I posted this question in the Mitt Romney taxes thread and the fiscally responsible crowd went silent. Since this isn't exactly about Mitt and his taxes, I thought it deserved it own thread.
The question is basic: suppose the government "doesn't spend money it doesn't have" (which is what many have been calling for in their parsimonious fix-all solutions), what would you suppose would be the 3 major consequences to society if this were true? (Robust answers may want to include a theory about what "money" is.... but I leave that to you).
EDIT TO ADD: Since "unemployment" is also a big topic these days, perhaps you can focus your answer on what this would do to employment numbers?
Obviously this thread addresses the right-leaning crowd, so I'd appreciate it if the rest of everybody else would give them the space to answer.
I think the answer to this relies on the differential between the status quo and an alternate choice where we stop borrowing.
So, what are 3 major consequenses of continuing the status quo? (Trillion dollar deficits, 40 cents of every dollar spent is borrowed, etc...)
1- The first thing we'll notice is a drop in the faith in the dollar. As we borrow more and more, stacking debt upon debt we become less credit worthy. Other nations will be less inclined to lend to us, preferring to lend to more credit worthy nations instead. The cost of borrowing will then increase to entice a continuing flow of cash to support our government programs. This increased cost will have a piling on effect causing us to need to borrow an ever greater percentage to maintain current spending levels.
2- The simple exit is to lend money to ourselves, monitizing our debt. This will result in hyper-inflation. We're not talkig tin foil hat stuff here, this is happening. The only saving grace for the US has been the European **** storm. Compared to the EU we still look like a pretty safe bet to invest. But, that could change as the whole EU thing might be cyclical and our debt is structural.
3- Once we can no longer borrow and printing more money becomes pointless, the economy collapses. And along with it the government. All those promises, Medicare, Medicaid, Welfare, Retirements, Social Security go up in smoke. And if you were investing in Treasuries, good luck collecting on those as well. IMHO the goverment will collapse and we'll see a balkanization of the US into a handful of new states. Hardest hit will obviously be the folks who were relying on the promises made by the old government. The rich will land on their feet, they always do, but, the most vulnerable will be left in almost unimaginably hard straights.
So... There is my analysis of what continuing on the current path entails. Destruction of our country with the poor left with pockets full of broken proomises and not much else.
It's a pretty grim future, but, I believe it is the path we are on. Until we get the political will to make hard decisions we'll continue making easy decisions. Those based on what causes the least short term harm.
But, should be gain the will to survive and live within our means disaster could be averted. It wouldn't be painless. Programs would be cut. Good programs. Needed programs. Taxes would be raised. That would put a drag on the ecomony, but, a drag is better than a collapse.
So, what would be the result?
1- Promises would be scaled back. Social security, Medicare, and Medicaid would all have to see substantial cuts. This would cause unavoidable hardships, but, 80% of SS is a hell of a lot better than 0%.
2- Taxes would go up. This would hurt. And yeah, it'd hurt everyone. You can't balance the budegt on the top 1% even if you tax them 100%. It's going to be shared pain. Those at the top should share a little more, but, those at the bottom will have to chip in as well.
3- America will drop in stature. China will overtake America as the worlds lone super power. Significant cuts in military spending, reach, and adventurism would have to take place. America would have to gracefully drop into a lesser role as other nations have done before.
But, the upside, there would still be an America. Still be promises kept (to a lesser degree). Still be our freedoms instead of the possibliity of freedoms in whatever new nation arises.
So, there you go.
Oh and how can we possibly deal with increasing the money supply if we don't borrow? We've done it before. We used to be teh worlds largest lender nation and we were able to manage the money supply then as well. You can create money without borrowing it, you just have to use the Treasuries instead of the Fed.
