Should the federal government worry about its debt or deficits?

[CPCFTW]

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

The majority of Canadians don't have 10k in the bank to save at the risk free rate hovering around 1-3% right now when they have mortgages, credit cards, student loans, and other debt to pay off at 4-20% interest.

Taxes don't come out of your savings, they come out of personal income which is subject to change over 7 years.

Borrowing more will reduce the value of currency which will change the purchasing power of 18000 in those scenarios. You can buy a luxury car with 18000 British Pounds, you can buy a pair of Nike shoes with 18000 Yen.

Jack Layton might be prime minister in 7 years and decide to borrow more and then Canada defaults on our loans and the Canadian economy collapses.

The power of taxation is not limitless, we can't just borrow endlessly and then tax some random generation of Canadians 500% of their incomes so that we don't default on our loans.

And there are countless other flaws with your 'model'.

Edited May 18, 2011 by CPCFTW

[CPCFTW]

Hey guys I just had a great idea!

Stephen Harper borrows $300 trillion from the German bond market (at 10%) and blows the money on giving every Canadian 10 million dollars.

You spend 1 million dollars on whatever you want and save $9 million at 10% interest.

In 400 years, our great great great great great grandchildren pay the Germans back with the proceeds from our 9 million investment plus Stephen Harper (he is immortal right?) hikes taxes enough to cover the extra million we took.

I ask every one of you to look at this simple arithmetic. It's foolproof!

Edited May 18, 2011 by CPCFTW

[August1991]

The majority of Canadians don't have 10k in the bank to save at the risk free rate hovering around 1-3% right now when they have mortgages, credit cards, student loans, and other debt to pay off at 4-20% interest.

CPCTFW, you're wrong.

Most Canadians (60% or more) have an equity stake in their home. I don't own my place but I own at least $10,000 of it.

[August1991]

Hey guys I just had a great idea!

Stephen Harper borrows $300 trillion from the German bond market (at 10%) and blows the money on giving every Canadian 10 million dollars.

You spend 1 million dollars on whatever you want and save $9 million at 10% interest.

CPCFTW, you just understood the terrifying idea of the State, and the point of my thread - or what the US government has been doing for 30 years or so.

The State can spend other people's money.

Indeed, the State can spend other people's money borrowed at low interest rates. Why? If you don't pay your taxes, the State can put you in jail. Lenders (ordinary Americans, Germans, Japanese, Chinese) to the US government know the powers of the IRS, and the US government borrows at very low interest rates as a consequence of the credibility of the IRS.

----

I have no objection to a government buying stuff. I just think that we should direct greater attention to what governments buy, rather than its deficit or debt.

Edited May 18, 2011 by August1991

[CPCFTW]

CPCTFW, you're wrong.

Most Canadians (60% or more) have an equity stake in their home. I don't own my place but I own at least $10,000 of it.

Source? I doubt that very much given the size of the rental market.

Most homeowners also have a mortgage that far outweighs the value of their equity. And the government doesn't tax you out of your home equity. And your equity is invested in your home, not a "risk free" asset like Canadian government bonds. That $10,000 could be worth $1000 in 7 years if there is a collapse in the real estate market. You just have no legs to stand on in this argument.

[CPCFTW]

CPCFTW, you just understood the terrifying idea of the State, and the point of my thread - or what the US government has been doing for 30 years or so.

The State can spend other people's money.

Indeed, the State can spend other people's money borrowed at low interest rates. Why? If you don't pay your taxes, the State can put you in jail. Lenders (ordinary Americans, Germans, Japanese, Chinese) to the US government know the powers of the IRS, and the US government borrows at very low interest rates as a consequence of the credibility of the IRS.

----

I have no objection to a government buying stuff. I just think that we should direct greater attention to what governments buy, rather than its deficit or debt.

That's where you're wrong, the US is currently in a debt crisis and has to vote to raise the debt ceiling again or it will be insolvent before the end of the year.

Greece's bond rating was recently downgraded to junk status and they will have to roll over their debt with 10+% interest rate bonds when the market risk free interest rate is around 2%. In order to secure loans from the IMF, they required severe cutbacks or "austerity measures".

The government of Greece agreed to impose a fourth and final round of austerity measures. These include:

Public sector limit of €1,000 introduced to bi-annual bonus, abolished entirely for those earning over €3,000 a month.

An 8% cut on public sector allowances and a 3% pay cut for DEKO (public sector utilities) employees.

Limit of €800 per month to 13th and 14th month pension installments;

abolished for pensioners receiving over €2,500 a month.

Return of a special tax on high pensions.

Changes were planned to the laws governing lay-offs and overtime pay.

Extraordinary taxes imposed on company profits.

Increases in VAT to 23%, 11% and 5.5%.

10% rise in luxury taxes and taxes on alcohol, cigarettes, and fuel.

Equalization of men's and women's pension age limits.

General pension age has not changed, but a mechanism has been introduced to scale them to life expectancy changes.

A financial stability fund has been created.

Average retirement age for public sector workers has increased from 61 to 65.

Public-owned companies to be reduced from 6,000 to 2,000.

On 5 May 2010, a nationwide general strike was held in Athens to protest to the planned spending cuts and tax increases. Three people were killed, dozens injured, and 107 arrested.

Keep in mind, that is the 4th round of cutbacks only.

That is the effect of Greece adopting your brilliant idea to borrow now and tax later. Now an entire generation of Greeks are stuck with the tab for their parents and grandparents greed.

That happened barely a year ago, where have you been?

Edit: Greece just doubled the cutbacks to secure more loans from the EU and IMF since it can't borrow from "the german bond market" (ie. capital markets) anymore:

http://online.wsj.com/article/BT-CO-20110518-710378.html

Edited May 18, 2011 by CPCFTW

[Topaz]

Speaking of Greece, why would Harper have Tony Clements the head of the Treasury Board? First he spend millions on the G20 and second he born in Greece and they don't seem to handle money too well.

[Smallc]

and second he born in Greece and they don't seem to handle money too well.

Well aren't you just a nice bigot?

[cybercoma]

I agree, August, that governments ought to run deficits if their expenses are going to make a considerable difference. Deficits ought to be used responsibly, like a business would take a loan to build infrastructure. I take your point that it's different with the govenrment because they can raise more revenue by raising taxes; however, they don't want to hurt businesses and the economy by jointly taxing too much and not putting the money into things that are going to help people and business. This will hurt their revenues, regardless of how much they try to increase them. It's a balancing act. The point I'm trying to make is that deficits ought to be treated like any other loan for investment. You better get some sort of return on your money or it's just not sustainable.

[CPCFTW]

I agree, August, that governments ought to run deficits if their expenses are going to make a considerable difference. Deficits ought to be used responsibly, like a business would take a loan to build infrastructure. I take your point that it's different with the govenrment because they can raise more revenue by raising taxes; however, they don't want to hurt businesses and the economy by jointly taxing too much and not putting the money into things that are going to help people and business. This will hurt their revenues, regardless of how much they try to increase them. It's a balancing act. The point I'm trying to make is that deficits ought to be treated like any other loan for investment. You better get some sort of return on your money or it's just not sustainable.

Actually deficits are more like a business operating at a loss and using debt to finance operations (rather than investment).

[RNG]

Yet once again I will climb on my soapbox and preach the real Keynesian philosophy. Keynes said that in economic bad times the government should spend, what we now call stimulus spending. BUT, he also said in economic good times the government should cut spending and pay off the debt. Libs, Cons, Dems and Reps all follow the first half, but very few follow, or even acknowledge the second.

[Evening Star]

This thread is hilarious. I wouldn't always expect to agree with someone named "CPCFTW" but I gotta hand it to the guy.

Edited May 19, 2011 by Evening Star