Should the federal government worry about its debt or deficits?

[August1991]

Im not making a value judegement about the jets at all. Not all defecit financing is bad... it depends on how it effects your bottom line over the long term or whether you spend that money on things that offer a return on that investment. Its hard to quanity the ROE for defense expenditures, and its usually not very good.

That's why I chose the stealth jets as an example.

The question of what the government buys is not connected to how it pays for the purchase. If a government purchase is wise, then it should do it. The method of payment is not a factor in the decision to buy or not.

If the government used my philosophy then they would probably shop for planes the same way I shopped for my last truck. I didnt buy the most expensive truck on the market because I was already deep in debt and I wanted to stay on the managable side of the debt maintenace equation.

As I noted above, the government doesn't spend or borrow money the way that you or I do. You and I cannot access our neighbour's bank accounts at will to take money when we want.

This difference changes entirely the deficit/debt question.

[dre]

That is totally wrong. These are real debts. At some point in time, they either need to be paid off, or we default. And think about that. You didn't initially come across to me as the typical dingbat socialist. Debt is good, what me worry? Get a grip.

Greece, Portugal, Spain and Ireland are in deep shit. Their citizens will be paying taxes up the stump with little return for a long time. Your and Happy Jack's policies will just push Canada into the same situation.

Or was I just trolled?

Well hold on. Im having a pretty hard time figuring out how much of Canadas national debt can be blamed on Jack Layton. Defecit financing is neither a left wing or a right wing problem. Both conservative and liberal governments. Reagan, Bush, Obama, Trudeau, Mulroney, Harper... those are some of the biggest names in North American defecit history and as you can see its a pretty bipartisan group. In fact the Cretien and Clinton governments were the only governments in recent history to buck that trend, and the only ones in about 50 years.

[August1991]

If the government of today is scared to ask me for $1000, how likely is it that the government of 7 years from now is going to have the courage to ask for $2000?

With an interest rate of 10%, how is asking you for $1000 today any different from $2000 in 7 years? In fact, the government borrows at a rate less than you can save your money so if Harper runs a deficit, the deal is better for you.

Many of those who might be asked for $1000 today will retire and will be net recipients of government money in 7 years. Many of those who might be asked for $2000 in 7 years don't have their $10000 in the bank accumulating interest yet.

If your father dies in the next 7 years, you'll inherit the $10,000 and pay the future tax. If your father spends the money instead, don't blame the government for his profligacy.

Kimmy, as to your concern about governments transferring money between people, that's what Canadian government do all the time. Is it fair? Dunno.

As well, there is the question of who actually ends up paying.

What a comical comment. Truly ironic.

----

I ask everyone here to return to the OP and look at the simple arithmetic of my Situation A/B example.

Edited May 15, 2011 by August1991

[RNG]

Well hold on. Im having a pretty hard time figuring out how much of Canadas national debt can be blamed on Jack Layton. Defecit financing is neither a left wing or a right wing problem. Both conservative and liberal governments. Reagan, Bush, Obama, Trudeau, Mulroney, Harper... those are some of the biggest names in North American defecit history and as you can see its a pretty bipartisan group. In fact the Cretien and Clinton governments were the only governments in recent history to buck that trend, and the only ones in about 50 years.

Firstly, I object to you using a small c in conservative. That makes it seem that you are assuming that the CPC is conservative, and they are not. And I wasn't in this case saying Jack was the cause, but I am saying that if he had power, it would get way worse. Debt is bad. To get rid of debt, we need surpluses that are put against the debt, and not to fund research into banana plantations. Challenge me and I'll waste tomorrow morning finding the reference to that really stupid government research grant.

[August1991]

And I wasn't in this case saying Jack was the cause, but I am saying that if he had power, it would get way worse. Debt is bad.

RNG, deficits and debt are not bad. Pointless government spending is bad.

I agree that if Jack Layton were PM, the federal government would incur alot of pointless, wasteful government spending.

[dre]

That's why I chose the stealth jets as an example.

As I noted above, the government doesn't spend or borrow money the way that you or I do. You and I cannot access our neighbour's bank accounts at will to take money when we want.

This difference changes entirely the deficit/debt question.

As I noted above, the government doesn't spend or borrow money the way that you or I do. You and I cannot access our neighbour's bank accounts at will to take money when we want.

This difference changes entirely the deficit/debt question.

You keep repeating this but its been debunked by three people now, without a rebuttle by you. The government cannot arbitrarily increase its own revenues by some hypothetic ammount they might desire EITHER. Take a look at what happened in greece... they put themselves in such a bad position that such shocking spending cuts and tax increases were required to fix it, that its economy collapsed and people took to the streets. They eventually had to be bailed out by the rest of the EU which again brings up Kimmy's point that when you defer payment its unclear on who it is that will eventually have to pay.

The question of what the government buys is not connected to how it pays for the purchase. If a government purchase is wise, then it should do it. The method of payment is not a factor in the decision to buy or not.

It absolutely is. The method of payment is one of the factors that is considered when deciding if the purchase is "wise" in the first place. It might just fine for a person with a million dollars to buy a million dollar house, but it might be a very stupid idea for a person with no money at all that has to finance the entire cost of the home +interest over thirty years.

And defecit financing IS NOT a different method of payment, its a method of financing. Its NON PAYMENT... defered payment.

[RNG]

RNG, deficits and debt are not bad. Pointless government spending is bad.

Debt causes interest payment. That is money that could be not taken from me as taxes (best case) or used to help the ones who made poor lifestyle choices (worse case). Either way, not having debt would make Canada a better place.

[Smallc]

They eventually had to be bailed out by the rest of the EU

And that still isn't enough. They're at the point now, one year later, where they either have to bailed out again, or default.....probably both, in fact.

[August1991]

You keep repeating this but its been debunked by three people now, without a rebuttle by you. The government cannot arbitrarily increase its own revenues by some hypothetic ammount they might desire EITHER.

On the contrary, it can. The federal government, for example, arbitrarily stopped income trusts. BC and Ontario imposed the HST.

Take a look at what happened in greece... they put themselves in such a bad position that such shocking spending cuts and tax increases were required to fix it, that its economy collapsed and people took to the streets.

Dre, what do you know of Greece?

This is a play to get others to pay, and to reduce government spending. This is how Greeks play politics.

They eventually had to be bailed out by the rest of the EU which again brings up Kimmy's point that when you defer payment its unclear on who it is that will eventually have to pay.

I'm astonished! Governments take from some people and give to others! I never knew.

----

Dre, you might have my attention if the government debt rose faster than GDP growth. Then, government would be a Ponzi scheme. So far, that is not the case.

[dre]

On the contrary, it can. The federal government, for example, arbitrarily stopped income trusts. BC and Ontario imposed the HST.

Dre, what do you know of Greece?

This is a play to get others to pay, and to reduce government spending. This is how Greeks play politics.

I'm astonished! Governments take from some people and give to others! I never knew.

----

Dre, you might have my attention if the government debt rose faster than GDP growth. Then, government would be a Ponzi scheme. So far, that is not the case.

Dre, you might have my attention if the government debt rose faster than GDP growth. Then, government would be a Ponzi scheme. So far, that is not the case.

Government debt to GDP is barely even a relevant measure, because the GDP is not the pool of money that debt is maintained from. Debt is maintained from the federal budget and the size of that is only loosely tied to GDP.

But youre right... I dont think Canada is a horrible position... we fared better than many others. But Im not crying "disaster" over this, and I dont think all defecit spending is necessarily bad. Some is needed at times.

What I take issue with is that you seem to think that expenditures should be weighed without considering revenue which is quite frankly insane. Most elementary school students could explain to you why that wont work.

Is there a managable level of federal debt? Sure. Is there "good" defecit spending? Sure.

But your whole "It just doesnt matter dude!" routine is just plain nuts, and you seem to conceed that point at the end when you suggest that if debt increased faster than GDP youd be a little worried. So clearly you DO realize that it DOES matter and that there can be real danger in debt.

You didnt respond yet to the fairness question I raised, and the fact that if you defer payment its not always clear who will pay. Is it ok for one generation to defecit finance current consumption and defer payment on people that were not even alive at the time? Because thats exactly what youre doing.

This generation of westerns is living a lifestyle we didnt entirely earn, and we are going to dump the cost of it onto our children, and their children, and their children. Some of these treasuries instruments we are selling right now wont even be mature for another 50 years. We are making commitments on behalf of people that arent even alive now, for our own benefit.

Its almost like a form indentured servitude.

Dre, what do you know of Greece?

Greece did exactly what we have been talking about. They ignored their balance sheet and spent more money then they collected in tax revenue for too long, and when the instruments they were trading for debt matured they were unable to come up with the money. This creates problems with liquidity that plunge the local economy into recession, and then the resulting loss of tax revenue created even worse problems with solvency.

Edited May 15, 2011 by dre

[August1991]

Government debt to GDP is barely even a relevant measure, because the GDP is not the pool of money that debt is maintained from. Debt is maintained from the federal budget and the size of that is only loosely tied to GDP.

The ratio of government debt/private wealth is directly tied.

Please return to my OP. The US and Canadian governments can pay their debts. (The better question is what they are buying.)

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How much should government buy on our behalf? This is the question.

[Scotty]

But $1142 more in my pocket is more money to pay down my mortgage (and in effect save).

As long as Canada as a whole has a positive net wealth (and it does as well as Greece and Portugal), who cares how the federal government pays for its spending?

Canada as a whole will not have a positive net wealth as many will take that 1000 and buy a big screen TV or go on a vacation to the Dominican Republic or something like that, and so when it comes time for the government to take double the amount Canadians as a whole will not be able to afford it.

I'm a firm believer that it's always cheaper to buy than to rent. And unless you're a whiz bang investor who can trust in the market it's always cheaper to pay cash than to pay interest. I don't want 25% - 30% - 35% etc of my income going to service my debts. As that debt rises and the servicing costs escalate I'm put in a tighter and tighter financial position. It's no different with nations, as much as you want to pretend otherwise.

[cybercoma]

If Jack Layton were PM, the federal government would incur alot of pointless, wasteful government spending.

What are you basing this on? Frankly, I think the fighter jets and $1 Billion dollar G20/G8 party was pointless, wasteful government spending. If Jack Layton dumped the equivalent into GIS for seniors and healthcare spending, I'm sure it would do a hell of a lot more good for Canadians than what Harper spent it on.

[CPCFTW]

Yeah why pay off debt when we can just pass it onto our children and grandchildren like the hippy generation did? Then they can pay for our pensions and debt too!! Well at least until we default on our obligations and are forced to get an IMF bailout contingent on slashing all our "entitlements". Why didn't any other 20 yr olds in their 1st year economics courses think of this?

[CPCFTW]

Stephen Harper borrows $1000 from the German bond market (at 10%) and blows the money on a stealth fighter.

Since you're such an economics whiz, explain how to "borrow from the german bond market" please.

Canada issues its own bonds when it wants to borrow money. Foreign investors interested in Canadian government bonds can buy them. Issuing more bonds to borrow money causes inflation and weakens the CAD so that your $1000 will not have the same purchasing power.

More debt = weaker dollar = consumers can afford less imported products (which is basically everything we consume).

Edited May 15, 2011 by CPCFTW

[Bonam]

The lack of economic understanding exhibited in this thread is truly saddening.

[RNG]

Post deleted.

Edited May 15, 2011 by RNG

[August1991]

Yeah why pay off debt when we can just pass it onto our children and grandchildren like the hippy generation did?

Wait a second, CPCFTW. If Canadians have lower taxes, they can pay off their mortgage faster, and they can leave a greater net value to their children. (Make no mistake, they will. The private net wealth of Canadians is high and rising. House prices rise and fall but Canada is generally a wealthier country.)

What are you basing this on? Frankly, I think the fighter jets and $1 Billion dollar G20/G8 party was pointless, wasteful government spending. If Jack Layton dumped the equivalent into GIS for seniors and healthcare spending, I'm sure it would do a hell of a lot more good for Canadians than what Harper spent it on.

Cybercoma, you make a good point.

In this thread, I was simply trying to make the point that how a government pays for its expenditures - whether it borrows or pays through tax revenues - should not be an issue or certainly not a criteria of good governance.

The key question is rather whether governments should spend the money or not. What stuff should they buy? You are right to say that some of Layton's proposals make sense. You are also right to question whether the F35 are a sensible purchase.

Edited May 18, 2011 by August1991

[August1991]

Since you're such an economics whiz, explain how to "borrow from the german bond market" please.

Canada issues its own bonds when it wants to borrow money. Foreign investors interested in Canadian government bonds can buy them. Issuing more bonds to borrow money causes inflation and weakens the CAD so that your $1000 will not have the same purchasing power.

Foreigners (and Canadians) are happy to give money to the federal government in exchange for bonds because the Canadian federal government has the power to tax some 33 million people. This power to tax means that the federal government borrows at extremely low interest rates.

More debt = weaker dollar = consumers can afford less imported products (which is basically everything we consume).

You raise a different issue. What effect would foreign borrowing have on the exchange rate? Your logic is not so obvious. I'm not convinced that it would lower the value of the dollar and even if it did, I can't say that it would be bad.

Chretien and Martin paid off some of the federal debt using a low dollar (about 65 cents in 1998). Was that bad?

The lack of economic understanding exhibited in this thread is truly saddening.

Much of economic theory concerns the fallacy of composition.

Keynes, for example, pointed out that while saving is good for a single family, if everyone in an economy starts suddenly to save, this can lead to bad results. Keynes popularized this as the paradox of thrift.

----

Bonam, in this thread, I am asking for a similar understanding. (BTW, I am hardly original in this viewpoint.) I am arguing that while individuals should consider a purchase based on whether it puts them into debt, governments should not use a similar criteria. Why? Governments spend other people's money.

Edited May 18, 2011 by August1991

[CPCFTW]

Wait a second, CPCFTW. If Canadians have lower taxes, they can pay off their mortgage faster, and they can leave a greater net value to their children. (Make no mistake, they will. The private net wealth of Canadians is high and rising.)

What makes you think a guy with the name CPCFTW wants higher taxes?

[August1991]

What makes you think a guy with the name CPCFTW wants higher taxes?

Higher taxes? CPCFTW, I would hope that you object to more government spending.

The question of higher taxes (or more borrowing) is irrelevant. It is government spending that deserves attention.

[CPCFTW]

Higher taxes? CPCFTW, I would hope that you object to more government spending.

The question of higher taxes (or more borrowing) is irrelevant. It is government spending that deserves attention.

I don't think even you know what you're arguing. You're just typing for the sake of typing.

[August1991]

I don't think even you know what you're arguing. You're just typing for the sake of typing.

CPCFTW, I am saying that voters should ignore whether a government claims to have a budget deficit, surplus or a balanced budget. It is government spending that matters.

Whether a government pays for its spending through taxes or borrowing is irrelevant. IMV, people should look at government spending - not the government budget balance.

IMV, taxes and government borrowing are the same. Governments can tax whenever they want - now, or in the future. The issue is not how we pay for government expenditures.

The issue is government purchases, government spending, government transfers.

----

As I say, government is not like you or me.

Edited May 18, 2011 by August1991

[CPCFTW]

Yes government spending should be reduced but your argument about the indifference between taxation and borrowing is laughable.

It's not my "logic" that issuing more bonds would cause inflation and weaken the currency. It's basic economics. Higher supply of money = lower demand (demand being reflected by the value of the CAD).

The bank of Canada's mission statement is to keep inflation low and stable, and it does this by reducing the supply of money.

I don't know what you're talking about regarding Chretien and Martin paying off debt with a low dollar... Canadian debt is denominated in CAD, so it doesn't matter what the exchange rate is.

Do you have any more nonsense to post?

[August1991]

Yes government spending should be reduced but your argument about the indifference between taxation and borrowing is laughable.

Laughable? Should governments spend with borrowed money, or money raised through taxes? IOW, should government debt or deficits be an issue?

---

I argue here that government deficits/debt don't matter. When Harper/Flaherty say they'll balance the budget in 2014 or 2015, I just don't care.

I am far more concerned about government spending. What do Harper/Flaherty plan to buy?

----

I ask everyone here to return to the OP and look at the simple arithmetic of my Situation A/B example.

Edited May 18, 2011 by August1991