NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/alt/fan/rushlim/13646

Internet Message Format | 1993-01-24 | 4.7 KB

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From: [e-mail] (Karl Wee)
Subject: Re: Natonal debt is not bad
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Reply-To: [e-mail] (Karl Wee)
Organization: Oracle Corporation, Belmont, CA
Date: Sun, 24 Jan 1993 00:38:14 GMT
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              at Oracle Corporation.  The opinions expressed are those
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Lines: 76

From: [e-mail] (Ted Frank)
>
> Karl Wee writes:
>>
>>The reason is that with a huge national debt, there are so
>>many vicious cycles in the fanancial markets and in the economy waiting to
>>explode, and once they explode, they will be out of control.
>
>You'll need to develop this point further before I believe it.

When the debt becomes so huge that the US is no longer capable of making
plans to pay it back with non-inflated money (of course, the huger it gets,
the less the US can make such plans), investors in US bonds will lose
confidence.  They will demand higher yields from the bonds they buy.  That
will drive the US further out of control and feed investor's perception of
either a severe inflation or repudiation.  So there's one such cycle.

In fact, this need not even happen.  The *perception* of this happening
by some investors, or even the *perception* of the *perception* that
this will happen is sufficient to drive us into this REAL crisis.

When this happens, we will get either severe inflation or backbreaking
govt. spending cuts and tax increases, or a combination of the two,
depending on how much of the govt's debt the Federal Reserve is willing
to buy (equivalent to printing money).  When the Fed and the govt's plans
don't work out to be compatible with each other, we can get a real crisis
of faith in the govt's legality (since it may be forced to repudiate some
debt) and all the order that we rely on it to uphold.  (This might actually
sound good to some, but you don't know what you have until you lose it.)

The ONLY way for things to continue as they do now without any crises
happening is for the debt (and of course the interest on it) to grow
exponentially, with government constantly borrowing more and more to pay
the interest without impact to programs and taxes.  The people will literally
have to PROGRAM THEIR HEADS to think "this is ok, this is ok...." even
when the govt starts using the entire tax revenue just to pay the interest,
and beyond....  AND when even a perception otherwise is enough to trigger
a collapse.  Think about it.  This is the ONLY way.

At the current rate, it will only be a few years until 100% of revenues are
taken up by interst on the debt.

Yet another vicious cycle is, of course, that the more we wait, the less
manageable the debt becomes, and hence the more sacrifice will be required
to fix the problem.  (Forget inflation; even a perception of inflation can
drive us to the crisis)  And hence the more we wait because special
interest groups won't allow such drastic remedies.

(However, any realistic solution must involve some tax increases, spending
cuts, and inflation, but not in a way that will keep feeding on any vicious
cycle -- the latter is what we'll get if we keep walking dreamily and
wake up one day with sudden realization and panic.)

The last vice of the debt is that political corruption will get even worse.
When the debt problem surfaces in whatever form and govt. must
react, every inadequacy of government, any suffering as a result of it,
will be blamed on the debt and not on incompetence/corruption which
may be the real reason in many cases.  As voters become incapable of
holding candidates to their responsibilities because of the overshadowing debt
problem, whichever candidate with the most money, influence, or rhetoric
will win.

Or voters can get so angry that they kick out every leader and refuse to
cooperate with any.  That would be another disastrous vicious cycle.

I agree with you that the debt is really a symtom of an underlying problem.
The fundamental problem is that there's a tremendous gap between the
amount of information that voters need in order to "run" this country and
the information they actually have.  I've written much about this in "The
Tyranny of Information".  Voters need to either know every detail of
government or limit their votes strictly to leaders of the highest integrity.
Or have an efficient compromise between the two.  But this is a long term
issue and the most important thing now is to diffuse the bomb of the debt
so we can keep our sanity with which to work out the long-term problems.

- Karl Wee