What's the Big Deal About Government Debt?

[socialist]

I don't understand all the doom and gloom of government debt. Debt is necessary to provide valuable services to the citizenry. You cannot compare government debt to individual debt. Canada is a rich country with lots of money, so really, debt will never seriously harm our country. Some people foolishly predict an economic collapse, but offer no evidence as to why they make that dire prediction. My word to all those concerned about debt; stop worrying; it's no biggie in the big game.

[TimG]

The government must pay interest on debt. As the debt rises the interest payments take more and more money away from programs. Eventually a debt can get so large that a government can no longer produce enough tax revenue to pay the interest on the debt. Detroit is good example of a what happens when a government lets the debt grow to the point where there is a crisis. That is why well run governments cut back on spending long below the debt grows to the point where there is a crisis.

Edited May 17, 2014 by TimG

[socialist]

The government must pay interest on debt. As the debt rises the interest payments take more and more money away from programs. Eventually a debt can get so large that a government can no longer produce enough tax revenue to pay the interest on the debt. Detroit is good example of a what happens when a government lets the debt grow to the point where there is a crisis. That is why well run governments cut back on spending long below the debt grows to the point where there is a crisis.

I don't worry about that. Canada is filthy rich. Debt will never hurt Canadians and we need to keep providing great health care and public education, the two main tenets of democracy.

[TimG]

I don't worry about that. Canada is filthy rich.

Wealth makes no difference. People making a million/per year can go bankrupt as easily as someone making 40K. What matters is the difference between income and expenses. As the debt rises expenses have to be cut to pay interest so if you really care about social programs you would recognize that too much debt is the best way to destroy them. Edited May 17, 2014 by TimG

[socialist]

Wealth makes no difference. People making a million/per year can go bankrupt as easily as someone making 40K. What matters is the difference between income and expenses. As the debt rises expenses have to be cut to pay interest so if you really care about social programs you would recognize that too much debt is the best way to destroy them.

Well, I don't think Canada or the USA are in any kind of trouble.

[Shady]

Ask Greece or Spain about the effects of government debt. We need more economics taught in public education!

[August1991]

I don't understand all the doom and gloom of government debt.

I entirely agree. It is government spending that is the problem.

I largely ignore debates/discussions about government deficits or debt. Instead, I wonder whether the government should approve the purchase/transfer? Who cares how it is paid for?

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Does it matter to me whether Stephen Harper pays for his trips abroad using my RBC debit card or my RBC Visa credit card? Harper has access to both: he can tax me, or he can borrow in my name. Whether Harper chooses one card or the other, I still pay.

Edited May 17, 2014 by August1991

[August1991]

The government must pay interest on debt.

With current interest rates on long term government bonds, we would be collectively foolish to raise taxes to reduce government deficits.

My credit card interest rate is much higher than the interest rate on government bonds. IOW, i prefer if Harper borrows rather than raise my taxes so that I have less money to pay back my high interest credit card debt/mortgage.

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Let me make this clear:

If the federal government raises my taxes now by $500, then I will have $500 less to pay down my mortgage - or $500 less to leave to my daughters.

If the federal government instead borrows and doesn't raise my taxes now, my daughters will have $500 more when they receive their inheritance.

Whatever the federal government does: borrow or tax, It makes no difference to my daughters.

Once again: it is government spending that matters, not financing. I care not how Stephen Harper finances the $500 (borowing or taxes), I question why he is spending the $500 in the first place?

Edited May 17, 2014 by August1991

[August1991]

Ask Greece or Spain about the effects of government debt. We need more economics taught in public education!

As a minor (but critical) point, Greece and Spain no longer have their own currency. Canada does.

Indeed, a major feature of Quebec independence debates have turned on this point.

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Shady, it is very hard for a government to go broke. Legitimate governments can put people in jail if they don't pay their taxes.

Greece and Spain are in trouble because they don't have their own currency, and their citizens too easily avoid paying taxes.

====

A country is like a large lake, and a government (politicians/bureaucrats) is like a dam. As long as the politicians/bureaucrats ensure that the water level behind the dam remains constant, then the dam is sustainable.

Edited May 17, 2014 by August1991

[socialist]

Ask Greece or Spain about the effects of government debt. We need more economics taught in public education!

I think you need to learn economics. Like August said, the government will never go broke. Those saying the USA is $16 trillion in debt because of Obama know nothing. They are nothing more than tea party blamers.

[TimG]

Once again: it is government spending that matters, not financing. I care not how Stephen Harper finances the $500 (borowing or taxes), I question why he is spending the $500 in the first place?

Agree. But no matter how low the interest rates any increase in debt increases spending so debt does matter. The biggest problem that Canada, the US, Japan and Europe face today is the spending requirements to support existing social programs are growing faster than the economy. This means a failure to reform these entitlements will eventually lead to a Greek style debt crisis even in countries with their own currency (having your own currency only delays the reckoning - it does not allow any country to avoid it).

[Shady]

I think you need to learn economics. Like August said, the government will never go broke. Those saying the USA is $16 trillion in debt because of Obama know nothing. They are nothing more than tea party blamers.

August didn't say that the government will never go broke . Regardless, you're arguing against basic math. Higher debt means higher financing of debt which means less money to fund other things. Like public education.

[overthere]

"Let me make this clear:

If the federal government raises my taxes now by $500, then I will have $500 less to pay down my mortgage - or $500 less to leave to my daughters.

If the federal government instead borrows and doesn't raise my taxes now, my daughters will have $500 more when they receive their inheritance.

Whatever the federal government does: borrow or tax, It makes no difference to my daughters."

Why did you leave out the third scenario, which is that the govt neither borrows or raises taxes?

[Shady]

As a minor (but critical) point, Greece and Spain no longer have their own currency. Canada does.

Indeed, a major feature of Quebec independence debates have turned on this point.

====

Shady, it is very hard for a government to go broke. Legitimate governments can put people in jail if they don't pay their taxes.

Greece and Spain are in trouble because they don't have their own currency, and their citizens too easily avoid paying taxes.

====

A country is like a large lake, and a government (politicians/bureaucrats) is like a dam. As long as the politicians/bureaucrats ensure that the water level behind the dam remains constant, then the dam is sustainable.

Yes, we all know that it's difficult for a government to go broke. That's why it's rare. What were really talking about it the crowding out of other priorities by the need to have to finance a larger and larger debt. And yes Greece etc could have devalued their own currencies. But making ones dollar worthless isn't any better of an option.

[Shady]

"Let me make this clear:If the federal government raises my taxes now by $500, then I will have $500 less to pay down my mortgage - or $500 less to leave to my daughters.If the federal government instead borrows and doesn't raise my taxes now, my daughters will have $500 more when they receive their inheritance.Whatever the federal government does: borrow or tax, It makes no difference to my daughters."Why did you leave out the third scenario, which is that the govt neither borrows or raises taxes?

Good points. His post was quite nonsensical and mostly arguments over semantics than actual results of unsustainable debt levels.

[overthere]

Agree. But no matter how low the interest rates any increase in debt increases spending so debt does matter. The biggest problem that Canada, the US, Japan and Europe face today is the spending requirements to support existing social programs are growing faster than the economy. This means a failure to reform these entitlements will eventually lead to a Greek style debt crisis even in countries with their own currency (having your own currency only delays the reckoning - it does not allow any country to avoid it).

The reckoning for countires like Canada comes when interest rates rise sharply- which they inevitably will. The only options then will be higher taxes, less services or both. If the debt is lower , the impact on the economy is far less.

I don't agree that having a sovereign currency delays anything, it likely speeds up the crisis.

The value of any currency is subjective and depends in great part on the confidence of your trading partners globally. When they think you are unable to pay your bills in a currency that has any value, your local money is immediately devalued. Hello Argentina.

Greece and Sp[ain are very different, since both are on a shared Euro basis. The Euro is backed by some heavy hiotters who cannot afford to see the Euro fail. They could easily afford the monetary cost of seeing Greece fail, but the political hit would not be profitable. Germany is steering that boat to their benefit. They don't mind Greece floundering since the cost of keeping Greece afloat is not nearly as bad as the cost of devaluing the Euro dramatically. Germany is keenly interested in keeping the value of the Euro lowish compared to other cuirrencies since they benefit greatly for their exports. Germany will do anything to keep from going back to the German Mark, since the immediate effect would be that their exports would become uber-expensive .

But a collapse of the Spanish economy is a crisis of a whole new level of magnitude.

I would also not group Japan with the others, they have their own set of serious problems, some of their own making. Their demographics are a time bomb.

[Icebound]

......This means a failure to reform these entitlements will eventually lead to a Greek style debt crisis.....

Ah, yes... reform the entitlements.

How about reforming the underlying structure that caused these "entitlements" to become necessary?

Why do we NEED old-age-security? Why do we NEED welfare? Why do we NEED employment insurance? Why do we NEED subsidized housing, food banks, child-poverty programs, subsidized day-care, minimum wage laws, etc. etc. ???

Is it because there is something inherently unbalanced about the way we value labour vs the way we value capital?

When even KENNY tells Business that.... "if you can't find workers, then raise your wages... (kind of a free-enterprise thing to say, wouldn't you think?)..... ... and they come back suggesting that he sounds like a union-sympathizer.... then it is pretty clear that business thinks it is "entitled" to cheap labour.... and that leads in part to those other entitlements that you abhor.

Maybe its time to reform some of those Business-type of "entitlements", as well...

Maybe you will save ALL KINDS of money of welfare-type programs, if you pay a decent wage in the first place...

...

[TimG]

Why do we NEED old-age-security? Why do we NEED welfare? Why do we NEED employment insurance? Why do we NEED subsidized housing, food banks, child-poverty programs, subsidized day-care, minimum wage laws, etc. etc. ???

It is not about whether these entitlements serve a purpose. It is about basic math. Spending cannot exceed income forever. Raising taxes when entitlement spending is rising faster than economic growth is like pissing into a hurricane. Whether you like it or not entitlement spending has to be reduced to sustainable levels.

Is it because there is something inherently unbalanced about the way we value labour vs the way we value capital?

The USSR and China tried another way. It failed miserably because people are motivated by greed - not altruism. That is why capitalism works. Social programs exist to help ensure equality of opportunity and smooth out the boom/bust cycle. But these programs must be sustainable. They currently are not. Fantasies about a world that does not exist change nothing. Edited May 17, 2014 by TimG

[Bryan]

You cannot compare government debt to individual debt.

The same principles still apply. If you spend more than you have, you have to get the difference from somewhere. If you don't borrow, it means reducing spending on other things. If you do borrow, the cost of servicing that debt eventually means reducing spending on other things.

Where there sometimes appears to be a difference between govt and individual finances is the third option of raising additional revenue. Governments can just say "give me this much more" and it's done, individuals can't do that. The problem is, when governments make more room in their budgets by taxing the individuals, they are forcing individuals to cut their budgets in response, or to borrow to continue living the same way.

No matter how you present it, government finances are directly connected to individual finances. They make bad choices, it hurts you. They make good choices, you benefit.

[Argus]

This thread smells like classic troll bait.

[WWWTT]

The USSR and China tried another way. It failed miserably because people are motivated by greed - not altruism. That is why capitalism works. Social programs exist to help ensure equality of opportunity and smooth out the boom/bust cycle. But these programs must be sustainable. They currently are not. Fantasies about a world that does not exist change nothing.

Nope sorry, but you are wrong here.

Government in China goes to great lengths to ensure that citizens are not being gauged by corporations! It's called Communism! Not capitalism!

Funny how capitalists in capitalist countries think that capitalism works better in communist countries?

If capitalism was so great, then why are the most capitalistic countries failing so miserably?

What a load of BS!!!!

And the funniest part about it is, is that almost every conservative sucks it up like a freekin sponge!

LOL!

WWWTT

[Wilber]

Guess socialist wasn't around during the mid nineties when our debt to GDP ratio hit 72%, our debt rating was being cut and we were being dubbed an " honorary member of the third world ".

Edited May 17, 2014 by Wilber

[GostHacked]

I entirely agree. It is government spending that is the problem.

Which adds to the debt because of the tax revenue is never enough to cover the yearly budgets.

Spending is the problem, and the unplayable debt is the result.

[GostHacked]

Nope sorry, but you are wrong here.

Government in China goes to great lengths to ensure that citizens are not being gauged by corporations! It's called Communism! Not capitalism!

Gauged of gouged? If the latter, then you are quite wrong. What is in China is not quite communism, and not quite capitalism.

[GostHacked]

The same principles still apply. If you spend more than you have, you have to get the difference from somewhere. If you don't borrow, it means reducing spending on other things. If you do borrow, the cost of servicing that debt eventually means reducing spending on other things.

So where is that borrowed money coming from? Care to explain that? If taxes are not enough to cover the budget or the costs of running government for the year, where exactly is this money coming from?