From: ts2a+@andrew.cmu.edu (Thomas Omar Smith)
Newsgroups: sci.econ
Subject: Re: A NEW WAY TO REDUCE THE PUBLIC DEBT
Date: 29 Sep 92 18:45:13 GMT
Article-I.D.: andrew.YemFGtW00awYINWVwi
Distribution: usa
Organization: Carnegie Mellon, Pittsburgh, PA

Excerpts from netnews.sci.econ: 29-Sep-92 A NEW WAY TO REDUCE THE PUB..
Khanh V. Nguyen@edison.s (1443)


> Our national debt has reached $4 trillions and is raising with explosive 
> speed. In average, a family of 4 has $ 80,000 of public debt. Is this normal?

> I present here an innovative way out of this mess, and I think this is the
> only way:

>   To get rid of this debt, simply pay back less than we're supposed to !

> But How ?

>   We can do it legally by having an INTENTIONAL HIGH INFLATION RATE !

> The benefits of this policy is:

> * Most of our national debt has fixed interest rates. With a high inflation 
>   rate, we will end up paying lower net interest rates.

A large piece of the debt is tied up in 90 day Tbills.  These become
very expensive over time.  Overall, your point is somewhat valid, but
> not as much as you imply.

> * The principal of the debt itsefl will be devalued by inflation.

> True.  

> * To promote inflation, the goverment will create new money, which will help
>   to finance the budget and reduce the deficit.

The government may create more dollar bills, but it will not create more
wealth.  Each new dollar decreases the overall value of money, so that
you never gain new wealth.  You can't get something for nothing.  Weimar
> Germany proved that.

> Of course, this policy has winners and losers.
> The losers are the owners of the public debt: big banks, foreign investors,
> "fat" corporations ...

Actually, the biggest losers would be new homeowners and students.  When
inflation hits, the interest rates for new loans will skyrocket.  People
trying to get loans will have prohibitively high interest.  Homeowners
who don't have fixed rate mortgages are similarly screwed.  Big banks
will hedge against the inflation by raising rates.  Foreign investors
will pull out of America, lowering overall investment and causing
further rises in interest rates.  "Fat" Corporations will watch their
long term debts dwindle while they reinvest their money oversees.  You
also seem to forget that tyhe largest industrial group owning the debt
are pension funds.  Every retiree in America will get royally screwed.

> The winners are the majority of American people. With a reduced burden of debt,
> the goverment can spend more on education, development and social programs, and
> can reduce tax at the same time.

Of course, a lot of these "winners" will be unemployed "winners" as
investment flows out of America.  And America will face a steady growth
of interest on its debt as inflation rises.  And if these people are
trying to live off savings (retirees), their capital dwindles to
nothing.  They get better interest rates, but the get that rate on next
to nothing.  So who wins again?

> But how about millions of Americans who own Govt. Bonds ?
> Well, if their family owns less than $80,000 of govt. bonds, they are still
> net debtors: They are still winners.

Hmm, they get screwed on their savings because their interest rate is
locked in.  They get to watch people who accepted more "risk" in public
sector savings get better rates than the "safe" investment they made in
their own government because their own government has decided to screw
> them.  I don't think they can be called winners.

> The only problem of this policy is that the FED, under the influence of big
> banks and shark lenders, will never let it happen.

The fed won't let it happen because it knows that in the long run low
interest and low inflation are the best tools available to it to help
drive the economy.  If you want investment in industry, you have to make
that investment attractive.  If investors can put their money into long
term projects safely, and get better returns than from normal savings,
then they will invest.  If instead they can get high interest rates,
they don't invest in new projects.  Although i will concede a loing term
high inflationary stance might cause them to invest in land, since it
> retains value well.

> American is destined to bankrupcy !

You act as if any nation ever pays off its debt.  The only reason that
debt in America is an issue is that it's starting to be a significant
part of our spending.  If the government can balance the budget, then
the debt naturally will erode slowly away from the small, natural
inflation that exists.  You obviously do not understand how inflation
affects the economy and why the government goes to such great pains to
> avoid it.

> Kan Nuel.

					Tom the non hacker
					Kemp in 96!
					"If patriotism is the last refuge
					of scoundrels,  Then environmentalism
					is the current refuge of totalitarians."
					Bob Jackson
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