Federal Government Insolvency

[David Newman]

In our current monetary system, it is *impossible* to be involuntarily forced into bankruptcy. We have a floating exchange rate and non-convertible currency, as do a number of other countries and in each of these cases, there is no solvency risk.

Understanding that there is no solvency risk, that what do we risk by running large deficits? There are inflation concerns, but not until full employment/production are reached. As you approach full employment, you raise taxes to avoid inflation.

[finnbow]

Because at some point, our debt becomes too large of a credit risk for those buying U.S. Treasuries to buy at current (low) interest rates. We'd end up having to raise interest rates to sell Treasury bonds, and by doing so, will greatly increase the national deficit/debt because interest is an ever growing element of our overall national debt.

As for your "just raise taxes" solution, it is nigh impossible to do so with one party completely enamored of Reaganomics. They have not seen any problem for which cutting taxes is not the answer. Just look at Ryan's FY 2012 budget proposal.

I gotta ask, are you enrolled in a college economics course at the moment?

[David Newman]

No, college economics courses teach based on a fixed currency system that we haven't been using for nearly 4 decades. There is no need to imply that I'm naive, I fully understand the perceptual constraints based on the misguided education will probably prevent our government from ever being efficient enough to guide our economy as designed.

[noonereal]

Originally Posted by finnbow

Reaganomics.

the trickle on the masses school of economics

[David Newman]

Originally Posted by finnbow

Because at some point, our debt becomes too large of a credit risk for those buying U.S. Treasuries to buy at current (low) interest rates. We'd end up having to raise interest rates to sell Treasury bonds, and by doing so, will greatly increase the national deficit/debt because interest is an ever growing element of our overall national debt.

As for your "just raise taxes" solution, it is nigh impossible to do so with one party completely enamored of Reaganomics. They have not seen any problem for which cutting taxes is not the answer. Just look at Ryan's FY 2012 budget proposal.

I gotta ask, are you enrolled in a college economics course at the moment?

As far as cutting taxes and raising taxes, I'm speaking of aggregate cuts and increases. The silliness of shifting the tax burden around while keeping it too high to let the economy improve is lunacy, yet we stick by that model.

There wouldn't be a reason to raise our interest rates in our monetary system because we don't rely on borrowing or taxation to spend. If China (just an example) decided they didn't want to make the small interest they are getting from debt, we'd simply move the money to their reserve account with no effect on our economy. To the fed, it doesn't matter if the money is sitting in savings or checking.

[finnbow]

Originally Posted by David Newman

As far as cutting taxes and raising taxes, I'm speaking of aggregate cuts and increases. The silliness of shifting the tax burden around while keeping it too high to let the economy improve is lunacy, yet we stick by that model.

Didn't we just extend the Dubya tax cuts???

[piece-itpete]

Yep, now they're known as the Obama tax cuts

I'm watching this with stark curiosity. I know very little of high finance. It was my understanding that we can run deficits as long as we're the reserve currency? If true, won't we be replaced by something (euro?) if we go too far?

Pete

[David Newman]

Originally Posted by finnbow

Didn't we just extend the Dubya tax cuts???

Taxes are still too high at our current level of government spending to restore full employment.

[finnbow]

Originally Posted by piece-itpete

Yep, now they're known as the Obama tax cuts

I'm watching this with stark curiosity. I know very little of high finance. It was my understanding that we can run deficits as long as we're the reserve currency? If true, won't we be replaced by something (euro?) if we go too far?

Pete

Yep, and if it does, the whole thing will fall like a house of cards IMHO. What's keeping the Euro from becoming a reserve currency at the moment is the chaos in the PIGS (Portugal, Ireland, Greece, Spain) economies brought on, in part, by our own 2008 credit collapse.

[finnbow]

Originally Posted by David Newman

Taxes are still too high at our current level of government spending to restore full employment.

Not really. Tax receipts are now running at about the average level since WWII. There are other factors at work here.