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Reply #116: Adam Smith pointed out that NO GOVERNMENT had ever paid its debts [View All]

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happyslug Donating Member (1000+ posts) Send PM | Profile | Ignore Sat Jul-03-10 01:51 PM
Response to Reply #69
116. Adam Smith pointed out that NO GOVERNMENT had ever paid its debts
Smith mentioned some governments went through the motion of paying off their debts, but most just roll them over till a time when the debts are inflated away. The problem with Germany in the 1920s was it could NOT inflate its debts away, the debt were in Dollars, Pounds and Francs NOT Marks. Thus the inflation quickly got out of hand, until the US worked out a compromise spreading out the payments (and those payments lead to Hitler's rise to power and his embrace of inflation to inflate the debt away, the subsequent reduction in the German standard of living lead to unrest in Germany by the late 1930s and his decision to cut off that growing resentment by his taking over of Austria, then Czechoslovakia and then WWII, at which the German Mark had no value until the US and Soviet Forces issued new Marks for the Western and Eastern Zones of Occupied Germany(.

The same happens in the third world today, third world countries borrow in Dollars which must be paid back in Dollars. Thus they can NOT inflate away their debt. What they can inflate away (Domestic Debts) they do by adopting hyperinflation (which is what Germany did in the 1920s). Thus only foreign debts are left. Since these third world countries are NOT as rich as Germany was in the 1920s (We are talking in relative terms to the US i.e. Germany and US in the 1920s, Third world countries and the US today) no one is willing to step in and work out a deal where they can inflate even the foreign debts away.

My points, and the point Adam Smith made, is countries do NOT pay their debts and never have. The US may be the sole exception to that rule, but it took a President Jackson (and a huge amount of revenue from selling land in the Mississippi drainage system, which was incurring at that time) to do so AND it resulted in the worse economic situation between the 1790s and the 1870s (The US has suffered four severe "Depressions", not including the present one, in its history, the late 1780s till about 1800, the 1830s, the 1870s and 1880s, and the Great depression from 1929-1938, please note the years given are guidelines not actual years, for example farming went into its Depression by 1927 and parts of the US did NOT recover till 1942 when the US entered WWII). Ever since Jackson the tendency has been to turn over the debt even in years when the US balanced its budget. The main reason for this is the reason Government borrow money is they did NOT want to raise taxes for some project (Which can include a war). At the end of the project Politicians still do not want to raise taxes so they just turn over the debt and hope its get paid some time in the future. The problem is at no time is they really any excess money going into the GOvernment to pay off the debt so the debt keeps being rolled over.

Now, Florence is the only Government I have ever heard that ran a deficient every year for decades let alone centuries. Sooner or later most Government balance budgets. The problem is the balance budgets are balance only as to adding no more debts, as oppose to paying off past debts. You can have balance budgets for decades as such long terms debts are just rolled over year to year. Thus Adam Smith's observation that no Government ever paid off its debts. Governments, when they borrow in their own currency, has no reason to pay off such debts AND when things get tight Governments then fall into (as oppose to actually planning to do so) one of two actions, either refuse to pay the debts OR goes through the motions of paying them off with inflated money (i.e. inflate the debt away so that a Million Dollar Debt is equal to the amount of money needed to buy a small candy bar).

Lets us NOT forget that you can have inflation even with Gold based money. For example, the Silver movement in the US in the late 1800s was to inflate the value of the Dollar so that farmers debts would FALL as opposed to having increased as the US Government returned the Dollar to its Gold Standard of $20 to an ounce of gold after the Civil War. The Silver movement died out as Australian and South African Gold Mines opened in the late 1890s and bring with it the inflation the Silver Movement had wanted. The huge expansion of the US in the 1850s can be contributed to the huge increase in the amount of Gold in World Circulation from the California Gold Rush of 1869 (Something like 1/3 of all gold in circulation after 1850 was from California, a huge inflation of gold based money). The Roman Empire Stood strong from the time of Julius Caesar till the troubles of the Third Century AD. The reason for the Trouble? The silver mines of Spain watered out and thus the inflation do to new silver entering the economy ended.

Remember the problem is Fiat money is NOT that it can be subject to inflation (so can Silver and Gold based Money AND a low rate of inflation has been found to be GOOD for the economy) but that it is easier to inflate it 100% away then Gold or Silver base money. Debts are just promises to pay, just like Fiat Money is promises to pay (and that is true of Silver and Gold Coins which tend to be minted with values MORE then the value of the Gold or Silver in the Coin, Gold and Silver coins VALUE are promises to pay, if the value is more then the value of the Gold and Silver in the Coins). As a promise to pay, sooner or later the Government will have to make a Decision, to pay the debt OR not. In almost all cases it will decide NOT to pay the debt, be the debt in the form of Paper, Gold or Silver. Given that choice, increase taxes, confiscate property of Citizens or just not pay the debt, the Government will do the later every time. In most years the cost to do so are to high, so the debts are rolled over, but over time the government will just give up going through the motion and just stop payments (Or inflate it away if it wants to go through the motion of actually paying the debt off).

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  -Top Economist James K. Galbraith's Withering Testimony to the Deficit Commission. girl gone mad  Jul-01-10 11:40 PM   #0 
  - That was scathing  depakid   Jul-01-10 11:51 PM   #1 
  - Obama has lost the prebervial barbles.  Skink   Jul-01-10 11:56 PM   #2 
  - "Prebervial"?  ThomWV   Jul-02-10 01:30 PM   #43 
     - Soory I was plastered when I wrote that,  Skink   Jul-02-10 05:01 PM   #64 
  - More to the point, who chose the commission's members? nt  Selatius   Jul-02-10 02:51 AM   #16 
  - Whatever the answer is...  liberation   Jul-02-10 12:18 PM   #30 
     - I meant to K&R the OP  G_j   Jul-02-10 01:14 PM   #34 
  - Blame the man who put them there.  Hell Hath No Fury   Jul-02-10 01:22 PM   #37 
  - "That was scathing"  Enthusiast   Jul-02-10 01:25 PM   #38 
  - We already suspect the answer, don't we?  Zhade   Jul-03-10 12:43 AM   #104 
  - k/r  Dawson Leery   Jul-01-10 11:57 PM   #3 
  - kr  jtuck004   Jul-02-10 12:09 AM   #4 
  - +1  nilram   Jul-02-10 12:24 AM   #5 
  - & Amen! nt  burnsei sensei   Jul-02-10 08:12 PM   #81 
  - Kick/Rec for discussion  Zhade   Jul-02-10 12:34 AM   #6 
  - Spot on  Hawkowl   Jul-02-10 12:56 AM   #7 
  - +1 on the broom.  Enthusiast   Jul-02-10 01:27 PM   #39 
  - Yyyup.  Lilith Velkor   Jul-02-10 01:26 AM   #8 
  - K&R. I agree. This commission is way out of place  Overseas   Jul-02-10 01:34 AM   #9 
  - Spot On!!!  newspeak   Jul-03-10 10:18 AM   #112 
  - SPECTACULAR!  JackRiddler   Jul-02-10 01:52 AM   #10 
  - +100.  Hannah Bell   Jul-02-10 02:05 AM   #11 
  - Wow!! that was great. thanks for posting!  bbgrunt   Jul-02-10 02:09 AM   #12 
  - I'm awestruck! Huge Rec for Gailbraith. nt  laughingliberal   Jul-02-10 02:17 AM   #13 
  - Gutsy and brutally true.  avaistheone1   Jul-02-10 02:17 AM   #14 
  - Seriously. He straight-up told them "you're hiding, you're lying, you're unnecessary".  Zhade   Jul-03-10 01:56 AM   #105 
  - Doesn't matter which party...  wuvuj   Jul-02-10 02:18 AM   #15 
  - Bravo for Galbraith  jeanpalmer   Jul-02-10 02:51 AM   #17 
  - They can't wait to  Enthusiast   Jul-02-10 01:29 PM   #42 
  - He spells it all out! Great read!  KeepItReal   Jul-02-10 02:57 AM   #18 
  - Well it's about time someone spoke the plain, un-spun truth. Can't recommend this enough. n/t  Subdivisions   Jul-02-10 03:14 AM   #19 
  - K&R for more sanity.  Greyhound   Jul-02-10 03:20 AM   #20 
  - Nothing to see here.... move along, move along...  Agony   Jul-02-10 06:16 AM   #21 
  - He should have also said  malaise   Jul-02-10 06:26 AM   #22 
  - Missed This the First Time:  On the Road   Jul-02-10 08:07 AM   #23 
  - Fabulous!....Thanks for posting!.....JKG speaks truth to power!  whathehell   Jul-02-10 10:48 AM   #24 
  - I think the commission was set up to expose the people on it, especially  jwirr   Jul-02-10 04:54 PM   #62 
  - Interesting thought...I hope that's the case as well. n/t  whathehell   Jul-02-10 05:55 PM   #70 
  - We can quit pretending all these checkers moves are 3D-chess any day now...  liberation   Jul-02-10 07:45 PM   #78 
  - Ah bullshit  joe black   Jul-02-10 09:25 PM   #89 
  - Yeah, right. And they're going to fix the HIR bill, too.  Zhade   Jul-03-10 01:59 AM   #107 
  - Even after HCR? nt  glitch   Jul-11-10 12:39 PM   #128 
  - Considering he picked these fuckers, no. I doubt he will.  Zhade   Jul-03-10 01:58 AM   #106 
  - Gee Whiz, an actual Smart Guy  NBachers   Jul-02-10 11:13 AM   #25 
  - Will our "news media" cover this? nt  valerief   Jul-02-10 11:28 AM   #26 
  - JK Galbraith should be Secretary of the Treasury  Octafish   Jul-02-10 11:39 AM   #27 
  - I'm with you on that. The man is brilliant and understands the big picture  AikidoSoul   Jul-02-10 04:53 PM   #60 
  - +INFINITY  glitch   Jul-11-10 12:38 PM   #127 
  - *****BREAKING*****  Dr.Phool   Jul-02-10 11:55 AM   #28 
  - There is ONE economist on the whole panel  Taitertots   Jul-02-10 12:16 PM   #29 
  - Which makes it different from all the previous "commissions" by this and previous admins how?  liberation   Jul-02-10 12:21 PM   #31 
  - A beautiful mind!  whyverne   Jul-02-10 01:05 PM   #32 
  - indeed  fascisthunter   Jul-02-10 07:33 PM   #77 
  - AMEN!  westerebus   Jul-02-10 01:11 PM   #33 
  - +1000! nt  Enthusiast   Jul-02-10 01:31 PM   #44 
  - K&R  emsimon33   Jul-02-10 01:14 PM   #35 
  - K&R  emsimon33   Jul-02-10 01:14 PM   #36 
  - I actually read the whole thing.  DirkGently   Jul-02-10 01:27 PM   #40 
  - More, please!  Hell Hath No Fury   Jul-02-10 01:28 PM   #41 
  - Let's translate this for the gop lurkers...  BanTheGOP   Jul-02-10 01:33 PM   #45 
  - There is one large failure in his arguments  ThomWV   Jul-02-10 01:36 PM   #46 
  - He is talking from an economist's point of view  happyslug   Jul-02-10 03:14 PM   #50 
  - No kidding - I am an economist.  ThomWV   Jul-02-10 04:51 PM   #59 
  - But the answer is still not to cut Social Security but the stop the borrowing  jwirr   Jul-02-10 05:02 PM   #65 
     - Why and how would Social Security have to "earn" money  ThomWV   Jul-03-10 06:07 PM   #117 
        - You are correct about the borrowed money not requiring earning but  jwirr   Jul-04-10 09:06 AM   #121 
  - Behold an economist without guile!  kenny blankenship   Jul-02-10 01:36 PM   #47 
  - "There is never a shortfall of demand for Treasury bonds; Treasury auctions do not fail."  DireStrike   Jul-02-10 02:35 PM   #48 
  - The City of Florence did it for over 800 years  happyslug   Jul-02-10 03:17 PM   #51 
     - To be clear, we are not talking about deficits per se  DireStrike   Jul-02-10 05:36 PM   #69 
        - Adam Smith pointed out that NO GOVERNMENT had ever paid its debts  happyslug   Jul-03-10 01:51 PM   #116 
           - What???????  ThomWV   Jul-03-10 06:10 PM   #118 
           - Can you try to find a starting place?  DireStrike   Jul-03-10 06:29 PM   #120 
           - delete  DireStrike   Jul-03-10 06:18 PM   #119 
  - K&R n/t  OhioChick   Jul-02-10 02:35 PM   #49 
  - Excellent, but I doubt Obama will listen to HIM.  sabrina 1   Jul-02-10 04:27 PM   #52 
  - On Edit: Self Delete  ThomWV   Jul-02-10 04:54 PM   #61 
  - you think KO will read this on his show?  newspeak   Jul-03-10 10:27 AM   #113 
  - delete  madrchsod   Jul-02-10 04:30 PM   #53 
  - will obama take heed to mr galbraith`s words?  madrchsod   Jul-02-10 04:30 PM   #54 
  - Why in Gods name did Obama use an executive order to create this bullshit commission?!!  gulfcoastliberal   Jul-02-10 04:31 PM   #55 
  - Because he is a Third Way liberal  burnsei sensei   Jul-02-10 08:16 PM   #82 
     - Because Obama is a neo-liberal. (nt)  w4rma   Jul-02-10 09:54 PM   #93 
  - He makes some very valid points. nt.  johnaries   Jul-02-10 04:35 PM   #56 
  - Wow! Telling it like it is and best of all in an understandable way. Will  jwirr   Jul-02-10 04:46 PM   #57 
  - Let's keep this kicked until December!  JackRiddler   Jul-02-10 04:47 PM   #58 
  - if it's GGM, it's the two-by-four of truth! ty n/t k/r  upi402   Jul-02-10 04:56 PM   #63 
  - kik for truth.  Hannah Bell   Jul-02-10 05:08 PM   #66 
  - K&R  amborin   Jul-02-10 05:08 PM   #67 
  - "The Good Society" -John Kenneth Galbraith  upi402   Jul-02-10 05:24 PM   #68 
  - K&R  Bozita   Jul-02-10 07:08 PM   #71 
  - K&R  Kat45   Jul-02-10 07:20 PM   #72 
  - IMPORTANT: Okay, did this really happen?  JackRiddler   Jul-02-10 07:26 PM   #73 
  - +1, Agreed & Well Said!  Sherman A1   Jul-02-10 07:28 PM   #74 
  - Man, point #6 is on-point  NorCalDem   Jul-02-10 07:29 PM   #75 
  - K&R (nt)  fascisthunter   Jul-02-10 07:32 PM   #76 
  - K&R  Solly Mack   Jul-02-10 08:01 PM   #79 
  - Withering? There's nothing withering here!  burnsei sensei   Jul-02-10 08:11 PM   #80 
  - Withering in the sense that he completely obliterated the clout of the commission.  girl gone mad   Jul-02-10 09:32 PM   #90 
     - Well, they damn well deserve it.  burnsei sensei   Jul-03-10 10:05 AM   #111 
  - if only  bluzman63   Jul-02-10 08:28 PM   #83 
  - So, is there video of this smack down? What was the commission's reaction. I would  Subdivisions   Jul-02-10 08:32 PM   #84 
  - edit..  girl gone mad   Jul-02-10 09:39 PM   #91 
  - I also wanted to write a little about  burnsei sensei   Jul-02-10 08:38 PM   #85 
  - excellent stuff k/r..wish somebody besides us would listen.  bonzotex   Jul-02-10 08:57 PM   #86 
  - so, if they are not listening  newspeak   Jul-03-10 10:34 AM   #114 
     - I don't think it is in the interest of the elites to see the country...  bonzotex   Jul-04-10 02:09 PM   #122 
  - KA-POW!  joe black   Jul-02-10 09:15 PM   #87 
  - He can  tavalon   Jul-03-10 12:06 AM   #100 
  - Shrewd, a paucity of words and rapier sharp  ozymandius   Jul-02-10 09:17 PM   #88 
  - Who is this Communist so-called Economist, Galbraith anyway!!?? The man we  bertman   Jul-02-10 09:52 PM   #92 
  - K&R ... kick for tomorrow . . . !!  defendandprotect   Jul-02-10 10:40 PM   #94 
  - K&R  bluestateboomer   Jul-02-10 10:40 PM   #95 
  - good stuff! nt  cameozalaznick   Jul-02-10 11:08 PM   #96 
  - K&R  Canuckistanian   Jul-02-10 11:19 PM   #97 
  - Oh my God.....a moment of clarity.  SILVER__FOX52   Jul-02-10 11:22 PM   #98 
  - Damn!!  alfredo   Jul-02-10 11:37 PM   #99 
  - outstanding assessment by Galbraith; finally had time to read it; thanks for posting this!  amborin   Jul-03-10 12:22 AM   #101 
  - Kick and Rec.  Dr.Phool   Jul-03-10 12:30 AM   #102 
  - EVERYONE SHOULD READ THIS. I know, it's a lot of words, but still.  Zhade   Jul-03-10 12:40 AM   #103 
  - Everyone should read at least the first section of this  bread_and_roses   Jul-03-10 07:11 AM   #108 
  - kicking this again  ozymandius   Jul-03-10 08:31 AM   #109 
  - the polite version of the late great George Carlin's withering testimony  alterfurz   Jul-03-10 08:49 AM   #110 
  - kicking  amborin   Jul-03-10 11:47 AM   #115 
  - the claim that deficits have resulted from "overspending" is false, both in the United States and ab  txlibdem   Jul-04-10 03:49 PM   #123 
  - HELLO? Anyone know if this was actually delivered as testimony in person to the Commission?  JackRiddler   Jul-04-10 03:51 PM   #124 
  - kick  Angry Dragon   Jul-04-10 08:55 PM   #125 
  - ..  mdmc   Jul-09-10 06:52 AM   #126 

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