Even if the government agreed to pay the debt off over a period of X years, it would require them to drastically cut spending. Furthermore, the biggest threat to our solvency are the social-insurance programs and the public welfare net, as I argue in “Garet Garrett’s Invaluable Lesson”. These are recurring liabilities which increase in cost per year due to a number of economic factors and because the costs adjust to inflation. Given the long-term, recurring nature of these costs the debt they produce cannot be paid off until the program has been cut. Otherwise, given increases in the cost of the service the debt will grow accordingly.
I should stress that it’s not a question of balancing the budget, as much as it is about cutting spending as much as possible. Balancing the budget is a worthless endeavor if the government goes about doing this by raising taxes. High spending and high taxes promise place a noose around the neck of economic development and growth.
Given the above, the chance that our government do this voluntarily is very low. Neither the so-called “small government” Republicans or the Democrats are truly interested in shrinking the size of government. For the most part, neither are the people they govern, given that these people are usually oblivious to economic realities: events in Greece show this. So, the way things are going we will either suffer economic stagnation until we happen to have a president and government truly interested in cutting spending, or until the United States enters a crisis of interventionism.
USA is not in position where it needs to pay off her debts. But is she were she could do what everybody else does. Accept suzerainty to the creditors in return for the write off of its debt.
You are right that paying off your debt the way a private person would is exceedingly hard. I can only think of two countries that actually paid off its debt with cash rather than the standard sale of mineral resources, forced implementation of disastrous IMF policies and obedience on the international arena, they are Romania under Ceausescu and Russia under Putin.
Contrary to what you would think this made neither of them very popular with the creditors.
Didn’t Jackson pay off the debt with cash? But to answer the OP’s question, no debt is acceptable. You have to pay it back and pay interest on it. Interest on the national debt alone is 10% or so of the Federal budget. A national debt is too expensive and should be abolished.
The IMF was great to Brazil, they taught us some economical austerity, their medicine is bitter, but it works. Communists here that love to blame the IMF for all evil in the world.
During the time the IMF here, we adopted a floating currency, no more goverment imposing how much the Real was worth (at least directly). I mean, IMF is a hell of a scapegoat, IMF usually preaches for a reduction of the state debt, the thing is that this can happen by reducing state spending (ok for austrian standards) or by the raising taxes (not ok).
So how come a country that implements IMF policies actually paying off its debt is the exception rather than the norm? How much is Brazil still in debt?
Very interesting the long term debts. I especially liked your quote: “Government cannot print its way out of a debt that adjusts itself to the rise in the supply of money” from the Garet Garrett article. I would assume that you would also like to see a national debt of zero. Are there any precedents for long term programs being cut here or abroad that you know about?
International debt wise, Brazil is quite low for what once was, and the amount of debt we have is roughly the same that other countries owe “us”, so Brazil is in a comfortable position. IMF tends to intervene in really fucked up places, IMF intervetion is a consequence, not a cause of poverty. When a country implements IMF policies it’s because the crap has already hit the fan big time. Neither the USA or Venezuela is implementing IMF policies, and both are sinking more and more in debt each day, so I would say that IMF can range for useless to slightly helpful. I say that in no more than 5 or 6 years, Venezuela will have to beg for an intervention.
And where on that range of useless to slightly helpful would be an annual inflation rate of 3000%?
When the IMF first imposed itself on Yugoslavia with a Structural Adjustment Programme around 1981 the inflation rate was at a, in comparison reasonable, 15-25%.
National debt takes away money from the capital markets that could have been used to create jobs in the private sector. When that money is used to create jobs in the public sector, it ends up possibly misallocating labour. Perhaps when we needed more people producing food, we ended up with more postmen instead.
National debt also is serviced by either taxpayer’s money or by issuing additional bonds, thus either reducing economic activity through taxation or siphoning away more capital that could have been used to create jobs in the private sector.
National debt funds the salaries and pensions of civil servants, who often tend to be voters and the most powerful players within the government. If national debt gets particularly high, and it is proposed to cut pensions and salaries, and even downsize civil service, the civil servants will protest, and then would rather have that the cost of the debt be borne by taxpayers instead.
All of these are risky situations which can put a government into a hopeless cycle of destroying its own economy. Better, therefore, to have no debt at all.
It’s important for governments to live on a budget the same way ordinary people do, and learn the fiscal discipline that corporations and small business have. They must make sure to get as many funds as possible from sale of goods and services (Hong Kong gets all its money from selling parking space and Singapore has a giant banking and investment corporation which is a branch of the government itself and funds the government’s activities). The services they sell or offer to people must also require the full bill to borne by the users of the services, rather than have them subsidised by taxpayers. Bus fares must be high enough to repair and replace buses, and electricity bills must be enough to cover the entire cost of providing electricity.
To answer this question, one must ask what level of personal debt is acceptable.
Most (reasonable people) would believe that the ultimate goal is to have NO debt. Now, why should it be any different at the national level than at the individual level?
Not to give credence to certain forms of taxation itself, but if a government cannot pay for all its expenses through direct taxation, should not the fair question be “What is the government doing wrong that is costing this much?” rather than “What other means can we use to pay for all these expenditures?”
Obviously, true free market economics both makes such deficits intrinsically unnecessary as well as inherently prevents them (or keeps them from lingering and increasing).