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October 20 2002 at 8:13 PM
Jester  (no login)
from IP address

Response to Symptomatic of Your Whole Argument

To open, I would like to point out that I don't have any economics professors, let alone socialist textbooks. I'm a musician by training. If you think what I'm saying is drivel, it's mostly my own drivel. The most leftist economists (outside of a historical interest in Shaw and Russell, whom I never quote and never use when talking economics, and the Communist Manifesto, which I read for a lark) I've read anything by are Galbraith and Keynes. If those two are socialists to you, then we're on totally different wavelengths altogether.

You have an interesting view of what I am proposing. I am not proposing (as has been done in the past) dragging creditors into the colosseum, throwing tomatoes at them and giving them a good solid hanging. I am proposing restructuring a deal. Like, you know, when you sit down at a table and say "Look, this loan thingymajigger, it's becoming tremendously burdensome, so can we come to some reasonable agreement about it that will free up our cash flow so that it no longer represents quite such a burden, and in exchange you can feel much safer that we're dealing with it, we're not going to declare bankruptcy, and we're hoping to do business with you in the future"?

Yeah, that one. The kind of thing that goes on with loans all the time, at all levels. A far more dramatic version of that kind of thing is currently being negotiated between the first and third worlds over a paltry 1 trillion dollars of totally unpayable debt. Creditor confidence? It stopped mattering about 999 billion dollars ago.

So, no, I'm not talking about holding a dinner party and poisoning everyone to whom money is owed. This is a reasonable matter of economic policy, not, as you put it, outright theft.

That, then, leads to the question of who these creditors are, and why I would choose to ignore some of them? Well, money owed by the government of the US to the citizens of the US, which will then be financed by the citizens of the US paying the government in taxes, is not really the kind of debt that needs to be considered in this kind of debate. It's internal. It's not irrelevant, of course, and if you completely bankrupted the US treasury, and those bonds came due, there'd be hell to pay. But the US gov't is not that desperate. Nor is it likely to be in the near future. And, as old bonds come in, new bonds are issued in a reasonable equilibrium. There is no reason that you have to tread on citizens in order to renegotiate the debt. The same thing applies with the money owed (about 3 trillion) to the US treasury. This represents a degree of inflation, but it doesn't represent a debt problem. Money flowing from the US gov't back into its own treasury is not crippling debt; the treasury is unlikely to break anyone's legs for not paying it back. So, while it's good to acknowledge that it exists, it's not important here; what's important is money flowing out of the state and into the hands of foreign investors and organizations.

This is not "cooking the books". I am not ignoring it, I am not calling it something else. I am not advocating lying (as if a sum as closely watched as that could be lied about to creditors). I am just pointing out what is owed and to who, and that money owed internally, to either citizens or to the treasury, is a much less important thing than money owed to, for instance, Saudi Arabia.

Now, I wouldn't want to screw them either, but there is more flexibility there. Terms of payment are not written on stone tablets brought down from Mt.Sinai. The loan can be stretched out, making payments less burdensome. The term can be shortened, trading quicker payment for lower interest rates. Partial default or anullment can be acheived in certain cases, provided this renders the rest of the debt more secure. Now, if the creditors are completely unwilling to budge, then find creditors willing to consolidate parts of the debt. There is still available money in the world, and there's nothing worse to a creditor than having yourself undercut by someone willing to give slightly better terms.

There is nothing morally bankrupt about renegotiating. There isn't anything morally bankrupt about defaulting, providing you actually can't pay the debt, which is not the case with the west, and so a total default it is off the table. And, of course, as an interesting side note, to the extend that christian values are important, it is the usurer who is sinning, not the indebted.

You mention investors in the stock market. I'm not quite sure why. Private investment and ownership is not, last I checked, a function of the government. Microsoft may be a good investment long after the US government ceases to be, or vice versa. If there's money to be made on the stock market, money will be made on the stock market, unless everyone suddenly suffers from a bad case of either altruism or stupidity. Nothing short of a major change in the currency supply is going to change that; it's the backbone of capitalism.

Inflation and deflation are a measure of the quantity of money vs. the quantity of goods (and, to some extent, services). While deflation was an important part of the depression, and inflation an important part of the recovery, there is no such animal today; its face has completely changed from the classic model. Inflation has been between extreme and rampant since '73, thanks to a whole raft of factors, most of which diminish the government's ability to use money as a tool, and none of which resemble the factors in the depression. Money markets are perhaps the king of these, helped along by a healthy spirit of corporate raiding in the 80s. The rise of personal credit cards. The explosion of corporate debt, often related to raiding. We live in an inflationary age; the prevalence of debt is both a cause and a symptom, although certainly not the only one.

However, before you totally throw away what I'm saying about inflation, consider: If Saudi Arabia lends the US 200 billion dollars, and the US squanders it, but continues to service that debt, what does that money the Saudis are getting represent? It could represent taxed income, which slows the economy, reduces production and consumption, and thus creates inflation by reducing the quantity of goods without altering the amount of money in play. It could represent printed money, which is just undisguised inflation. It could represent unpaid "future costs" (like the repair of roads, or anything else that will bite you later), which is also inflationary. What's the common thread? Servicing a debt which is not balanced by an equal growth in assets is inflationary. It can't work out any other way. This can be counterbalanced somewhat by the regulatory authorities, but that plays havoc with the rest of the investment world by artificially lowering the in-country money supply.

And, of course, the Saudis will be none too happy about being owed money worth less and less. So everyone stands to gain by making payments on debt reasonable and serviceable without undue burden. This is precisely the situation in Russia, South America and Africa. Unduly burdensome debts not only stall growth, but force the sale of assets and the halting of investment, and often even further loans just to cover the servicing of the debt. So they fall farther and farther away, and the money they pay to the west is pure inflation, representing no good or service. Would a third world default bankrupt the west? To the contrary, it would halt the inflationary cycle of meaningless payments, which would probably be a positive measure; the initial investment is long gone anyway.

It seems, however, that another discussion entirely has erupted over the value of the New Deal. Pete says it was the war that saved them, and that they were being saved by the magic of the free market; I think the US was on pretty solid footing before the war economy really got in gear, but that the new deal was essential in restoring the mechanisms of middle class democracy (yes, including safe lending and borrowing) that the US needed to prosper. And 1933 is a little early to be making weapons to counter an enemy who wouldn't invade Poland for 6 years yet. His "new deal" speech was in '33, his "arsenal of democracy" was in '41.

But, of course, you could just laugh, 'cuz you know better. None of that socialist nonsense could have had anything to do with it. It never does. The market accomplished it on its own. The undying spirit of the American people, even so beaten down, rallied at the call of supply and demand, and the fidgetings of FDR and crew were just a cute sideshow.

Sounds like an article of faith to me. But, then, as Pete pointed out earlier, I should stop being absolutely truthful when being ascerbic.

And yes, of course I know what a pyramid scheme is. Am I supposed to reply to posts with a single line asking me for a definition? I presumed you were posing a rhetorical question, not grilling me. However, since you insist...

A pyramid scheme is an inflationary method for dividing up a limited (or ocasionally nonexistent; send $2 for details) set of goods into a seemingly limitless quantity of money for those high up on the pyramid. Examples include tupperware sales and the church of scientology. The first person takes their territory and sells the rights to it two or more suckers at a profit, who then work the business, and give a percentage of the profits to the first owner. If the suckers wish to cease being suckers, they then divide up their territory, and sell it in a similar arrangement to further suckers. This persists until there reaches a level of suckerhood so stupid or so broke that they can do nothing but work like dogs for the benefit of those on top.

How this applies to the debt of the western democracies, you'll have to enlighten me. We can't be on top, because we owe, and we're not on the bottom, because we're the most powerful entities in the world. It could be pointed out that the entire pyramid scheme (above the lowest level) is non-productive, and therefore the faster the people at the top get thrown out (modern version: bankruptcy. ancient version: exectution) the better.

It is, however, a very enlightening model for third world debt, and may explain why they're so irritated at the idea of living with it. I know I would be.


P.S: Thanks for the link! I wouldn't ever have thought to actually use logic in my arguments.

 Respond to this message   

  1. Yeah, a little logic wouldn't hurt. - Pete on Oct 20, 9:28 PM
  3. You have got to be kidding me - Occhi on Oct 21, 12:34 PM
    1. Couldn't agree more - Jester on Oct 21, 3:09 PM
      1. New York City - Occhi on Oct 21, 3:21 PM
      2. It takes two to communicate :) - Pete on Oct 21, 4:15 PM
        1. Drinks all around - Jester on Oct 21, 10:45 PM
  4. Shortsightedness - Sirian on Oct 23, 8:59 AM
    1. On that "$100 hammer" - Pete on Oct 23, 9:39 AM
      1. Reply - Sirian on Oct 23, 11:04 AM
        1. Like I said, I agree with you (on this, at least :) ) - Pete on Oct 23, 12:16 PM
          1. *Grin* Ugh, the Burdened Hour *Grin => Grimace* - Occhi on Oct 28, 1:01 PM
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