Is the US national "debt" an illusion?

[Tinark]

I think the problem begins with the concept of debt, itself. I think it's a disingenuous distortion of reality. It's an illusion created by investors to try and protect the money they invest, by calling it a "loan" and insinuating it must be paid back regardless of the insecurity of the investment. It's a way of trying to place all the risk on the 'other guy'.

In reality, there is no such thing as a "loan". When one person gives money to another, with the intent of gaining a profit on it's return, they are investing that money in the other person's ability to increase it. Plain and simple. And if that investment does not pay off, as will sometimes happen, then the money is lost. It is not "owed".

What do you have against people trading and making agreements with one another?

 

[Mocking You]

What do you have against people trading and making agreements with one another?

Perhaps he was involved in a bad debt?

 

[Nimrod]

The gold standard was great when the US population was smaller and most other countries on earth used it as well. Nowadays, it makes no sense to tie our money supply to a finite resource we dig up out of the ground. If we can't find more gold, we can't expand our economy.

Consider also if another country decided to hoard gold, started buying it up in volume. Then there would be a scarcity of money in the U.S. We'd be back to runs on banks for currency, stagnant economic activity, and deflation. No thanks.

Unbelievable ignorance!

Do you know the difference between Money and Currency?

Isn't deflation good for consumers?

Let's start with these 2 questions. Then maybe we can go into the myth of "not enough gold" liberal diarrhea.

 

[Mocking You]

Unbelievable ignorance!

Do you know the difference between Money and Currency?

Yes.

Isn't deflation good for consumers?

Almost never.

Let's start with these 2 questions. Then maybe we can go into the myth of "not enough gold" liberal diarrhea.

Your turn. Though I fear the level of discourse is already tainted by your name calling. I'm not a liberal, for example (though I have had diarrhea). Forgive me if I might not want to play along.

Of course, the workaround to a limited supply of gold--and it is limited--to back the currency is to have the government declare the value of a quantity of gold to be worth "X" amount of money. The money supply could be manipulated in this manner, and there would always be "enough gold".

 

[Nimrod]

it makes no sense to tie our money supply to a finite resource we dig up out of the ground. If we can't find more gold, we can't expand our economy.

Please explain this statement of yours.

Gold standard + finite supply of gold == unable to expand economy.

 

[Nimrod]

I asked Mocking You if deflation is good for consumers. He replied.

Almost never.

Let me translate this for those who are pro-public schools.
Prices drop. Things get cheaper to buy. Mocking You thinks this is bad.

 

[Mocking You]

Please explain this statement of yours.

Gold standard + finite supply of gold == unable to expand economy.

If there is a finite amount of gold available, and you have a fractional reserve system (which would be typical), there is a limit to the number of loans you can make, and there is a limit to the money supply. If businesses can't get loans, they can't build inventory. If developers can't get loans, they can't build neighborhoods. Look around your home or office at the number of things you can buy in 2015 that you couldn't buy in 1995. I see smartphones, laptop computers, big screen HDTV's, routers, wifi's, inkjet printers, etc. etc. There are so many more goods and services to buy these days. If there was a static money supply we wouldn't have very many of these things. Businesses wouldn't be created. New products wouldn't be brought to market.

 

[Mocking You]

Let me translate this for those who are pro-public schools.
Prices drop. Things get cheaper to buy. Mocking You thinks this is bad.

Yes, prices drop. Then profits decline. Then people get laid off. Then people can't buy things because they don't have a job. Then prices drop further, profits decline further, more people get laid off. Pretty soon even people with money don't buy things because they are waiting for prices to drop further. That leads to a decrease in economic activity. This is called a depression.

Prices just dropped dramatically on houses in 2008-2010. That was great, wasn't it?

Or look at gasoline prices recently. When they were falling from the mid $3 range to under $3.00, to mid $2.50 range, I wouldn't fill my whole tank, I'd buy $20 worth because I was betting the price would be lower next week. Now apply this to the whole economy. Because of deflation I'm not going to buy that new car right now, I'm going to wait 6 months and buy it for a lot less. Meanwhile the auto workers are getting laid off because people aren't buying cars. The price of houses are dropping. I'm going to wait to buy a house--it would be crazy to lock in a 30 year mortgage on an asset that's going to depreciate.

It's a vicious cycle.

 

[Nimrod]

If there is a finite amount of gold available, and you have a fractional reserve system (which would be typical),

When did a Gold standard have a fractional system?
It is the reason why there is a Gold standard. To stop inflation of currency. i.e. No fractional reserve.

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
― Murray N. Rothbard

 

[Mocking You]

When did a Gold standard have a fractional system?
It is the reason why there is a Gold standard. To stop inflation of currency. i.e. No fractional reserve.

Since there have been banks there has been a fractional reserve. All banking systems have a fractional reserve system. It means they hold back a percentage of their deposits. For example, they can make loans of up to 60% of their deposits. If there were no fractional reserve system and banks loaned out all their deposits, how do you dole out money to depositors that want to make a withdrawal?

“It is no crime to be ignorant of economics, which is, after all, a specialized discipline and one that most people consider to be a ‘dismal science.’ But it is totally irresponsible to have a loud and vociferous opinion on economic subjects while remaining in this state of ignorance.”
― Murray N. Rothbard

Good advice. If I were you, I'd take it to heart.

 

[Nimrod]

Since there have been banks there has been a fractional reserve. All banking systems have a fractional reserve system. It means they hold back a percentage of their deposits. For example, they can make loans of up to 60% of their deposits. If there were no fractional reserve system and banks loaned out all their deposits, how do you dole out money to depositors that want to make a withdrawal?

Fractional Reserve is when the bank lends out money that clients have deposited with it. Fractional-reserve banking thus leads to a situation in which two individuals are made owners of the same thing. ( chapter 3, "Attempts to Legally Justify Fractional-Reserve Banking," pp. 115–65.)

Fractional-reserve banking thus creates a legal impossibility: through bank lending, the borrower and the depositor become owners of the same money.

Arguing in favor of fractional-reserve banking would in fact be tantamount to saying that it is legal (or rightful or even lawful) that Mr. A does whatever he wishes with Mr. B's property — without requiring Mr. B's consent.

In a free-market system, the practice of fractional-reserve banking would be illegal by its very nature.

Murray Rothbard

fractional reserve banks … create money out of thin air. Essentially they do it in the same way as counterfeiters. Counterfeiters, too, create money out of thin air by printing something masquerading as money or as a warehouse receipt for money. In this way, they fraudulently extract resources from the public, from the people who have genuinely earned their money. In the same way, fractional reserve banks counterfeit warehouse receipts for money, which then circulate as equivalent to money among the public. There is one exception to the equivalence: The law fails to treat the receipts as counterfeit.

fractional-reserve banking is, as Austrian economists show, in effect a form of counterfeiting. It is fraud.
http://mises.org/library/faults-fractional-reserve-banking


Fractional Reserve is a sin.
It makes sense the people here on TOL not only want fractional reserve banking, they are also willing to defend it.

 

[PureX]

I think you have the definition of "loan" and "investment" conflated and confused.

They are being deliberately and wrongly dissociated. I'm simply pointing that out.

No, when a person makes a loan they are trusting in the ability of another person to pay it back.

I understand the idea, but I think it's dishonest and exploitive.

An investment and a loan are two different things.

No, they're not, really. But we've bought into this lie for so long that we think it's reality.

 

[PureX]

What do you have against people trading and making agreements with one another?

People will exploit each other and harm each other in the process, if the process is not governed by rules that ensure fairness. "Loans" unfairly place all the risk on the borrower. If he's taking all the risk, then the lender has not right to take a profit from the trade.

 

[Mocking You]

Fractional Reserve is when the bank lends out money that clients have deposited with it. Fractional-reserve banking thus leads to a situation in which two individuals are made owners of the same thing. ( chapter 3, "Attempts to Legally Justify Fractional-Reserve Banking," pp. 115–65.)

Fractional-reserve banking thus creates a legal impossibility: through bank lending, the borrower and the depositor become owners of the same money.

The U.S. has been using fractional reserve banking since it became a nation.

In fact, once you deposit money at a bank YOU NO LONGER OWN IT. It is the property of the bank. Instead you now own a deposit account whereby you can access the money the bank owns.

Arguing in favor of fractional-reserve banking would in fact be tantamount to saying that it is legal (or rightful or even lawful) that Mr. A does whatever he wishes with Mr. B's property — without requiring Mr. B's consent.

Yeah, so? That's exactly how it works.

In a free-market system, the practice of fractional-reserve banking would be illegal by its very nature.

Fractional reserve banking is such an old concept. Lenders have been using it for centuries.

Fractional Reserve is a sin.
It makes sense the people here on TOL not only want fractional reserve banking, they are also willing to defend it.

You're hilarious! Do you have a bank account, sinner?

 

[Mocking You]

No, they're not, really. But we've bought into this lie for so long that we think it's reality.

If I buy a 100 shares of stock in Apple Computer, that is an investment. I literally own a portion of that company.

If I loan someone money, I don't have any ownership of anything except a piece of paper saying the borrower will pay me back.

 

[Desert Reign]

But dig deeper: What is the mineral wealth in our national parkland? What are the Rocky Mountains, Mendocino County, and ANWR worth? What is the aggregate oil wealth in public lands? What is the value of the US military in the jungle of international relations?

I argue that the $18 Trillion national debt pales in comparison to the national wealth of the United States.

Since this wealth you speak of can only be released by future generations of workers, what you are advocating is effectively to borrow from them.

And in fact not to pay it back. Because by the time you have to pay it back, inflation means that you will only pay back half as much. So you are basically stealing it from your children and your grandchildren. Or, to put it another way, you are borrowing it from them but they are the ones who will have to pay it back.

In my view, this is not the way to foster a confident economy. Confidence comes from the realisation that you will be in business tomorrow. And the next day, and the next day after that. The idea that you would even consider writing off your debts because your children can pay it back fosters mistrust and in and of itself weakens your economy for that very reason.
There is a modest amount of borrowing that is reasonable to make the economy work but when you speak of raiding the resources that are yet only theorised to be available, then you can surely know that you have far exceeded this reasonable borrowing requirement.

 

[Tinark]

People will exploit each other and harm each other in the process, if the process is not governed by rules that ensure fairness. "Loans" unfairly place all the risk on the borrower. If he's taking all the risk, then the lender has not right to take a profit from the trade.

What you see as "exploitation" is actually two adults entering into an agreement which each sees as benefiting them and increasing their welfare (for else they wouldn't enter into the agreement).

What risk on the borrower are you referring to? They get money and then they must repay money under agreed upon terms.

You pretty much are wanting to treat borrowers like children. Too stupid to understand what is in their own best interests. Very patronizing.

 

[Nick M]

I tend to agree with many of the forward-thinking viewpoints that are shared on internet forums.

And therefore by definition you are forward thinking. lain:

However, I feel there is misinformation being circulated regarding the US national debt.

Get ready for the spin.

The core question that must be answered: What is the national wealth?

Why? Bill Gates wealth doesn't inherently belong to the government, it belongs to him. So much for forward thinking.

The threat of hyperinflation or deflationary depression is exaggerated.

So there isn't really 55% out of work and 16% actually trying to work? So the economy is strong and growing. So there isn't any inflation as Obama claims and milk is really just $1.79/gal on average? lain:

 

[Nimrod]

The U.S. has been using fractional reserve banking since it became a nation.

You agree with what I said earlier then. Fractional Reserve is fraud. It is also counterfeiting. More importantly, you defend it as a valid system equal to righteousness.

Fractional reserve banking is such an old concept. Lenders have been using it for centuries.

Translation: It is government approved, therefore acceptable.

 

[PureX]

If I buy a 100 shares of stock in Apple Computer, that is an investment. I literally own a portion of that company.

If I loan someone money, I don't have any ownership of anything except a piece of paper saying the borrower will pay me back.

How many times will I have to repeat for you that I understand the "difference" between the two terms.

How long will it take for you to recognize that the only real difference is the distribution of risk?