The deficit presents no solvency risk to the United States
Topic is: The current federal budget deficit presents no solvency risk to the United States. I will argue pro.
First round is for acceptance. No new arguments in final round.
Definition of SOLVENCY
: the quality or state of being solvent
Definition of SOLVENT
: able to pay all legal debts <a solvent company>
i accept it.
I thank my opponent for the opportunity to debate this very important topic.
I will begin by a review of the monetary system that has been in place in the United States since 1971 and is currently in place in the United Kingdom, Japan, Australia, and Switzerland among others. Note that I will not be discussing the Eurozone system (unless required to for rebuttal) as the way their monetary system works is completely different. I will focus on the United States (and unless I say otherwise this is the country I'm talking about), but most of what I argue would also be applicable to any country where the national government is the monopoly issuer of the currency, the currency is non-convertible, and there are free-floating exchange rates.
1. All government spending is "new money"
When you examine the way government payments are made, it becomes apparent that government spending always introduces new money into the private sector. Ben Bernake admitted as much in his interview with 60 Minutes when he said "The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.". All government spending works this way[2,3]. The government does not "borrow" or "print" money, rather it simply spends it into the economy. This is true whether the spending is payment to a contractor for construction of a bridge, or a social security payment. Let's consider the latter.
My grandmother (who will we will see again later) has $3000 in her bank account. When she is supposed to get her $1000 social security payment, all the Treasury does is instruct her bank to change the '3' to a '4' in the computer system. There are a number of accounting entries that occur at the same time, but the net effect is $1000 has been added to the private sector. Nobody at Treasury is on the phone to china to borrow the money nor trying to jam a gold coin into the keyboard. They just change the number.
When taxes are paid the reverse happens. If the payment is electronic, the amount of tax paid is simply removed from the account (and thus the economy). If one were to pay taxes in cash, the IRS would issue a receipt and then throw the cash in a shredder.[4,5] The bills have served their purpose as a carryable alternative to numbers in a bank computer system. They are of no value to the government.
The monetary system exists to further commerce and economic development. The government acts as scorekeeper for the monetary system. Just as a score-keeper in a card game can never run out of points, the government can never run out of dollars.
2. The "debt" is just the sum of previous deficits
"One way to think about the debt is as accumulated deficits." That is, if you add up the deficits (the amount more the government spends than it takes in each year) you get the debt. Calling it "debt" is really historical term from a time when the dollar was tied to gold. Under that system the government would need to borrow gold (or gold backed instruments) to spend gold backed instruments. This is no longer how it works. The government does not need to borrow before it can spend nor does it need to tax before it spends. In fact, as we have seen, the dollars that are used to buy treasury bills or pay taxes entered the private sector through government spending.
3. Swapping asset classes has no impact on the solvency of the U.S. government
In addition to collecting social security my grandmother holds U.S. savings bonds. Can you imagine her saying, "Gee I wish the government would force me to give these bonds back in exchange for cash"? Of course not. Neither her nor the government's current financial position would be in any way changed by swapping a $100 bond for a $100 bill, although my grandmother would need to find a new place to save.
Savings is a demand leakage. When people save, they are not spending all that they earn. This means that they are consuming less than they produce resulting in unsold goods or services elsewhere in the economy. Unless these goods and services are sold then producers will scale back and the productivity of the economy will spiral down. The government deficit injects new money to offset these demand leakages.
4. Inflation (optional point)
Although a discussion of inflation is not necessary to uphold the proposition, since many people on the comments board for this debate have raised it, I will address it nonetheless. Inflation is a continual process of rising prices. It is not an increase in money supply, although one can sometimes cause another. Thus, the ability of the government to run a deficit is not completely unconstrained, although it is not constrained by its ability to borrow or tax. The ability of a government (of the sort I've been discussing) to spend is constrained by the ability of its economy to produce.
Government spending causes inflationary pressure regardless of whether there is offsetting borrowing. It is the extra consumption that drives up prices not the extra money. Three quick examples: First, f the government prints $100 trillion, seals it in concrete and sinks it to the bottom of the ocean, there would be no economic impact whatsoever (except perhaps trivially on the paper, ink, and concrete markets). It's not the printing, it's the spending that matters. On the other hand, let's say the economy produces and the American public consumes 1 million cars per year. If the government buys 200,000 cars, then they have increased demand and this will put upward pressure on the price of cars. Again, it doesn't matter how they got the money. They could sell gold from Fort Knox to buy cars or they could just invent dollars to buy cars. The result is the same, the price of cars is set by the supply and demand for cars. Finally, if the government taxes the population, then money is removed from the private sector so some people who would have bought cars won't now. This effect will lessen the impact of the government spending.
At any rate, the government is not "running out" of money and does not need to "borrow" more to continue spending. How big the deficit should be is a matter for political debate, but there is no solvency risk. We should decided how much government spending we want (how many teachers, how many soldiers) and then set the tax rate to keep inflation low, but there is no solvency risk. The government can always pay its debts. The proposition should be affirmed.
federal budget deficit does present solvency risk because president obama took the following measure to reduce budget deficit:
1] President Obama established a budget reform commission, the National Commission on Fiscal Responsibility and Reform, which released a draft report in December 2010. It included various tax and spend adjustments to bring long-run government tax revenue and spending into line at approximately 21% of GDP, with $4 trillion debt avoidance over 10 years.
2] President Obama announced a 10-year (2012–2021) plan in September 2011 called: "Living Within Our Means and Investing in the Future: The President’s Plan for Economic Growth and Deficit Reduction." The plan included tax increases on the wealthy, along with cuts in future spending on defense and Medicare. Social Security was excluded from the plan. The plan included a net debt avoidance of $3.2 trillion over 10 years. If the Budget Control Act of 2011 is included, this adds another $1.2 trillion in deficit reduction for a total of $4.4 trillion.
3] The House of Representatives Committee on the Budget, chaired by Rep. Paul Ryan (R), released The Path to Prosperity: Restoring America's Promise. The Path focuses on tax reform (lowering income tax rates and reducing tax expenditures or loopholes); spending cuts and controls; and redesign of the Medicare and Medicaid programs. It does not propose significant changes to Social Security.
4] The Congressional Progressive Caucus (CPC) proposed "The People's Budget" in April 2011, which it claimed would balance the budget by 2021 while maintaining debt as a % GDP under 65%. It proposed reversing most of the Bush tax cuts; higher income tax rates on the wealthy and restoring the estate tax, investing in a jobs program, and reducing defense spending.
5] The Peter G. Peterson Foundation solicited proposals from six organizations, which included the American Enterprise Institute, the Bipartisan Policy Center, the Center for American Progress, the Economic Policy Institute, The Heritage Foundation, and the Roosevelt Institute Campus Network. The recommendations of each group were reported in May 2011.
6] The Bipartisan Policy Center sponsored a Debt Reduction Task Force, co-chaired by Pete V. Domenici and Alice M. Rivlin. This panel created a report called "Restoring America's Future," which was published in November 2010. The plan claimed to stabilize the debt to GDP ratio at 60%, with up to $6 trillion in debt avoidance over the 2011-2020 period. Specific plan elements included defense and non-defense spending freezes for 4–5 years, income tax reform, elimination of tax expenditures, and a national sales tax or value-added tax (VAT).
all these steps will reduce budget deficit unless new govt. did not implement them.
My opponent, in his first round, has failed to engage the substantive issue of this debate. I will admit that there are many people who will use the deficit (and scary sounding claims about the deficit) to promote their own fiscal agenda. These agendas usually center around separating the middle class from their savings. However, this fact has nothing to do with whether the current level of deficit poses a solvency risk for the United States government.
I advanced four arguments in the first round. My opponent ignored, failed to address, and thereby conceded them n his response. They are:
As noted before, my opponent made no attempt to rebut any of these points. Instead he listed six plans to reduce the deficit. He made no argument that the deficit should be reduced, much less that doing so is necessary to preserve the solvency of the U.S. government.
I extend all arguments from the previous round.
1] All government spending introduces new money into the economy and taxes removes it
this argument has no basis. throwing cash in a shredder does not mean throwing cash in a garbage heap because that shredder may be the carrybag of the govt. it is not new money that govt. introduced. it is the same old money.
2] The "debt" is just the sum of the previous deficits (spending minus taxes)
govt. borrowed money through taxes, t bills etc and then spend the money in private sector development.The government does not need to borrow before it can spend nor does it need to tax before it spends. In fact, as we have seen, the dollars that are used to buy treasury bills or pay taxes entered the private sector through government spending. the flaw in this reasoning is that without borrowing money how come govt. or any entity can spend that money?
heres what happened: govt. borrow money through tax and spend the money to private sector. that private sector will continue production of goods and services that we the people use. so ultimately govt. is spending money for the people.
3] there 2 types of U.S. savings bond: series 1 and EE. both earned interest rate
and both have a maturity. so in maturity your grandmother will have $100 + interest rate. so there is a gain i.e. the interest. so there is a change in financial position of your grand mother.
so pro did not give a valid argument. heres my arguments:
1] budget deficit is really good during recession time according to eminent
economist NEIL H. BUCHANAN. you better read his article here:
I'm not really sure how to respond to my opponent because much of what he said seems to be agreeing with me. He organized his response into three rebuttals and one new point, so I'll address each of them.
1. All government spending introduces new money into the economy and taxes removes it
"this argument has no basis. throwing cash in a shredder does not mean throwing cash in a garbage heap because that shredder may be the carrybag of the govt. it is not new money that govt. introduced. it is the same old money."
I'm not sure what my opponent means by "carrybag of the govt." My point was that physical currenct (like bills) serves as a token to allow efficient trading of dollars in the private sector. Once those bills are returned to the government, they have no value to the government, since it is allowed to print them at will. Because the government can never run out of money, it (1) doesn't view the bills as having value, and (2) can never be insolvent in dollars.
2. The "debt" is just the sum of the previous deficits (spending minus taxes)
"the flaw in this reasoning is that without borrowing money how come govt. or any entity can spend that money?"
Well, as I explained in the first round, a currency issuer spends differently than a currency user. The issuer of a currency does not need to acquire the currency before it spends it. It just spends it. I would also point out that I'm not aware of anyone who suggests that taxation is a means of borrowing money.
3. there 2 types of U.S. savings bond: series 1 and EE. both earned interest rate
Yes, they earn interest, however they also have a present value. That is the value they are worth right now. My point was simply that swapping them at present value for cash would not change how much "money" grandma has, although it would remove an interest stream from her. It would also not impact the government's fiscal position because this "repayment" of the debt would just be swapping one government issued piece of paper (bond) for another (cash).
4. budget deficit is really good during recession time according to eminent
This topic does not relate to solvency and suggests that the deficit is good, I'm glad my opponent agrees. In fact, when he does talk about solvency, the economist in the source supports the proposition:
The deficit presents no solvency risk to the United States.
Please vote Pro.
xxx200 forfeited this round.
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