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Old 06-13-2007, 07:46 AM
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Gatac Gatac is offline
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It's generally accepted that a modern government will run up serious debts. I think the rule of thumb is that new debts shouldn't be much above 1% of the gross domestic product, but of course the US has managed to collect a sizeable amount of foreign debt. The real problem starts when your new debts are outpaced by the interest you have to pay on your old debts, which cuts into the "real" operating budget of your country. Unless you find new ways to make money (like, say, tax air usage) or reduce spending (like cutting foreign aid), it means that you're basically screwed and doomed to a slow death. A lot of countries (among them the US, Japan and Germany) already have to deal with this and think of ways to stop it.

As for your numbered questions:

1) Yep, bonds are a delaying action. It's basically you granting the state a loan. If it works out, you win money. If it doesn't...you'll be the proud owner of nice-looking certificates. Of course it's a loss for the state in the long run, but often, you need money now and are willing to make yourself believe that times will be better when the bond is due. Ideally, everyone who agreed to offer the bonds and spent the money is already out of office when the whole thing is due...

2) Because total worth is not fixed. For example, until the commercial exploitation of music, it was all about the performers being paid to play for a small audience. With mechanical music reproduction, they basically created a whole new market. Other economic factors are being destroyed as we speak. (Commercial fishing could die out in our lifetimes if we keep it up like now.)

Also, since debts are often valued in your own currency, it may make sense for the government to induce inflation, which lowers the real worth of all debts and capital in general by making the currency worth less. Of course, this often leads into a death spiral of hyperinflation, and so most countries try to steer far away from that.

3) Foreign aid is a tricky little bit. On the one hand, we are embarking on what can be called systematic exploitation of third-world countries. For example, the USA has tariffs on manufactured goods from third-world countries - this, in effect, pressures those nations to only export raw materials, which in turn prevents them from establishing a manufacturing base that would allow them to climb out of their current hole. So, foreign aid does have some justification, even if it's only a drop of water on a hot stone. On the other hand, foreign aid is usually swallowed by the governments, which leads to high corruption. The only sensible option seems to be to allow those countries to build their own economy. (Red Cross food shipments undercut local farmers! Disaster relief is not the same as feeding an entire country constantly...)

Despite all the negative things I've said here, foreign aid is important and has helped literally billions of people. The thing is, it also has important drawbacks that need to be understood.

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I'm not an economist, and if you dig deeper into the whole topic, you'll find the whole situation is exceedingly complex. I'm just telling it how I see it. I encourage everyone who's interested to take their own look at the affair and come to their own conclusions.

Gatac
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