For as long as I follow politics here in Germany, I hear that we have to lower the national debt in order not to leave too much of a burden to the next generation. As I understand it, this is also an issue brought up repeatedly in American politics as well, and surely in a lot of other countries.

However, when the next generation pays back national debt, say in 50 years - aren't they paying back to people who are also of the next generation? So isn't national debt a zero-sum game generational-wise by definition?

Thoughts?

National debts are never getting paid back.

It's all just a scam.

Banks create money out of thin air and then lend it to governments at interest. Then people are taxed to pay that interest. Banks win, people lose.

I'm not saying you're wrong, but is that even relevant regarding my argument? The whole of the next generation will own the whole of all the money in the world, by definition. If they want to distribute it differently, or end scams involving that money, that's up to them, right?

the german government can either fund its spending by sucking capital out of the german econony, which has historically produced a return on capital employed of 8.0%, or it can borrow at 2.9%.

2.9% is smaller than 8.0%, so paying it back makes the next generation poorer. that is why governments dont do it.

if you overdo it then the government might not be able to roll their debt over at 8.0% or less when it comes due and the calculus flips, but the germans have always been hyper-conservative on this front. your government was (idiotically) declining to borrow at interest rates of 0.05% not so long ago.

Yeah politicians talk a lot of nonsense about national debt. I don’t think it makes any sense to talk about generational burden. Reminds me of Thatchers housewife economics (awful).

I suppose, except debt isn't just held at the national level. So if say the US decides to pay off its debt then that interest isn't just going to US citizens and banks but US debt holders worldwide-- so it's not really a zero-sum situation unless everyone worldwide decided to pay off all national debts

My point is more that debt can never be paid off because when money is created it is created from debt. And because that debt is accumulating interest, there is more debt in the world than money to pay it off-- that's why it's a scam.

But if debt creates money, doesn't the interest create more money?

There were have it. OP read some Michael Hudson about this stuff. He's has a bit of a socialist bend but knows his stuff

Money is only created once. Interest will keep accumulating in perpetuity. So no.

the absolute nominal debt is almost certainly never going to be repaid ever. it's only a very infrequent event that countries run a surplus to begin with, and when it happens it's a small one, while deficits are often very high.

what can happen is to keep the proportion of debt to GDP stable or decrease it.

what's going to be paid is usually interests though.

if all the Debt is held domestically it's just about a 0 sum game among citizens. the next generation will have taxpayers paying interests to resident owners of the debt (it is often the very same people as the bulk of taxation is paid by the rich, and the rich own most government bonds).

inside rich people not everyone pays the same taxes nor owns the same assets so basically it's a 0 sum game among rich residents.

at the same time everyone else is getting less in government goods and services that they could get with the same amount of overall tax revenue available (bit that wasn't theirs to begin with).

that's more or less the spot Japan is right now, with interests still being very low, all debt owned domestically, not a big fuss.

but when owners are foreigners, you are bleeding resources getting nothing back.

somebody today gets healthcare and pension paid and someone else a generation from now will have to work to pay foreigners interest because of that.

that's why Italy and others are doing everything they can more to get domestic residents buy the debt than to reduce it's levels. the former is more important, if the money stay in the country the country isn't poorer. it's ik some way like if you owe a lot of money to your sister, you might be poorer, your family isn't in any rational sense.

9 trillion is owed to us by other countries.

Let’s sell another 9 trillion of arms to them and then have a war on the deficit and pay of the remaining $12 trillion in 10 years

not the case

if you are going to have more than zero government spending then it has to be funded in some way, either through borrowing or by taxation

there's an opportunity cost to funding it through taxation

to take an extreme example in order to illustrate the point - in 2023, the cost to the US govt of taking a dollar from from nvidia (and therefore not allowing nvidia management to generate hundreds of percentage points of return on that dollar, and foregoing the increase in tax receipts which flow from such activity) was far greater than the 5c they'd have had to pay johnny foreigner to borrow the same dollar. it was not remotely close.

Nvidia needs to pay us to exist. What’s the problem?

no problem. the point is that even after factoring in a payment of 5c per year to Ling Wang, the US govt is better off if nvidia is compounding $1,000,000,000 of capital per year rather than $999,999,999 because the extra dollar generates >>5c/year in additional tax base

?

If I borrow $100 dollars from the bank at interest, that money already exists. And if we pretend that the interest rate is enormous and I never make any payments and the money is never sent to collections, then after some period of time, the amount of money that I owe will be more than exists in the universe.

So why charge tax at all then

that's not the counterfactual at all, the counterfactual is paying the same 5 cent (per year in perpertuity btw) to American residents, or not spending the dollar to begin with.

btw you don't get a single dollar of tax receipt on capital gain if the Nvidia stock is owned by foreigners either.

it actually doesn't

not capital gain - think about the payroll tax and corporation tax reciepts which flow from the compounding return on that dollar

re deciding not to spend the money, i carefully said in my post that it only applies if you agree that government spending should be more than zero. if so, you have to fund the first dollar

on the debt interest being per year, in perpetuity - think about how the first dollar of microsoft capital has compounded

ye and my whole point was that the same debt incurref for the same reason, had completely different effects long term depending on if the interest will be paid to domestic residents or not.

your counter was "it's better to incur debt anyway rather than to disincentive Nvidia" which could be true, but has nothing to do with the fact that if you manage to keep your national debt in domestic hands that's a lot better, given the same fiscal revenue and the same debt incurref for whatever you decide to buy as a government

depends on what the yield on the debt is

if i'm the US govt and i'm borrowing at 2% then i really hope some chinese bloke is on the other end of that, and that the american equivalent citizen is investing in something which returns better than 2%

Ok that money as debt already exists. The point is that interest doesn't create money it only adds debt.

But can't the bank sell the debt you owe them to someone else in these modern times of ours? And wouldn't they get more for it after some interest has accumulated?

Sure but that's not adding to the money supply.

I do suppose that through fractional reserve lending, banks can make a profit off loans, then turn around and create some money to lend which would increase the money supply-- although someone more knowledgable would have to explain how that process works.