Can we all agree that once the budget is roughly balanced the debt will trend downwards naturally?
By way of economic growth?
I sometimes fear quite frightened at all the misrepresentation is laid out to the public on this debate. Too many people think it works like personal finance. I know this is done because that is what they expect the lay person to relate to.
However, can we all at least be on the same page here?
Not so fast grasshopper, growth will help for sure, but if we have a huge trade imbalance then we continue to grow debt. Also at some point, interest will be bigger then our ability to grow, and then we are in big trouble.
Not necessarily. The price of products we need to import is likely to increase faster than any economic growth, hence increasing the debt as well, even if the internal budget is balanced.
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I know it doesn’t work like personal finances; that’s exactly why the debt will never trend downards.
When the increased economic growth comes, it will be used as an excuse to fund another big project that we can’t afford, and the cycle repeats. It’s been like this since the Fed was created, that is whole point.
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You need to actually pay down the debt in order for it to trend downwards. If you balance your household budget, it doesn’t make your credit card bills shrink by default. Balancing the budget is a very good idea, but it needs to be combined with an active pursuit of paying down the debt.
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Except, of course, it does work like personal finance… where economic growth = raise. And your raise is usually enough to cover cost of living increases, which means you’re not really better or worse off than before.
If you’re planning your budget on an expected future raise.. you’re making a huge mistake.
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Unless another Dubya type President gets in there – like Palin.
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The only way to do so, with spending at its current levels, is to raise taxes….dramatically.
Less disposable money for people, will not create more economic activity.
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well, it does work like personal finances… it’s just tea partiers are stupid and don’t think about it…
I mean, what would happen if most people tried to pay off their entire mortgage in one year? bankruptcy…
we have to take our time and pay for it as we can… and balancing the budget is the first step, as you say… and then economic growth should help in paying down some of the debt… in theory…
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Usually the most effective way of lowering the debt is to raise GDP. That’s how we got out of the 100%+ debt to gdp after WWII. We grew our economy! So a balanced budget will help a lot, but it’ll also require a thriving and growing economy to lower our debt to gdp. Just like when getting a second mortgage, the value of our home is critical, our debt in this country hinges on the value of America’s economy.
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Only if that balanced budget also includes interest and principle payments on Treasury Notes. If it only balances current spending, the debt never disappears, like making the minimum payment on a credit card.
It seems you don’t understand that personal finances and governmental finances are no different. Other than the large numbers for governmental finance, the principles aren’t different.
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Not so fast grasshopper, growth will help for sure, but if we have a huge trade imbalance then we continue to grow debt. Also at some point, interest will be bigger then our ability to grow, and then we are in big trouble.
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No.
A balanced budget, by definition, would mean the debt remains the same.
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No, the budget would have to be less than we take in taxes for that to happen.
STOP SPENDING!!!!!!
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No.
The budget must be balanced by every single Congress. We get an entirely new Congress every 2 years. So even if we do balance it for a year or 2, the next Congress can spend however much they want on whatever they want. There are too many variables; besides the whims of corrupt politicians we also have to worry about natural disasters, wars, etc. that occur unexpectedly.
The only way you could keep it balanced permanently, and thus decrease the debt via economic growth, would be if you passed a balanced budget amendment and somehow made Congress obey it.
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NO. There are other factors as well. The reason why it looks that way is inflation, but inflation is created partly by the government. CHina is mad, because they buy our debt and then we devalue our dollar to reduce it making the bonds The Chinese hold worth even less. WE had to make a side deal to prevent CHina from dumping the bonds. THis kind of thinking is what got us in trouble. Keynesian economics states that durign bad time we go into debt to stop the downward spiral of a recession. When we get out of the recession we need to pay back the debt, but the public and poiticians won’t let it happen. This was shown by Reagan’s attempt to stop the Recession in the 70’s. WHne Bush sr came along he tried to pay it back, and got kicked out because it caused a small recession. WHen we start using govenment to get us out of a recession, we become addicted to governent job, and the govenrment gets larger and we are unwilling to cut those jobs.
I do get your point that if we balance our budget, there is more faith in our government and might encourage stable growth and our tax revenue on average would go up.
You should also realzie though that most of our debt is hidden. It isn’t the debt we see that is scary, but those that we don’t. Social Security and Medicare has a huge projected debt that doesn’t show up on most datas.
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If the debt was funded through US bonds and T-Bills you would be correct but a large amount of it has been borrowed internationally (China mainly) and that part is exactly like personal debt. The second problem is that and increase in tax revenue will based on past performance/history be used to increase pet projects and buy votes/voter loyalty.
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