A Layman's Understanding of Debt
POSTED BY: AnthonyT
UPDATED: Wednesday, May 21, 2025 00:28
VIEWED: 4246
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Hello,
I was reading a Pirate News post recently where part of the responses entered the arena of National Debt. The idea was floated that borrowing more money was a good way to stabilize the economy.
I myself have a tough enough time with algebra, and zero understanding of economics. That having been said, I'm skeptical that we as a Nation can just keep borrowing our way out of trouble.
I can't do it as an individual. I can get new credit cards to pay old credit cards. I could, at one point, get home loans to pay for credit card debt. At some point, however, my lending limit is reached. I reach the point where I just can't borrow enough money to keep making the minimum payments on the debt I already have. And then it's bad news for me.
Why should a Nation be any different than Me? How can the U.S. just keep borrowing mountains of money forever? Aren't we actually digging ourselves into a hole so deep that we can't climb out of it?
What will happen to us when we can't meet the minimum payments anymore?
We've got some savvy smart people out there. Can y'all explain to me how we are expected to perpetuate ourselves on the current system?
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
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Quote:
Originally posted by AnthonyT:
Hello,
I was reading a Pirate News post recently where part of the responses entered the arena of National Debt. The idea was floated that borrowing more money was a good way to stabilize the economy.
I myself have a tough enough time with algebra, and zero understanding of economics. That having been said, I'm skeptical that we as a Nation can just keep borrowing our way out of trouble.
I can't do it as an individual. I can get new credit cards to pay old credit cards. I could, at one point, get home loans to pay for credit card debt. At some point, however, my lending limit is reached. I reach the point where I just can't borrow enough money to keep making the minimum payments on the debt I already have. And then it's bad news for me.
Why should a Nation be any different than Me? How can the U.S. just keep borrowing mountains of money forever? Aren't we actually digging ourselves into a hole so deep that we can't climb out of it?
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
You are on to something , Anthony...
If you lived your life the same way that the Government conducts 'Our' business , you would be in Jail for Fraud , or at least for writing Bad Checks...
Let me run and get you a Link to a new Documentary Film that explains the bind that we are in...
Meanwhile , check out these two interviews , and pay particular attention to the second interview , where Celente reveals the 'ownership' of the private corporation known as the 'Federal Reserve'...
PART 1 :
PART 2 :
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I.O.U.S.A.
August 21, 2008
Cast & CreditsFeaturing David M. Walker, Robert Bixby, Paul Volker, Ron Paul, Warren Buffett, Paul O'Neill and others.
Roadside Attractions presents a documentary directed by Patrick Creadon. Written by Creadon, Christine O'Malley and Addison Wiggin. Running time: 85 minutes. Rated PG (for some thematic elements). Opening today at local theaters.
By Roger Ebert
A letter to our grandchildren, Raven, Emil and Taylor: I see you growing up into such beautiful people, and I wish all good things to you as you make the leap into adulthood. But I have just seen a documentary titled "I.O.U.S.A." that snapped into sharp focus why your lives may not be as pleasant as ours have been. Chaz and I had the blessing of growing up in an optimistic, bountiful America. We never fully realized that we were paying for many of our comforts with your money.
Let me explain. There is something called the "national debt." In the movie's interviews with ordinary people, it has a hard time finding anyone who knows exactly what that is. Well, I've never exactly known, either. I thought I knew, but it never came up in conversation, and it became a meaningless abstraction, even though in 2009, the debt will pass $9 trillion. You might think of those as dollars our nation has spent without having them.
What will this mean to you? It will mean you will live in a country no longer able to pay for many of the services and guarantees we take for granted. In 40 years, when you are still less than my age, it looks like the government will only be able to pay for three things: Interest on the national debt, "some" Social Security and "some" Medicare. It will not be able to afford any of the other functions it now performs.
How did we get into this situation? With a federal government that has been throwing bad money after good. Of all the presidents in the last century, the only one who was able to achieve a balanced budget and produce a surplus was Bill Clinton. He did that by bravely raising taxes and cutting spending. Our current president, George W. Bush, is now finishing up eight years of throwing around money like a drunken sailor. His fellow conservatives, like Rush Limbaugh, like to talk about "tax and spend Democrats." But they seem to be "don't tax and spend even more Republicans."
Not that this film takes sides. It is non-partisan and includes many Republicans who agree with its argument that the country is headed for disaster within the lifetimes of many now living. It centers on David M. Walker, until recently the U.S. comptroller general, and Robert Bixby, the head of the nonpartisan Concord Coalition, who have been on a national "Fiscal Wake-Up" tour that will last until the November elections. They are trying to sound the alarm, but they speak to half-empty town halls and captive Rotarians and get pushed off the local news by a story of a man who swallowed a diamond.
I don't really believe this review will inspire enormous numbers of people to go see the film. But if they do, they'll find it accomplishes an amazing thing. It explains the national debt, the foreign trade deficit, the decrease in personal savings, how the prime interest rate works, and the weakness of our leaders. No, not only George W. Bush, but politicians of both parties, who know if they vote against tax cuts, they will be lambasted by their opponents and could lose their jobs. In the film, we see President Bush being asked about the debt and replying: "Ask the economists. I think I only got a B-minus in economics." Then he gives that little chuckle. "But I got an A-plus in cutting taxes."
Yes, he cut taxes while our national spending mushroomed. What we have to do is bite the bullet and pay higher taxes while spending less. The war in Iraq is a much sexier issue. But no matter what happens in Iraq, the real crisis we face is the debt. The movie includes testimony by former Fed chairman Paul Volker, former Treasury Department secretary Paul O'Neill, billionaire Warren Buffett, congressman Ron Paul and others
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A 30-odd Minute overview of the 85-minute theatrical release :
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Quote:
Originally posted by AnthonyT:
I myself have a tough enough time with algebra, and zero understanding of economics.
I appreciate this sentiment. You don't see me out there doing brain surgury just because I can change my own mind.
Quote:
I can get new credit cards to pay old credit cards. I could, at one point, get home loans to pay for credit card debt. At some point, however, my lending limit is reached.
Thats because of how you are using the credit. The credit they are talking about is not the same thing.
Quote:
Why should a Nation be any different than Me? How can the U.S. just keep borrowing mountains of money forever? Aren't we actually digging ourselves into a hole so deep that we can't climb out of it?
Yes. Except its not a zero sum game. Credit in this case, unlike your personal credit card, is actually capital. Capital investments grow the economy. That means more jobs, more cash flow, higher tax returns, and a larger economy.
In your example, suppose you use your home refinance to get a better job or start a business thus increasing your income which in turn allows you to either pay off your debt or to afford large minimum payments or even take on additional loans so that you can further increase your income.
That's what they are talking about. Does not always work that way...but the availability of capital is a fundamental part of capitalism. Its why God invented banks, money, contract law, and the corporation. So that we would have the means to create capital and move it into large scale investments like factories and Chick-fil-a franchises.
H
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Anthony, you've touched on a huge, huge question. Entire treatises have been written on the topic, and there is still a large disagreement about the definition and consequences of “debt”.
There is personal debt: What you and I owe (mortgages, car payments, credit cards).
There is county, state, and Federal debt (deficit): The difference between what they take in through taxes and fees, and what they spend.
There is the trade deficit: How much we purchase from abroad versus how much we sell.
There is corporate debt.
It all depends on where you want to draw the boundary between money flowing in and money flowing out, because one entity’s debt is another entity’s income. And then there is the money supply, which is a whole ‘nother story.
We can compare the economy to a poker game in which “the house” takes a percent each game (profit). Some players get more chips, and some get less, but as time goes on there is overall less and less money to play with. When one person gets all of the chips, the game stops, unless the other players borrow money to keep playing. But at some point even the borrowing stops, and the game stops for good. This is what Rue referred to as an economy getting “stuck” and not being able to find its way out without help. The solution to the problem (as proposed by Keynes) was simply to make more chips available... increasing the money supply, as it were. Roosevelt’s solution was to take some of the chips from “the house” and the winning player, and redistribute them so the game can go on: “spreading the wealth”.
The same thing happens under capitalism. Each time something is produced, businesses skim some off the top as “profit”. As time goes on, fewer and fewer people get richer and richer, but more and more people are unable to buy anything. They depend on borrowing to keep their lifestyle afloat, but when that runs out the economy slows down to a crawl, because people are no longer buying as much.
It doesn't really matter whether the chips are gold, paper, or plastic: as long as some people wind up with all of the chips, the game stops. And so the entire economy depends on debt, or increasing the money supply, or redistributing the wealth, or some combination.
Now, you might ask: What happens with the profit? That's an interesting discussion but i'm going to have to stop for now.
---------------------------------
Let's party like its 1929.
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Hello,
I think I understand what Hero is saying. He is saying that if we use the borrowed money to grow the economy, we actually end up with more money than we borrowed in the long run. (Is that right?)
But it would seem to me that if we were doing that, we could stop borrowing money, and start using our money surplus to grow the economy. Thus not having to borrow any more money.
But instead it feels like we keep borrowing more money forever, a bigger and bigger chunk of money. I'm having trouble imagining that such a thing can continue indefinitely. I'm also having trouble imagining that we've been successful in growing the economy, because if we were, I'd think we would have enough money to pay back what we borrowed and not have to borrow any more.
Now Signy's statement suggested that we don't have to worry about all this stuff so much, because every once in a while we shake the etch-a-sketch, either create more money from nothing or re-distribute the money we have, and we get to sort of start over until the picture gets muddled again.
But shaking the etch-a-sketch would only seem to work if we control the etch-a-sketch. If we borrow tons of money from another country, don't they control the etch-a-sketch? If we create enough money to pay them, aren't we making the money worth less? If so, what's their incentive to keep lending to us? And we can't re-distribute the wealth from them to us, can we? Without going to war, I mean?
I'm not sure I understand how either of these things keeps us out of trouble.
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
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Quote:
Originally posted by AnthonyT:
Hello,
I think I understand what Hero is saying. He is saying that if we use the borrowed money to grow the economy, we actually end up with more money than we borrowed in the long run. (Is that right?)
But it would seem to me that if we were doing that, we could stop borrowing money, and start using our money surplus to grow the economy. Thus not having to borrow any more money.
But instead it feels like we keep borrowing more money forever, a bigger and bigger chunk of money. I'm having trouble imagining that such a thing can continue indefinitely. I'm also having trouble imagining that we've been successful in growing the economy, because if we were, I'd think we would have enough money to pay back what we borrowed and not have to borrow any more.
Now Signy's statement suggested that we don't have to worry about all this stuff so much, because every once in a while we shake the etch-a-sketch, either create more money from nothing or re-distribute the money we have, and we get to sort of start over until the picture gets muddled again.
But shaking the etch-a-sketch would only seem to work if we control the etch-a-sketch. If we borrow tons of money from another country, don't they control the etch-a-sketch? If we create enough money to pay them, aren't we making the money worth less? If so, what's their incentive to keep lending to us? And we can't re-distribute the wealth from them to us, can we? Without going to war, I mean?
I'm not sure I understand how either of these things keeps us out of trouble.
--Anthony
"Liberty must not be purchased at the cost of Humanity." --Captain Robert Henner
You are completely correct , Anthony...
The way the 'economy' is being run doesn't make sense for average Folk...
It defies 'common sense' .
It is still true that you cannot get something for nothing , unless you are a Bankster or one of their cronies...
There is no 'free lunch' for common folk .
Don't believe anything from anyone who tells you that Deficit and Debt are interchangeable terms...They are Not :
Deficit - Financial shortage that occurs when LIABILITIES exceed ASSETS.
Debt - General name for money, notes, BONDS, goods or services which represent amounts owed.
http://www.nysscpa.org/prof_library/guide.htm#d
Because of compounding interest , the National 'Debt' is destined to be unpayable...
It's further complicated by 'inflation' , which is another form of 'hidden' interest which constantly eats away at the 'worth' of the U.S. 'Dollar' , the paper 'money' that is in circulation presently...
Roger Ebert's review , above , expects the US National Debt to exceed 9 Trillion dollars in 2009 .
Because of the 'Bailout' , that figure has already been drastically Exceeded...
I very much recommend that everyone see at least the condensed IOUSA Video at the youTube Link I listed above...
We're Humped...
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http://revolutionradio.org/2008/04/05/1984-grace-commission-report-und
er-ronald-reagan-showed-irs-is-a-fraud-that-collects-taxes-for-the-banking-dynasties/
"...The final report of the 1984 Grace Commission, convened under President Ronald Reagan,
quietly admitted that none of the funds they collect from federal income taxes goes to
pay for any federal government services. The Grace Commission found that those funds
were being used to pay for interest on the federal debt, and income transfer payments to
beneficiaries of entitlement programs like federal pension plans."
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Quote:
Originally posted by out2theblack:
The way the 'economy' is being run doesn't make sense for average Folk...
It defies 'common sense' .
True. Economics is not something everyone understands. But lack of general understanding does not make the science invalid.
I have no idea how to perform brain surgury. But, 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. Sure, we all know stereotactic radiosurgery is a radiation therapy technique that uses a large number of narrow, precisely aimed, highly focused beams of ionizing radiation and the beams are aimed from many directions circling the head, and meet at a specific point. But you call Joe the Plumber to unstop your pipes and Joe the Brain Surgeon to perform stereotactic radiosurgery.
Quote:
It is still true that you cannot get something for nothing , unless you are a Bankster or one of their cronies...
There is no 'free lunch' for common folk .
Unless your on welfare, collecting unemployment, or eating a "free lunch" at a local shelter.
Or, like myself, you collect 'Free chicken sandwhich' coupons to the local Chick-fil-a.
H
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