Ars Regendi Simulation Forum

Full Version: The problem with national debt and a deficit
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In a fiat money situation, there is typically little problem with a deficit and national debt. There is only a problem when the deficit is larger than GDP growth, because in that situation the real value of the debt is actually increasing, and it is then when the opportunity costs of having a deficit exceed the benefits. This is because now more value by the year is being trapped in the debt via securities than total value in the economy. And moreover, since money has a multiplicative effect, this tremendously hampers growth prospects and likewise the overall business environment.
(Edit: in my political opinion, that means that the government should seriously consider austerity policy in order to make the deficit lower than GDP growth.)
A little late of a response, but i agree with the first part of your post, that there comes a time of diminishing returns, and that growth must outpace debt.

However, this does not require austerity measures per say. In general, i would like to consider the following:

-Eliminate a central financial ministry. Instead, grant each ministry some taxation of fee based levy of its own discretion to propose. (Toll roads for ministry of transport, flat 2% income tax for defense). Each ministry could propose its own portion of different tax methods, and thus tax returns would indicate a breakdown of where taxes go.
-->This has the benefit of putting qualified front line workers as the ones that propose budget increases or decreases, and parliament and approve/decline.
-->There would be no long term government deficits, as each ministry/department would be required to bring their accounts to balance within a short time time frame.

-Government property should be held in the ministry/organization that utilities it.
-->Each ministry could determine on a basis of each project if utilizing debt as a capital source is a viable option for any given project, based on current rate of returns/interest rates.
-->Since the only debt undertakings that will generally be viable will be infrastructure or acquisition related, tangible assets will be accumulated for any debt incurred.
-->As required, a ministry could always elect to divest their property and its relevant amount of debt to the private sector, through an incorporation and sell-off.

With this done, a net-debt rate will generally always tend towards 0% in the long term, but will still enable the use of debt methods as reasonable for any given situation.
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