Newsday

December 24, 2002 7:44 AM

What does the BushAdministration want for Christmas this year? An extension to the Nation's Credit Card limit.

"Currently, national debt subject to the $6.4 trillion debt limit stands at $6.3 trillion"
"...warning that it may hit the current limit on the federal debt by late February."

Merry Christmas USA!
posted by CrazyJub (13 comments total)

Two questions.

1) who exactly is this money borrowed from?
2) who's getting all the frequent flier miles?
posted by devbrain at 8:30 AM on December 24, 2002

excuse my simple terms and broad generalisations, but isn't it keynesian economics (which i thought was "left-wing") for the government to spend its way out of depression and monetarist economics (which i thought was "right-wing") for the government to keep tight control.

i'm confused, since i thought the current us government was supposed to be more right-wing that the clinton regime, yet the behaviour is the reverse (and, i'm presuming, the right will applaud this move while the left will criticise it).

never did understand economics....
posted by andrew cooke at 8:32 AM on December 24, 2002

the right will applaud this move while the left will criticise it

Mechanical soldiers are fun around Christmas time, aren't they?
posted by rushmc at 8:34 AM on December 24, 2002

While the national balance sheet is more leveraged than i would like, there are quite a few good reasons to take on debt here.

1. Take advantage of low rates. Just like everyone else in this country running to the banks for home loans, 0% car loans, etc. I would rather see out govt borrow at 4% than at 15%.

2. Increase the money supply, nudge economy onward. Everyone loves these low interest rates, ever really wonder where that comes from? It comes from an increase in the supply of money, which mostly comes from our central banks (JP Morgan etc) buying govt debt. Without an increase in govt debt, there cannot be an increase in money supply. In fact, there is about 10x leverage on govt debt issued compared to an increase in money supply. (This comes from the min-reserve policy, ~5% for most banks, meaning that if JPMorgan buys $1million in tbills, they can make $950,000 in loans off the $1million in assets. That 950K usually gets deposited into another bank, which then can be loaned out again etc. The real trick here is that JP Morgan gets to buy the tbills without actually having the money, but thats another story altogether...)

I guess my point is that we have to recognize that the source of lowered interest rates is generally an increase in govt debt. If you think the economy stinks now, imagine where it would be with 8% interest rates.

Of course, there is another interesting angle on this namely that the "increase in money supply" almost be definition results in inflation, which is a tax on everyone, but hurts savers and people with less debt more. Is that fair? The low inflation rates posted recently, combined with the rampant increase in money supply over the same period shows clearly the nature of the deflationary cycle we are currently in.
posted by H. Roark at 8:34 AM on December 24, 2002

andrew cooke: ... keynesian economics (which i thought was "left-wing") ...
Keynesian economics might sound like a left-wing policy, but in fact is not. The Left would push for spending in welfare, education, health, etc. and the Right would give subsidies to (preferred) industries and increase the military spending.

Increase in gov. spending seems to be the optimal solution when low interest rates are helpless.
posted by MzB at 10:07 AM on December 24, 2002

Background on the 20th century philosophical battles between the economic theories of Keynes and Hayek: The Commanding Heights.

It isn't really true that the left and right divide, any more, along Keynesian and Hayekian lines. For a time, "we are all Keynesians now" was the conventional wisdom, and deficit spending was privately understood -- at least since Nixon -- to be a valuable tool in the hands of even Republican administrations. In recent years the ideas of Hayek have become more ascendant, and Keynesian economics is less widespread than previously. Even the Democrats can follow a surplus policy.

The one thing that is certain is that it isn't an absolute Bad or an absolute Good. It is a choice, with consequences, and that choice is dependent on other factors. As MzB points out, a stagnant, low-interest, deflationary economy is one of the situations where deficit spending -- a Keynesian boost -- is probably warranted. In inflationary times, we should be going in the other direction, but these are not those times. In truth, both Keynes and Hayek were brilliant men, and neither's approach will ever be implemented in unadulterated form. And the worst of it is that public policy has a bulit-in lag, which means that implementation is often late and timed for the worst possible moment. The economy, for steering purposes, is a bit of a supertanker.
posted by dhartung at 10:33 AM on December 24, 2002

What's hard to figure is, with interest rates at record lows, the administration has chosen to eliminate the sale of 30-year bonds. When the shorter term bonds expire and the debt must be refinanced at higher rates in a few years, there will be hell to pay in the budget. Just as for homeowners, now is the time to lock in a long term mortgage, not an adjustable rate. But these guys will be long gone and that will be someone else's problem.
posted by JackFlash at 10:44 AM on December 24, 2002

Awhile ago, I did some research on our National Debt and deficit spending. I am too lazy, and too much of a hurry to look up some of the links, but most of the things I found were from the U.S. Government web site. I found it interesting that about a third of our spending goes to paying our debt. Also, a large chunk of the national debt is owned by Social Security, but also there is a large chunk which is foreign owned. We ship our wealth overseas, and that wealth gets invested in our government. Deficit spending varied for many years, but never really got large until the Reagan years, and since then has really exploded.

I agree that it is better to borrow when interest rates are low, but our government, since the Reagan Administration, has had a pretty difficult time with reigning in spending in good times or bad, or keeping to their balanced budget promises. I just hate to see us get to the point where we are spending 50 or 75% of our budget on financing our debt. It makes it harder for the government to provide it's service, and allow people to keep their money.
posted by Eekacat at 11:01 AM on December 24, 2002

Technically, monetarism is Friedman's idea, not Hayek's. Friedman was for many years slurred as being a left-wing crackpot for holding his viewpoint, then later as a right-wing crackpot for putting forth the exact same viewpoint as the prevalent school of political economy shifted. In all fairness, he's probably a centrist - neither totally in love with laissez-faire nor central planning.

Hayek and Mises are great guys, but most people hear the laissez-faire part and immediately slot them into the right-wing/libertarian box and forget about them. That's unfortunate, because Hayek was in favour of government funding social programs and really worked on ways to reduce government interference in the economy and individual lives while allowing them to still pursue helping the poor and whatnot.
posted by Pseudoephedrine at 11:23 AM on December 24, 2002

I know nothin bout them good ole boys in economics but what I do remember is that when Clinton left office there was no deficit. None. And now we are back to what we had before Clinton became president. Seems to me that something happened somehow somewhere.
and my grandmother told me that bailing out big airlinesw is more socialistic than any socialism you would find among the eurotrash.
posted by Postroad at 1:05 PM on December 24, 2002

IIRC He was spending a deficit until the very end of his term. He had started to turn the tide though.

This is a good link for info about Deficit vs Debt and whatnot.

http://www.brillig.com/debt_clock/faq.html

I'd like to find one with some more current information including the BushII years. Does anybody know of any good urls?
posted by klaruz at 2:39 PM on December 24, 2002

if they are going to spend - you may as well make some money for yourself -
posted by specialk420 at 3:25 PM on December 24, 2002

Previous discussion on some of the risks of national debt.
posted by homunculus at 8:46 PM on December 24, 2002