Whether The Debt Should Be Preserved

Obviously every dollar borrowed time, the dollar is debt. Transactions borrow money does not create or destroy the total wealth in itself; one party owes the dollar, the other is owed dollars, so in aggregate nothing happens.

Having acknowledged that this is really algorithmically correct, I noticed that not what my prof conventional Keynesian macroeconomics taught me in Econ A01 at Northwestern in 1973 or so. (I wish I could remember his name, Robert's something I think, he was an adviser to the McGovern campaign shortly thereafter.) He was not taught as a theory of Keynesianism. He taught it as an established fact. We will never experience another depression because of Keynes.

According to professor Bob, "the public debt is OK, because we borrowed from ourselves our future".

Similarly, we borrow from ourselves our future (so committed to growth) or whether we borrow from China (thus giving them an asset to balance our deficit).

Well, the important thing to understand is that banks and governments can lend money that they do not really have. It has always been a secret banking, and why, usually, have a bank is the best business, with the possible exception of evangelism. In fact, when you put money on deposit in the bank, the bank received permission to lend a multiple, greater than 1, of that money as a loan. This quantity is controlled by government fiat in several ways.

I believe something very much like this is true in every non-Islamic countries, by the way, except perhaps very strange pseudosocialist autocracy such as Myanmar and North Korea. These include contemporary Russia and China, though perhaps not their communist predecessors a generation ago.

So the point is, something that did happen in the aggregate. Total assets and liabilities remain zero, of course, by the fundamental theorem ledger accounting. But increasing the number of absolute liability.

Now, why would a bank loan you money? After all, a bird in hand is worth two in the woods, right? Well, since you agreed to pay back the loan, plus inflation, plus the coverage for the risks the bank, plus a profit for the bank. As we all experience with the mortgage, in the end this is a significant penalty. It does not show as part of your bank or credit or debit (if you win the lottery tomorrow, you can settle your mortgage account with the bank next week, after all), but it is something other than the implicit debt amount you owe the bank.

This is the engine of capitalism and runs on optimism. Banks have some confidence that you (or your insurance company) will pay, or find someone else who can pay for the purchase of your home, or in the worst case, which can sell back home after repossessing it. In any case, the possibility of losing some of the value of the home (or business) is small enough that can be placed in a statistical category in which profits can be made.

When you take out a mortgage, you borrow from a bank. But you also do your household to a certain level of economic functions, as you'd expect to be able to pay off the house and all the financial overhead associated with the loan. So even if you borrow from a bank, you also borrow from yourself. You say, in order to have the pleasure of living at home before I have to pay for it, I promise to work hard enough to have enough surplus to pay for the home and financial overhead.

You borrow from your own income in the future. If you expect to lose your income, you will not take the loan. If the bank is expected, they will not give it to you. At least, that's the idea until now, but let's leave aside how the pattern fails.

The point is that while China buys U.S. bonds, China is the assumption that the U.S. will pay for them.

If the Tea Partiers come and break the U.S. economic system because they are too stupid to learn how the system works before holding it ...
Well, it could break in a number of ways that I will find Keynesian prof was abysmal, let's stop there.

But in the aggregate, any loan that is not a charity masquerade is optimistic about the future of betting debtor. And almost all the money that comes into existence a strange ghostlike through the loan. So every dollar in circulation represents a portion of the betting dollars in the future. This is a "promissory note" that is no longer promising gold or silver. It simply is a person promises to be happy to pay the bank on Tuesday for a hamburger today.

And for Treasury bills, they are a special debt that is explicitly excluded by the nation as a whole, so the problem is implicit for the future welfare of the nation. Without growth, debt payment becomes gradually overcome. Without growth, the loan from your future self is destructive.

And that is why I think Krugman is not entirely true. We can not always take as a public debt as much as necessary to return to the "field work", let alone expect the private sector to fill the void when "demand" will go back to basics.

At this point the future growth is not a sure thing. At some point, it becomes uncertain thing. And whatever that point is, it's not clear we have to bring the debt at that time.

Fortunately there is a large amount of wealth in the U.S. and the rich are very undertaxed, so if there is a reasonable there would be no reason to take any debt.

But ultimately, the debt does not matter.

What happens when optimism is misplaced? Well, we see it now. Sudden loss of "wealth" and improve the area at various pressures and demands, even though physical damage is little or nothing happens!

This is bad for debtors and bad for creditors. This is not a zero-sum move for creditors to write off loans and borrowers lose access to credit. And this is a bad thing happens when growth is less than predicted. And bad things happen when zero growth forecast.

No one.

Nothing happens. Zero growth, basically zero credit. And because we have arranged things so that we can feed ourselves when something happens economical, well, everything goes to hell in a hurry. So we have to change it. But the debt holders will not like the prospect of stopping the growth. Not one bit.

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