Forum Post: Difficult economic logic: Beware
Posted 12 years ago on April 18, 2012, 5:35 p.m. EST by FriendlyObserverB
(1871)
This content is user submitted and not an official statement
The debt / GNP / tax collecting ratio is altered when money is borrowed from the economy and creates new/ additional national debt.
Example:
Ten trillion debt.
Ten Trillion GNP.
When we borrow two trillion from the economy the Debt goes up to 12 trillion but the GNP remains at 10 trillion.. and than the following year when we again borrow two trillion from the economy, the debt goes up to 14 trillion but again the GNP remains at ten trillion.
Here is where things get even more difficult to understand:
Taxes are collected from the ten trillion GNP.. and interest is paid on the debt.
As the debt rises as in previous example the total interest payment rises, but as The GNP does not rise equally with debt but stays at a constant level, the tax collected from the GNP remains the same .. therefore the ratio collected in tax vs. the amount of interest paid in debt is altered.
If each year the same amount is collected in tax from a ten trillion dollar GNP, but each year the debt rises by two trillion .. you can see where the trouble begins. The total amount of interest payments rises as the debt rises, but the total amount of tax collected remains the same. Therefore the ratio is altered.
To fix this would be to stop borrowing money from the economy , and instead simply print the money as needed. this will increase the GNP as we increase the debt.. keeping the debt GNP ratio level/equal and thus the tax collected will increase as the GNP increases..
The borrowing from the economy needs to stop. And in fact money should be printed to pay back all the money that was borrowed from the economy . This will place the debt GNP ratio at it's rightful position.
Why do we always hear about GROSS Domestic Product but never NET Domestic Product? The difference is DEPRECIATION. The problem is "planned obsolescence" which economists don't talk about. The purchase of junk designed to become obsolete creates jobs and cash flow and increases GDP. But only the Depreciation of Capital Goods gets subtracted to compute NDP. Why isn't everybody taught double-entry accounting so they know how to compute their depreciation even if economists do not do it.
http://www.spectacle.org/1199/wargame.html
The main point is how buying bonds has caused a loss of tax revenue due to suppressing the amount of money within economic circulation. Tax is collected by percentage. When the total amount is suppressed , the tax collected is also suppressed. We think we are preventing inflation when in fact we are decreasing the value of our tax collected / debt ratio .
If we owe 4% on ten trillion = 400 billion
If we owe 4% on 15 trillion = 600 billion.
but we are collecting from the same amount.. because as we borrow from the economy and than respend the total amount never grows.
So as we collect 4% from ten trillion economy to pay the interest of 4% on ten trillion it equals out, but as we collect 4% from ten trillion but pay interest of 4% on 15 trillion , we fall short.. We think we prevented inflation but we just added 50% to our interest payment and gained nothing in collection.
suppressing inflation has altered the debt : tax ratio
How do you think its printed and injected. Through bond issuance.
We are now the biggest holder of our own bond issues. Goldman makes a fuckin fortune every time we do this, so once again we are at the issue of money in our politics.
Yes , but it is the bond we need to eliminate the practice of. The bond takes money out of the economy, as I tried to explain in the post. If we would simply print money and inject it directly into the economy we would be much better off than our current practice of selling bonds.
When we sell bonds , we are not adding to the total amount of money in circulation .. by taking money out ant putting it back in, but at the same time we are increasing our debt.. this makes our debt grow but GNP stay the same .. and the ratio becomes altered with each transaction.
The bonds have to be paid off and cancelled with freshly printed money if we are to place the ratio where it is supposed to be.