Home › Forums › Discuss Austrian Economics, Step by Step › Need help answering this guy: Rich taxes & deficits › Reply To: Need help answering this guy: Rich taxes & deficits
[Here a couple more statements by this guy:]
” First, consider what US government debt becomes. Private sector income. Public surplus (taxes too high) are a private sector net loss. That money should have been used in infrastructure, but instead was saved – essentially wasted. Why was it wasted? Because this money could have been used to fund projects, add jobs, raise wages – all of which stimulate the economy. This is why it is important to have deficit spending – that money is pumped directly into the private sector, where the means of production (middle class) spend it, growing the economy.
The first step in understanding this is recognizing that a household economy operates differently than a government’s economy.
The second is to know the difference between deficit and debt.
Next, let’s think about US debt. The majority of US debt is owed to… the US. That’s right. The US will “borrow” from programs like Social Security. This is money that they could essentially write off with little to no repercussions.”
“So the government debt that isn’t intragovernmental. Most of this debt is owned by China. We haven’t given dollars to them or borrowed dollars from them. China has acquired them by running a trade surplus with the US. In other words, they send us stuff, we send them a unit of account. These dollars are placed in an account at the Treasury, which they can use (mainly to buy Treasury bonds which accrue them interest). It facilitates trade and is a win-win for both countries involved.”
someone else jumps in and says “Only around 30% of our debt is foreign owned . . . of that 30% only about 25% of it is owned by china (around 7% of the total). If anything this helps to link our economy and our currency to the global economy and keep our prosperity in the global public interest. That 7% ownership of debt doesn’t create them as a threat to our prosperity or give them incentive to “come collect their debt” as I hear so many people misleadingly proclaim.”
[To which someone asks] “So why not stack more foreign debt if its no big deal?” [which brings a response of] “It isn’t that simple. You need to play the game of finding that sweet spot of too much or too little debt. It also ebbs and flows with global and local economies, current events (disasters, wars, peacetime etc). It’s kind of like playing the stock market . . . you try to manipulate it based on all of these factors in order to achieve maximum benefit . . . but there is not a simplistic formula for success.”
[And the first guy adds] “Because there is no need. The government can literally create currency out of thin air.”
I can tell these guys’ arguments for state intervention and deficits are full of holes, but I just don’t know where and what to say…