Debt may be a long term problem, but it certainly isn't an emergency

[Tansy_Gold]

6. Excuse me, but I think you just agreed with me, except where you misunderstood me

I wrote: "They are selling a debt, selling a promise to repay the money at a stated point in the future. That's still money that's coming from someone else."

You responded: And that someone else is essentially the American Taxpayer, which is exactly what Krugman was saying in his piece.


To clarify my antecedents and make my point clearer than I originally did, allow me to elaborate:

"They" are the US government, the Treasury, whatever, and they are selling this debt, selling their promise to repay. The money that's "coming from someone else" was not referring to the money coming from the taxpayers to repay the debt but rather that the money spent to purchase the debt US is selling is coming from someone else, whether it's the Chinese or the Saudis or the Israelis or the Paraguayans. Whoever is buying those bonds is doing so with their own money. They are lending it to the US, in the same way that a family or individual "lends" their own funds to a bank when that individual opens a savings account or buys a certificate of deposit.

The only place the money can come from to repay the debt is from the American taxpayers. The government is not in the business of making money (printing, yes; making, no) and therefore it is the taxpayers who must repay the debt. But they are are NOT repaying a debt they themselves incurred; there is none of this "lending it to themselves" business Krugman alluded to. The money isn't borrowed from the taxpayers; it's borrowed from whoever bought the bonds, the securities, the debt. Call it what you will, it's still debt. It's still money that the US government borrowed from someone else and is then going to turn around and ask the taxpayers to repay. The taxpayers are not repaying themselves, because they didn't borrow from themselves.



But going back to the beginning of your response, I really don't understand why you would make the comparison to a home mortgage and say bonds/securities are different. I don't see that they are. The LENDER can sell the debt/security in both cases; the borrower cannot. In the case of the bonds, the buyer is the lender. While they may not be able to "call in their markers" the same way a penny ante poker player might, they do have some leverage. Tightening exports of rare earths, for example. Is that directly related to the bonds? Of course not. But in the grander scheme of things, it's a way of letting us -- the government of us that is -- know that they, the Chinese, do have leverage.

The problem is that the government has mortgaged the future and, because of current fiscal policies of exporting jobs (tax base) and then lowering taxes, there is not only no way to reduce the debt but there is also no way to prevent more borrowing. This is like going to the loan shark aka payday lender and constantly refinancing the 450% APR loan with another one. It's a hole you can't dig your way out of. You can't borrow your way out of debt, or something like that. Rolling the interest into the principal does not reduce the principal.

And while Krugman may have it right about Republican taxation philosophy(?) being part and parcel of the problem, I think he('s misleading when he says the national debt is a debt we owe ourselves. If that were true, debt and "security" would cancel each other out.

(Edited to fix typos and insert missing words, all due to someone having the football game on too loud for anyone else to think straight.)