While the European countries have brought their spending under control, the US president’s tax cuts and defence spending will lead to increased borrowing
I think you just made my point, but harder. Debt is actually great for “the lenders,” i.e. whoever buys treasury bonds. If the government wants to spend money on something, they have to issue a bond. The bondholders are paying for it. If you run out of bondholders, you have to increase the interest offered to make it more appealing than other investments.
It’s not just “moving numbers on a ledger.”
That would be essentially the same as printing more money,* which is what leads to hyperinflation and the collapse of economies. The higher the total debt, the more taxes go into paying interest on debt, rather than services (the nurses and water engineers mentioned above). There is a whole other discussion on where that spending on services spending should be prioritized.
Where does that Tax money go? Obviously it’s a payment to bondholders, which are generally wealthy individuals, corporations, or nations, but can also be held by the US Government (maybe that’s what you mean by “moving numbers on a ledger?”).
If the government wants to spend money on something, they have to issue a bond.
But when they control a Federal Bank (as with the US Reserve, the ECB, the PBC, the Banco Central do Brasil, etc, etc) the buyer and the seller are joined at the hip. The real risk of this strategy is that you release more of a currency than there exists downstream demand. That’s where taxation functions as an implicit guaranteed demand for currency. And then the real focus isn’t on who buys debt or who pays taxes, but who contributes value-adding activity to the economy.
That would be essentially the same as printing more money,* which is what leads to hyperinflation
If printing money leads to hyperinflation, every country that issues currency is in a state of hyperinflation. They all - at one point or another - printed an original allotment of currency. They all expand the supply to meet domestic (and, for global reserve countries, international) physical currency demands. This does not result in double and triple digit annual increases in currency-denominated prices.
Where does that Tax money go? Obviously it’s a payment to bondholders
Tax money does not “go to pay bondholders”. Taxation destroys currency in an inverse to government spending creating currency. Spending - including paying interest on debt - is inflationary and taxation is deflationary. The only relationship between taxation and interest on debt is in maintaining this equilibrium or adjusting it as need demands.
The Fed does change the money supply through interest rates
The Fed changes the M1 money supply, which is money lent from the bank for a length of time. All this M1 money has to be repaid periodically. And because the money carries an interest rate (presumably higher than 0% - although, in the era of ZIRP, not always) it is net deflationary over time as you’re paying the bank back more than you borrowed.
The M0 money supply is printed currency, which a government needs to release - and periodically expand - in order to meet the basic demands of the national economy as a mechanism of exchange. Historically, governments release this money through spending. Super historically (ie, go hit up David Grabber’s “Debt: The First 5000 Years” if you want a lesson in anthropology) it was a means of paying soldiers while abroad. The coinage falls into circulation among conquered peoples and taxes on the providence levied in the currency paid to the soldiers effectively becomes a mechanism for a populace to pay for its own subjugation.
Over time, the role of government evolved beyond “army of thugs that periodically loot your crops and rape your children”. And now we have an M0 supply that finances everything from pensions to health care to highways (but still plenty of looting and raping, depending on which military base you’re stationed). But it all still comes from the state, with credit being downstream of the origination of currency itself.
Bottom line, a state that wants to control its own money supply has to produce money and distribute it. The question then becomes who gets their hands on the currency first and on what terms.
I think you just made my point, but harder. Debt is actually great for “the lenders,” i.e. whoever buys treasury bonds. If the government wants to spend money on something, they have to issue a bond. The bondholders are paying for it. If you run out of bondholders, you have to increase the interest offered to make it more appealing than other investments.
It’s not just “moving numbers on a ledger.”
That would be essentially the same as printing more money,* which is what leads to hyperinflation and the collapse of economies. The higher the total debt, the more taxes go into paying interest on debt, rather than services (the nurses and water engineers mentioned above). There is a whole other discussion on where that spending on services spending should be prioritized.
Where does that Tax money go? Obviously it’s a payment to bondholders, which are generally wealthy individuals, corporations, or nations, but can also be held by the US Government (maybe that’s what you mean by “moving numbers on a ledger?”).
Edit: source
*The Fed does change the money supply through interest rates, which can generate inflation.
But when they control a Federal Bank (as with the US Reserve, the ECB, the PBC, the Banco Central do Brasil, etc, etc) the buyer and the seller are joined at the hip. The real risk of this strategy is that you release more of a currency than there exists downstream demand. That’s where taxation functions as an implicit guaranteed demand for currency. And then the real focus isn’t on who buys debt or who pays taxes, but who contributes value-adding activity to the economy.
If printing money leads to hyperinflation, every country that issues currency is in a state of hyperinflation. They all - at one point or another - printed an original allotment of currency. They all expand the supply to meet domestic (and, for global reserve countries, international) physical currency demands. This does not result in double and triple digit annual increases in currency-denominated prices.
Tax money does not “go to pay bondholders”. Taxation destroys currency in an inverse to government spending creating currency. Spending - including paying interest on debt - is inflationary and taxation is deflationary. The only relationship between taxation and interest on debt is in maintaining this equilibrium or adjusting it as need demands.
The Fed changes the M1 money supply, which is money lent from the bank for a length of time. All this M1 money has to be repaid periodically. And because the money carries an interest rate (presumably higher than 0% - although, in the era of ZIRP, not always) it is net deflationary over time as you’re paying the bank back more than you borrowed.
The M0 money supply is printed currency, which a government needs to release - and periodically expand - in order to meet the basic demands of the national economy as a mechanism of exchange. Historically, governments release this money through spending. Super historically (ie, go hit up David Grabber’s “Debt: The First 5000 Years” if you want a lesson in anthropology) it was a means of paying soldiers while abroad. The coinage falls into circulation among conquered peoples and taxes on the providence levied in the currency paid to the soldiers effectively becomes a mechanism for a populace to pay for its own subjugation.
Over time, the role of government evolved beyond “army of thugs that periodically loot your crops and rape your children”. And now we have an M0 supply that finances everything from pensions to health care to highways (but still plenty of looting and raping, depending on which military base you’re stationed). But it all still comes from the state, with credit being downstream of the origination of currency itself.
Bottom line, a state that wants to control its own money supply has to produce money and distribute it. The question then becomes who gets their hands on the currency first and on what terms.