[jmcmichael]

Federal spending is not funded by taxes, the US Treasury will never 'dry up', and the US will never default on its debts or entitlements. It may fail to pay, however that is not a default, it is a refusal or repudiation of an obligation.

[imtringued]

It's more precise to say that private assets are public sector liabilites, in other words, they are outstanding taxes. It's money the government hasn't bothered to collect yet. When you look at the tax code you will notice very quickly that letting money sit and do nothing is not taxed, hence a tax minimizer can always avoid non-demurrage taxation, which means the upper bound on government debt is infinite.

It's simply not mathematically possible to pay the debt off without demurrage.

[mc32]

...so paying taxes is just there to control people and expropriate their money? Please let Newsom in on this discovery. He says he's for the common man and woman. He's gotta do something.

But sure, Weimar had more money than god --it just had no purchasing power.

[immibis]

There are (at least) two different ways of viewing this equation.

One view is that the government has a stockpile of money and can give out money as long as it has some and has to get more to refill its stockpile lest it run out. Taxes refill the stockpile. Bonds are borrowing money to keep the pile fuller for a fixed term.

Another view is to notice that the government stockpile is connected to the money printer, so it's not really a stockpile but actually has infinite capacity and can't run out. The cons of spending too much are not running out, but rather they are the cons of overprinting money - inflation. Infinity plus anything is still infinity, so taxes don't refill the stockpile (it's infinite) but they do unprint money to prevent excessive inflation. Bonds are paying people to unprint their money for a fixed term, at the end of which it is reprinted.

These are isomorphic models of the same system, which provide different insights.

[marcus_holmes]

Note that only governments that can print money can use your second model. So in the USA, only the Federal govt. California only has access to the first model, and could go bankrupt and/or default on bonds.

[nradov]

US states are sovereigns and so they can't literally go bankrupt. But they can become insolvent and cease paying on their obligations. Based on current credit ratings, if any state is going to become insolvent it's more likely to be Illinois than California.

[immibis]

That's a semantic game playing on the exact legal definition of "bankrupt". You know what they meant: a US state can run out of money.

[jmcmichael]

Taxes provide the fundamental value of money: taxes must be paid in the state’s currency, making that currency inherently valuable to avoid punishment. They also provide a way to prevent the existence of individuals powerful enough to corrupt the regulatory state, as has occurred in many of the most powerful neoliberal jurisdictions.

Yes, inflation is a constraint, and a powerful one - but avoiding inflation by treating a sovereign currency system like a household or corporation that do not have powers of money creation or taxation, and therefore must balance their budgets, is absurdity. The strongest constraint on state spending is an economy’s production capacity, not an arbitrary budget.

[jmcmichael]

Regarding Newsom, US states are far more constrained in their spending bc they cannot create money, and must account for their expenditures more like a household or corporation. Social benefit programs, entitlements, etc. must therefore by managed and paid for at the Federal level, just like all of the goods and services that we, as a society, deem it necessary to produce regardless of whether it makes a profit or not - like most of the core transportation infrastructure, the global military empire, fundamental science, engineering, medical research and services, etc.