Wednesday, April 20, 2011

Don't Worry about the National Debt.

One can say that the debt is way out of control, and they may be right. But others may say that the debt is not really as serious as it is made out to be. It is kind of like the trade deficit.

Here are some arguments that explain why debt is fine.

1) If we think about the entire world (and some say this is a world economy) there isn't really any net debt. It all averages out. I owe Joe $100. Joe has $100 note from me. Our net debt=$0.

2) Some people and nations may benefit from investment, others from borrowing. How many would own houses if they had to be bought with cash? We borrow because we wish to use an asset now rather than on our death bed. What is wrong with that?

3) When we pay interest to other US citizens or foreigners they have a bag full of US dollars. What are they going to do with that money? Burn it? Probably not. Rather, they will have to spend it, buying our goods and services, investing in our companies, or loaning it back to us. In any of these cases we still have use of it.

I'd appreciate it if someone tells me the fallacies in my thinking. In the meantime, I won't lose any sleep.

1 comment:

Eric said...

http://www.gao.gov/financial/citizensguide2008.pdf