Maggie's Farm

JustMe: What we desperately needed was a balanced budget with zero new debt.

That's isn't necessary or prudent. Deficits should be reduced to be somewhat lower than real GDP growth, so the debt will decrease relative to GDP.

JustMe: We cannot ever pay off the debt.

The United States has the wherewithal to pay its bills while providing a basic social security system, just like other developed economies. Or, do you think the U.S. is poorer than Germany or Sweden?

JustMe: And the worst truth is that as our interest rates increase, as they must because of inflation, we will very quickly reach a point where we cannot pay the interest on the debt.

Of course, it's best to reduce deficits before that occurs.

Basic Keynesian countercyclical policy provides a model. When times are good, pay down the debt and create a rainy day fund. Things happen, and having available funds for when they do is sensible policy. When the inevitable crisis occurs, government spending can be beneficial and also less expensive because of the preparation. Of course, the United States will typically cut taxes when times are good, so when the crisis occurs, there is little slack in the credit markets.

JustMe: We can't pay that, we won't pay that, we will default.

As long as the debt is denominated in dollars, the U.S. need never default (short of the potential for self-destruction as we saw over the debt limit). Of course, at some point, there could be a flight from the dollar, and new debt could require denomination in other terms. However, the U.S. is still the best bet at this point.

JustMe: We are talking great depression, or Argentina style inflation and suffering.

It's certainly possible. The U.S. does resemble an aging empire. The people in the center of the empire don't directly feel the consequences of their bad decisions, so they continue to stumble. They buy lies such as tax cuts will pay for themselves, and it's all the fault of 'those' people. However, collapse is not inevitable.

Take a look at federal revenues vs outlays as a percentage of GDP. Note that the U.S. ran deficits throughout the 1980s, but tax increases preceded a boom in growth, with the U.S. having a cash surplus at the end of the Clinton administration. Bush cut taxes during a ensuing growth cycle, overstimulating the economy. That helped fuel the economic calamity of 2007-8. Obama cut deficits. That was followed by Trump cutting taxes during a growth cycle. That left little room for addressing the pandemic. However, cutting deficits today by just 2-3% of GDP would put the U.S. on a sustainable course. To do that while maintaining basic social services would require eliminating some of the tax cuts of the past.

JustMe: It is simple a mistake to think that our debt depends on being "denominated in dollars".

Of course it matters. If the debt were denominated in, say gold or euros, the U.S. would have to buy gold or euros at market rates to make payments on the debt.

JustMe: It is simply incorrect to think that anyone or any other nation holding our debt has any ability to coerce us in anyway.

That is incorrect. The value of the dollars matters. If the money supply increases faster than demand, it will tend to result in a lower value for the dollar, creating inflationary pressure. If China, for instance, were to suddenly sell all of its dollar holdings, the dollar would could suddenly lose value. In the extreme, it could mean a loss of confidence in the dollar, and a run for the exits.

JustMe: The Democrats use tax money and borrowed money to buy votes and they have no interest in stopping this practice.

And Republicans use tax cuts and borrowed money to buy campaign donors (while harnessing populist anger to blame those 'people') and they have no interest in stopping this practice.

JustMe: It is an absolute irrefutable fact that we will never pay off this debt, period.

Calling it an irrefutable fact doesn't make it so. Just a generation ago, the U.S. saw cash surpluses at the end of the Clinton administration. However, paying off the debt isn't necessary or even the best option. As noted, it is only necessary to bring the deficit in line with long-term GDP growth.

JustMe: Our debt vs GDP makes an interesting chart but they are apples and oranges.

The chart we provided was federal revenues vs outlays as a percentage of GDP. A reduction in the deficit of 2-3% would be sufficient to reasonably correct the imbalance.

JustMe: The ONLY connection is that once the debt crushes us the GDP will drop like a rock.

We agree that excessive debt can have inhibitive effects on economic growth. (Japan is muddling along with a debt-to-GDP ratio of 263%.) However, again, that is not inevitable. To do that while maintaining basic social services would require eliminating some of the tax cuts of the past.

JustMe: China or anyone can suddenly sell all it's U.S. debt and the government could care less.

That's contrary to the basic economics of supply and demand. If the Chinese sold all their dollar holdings, that would mean there is more supply and less demand. The U.S. could certainly buy the holdings with printed dollars, but that wouldn't create demand. Bond prices would fall, and interest rates would rise.

JustMe: I cited that budget surplus that Newt Gingrich Clinton managed to pull off

It shows that a balanced budget is possible, refuting your "irrefutable fact".

JustMe: Again the GDP is NOT connected to the national debt

Of course it is. GDP is a nation's income. If income is high compared to the cost of servicing the debt, then creditors will be more likely to lend and to lend at more favorable terms.

JustMe: Read the constitution. The house passes the budget.

The Omnibus Budget Reconciliation Act of 1993 was passed without a single Republican vote in the House or the Senate. Al Gore had to break the tie in the Senate. Republicans claimed it would lead to economic catastrophe. Instead, it led the longest economic expansion in modern history.

JustMe: The irrefutable fact is that we cannot pay off the budget, NOT that we can't balance the budget.[/b]

The U.S. had structural surpluses at the end of the Clinton administration. Economists were somewhat concerned how the global economy would work without U.S. treasuries to trade as a universal currency. In the 2000 election, the American people had a choice between keeping the surplus in a “lockbox” or taking tax cuts. More voters chose the “lockbox,” but due to an electoral peculiarity, the result was tax cuts.

“Maintaining the surpluses and using them to repay debt over coming years will continue to be an important way the federal government can encourage productivity-enhancing investment and rising standards of living.” — Alan Greenspan

JustMe: [i]The only connection between the national debt {and GDP} is a man made assumption whose only purpose/value was to ease the mind of the uninformed so that politicians could continue to spend beyond our means.

That is not correct. If a country has a trillion in debt but a GDP of a billion, it will be unable to service the debt. The debt and credit will be junk status.