A Layman's Understanding of Debt
POSTED BY: AnthonyT
UPDATED: Wednesday, May 21, 2025 00:28
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"if a person with the right education and experiance comes along and says "I'm a Brain Surgon, you need stereotactic radiosurgery", I'll take his word for it."
Hello,
I wouldn't, actually. I'd get a second opinion, probably. And then I'd make sure I understood what the procedure entails, why I needed it, and how it would cure my condition.
I'm not sure that telling me, "We borrow ever-increasing sums of money forever because economists say so" is a very good answer. That probably sounds like a criticism, and I'm sorry, because I know the fact that you bothered to respond means you are trying to help me understand.
If the average person (me) can not have the system of 'borrowing more money forever' explained to them in a way that makes sense, then I can't be expected to select leaders who will implement fiscally responsible policies for this country. And that makes me a sad panda. Worse, if no one can explain to me how 'borrowing more money forever' is going to work, I might elect people into office who won't do it. And, if 'borrowing more money forever' is a sound fiscal practice, I may inadvertently break the country.
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
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Hero ,
At the moment I'm trying to understand what compels you to 'volunteer' for Brain Surgery...
In the light of some of your prior posts , it becomes somewhat more clear...
You're feeling a kind of deficiency , aren't you ?
Not sure that a surgery on your noggin can help that...
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When a business seeks to expand they will often borrow money or sell stocks or bonds, in other words, they go into debt to finance future gain. It's standard business practice.
When government seeks to improve the economy by building or repairing infrastructure, creating human capital (education, health care), or researching new technologies, it will also incur debt to finance future gains.
Government may also raise taxes, and if it raises taxes more on the wealthy, money is redistributed down to keep the economy running.
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Quote:
Originally posted by rue:
When a business seeks to expand they will often borrow money or sell stocks or bonds, in other words, they go into debt to finance future gain. It's standard business practice.
Hasn't always been so...
A hundred years ago , it was still common practice for both businesses and households to have a fund (savings) that were called a 'sinking fund'...
It was 'seed money' for capital expansion or rainy days...
At the time it made complete sense , because even Common Folk had the Constitutionally-prescribed Gold & Silver Coin , that was resistant to the inflationary trends common to the 'paper' currencies...
A 'buck' was a buck...
'Savings' made sense...And Banking Dynasties had yet to secure complete control of the finances of the United States...
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ahem ! ...
stocks and bonds go back hundreds of years:
What were the five oldest stock exchanges worldwide?
Antwerp Bourse 1460
Lyons Bourse 1506
Toulouse Bourse 1549
Hamburg Bourse 1558
London Royal Exchange 1571
What were the three oldest stock exchanges in the US?
Philadelphia Stock Exchange 1790
New York Stock Exchange 1792
Boston Stock Exchange 1834
What were the three oldest commodities exchanges in the US?
Chicago Board of Trade 1848
Kansas City Board of Trade 1856
New York Cotton Exchange 1870
What were the first publicly traded securities in the U.S.?
$80 million in U.S. Government bonds that were issued in 1790 to refinance Revolutionary War debt.
When where the beginnings of the New York Stock Exchange established and what was the name of the founding document?
In 1792, the Buttonwood Agreement, signed by twenty-four brokers and merchants on Wall Street, agreeing to trade securities on a common commission basis.
What was the first listed company on the New York Stock Exchange?
Bank of New York, which was the first corporate stock traded under the Buttonwood tree in 1792, and the first listed company on the NYSE.
Who were the 24 brokers who signed the "Buttonwood Agreement" on May 17, 1792, and became the first New York Stock Exchange members? Leonard Bleecker , Hugh Smith , Armstrong & Barnewall , Samuel March , Bernard Hart , Alexander Zuntz , Andrew D. Barclay , Sutton & Hardy , Benjamin Seixas , John Henry , John A. Hardenbrook , Samuel Beebe , Benjamin Winthrop , John Ferrers , Ephraim Hart , Isaac M. Gomez , Gulian McEvers , Augustine H. Lawrence , G. N. Bleecker , John Bush , Peter Anspach , Charles McEvers, Jr. , David Reedy , Robinson & Hartshorne
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Hello,
I understand the idea of incurring debt as an investment.
I borrow a million dollars so that I can open 3 manufacturing plants. These plants allow me to produce 3 times the merchandise which I can sell to 3 times as many customers and earn 3 times the money.
My 'future gains' are the increased profits that result from this investment. They are used to pay off my debt.
This seems to me to be a normal debt cycle. Normal debt cycles, to me, involve an end.
However, our country does not seem to have an end to the debt cycle.
We also do not seem to be maintaining a constant level of debt.
Rather, we seem to be escalating debt indefinitely, and our 'future gains' or profits from these investments do not appear to be exceeding our debt. This is a debt cycle that can not end. We will always need to be borrowing more money - and eventually we would seem to be in the position of borrowing money merely to pay for our borrowed money.
Recent events have taught me that an economic balloon can not inflate forever. I would imagine that this applies to debt, too? If we can not maintain a stagnant amount of debt, or preferably reduce our level of debt, what will prevent the debt from eventually inflating to an unsustainable size?
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
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Hello,
As an aside, Out...
I know you probably are trying for some good natured ribbing by suggesting that Hero is a mental defective, but it's not that funny, and is particularly not earned. Hero was simply contributing to the conversation. We don't need to belittle people whose ideas we disagree with. And we ought to focus our arguments on ideas, not people.
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
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Hi AnthonyT
And yet, just a few short years ago the government was taking in a surplus and starting to pay down its debt.
How did they do it ? :
They raised the minimum wage (redistributed wealth downward to stimulate the economy, which it did), raised taxes (mostly on the wealthy), and cut certain kinds of spending (including military).
The official deficit as noted in the budget started going back up under Bush due to the tax cuts. (I read several analyses many years ago so I will probably not be able to find them.) The unofficial off-the-books debt is mainly due to the Iraq war and totals about $1trillion. (Iraq has never been funded in the budget as I think you are aware, but through yearly 'emergency spending' bills. I also read those analyses many years ago.)
Reversing the tax cuts for the wealthy (allowing them to expire) as Obama has proposed is a step in the right direction. So is getting out of Iraq which will stop the economic bleeding, as he also proposed.
These are what I consider obvious and prudent moves.
I personally haven't given a lot of thought to solving the economic crisis, but increased government spending similar to the public works programs only geared to energy infrastructure also seems like a good idea.
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Hello,
I remember some years ago... Seems like ~8 years ago, now, we had a budget surplus.
The President at the time decided to give the surplus to the people. This sounded good to me, as someone who would receive a chunk of change in the mail, and who generally disliked taxes.
However, my father was livid. He explained to me that the proper thing to do with the surplus was to decrease the national debt. He said the savings in interest payments would create an even larger budget surplus in subsequent years, allowing us to pay down the debt even faster. He said that eventually, the national debt would be nearly eliminated, and the amount of money that the government could give back to the people at that time would be staggering. He said it could change the nation forever, and make U.S. citizens legitimately wealthier, instead of the 'paper wealth' we maintained by borrowing money to support a lavish lifestyle.
Well, that made a lot of sense, but I still took my check for a few hundred dollars and bought something frivilous with it, laughing all the way to the electronics store.
Looking back now, I see that my father was right.
I agree, Rue, that we may need a temporary tax increase, a massive spending decrease, and a real effort to pay down our national debt. That makes 'common sense' to me. That puts us on the same page.
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
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"He explained to me that the proper thing to do with the surplus was to decrease the national debt."
And it was beginning to be paid down.
http://zfacts.com/p/318.html
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