Warren Moslers 7 Seven Deadly Frauds of Economic Policy #2

Deadly Innocent Fraud #2:
With government deficits, we are leaving our debt burden to our children.

Collectively, in real terms, there is no such burden possible. Debt or no debt, our children, and us if we are still around,  will get to consume whatever they can produce.

There is no big mystery about this. For a start, it is not possible for any generation to send anything to a previous generation. That would mean travelling backwards in time! The next generation will consume whatever is available at the time just like every previous generation has done

For countries like the US and the UK it  could mean that the next generation will have a more balanced level of trade with countries like China and Japan. Say the Chinese  used some of their $ and £ to buy aircraft or power stations, or whatever they choose to spend their money on,  and place contracts in the UK and the US. That would be hailed as good news. Politicians would claim credit for the  number of jobs  they had created.

If we really are worried about the next generation we’d do whatever it took right now to keep them off the dole queues and give them genuine opportunities in real and meaningful jobs.  The older generation will be helping themselves too. That way the economy will be in better  shape in 10 or 20 years time and better able to cope with the demands of an ageing population.

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2 responses to “Warren Moslers 7 Seven Deadly Frauds of Economic Policy #2

  1. Hi Peter,

    The above points are valid for a closed economy, but in the case of an economy that trades with the rest of the world, a build-up of debt will probably mean that some foreigners buy some debt. That’s a form of debt for the debtor country that CAN BE passed on to future generations. The latter would suffer a standard of living hit if and when those foreigners took their money out of the country.

    And that, in my opinion, is one reason for government not to go into debt at all (as advocated by Warren Mosler). That is, governments / central banks incur debt so as to dampen down domestic demand perhaps to cut inflation or perhaps to make space for government spending. But foreigners buying that debt in no way enhances the inflation control objective or the “make space” objective: the main effect is that the debtor country pays interest to a bunch of foreigners.

  2. petermartin2001

    ” future generations…. would suffer a standard of living hit if and when those foreigners took their money out of the country.”

    The levels of interest paid to the Chinese in overseas securites is very low. After inflation, it may even be negative. The Chinese do hold their currency down to artificially low levels and it will have to rise in the coming years. They can only keep it down by holding so much US debt that the currency speculators can’t bet against them.

    If , say, the Chinese decided they didn’t want to hold UK £ or US$ and instead preferred gold or Aus $ they would have to find someone else with gold or Aus $ who would like to swap. It wouldn’t be a big problem for either the UK or the US. If it brought about a more realistic exchange rate then it would be welcomed by many in the US.

    It seems to me that many in the US are complaining that the Chinese keep their RNB/Yuan vs $ exchange rate too low but are scared they might sell their dollars which is what would need to happen to change that rate. They can’t have it both ways.

    Future generations may face have some problems over the actions present generations take. But that will mainly be over the pensions issue. IMO. Barring some future war the Chinese trade issue will gradually just fade in the same way the Japanese trade issue has.

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