying that it is impossible in a system with a finite amount of resources. At some point it stops. Historically, humans have always assumed it will continue indefinitely, then fallen to misery and destruction when it doesn't. I suppose that's what will happen next time too - but that doesn't mean we shouldn't try to avoid it.
From: I'm a solipsist - isn't everyone? | Registered: Aug 2003
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Sven
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Babbler # 9972
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posted 15 November 2005 09:10 PM
quote: Originally posted by Aristotleded24: A trend that picked up only over the last 150 years as industrialisation expanded from the cheap energy (at the time coal) that was available. Since then our society has come to rely too much on fossil fuels, they are depleting rapidly with little chance of finding a suitable large-scale renewable replacement, and the coming increasing cost of fossil fuels will give industrialised economies a good kick to the stomach. In addition, large enough numbers of people in the world lack basic essentials so one can question whether or not the human race as a whole (as opposed to those living in industrialised nations) has seen an improvement of living standards.
I think you're right about fossil fuels. It is going to be a helluva shock when oil runs out. But, I do think that humans will figure out alternatives to fossil fuels that will permit continued the economic growth. The other thing is the population growth. We certainly cannot continue to have an ever-growing world population and expect ongoing growth. I mean, at some point (20 billion people? 50 billion? 250 billion?) the resources of earth would be maxed out. I think that population growth is one of the most significant environmental threats, long-term. [ 15 November 2005: Message edited by: Sven ]
From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005
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Aristotleded24
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Babbler # 9327
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posted 15 November 2005 09:28 PM
quote: Originally posted by Sven: I think you're right about fossil fuels. It is going to be a helluva shock when oil runs out. But, I do think that humans will figure out alternatives to fossil fuels that will permit continued the economic growth.
What alternatives are there? If the resources become scarce and everybody wants them, there will be war over them. Also, saying "it's bad, but we'll figure out a way around this" is a cop out, because it doesn't address a problem that may need to be addressed and headed off now. True, we may figure out alternatives, but then again, we may not. We are an "intelligent" species, but we can only work with what Nature has provided us. quote: Originally posted by Sven: The other thing is the population growth. We certainly cannot continue to have an ever-growing world population and expect ongoing growth. I mean, at some point (20 billion people? 50 billion? 250 billion?) the resources of earth would be maxed out. I think that population growth is one of the most significant environmental threats, long-term.
Our population will eventually decline, that's guaranteed. It's a question as to whether or not it will come through declining birth rates (as seen in industrialised countries) or when the consequences of environmental degradation, diseases, or war finally catch up to us.
From: Winnipeg | Registered: May 2005
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Sven
rabble-rouser
Babbler # 9972
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posted 15 November 2005 11:54 PM
quote: Originally posted by Aristotleded24: Also, saying "it's bad, but we'll figure out a way around this" is a cop out, because it doesn't address a problem that may need to be addressed and headed off now. True, we may figure out alternatives, but then again, we may not. We are an "intelligent" species, but we can only work with what Nature has provided us.
I'm not saying we shouldn't be doing something about it now. But, whether we actually do do something about it now is another story. But, as far as figuring out alternatives (now or later), it has to be done or...we're done.
From: Eleutherophobics of the World...Unite!!!!! | Registered: Jul 2005
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Rod Manchee
rabble-rouser
Babbler # 290
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posted 16 November 2005 01:35 AM
How short memory seems to be! After the irresponsible nonsense of the Mulroney years we were continually told by the Paul Martin's of this world that we have to suck it up and watch the starving of programs like UI, transfers to the province for things like Medicare, infrastructure assistance to Municipalities, etc because things were so bad(and the Mulroney bunch did leave a mess), with an implied "we need fiscal sanity to afford those programs." So now, after lots of suffering and a string of surpluses, what do we get? Certainly not sane programs, but mostly more tax cuts, which may help lower and middle income Canadians a little but, because of how they're delivered, will help the rich more, and will not make up for the added costs imposed by those program cuts. The media spin is pretty disgusting, what they call analysis is depressingly superficial.
From: ottawa | Registered: Apr 2001
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Fidel
rabble-rouser
Babbler # 5594
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posted 16 November 2005 05:37 AM
quote: Originally posted by Andrew_Jay: It's not like the government has the option to ignore it and pretend it's not there. Besides, that debt is the result of spending on programs.
That's not true. According to Hideo Mimoto, a statistician at Stats Canada in the the 1980s-90's, program spending in general accounted for about 8 percent of federal debt growth with policing, prisons and military accounting for a good deal of it as unemployment in Canada skyrocketed and deficits soared while interest rates rose to seven percent - which many say was at the source of our rising debt along with high unemployment. Welfare programs accounted for about 4.5 percent in those years when political conservatives and liberals were wringing their hands about national debt. Increased spending on Unemployment Insurance, UI-EI-Oh, accounted for less than 1 percent of debt growth between 1977 and 1989, according to Hideo Mimoto in Linda McQuaig's book, Shooting the Hippo: Death by deficit and other Canadian Myths, 1997. Compound interest on our debt along with deferred and unpaid corporate income taxes dwarfed program spending as percentages of annual debt payments. High interest rates add to the governments borrowing costs and, at the same time, had the effect of choking the Canadian economy and reducing tax revenues - a double or triple whammy but serving the interests of those with money and assets to protect from erosionary effects of inflation. Nobel economist in the States, Robert Solow, has shown that pursuing low to zero inflationary economy is more costly to a nation than pursuing fuller employment policies. [ 16 November 2005: Message edited by: Fidel ]
From: Viva La Revolución | Registered: Apr 2004
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Tory Spelling
rabble-rouser
Babbler # 10528
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posted 16 November 2005 06:05 AM
Deficits are the result of less money coming in compared to more money going out. All spending including social program spending has to be looked at to solve the problem. quote: program spending in general accounted for about 8 percent of federal debt growth with policing, prisons and military accounting for a good deal of it as unemployment in Canada skyrocketed and deficits soared while interest rates rose to seven percent
If unemployment is a factor in the growth of the debt, then social program spending certainly follows unemployment, so to say social program spending was not a big factor in rising debt but unemploymet was is contradictory.
quote: Compound interest on our debt along with deferred and unpaid corporate income taxes dwarfed program spending as percentages of annual debt payments.
deferred taxes can't be the problem because they would increase reveunes. There were a lot of corporations that didn't pay any income taxes in 90, 91, 92, 93, simply because there were a lot of corpoations that didn't make a profit, most businesses were losing money in those years. Companies that lose money don't pay income taxes. Fed Chair Greenspan who recently stepped down and the Canadian governement pursued a tight money policy in order to get rates down. There was a loud hue and cry from the NDP in particular, here in Canada about that, mostly because in the late 80s and early 90s, the federal NDP did not see the importance of balancing the budget and therefore the reasoning behind pursuing a low interest policy.
From: Beverly Hills | Registered: Oct 2005
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thwap
rabble-rouser
Babbler # 5062
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posted 16 November 2005 12:39 PM
Well, the long and the short of it is that we can grow ourselves out of the problem.Given the fact that the last two recessions were conscious policies, as opposed to natural upsets in the economic cycle, I'd say that banking on 1-2% gdp growth per yer isn't outlandish. And the debt was caused by anti-inflation policies, not social spending. for the record.
From: Hamilton | Registered: Feb 2004
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Mr. Anonymous
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Babbler # 4813
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posted 19 November 2005 05:12 AM
The largest cause of inflation by a huge margin is fractional reserve banking. (banks issuing money - via numbers in a computer - with minimal or no backing)The main cause of unemployment is (government adherence to) NAIRU theory, which says that people must be unemployed to keep inflation low. Yes, you're reading that right, unemployment (between 4-12 percent, depending on time and place) is a stated objective of the theory, and by extension those who implement it. Fidel, my man, why don't you mention this? It's even in the book you quoted (Shooting the Hippo by Linda McQuaig). Good book. Everyone should read it. Having a full employment policy would have many other side benefits, debt payment and probable increases in social program spending being among them: http://www.rabble.ca/babble/ultimatebb.cgi?ubb=get_topic&f=5&t=001682&p= My posts on that thread are about the only ones dealing with the topic. Sadly, most of the other comments on the thread are based on misinterpretation or desire to derail the conversation, so those looking for benefits of a full employment policy can skip them. Re. the debt, economic growth with current policies is far from guaranteed. With the US seemingly set to crash economically (huge debt and deficit, unbacked currency, world markets set to swithch to the Euro, etc.), Canada's economy will likely be hit hard as well, as will the rest of the world's economies until some significant changes are made. www.amazon.com/gp/product/1403968594/102-9974131-9973760?v=glance&n=283155&s =books&v=glance might also be of interest for those wanting to know how monetary policy shapes a county. www.amazon.com/gp/product/0684833557/ref=bxgy_cc_text_b/102-9974131-9973760 ?%5Fencoding=UTF8 talks about the damage - as he sees it - done by free trade. The guy is a college professor of economics and is respected enough to make it on to US business shows, even if they don't really allow him to explain his ideas in any depth. Good ammo for dealing with those who worship the market and free trade. [ 19 November 2005: Message edited by: Mr. Anonymous ]
From: Somewhere out there... Hey, why are you logging my IP address? | Registered: Jan 2004
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Fidel
rabble-rouser
Babbler # 5594
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posted 19 November 2005 01:46 PM
quote: Originally posted by Mr. Anonymous: Fidel, my man, why don't you mention this? It's even in the book you quoted (Shooting the Hippo by Linda McQuaig). Good book. Everyone should read it. Having a full employment policy would have many other side benefits, debt payment and probable increases in social program spending being among them:
Yep, very good point. And economists are saying we could achieve the same debt to GDP ratio in 13 years, or in exactly 12 more months , instead of Martin's 12 years if these liberal rubes would simply allow the economy to expand - run a little inflation. The NAIRU theory is Melton Friedman's ode to Winston Churchill as far as I can tell. Churchill once said that capitalism requires at least ten percent unemployment in order to work - relying on inequality and chaos at the expense of many in order for the few to be comparatively better off . The wealthy have offered mathematicians and mathemagicians big money in history to prove that inflation hurts everyone equally. So far, no one has claimed reward on that bounty according to Linda. salut!
From: Viva La Revolución | Registered: Apr 2004
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tallyho
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Babbler # 10917
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posted 19 November 2005 02:04 PM
"Churchill once said that capitalism requires at least ten percent unemployment in order to work .." Well, he was wrong. When was the last time the USA had 10% unemployment? Capitalism in most of the Western world has thrived in dozens of countries with unemployment rarely near or over 10%. Captalism is alive and well in Western countries and Japan, South Korea, now taking off in Malaysia, India and even China. One can argue the pros and cons of capitalism but it certainly doesn't need high umemployment to thrive.
From: The NDP sells out Alberta workers | Registered: Nov 2005
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maestro
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Babbler # 7842
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posted 19 November 2005 02:54 PM
quote: Originally posted by tallyho: "Churchill once said that capitalism requires at least ten percent unemployment in order to work .." Well, he was wrong. When was the last time the USA had 10% unemployment? Capitalism in most of the Western world has thrived in dozens of countries with unemployment rarely near or over 10%. Captalism is alive and well in Western countries and Japan, South Korea, now taking off in Malaysia, India and even China. One can argue the pros and cons of capitalism but it certainly doesn't need high umemployment to thrive.
Problem is, no one actually charts unemployment. What they measure is those looking for work, a much different thing. And as far as capitalism being alive and well in Western countries, which ones do you mean? The US with a debilitating and unsustainable debt? Germany and France (and most of Europe) with high and growing levels of unemployment? In fact capitalism is thriving, as it always has been, to the extent is has been able to steal resources from the third world. And let's not forget to include the unemployed in those countries in the calculations of unemployment. China is thriving, or at least growing rapidly, but you'd have a hard time defending the idea of their economy as capitalist. Certainly the writers in the economic press don't see it that way. They see China as a state controlled enterprise. In any case, the extent to which they thrive will be determined, in part, by the success they have in removing third world resources from the control of 'Western' capital, and their ability to suppress independent workers movements in their own country. Also to the extent they can control third-world resources, they will make Western capitalism look pretty anaemic.
From: Vancouver | Registered: Jan 2005
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Fidel
rabble-rouser
Babbler # 5594
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posted 19 November 2005 03:23 PM
quote: Originally posted by tallyho: Well, he was wrong. When was the last time the USA had 10% unemployment? Capitalism in most of the Western world has thrived in dozens of countries with unemployment rarely near or over 10%.
Flexible labour markets were supposed to be the answer to high unemployment and the business cycle here in the west. They weren't. In Europe, they at least recognize that capitalism simply cannot provide employment for everyone who needs a pay cheque in order to live and therefore the welfare state is still in place. During the cold war years, the west had the fullest employment rates workers had ever experienced. Money grew on trees and social democracy wasn't a problem as long as the communist threat existed. Corporations paid taxes and North America experienced economic growth - cold war boom years. Here are Canada's economic growth rates during the past four decades: quote:
1960's 5.11 percent 1970's 4.43 percent 1980's 2.95 percent 1990's 2.28 percent Canadian (official)Unemployment Rates for the last half of the last century. 1950s 4.2 percent 1960s 5.0 percent 1970s 6.7 percent 1980s 9.3 percent 1990s 9.5 percent Some success story! In terms of average annual per capita growth of GNP, sevety-nine countries had a better performance than Canada - the State of the World's Children, 2001, UNICEF (Mel Hurtig's, The Vanishing Country, p 366)
Add to that Canada and the US owning the highest child poverty rates among developed nations, except for perhaps Mexico. Also consider that our Conservatives, then Liberal governments have made it more difficult to be counted as unemployed - more difficult to collect EI-UI-O benefits since 1980 when the Bank of Canada began pursuing low inflation policies and abandoned its role to combat unemployment. quote: Captalism is alive and well in Western countries and Japan, South Korea, now taking off in Malaysia, India and even China. One can argue the pros and cons of capitalism but it certainly doesn't need high umemployment to thrive.
And China, India and Asian Tiger economies, though still experiencing very high unemployment rates, are still fairing better than every other third world capitalist nation currently subscribing to Washington consensus for liberal democracy to a much greater degree, like: Russia, Africa, Latin America and Thailand, which has followed IMF/Washington consensus the most and yet faired about the worst of all. Russian male life expectancy has dropped from 69 to 57 since glasnost. Before glasnost, there were 2 million Russian's living in poverty. That number is 60 million some fifteen years later. Russian GDP figures are up nicely though. The talk around Asia is that majority of Russian's were better off under Soviet communism. There were 500 million hungry people around the capitalist third world 25 years ago. Today, there are 800 million suffering chronic hunger while 80 percent of hungry nations export food to "the market." 30 000 children will starve to death today, tomorrow and the next day. That's a holocaust every day. Ten million or more are sacrificed to the free market gods every year. Wither capitalism's promise of a brighter future ?. [ 19 November 2005: Message edited by: Fidel ]
From: Viva La Revolución | Registered: Apr 2004
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DrConway
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Babbler # 490
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posted 19 November 2005 03:44 PM
quote: Originally posted by tallyho: "if too many people find jobs, our elites will jump into action to throw them right back out of work again" Ridiculous. I just can't picture the Queen, Ed Broadbent, Shania Twain, Paul Martin and Jim Pattison all conspiring to thrown folks out of work.
It's not like they all get together and start making phone calls and stuff. What happens instead is a semi ad-hoc response: Companies that start having to pay higher wages cut costs somewhere else, or start to freeze hiring. Then the Bank of Canada gets in on the game, notices rises in wages that aren't consistent with productivity (or so they will claim - another favorite excuse is to claim the output gap is shrinking), and raises interest rates. This raises the cost of borrowing, which is a hit to a lot of businesses because businesses depend even more on credit than individuals do. It's a routine practice to ask for 30 day terms on payment when you order products for a business, and part of the deal is you get assessed interest penalties if you go past 30 days. So if you go past 30 days and the interest rate is higher, you get dinged more; so if you're not sure you can afford to cover the cost of the stuff you order, you order less which reduces demand at the other place, and maybe they start laying off workers. Another place where tightening credit either by higher interest or by other methods hurts businesses is in bank loans and lines of credit. If the interest rate goes up, a proposed capital expansion plan may be delayed, which curbs production and delays the expansion of employment. And so these ripples move through the economy, slowly raising unemployment, crimping demand, and slowing inflation.
From: You shall not side with the great against the powerless. | Registered: May 2001
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Fidel
rabble-rouser
Babbler # 5594
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posted 19 November 2005 05:48 PM
quote: Originally posted by tallyho: Fidel,Don't forget that capitalism also causes skin rash, hurricanes and mosquito bites.
Free markets could work, theoretically. There is no shortage of economic know-how, imo. Market socialism is the "nicest", most compatible system with humanity by what I can tell. Communism could work, too. But as long as we have plutocracies and kleptocracies, no system can work well. It's clear that the world wants social democracy. quote:
And the Flames lost the 7th game of the finals...don't forget that....the elite wouldn't let the the Flames win
Gelinas' goal in game six was in. The lunch bucket team that finished near the bottom of the regular standings earned Lord Stanley's nod, imo.
From: Viva La Revolución | Registered: Apr 2004
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