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View Diary: Debt ceiling: DeMint threatens to blow up government; Ryan, Graham look for hostages (197 comments)

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  •  He's 100% correct (9+ / 0-)

    Most sane governments don't bother with a legal limit.  I mean, what's the point?

    "President Obama will be the most liberal President of our lifetime."

    by rashomon on Mon Jan 03, 2011 at 11:16:53 AM PST

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    •  Indeed (1+ / 0-)
      Recommended by:

      governments can either raise money in the debt markets, by taxation, or through a combination of the two.  If the government can finance its activities more cheaply by issuing debt, it should do it.  Over the long term, more debt means higher interest rates, which means that taxes would have to pay for them.  So, in theory, the two are equivalent.  But, in practice, a treasury should be able to arbitrage them, issuing more debt when rates are low and raising taxes when rates are high (the latter also having an effect on inflation).  It's the same for corporations raising debt and equity. Right now, rates are low, so borrowing makes sense.

      How can fiscal conservatives call themselves this without understanding Modigliani-Miller?  Really this debate is about whether we should have a federal government that provides services other than foreign wars, not a debate about financing.  The idea that there's something specially pernicious about government debt and deficits reflects economic illiteracy (innumeracy?)  At most, there are times when financing through taxation makes more sense than financing through bonds, and there are times when neither can be financed in a cost-effective manner, requiring cuts, but nobody disputes either point.  

      Neither really applies to the U.S. in the short to medium term, which is the only time-horizon in which the present Congress could credibly act.  

      "This world demands the qualities of youth: not a time of life but a state of mind[.]" -- Robert F. Kennedy

      by Loge on Mon Jan 03, 2011 at 12:24:41 PM PST

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