Nations out of debt.

Debt... I hate debt.

I hate personal debt. I despise national debt.

What purpose does it serve, for starters, in national government? Debt is bad unless you use the borrowed money to get more money coming in than you have in interest going out. Given that most European countries don't have direct sources of income, but rather, rely on taxes, surely if they cut all the debt out and had green figures instead of red ones, everyone would have more important things to spend money on. Like, I don't know, making sure organisations like the NHS have money to spend on frontline drugs. Or making sure armies actually have the right equipment; right now, Britain is struggling to keep the freaking SAS up to full strength because of lack of training time. We're overstretched.

But these problems pale into insignificance when compared with 3rd world nations. Crippling debt is one of the primary reasons why many of the poorest nations remain poor. You can't exactly invest money in development when your country is mortgaged to other nations. Debt isn't just holding these countries back; its costing lives.

And that is only the effect on national scales. Private debt destabalises countries. It kills viable businesses because they are forced to use it as their business model. Now I'm aware of the necessity of borrowing in business, but when a viable company can go down the tubes, after making perfectly reasonable business choices and always paying back loans on time, because the moneylenders decided they'd rather take a risk on something, there's something fundamentally wrong with the countries structure. And I haven't even got into the perils of personal debt. We have cards specifically designed to tempt people to spend beyond their means and rack up massive interest payments. The whole depression got started because of a housing bubble. Debt is poison, at the individual and, yes, the company level as surely as it is at the national level.

So, what I propose is simple. If there is one thing the world should focus on, it is ridding the governments of the world, in every country, of debt. If that means being prepared to make austerity measures until the country is back out of debt, fine. If it means forgiving billions in loans to third world countries, even if it seriously harms the bottom line of the loaning countries, so be it. We cannot move forward until this curse is lifted. I suggest encouraging an end to personal debt as well. Corporate debt, as mentioned, is necessary, that is how debt should be handled, but the emphasis should be on stable, safe investment, not gambles and shooting for the highest possible level of growth even if it means bubbles cropping up right left and centre. Reliability is the watchword, not quick money. What I'm suggesting, is that the number one priority of every government in the world has to be getting the whole planet into some kind of state of financial stability! The rest of the problems can then be solved, using what resources are actually available, as opposed to building societies on money that isn't actually there!

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

Well, debt makes sense on corporate or person level: It will take you a large amount of years to X amount of money yourself, but with what you will invest it in it is ether worth it or it will generate that sum faste than just working for it.
On govermental level, it does not make sense at all, unless we are talking very spesific issues(building national highspeed rail for transportation, or starting of a profitable mining project).
However, even in those cases the borrowing could just have been beaten by hoarding cash of the budget in the first place, or find a way to get in more tax without increasing tax(example: Higher employment rate combined with a fiat that is worth more money).

But the first condition to removing debt would be to enforce the bad side of it, if you can't make a payment you lose a part of your land. This needs to happen on national level, otherwise nobody will actually bother to pay them down, or there will be no risk.
The second problem is as the OP mentioned the largest one: Nations that have debt for some reason, but can't make enough money to actually pay them off. This needs to be confronted at gunpoint. Why was the money loaned? If it turns out that it is partially a scam, then frankly the loan should be axed.

A guy called dvorak is tired. Tired of humanity not wanting to change to improve itself. Quite the sad tale.

National debt, despite all the hype, is largely harmless (Japan, for one, has well over 200% GDP of debt, yet is one of the most economically healthy nations today.) For this reason, imposing austerity measures (really just a ruse to conceal the imposition of regressive policies in most Real Life instances) and such to overcome it is both pointless and stupid. I agree debt should be eliminated, but only by eliminating the DEFICIT through spending reform based on LONG-TERM VIABLE policies, such as tax increases for the wealthy and cuts to wealthfare. Again, there is exactly zero harm in debt for a healthy country.

Personal debt, I agree, is stupid and needless. The purpose of debt is so that people can do extraordinary things through extraordinary effort. Seeing a doctor, going to school, driving a car, and buying a house, should be perfectly mundane things. Quite simply, wages must go up, prices must come down, and usury must be reined in.

For that last point, note that most debt today has interest equal to 80-300% simple interest on top of principal, which means that a $150k house via mortgage will cost about $300k, and a $1k computer via credit card could easily cost $4k. If loanshark laws capped interest at the equivalent of 3-10% simple interest (and totally eliminated interest for government debt,) effective prices would instantly plummet back to reality as the parasitism of lenders were forced to return their lucre to the actual economy.

Eric,

Completely agree with you Eric. Except for the national debt. Doesn't that also come with an interest tag and therefore, an unnecessary expenditure that wouldn't be there if that debt was gone? I know inflation might factor into it.

@Del Diablo: But on a personal level, even if it means you get something quicker, you still are going to have less money for things, ultimately, than you would have if you'd saved up for it the hard way.

edited 9th May '11 5:44:11 AM by GameChainsaw

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

The problem with sovereign debt is that the cynical in politics love the idea of spending now and sticking their successors with the tab.

It's for this reason that I'm rather angry about the way that Republicans in the US are making it such a big deal now. George W. Bush's presidency spent money like a kid who found his dad's credit card, and now the Republicans are angry that it's not being paid off so they can spend it again next time they get the Presidency.

A brighter future for a darker age.

The purpose of debt is to allow one to purchase things you cant otherwise afford- who can save up $100000 in cash to buy a house? Half a million to open a business? Borrowing allows poor people to do things that only the rich could do, otherwise. Properly managed, where payments over time are balanced against the expected value of personal assets, debt itself is not a threat to anyone.

In a larger context, the economic purpose of debt is to provide greater flexibility for investors. You can borrow money during bad times and pay it back during the good. The net result is that economic activity is more stable over time (i.e. it helps even out fluctuations in the economy). The government does this too- it borrows money to pay for things that exceed the taxbase this year, and pays it back by lending money to the banks. This allows it to provide more services at a higher quality to its citizens than it otherwise would. This is especially true of developing nations, who do not have the cash reserves of wealthier ones. Again, as long as it is properly managed, it doesn't threaten anyone's economy.

"We learn from history that we do not learn from history."

Technically? Yes. In practical terms? No. There are three crucial differences from private individuals or entities to keep in mind:

1. Major nations have an infinite natural lifespan, almost never die of unnatural causes, almost always pass on all debts when they do, and almost never default.
2. Major nations are given almost infinite leeway when it comes to negotiating payments, especially since many of their debts are to entities under their direct control.
3. Major nations have almost infinite credit, so they can borrow as much money as they want, as often as they want, for any reason they want (like, for instance, if a particular creditor becomes irksome.)

What this basically means is that nations can pay off debts as fast or slow as they want, and dedicate as much or as little of their annual budget as they wish to doing so. Lenders allow nations to do this because they are the perfect customer, an unending fountain of risk-free cash, and because under the fractional reserve system, most debt is completely fake anyway. In other words, major nations are immune to bad karma from debt load.

Taking advantage of this fact, while quite irresponsible, is far more responsible than plundering the economy in a foolhardy fashion to pay it off. That said, as I've noted in the budget thread, we actually could pay off the entire debt instantly without harming the economy, though my preferred method would be unpopular with certain individuals.

edit: ninja'd!

Very few people. But what if (compensating for the uniquely absurd inflation of housing, the repeal of loanshark laws, and the drop in wages compared to productivity) the house cost $25k less, you could get a mortgage with 3% simple interest, and your pay was 40% better? You could probably pay off the mortgage in 5-10 years with ease, or save up for it in under 3 if you were stingy, which is exactly what over 40% of the population did in the 1960s.

Eric,

edited 9th May '11 8:54:15 AM by EricDVH

What Morven said, although it's kinda worse than that as the debt was run up specifically so they could get mad when someone they didn't like was in power.

Actually to be more specific, it was a big concern of folks like Greenspan that paying off the debt would allow government to interfere more with the economy, and that's a "bad" thing, so you should create debt in order to prevent this.

This was a big part of the rationale towards the Bush tax cuts.

Democracy is the process in which we determine the government that we deserve

Game Chainsaw: I agree. But it also depends on the issue at hand. The other issue is that you are quite aware of the fact you are most likely dead when you get old enough, which means you want to get your house now on a sane loan instead of working up that cash and get it when your finally 50.
A bit of exaguation and my example might not hold true in a lot of markeds, but the point still stands.
There is also the issue where you get X amount of money, but if you somehow managed to get a firm running you would earn 7-8 X instead.
Which again falls down to basic game theory.
But I agree loans is extremely and utterly bad, but there needs to be some exceptions depending on the society.
If we got around and removed that pesky limitation of age, then frankly loans would finally head into a really really bad area.

Eric:

A guy called dvorak is tired. Tired of humanity not wanting to change to improve itself. Quite the sad tale.

@Eric: "But what if (compensating for the uniquely absurd inflation of housing, the repeal of loanshark laws, and the drop in wages compared to productivity) the house cost $25k less, you could get a mortgage with 3% simple interest, and your pay was 40% better?"

Not following your logic here. If more people buy homes (because they can afford them) the average price goes up, not down.

"We learn from history that we do not learn from history."

Not if supply and demand remain unchanged. More people would not be buying homes, the exact same number would. Rather, more people would be owning homes free and clear, instead of buying them with debt it takes 30 years to pay off or renting them at absurd rates.

Eric,

edited 9th May '11 9:01:35 AM by EricDVH

@Diablo: Hmm... it would be really good if people saved up for these things generationally; i.e person one saves up enough for a house for their kids, next generation down the line saves up for their childrens housing, the generation after... thats a cultural thing though. Mortgages are probably a necessity. Borrowing for a fancy car... not so much.

I'm still not following this very well. So basically, the government borrows money only to lend the money on? And what does the government get out of all this borrowed money? Early investments that help people in the immediate but ultimately hamstring the country or push everyone further and further into debt as more money is borrowed?

I'm not saying pay it all off quickly (though the faster, the less interest.) But this constant increasing borrowing sounds like a death spiral to me, albeit a very long, convoluted one.

edited 9th May '11 8:57:25 AM by GameChainsaw

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

It's a death spiral so long and convoluted that the USA has been doing it for centuries without defaulting.

Eric,

Not defaulting, no, but paying an ever increasing amount of interest on its borrowing. That can't be healthy.

Its not necessarily fatal, but in the long term it doesn't seem like the most efficient way of going about things. I class it under waste.

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

@Game: "I'm still not following this very well. So basically, the government borrows money only to lend the money on? And what does the government get out of all this borrowed money?"

Flexibility. If the government wants more money, it can print more, but that leads to inflation. It could also raise taxes, but that takes money out of the economy. So economists have invented all these ways to bring in revenue without hurting consumers. It can borrow it, it can lend less (although, that too, leads to inflation). You know how whenever the Fed wants the economy to do better they "lower the rates"? Those are the interest rates the Federal Reserve Bank charges banks to borrow money from the government. Reduce the rate, banks borrow more, then lend more to their members, people have more money to spend, the economy picks up, more taxes to collect. It's all about manipulating the economy while keeping inflation (and taxes) low.

@Eric- if it's easier to own a home, more people will want them.

edited 9th May '11 9:08:01 AM by DeMarquis

"We learn from history that we do not learn from history."

I think its all about fiat banking or whats it is called.
The idea is that you borrow out lets say 10X and now that is the money in circulation, but you borrowed it out as a loan, meaning you want 10.1X back.
HOWEVER the loaners make sure to not accept other currencies, and to not spend more than what the rent is.
Basically automatic inflation and a loan that is impossible to pay, and per defintion scam.
But I am not sure if that is what Eric is reffering too, or he is just reffering to the fact that a goverment or nation more or less lacks all the disadvantages of a person, and hence can do really ludicrus things that they should not do.

A guy called dvorak is tired. Tired of humanity not wanting to change to improve itself. Quite the sad tale.

@Marquis: I see. While a country with clear books loses that flexibility.

Hold on, why not simply get clear sheets, then lend money out of governmental savings? You get the same level of control that way over the countries financial institutions. Plus, you'd lose the interest problem, far more importantly.

Of course, that means you don't get the money you get from a loan; as in, quick, instant cash you can spend on things. But you also don't have to pay interest. In fact, you get interest back.

edited 9th May '11 9:10:38 AM by GameChainsaw

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.

@De Marquis: No they won't. Currently, most people aren't homeless, what difference would it make if these people owned a home instead of mortgaging or renting one? Hundreds or thousands a month in bills, nothing more, nothing less. People only need one home.

Now that I think of it, placing ginormous tax penalties on owners of multiple or extremely large residences would be a great way to make sure of this.

Eric,

@eric: the general idea is that the debt will always increase. stopping that is pretty much impossible. What we CAN do though is raise enough taxes and slow down spending enough thatthe inflation of the dollar over time makes that debt slowly reduce in actual "size".

(seeing as a dollar today will be likely worth far less 50 years from now)

edited 9th May '11 10:06:53 AM by Midgetsnowman

The prior two Democratic presidents both ran surplus budgets, decreasing the national debt. Once the Bushcession, is gone, I imagine Obama will follow suite.

Eric,

^ Don't get your hopes up. None of Obama's "ideas" have done shit to create anything but at best a sluggish recovery.

Need I remind you that from 2006-2010 the Democrat controlled Congress pissed away an estimated 5 trillion dollars into the national debt? That basically doubled the 2005 national debt level. The greater portion of those expenditures did not happen under Bush as President.

"Allah may guide their bullets, but Jesus helps those who aim down the sights."

Examine the causes for each.

Obama, for one thing, wanted a much bigger stimulus than the anemic one we got.

On Topic, gentlemen. This isnt a thread about Obama.

@Eric- you said it right there: "or rent". It's renters who will go for more mortgages if you make them easier to pay off.

@Game: That's exactly right. But interest isn't a problem at all- remember that the Government controls the interest rate, most government debt is generated by selling government bonds, and the government sets the interest rate on those. In cases of actually borrowing, the government sets the rate indirectly, by setting the interest rate as which the government lends money to the banks.

But in general, there are benefits to "clearing the books" as you call it, however, historically, the legislature has been unable to resist the pressure to spend surpluses. It's a political reality.

"We learn from history that we do not learn from history."

We weren't so much discussing Obama as the national debt, and how easy it would be to eliminate. Gee Tom, that's quite a bit of money, I wonder where it went? Oh, right, war and tax cuts for the wealthy accounting for 99-55% of deficit increases in 2001-2003, 82% in 2001-2009, and with long-term fallout projected to account for 60-80% in 2013-2019 unless major repeals are enacted.

Eric,

Hmm...

According to this, if I read this data right, Britain would have to find an extra 2.7 billion just to stop going into debt. Now given the 100's of Billions on there, thats not a huge part of the governments income per se... but consider the economy is struggling, which means in real terms, government tax income is falling... Britain has a population of around 60 million... so to get the debt off, you'd either have to tax each household £45 more annually or find a way to cut 2.7 billion in costs.

The term "Great Man" is disturbingly interchangeable with "mass murderer" in history books.