Let’s face it: taxes are going to have to go up on everybody if we want to spend the way we’re spending and keep on our current path (even with the reductions brought about by the results of the sequester). We’ve already increased taxes on “the rich”. We can tax them more, but at a certain point that’s not going to be an option (if you even want to consider it a good one now) and we still will not be able to spend what we are today.
This quote from Mayor Bloomberg really freaks me out:
We are spending money we don’t have. It’s not like your household. In your household, people are saying, “Oh, you can’t spend money you don’t have.” That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.
It seems to me that the reason that people buy US debt is because it is considered a safe investment–that the United States isn’t going to fail to pay its debts back. It’s low risk. They expect to get at least a small return in exchange for a small risk. Well, at some point between here and infinity, there’s a number where most investors decide that there’s no way that the people of the United States can actually afford to pay back the money (with interest). Sure, there’s things the government can do that my household can’t do, but that doesn’t mean those things are a good idea. They could print a bill with an “∞” in each corner and pay pretty much any debt with that, but at that point that bill is meaningless. There may be no numerical limit to the dollars we can borrow, but there certainly is a limit to the amount of actual, real goods out there. We can only manipulate the distribution of that stuff so far before people stop liking it.
Perhaps more easily said: If we can borrow an infinite amount of money because no one will ever stop buying US debt, why haven’t we already borrowed it?