From: ekp@mcnc.org (Edward Pavelchek)
Newsgroups: sci.econ
Subject: Re: Confronting the Deficit/Debt Boogyman
Date: 6 Apr 92 22:29:07 GMT
Reply-To: ekp@mcnc.org (Edward Pavelchek)
Organization: Good place for a disclaimer

In article <1992Apr4.054726.265@nuscc.nus.sg> ipser@solomon.technet.sg (Ed Ipser) writes:
>In article <8841@alvin.mcnc.org> ekp@mcnc.org (Edward Pavelchek) writes:
>>In article <1992Mar30.091703.15592@nuscc.nus.sg> ipser@solomon.technet.sg (Ed Ipser) writes:
>>>Let's return to the issue: How is it harmful to the US economy to decrease
>>>the net assets held by the US federal government?

>>This question is hopelessly formulated.  At one extreme, the
>>government's total assets are the country itself, as eminent domain and
>>taxing authority would indicate.  Hence, the deficit is merely a
>>particular form of internal redistribution, and no diminishment is
>>occurring.

>This interpretation is not very useful in practice. Suppose, for example, that
>the government managed to pass a 100% tax on all economic activity:

>In other words, the government may have the power to destroy the net
>assets of the country but it does not follow that it has the power to
>confiscate them in any practical sense.

Taken to the limit, some assets would escape - yet much could be
obtained if desired, and many societies appear to pay higher tax rates
than we do.  I imagine we would start by selling California,
Hawaii, Guam, etc to the Japanese.

>>At another extreme, the feds just hold nominal title to certain assets
>>in trust for the people, having none of 'their own'.  Hence, they are
>>already at 0 assets, and are giving away someone else's, not diminishing
>>their own.
>
>I have problems with this interpretation as well. The federal government

>The corporate analogy is also useful in explaing why the deficit
......
>as collateral and then make dividend payments to the stockholders in an
>effort to keep them satisfied. In time, it will amount to the same thing
>as the net worth of the corporation is reduced to zero but it would be
>better for the stockholders if the assets were sold immediately and put
>into more productive use. However, in terms of the economy outside the
>corporation, the effect is mainly neutral since the stock holders are
>more or less absorbing the wasted resource in the form of interest
>payments.
Many consider themselves closer to workers in this 'corporation' than
stockholders or uninvolved.  The eventual failure of this board and
their replacement by a subsequent government is of interest to many.

To answer your question: as fed borrowing increases, interest rates must
rise to supply the funds.  This rise will diminish investment in the
rest of the economy.  Rising interest rates will further worsen the
deficit, raising borrowing, around and around - once no one is lending
except to the feds, the velocity of money will drop, and all of the cash
available will be loaned to the feds, hence only those on welfare will
be able to eat, there will simply not be cash available to pay you.
It will be a federal crime not to loan your money to the government, but
inflation will be avoided.  These scenarios are easy to invent.

>bond holders don't appear to be worried (yet). On inflation, traditional
>indicators of inflationary expectations such as the price of gold and
>real estate are at their lowest point in years. If bond holders aren't
>panicking, why whould I?

Maybe because most market participants will take current higher yields,
gambling that they can get out just before rates increase.

<>What is Mr Ipser's estimate of the current net worth of the government,
<>anyway?
>That is a damn good question! Clearly, though, a lot more than the pundits
>are giving it credit. The national parks and interstate highways alone
>must be worth trillions.

Please look up interstate mileage - even 100K miles @ $10M/mile is only
$1T.

The national parks are nearly worthless - resource poor, isolated, poor
traffic access, not competitive with Disneyland.  

If the government started with only the 13 colonies, and has taken in 
$X, and spent $X+4 trillion, and has a huge positive net worth, then how
can you criticize their performance so strongly?

I can estimate the assets differently - the GNP is something like
$4T, most of which is labor. If 20%, or $800B is the output of the 
the capital assets of this country, then at a 20:1 PE ratio, the total
net worth of the country is $16T.  Off the cuff, I will guess the
governments (state, fed & local) hold 10% of assets, or $1.6T - hence the
feds are long bankrupt.