Thread: Why is all the media's focus always on the public debt and not the external debt?

Could someone please explain to me why is all the media's focus always on the public debt and not the external debt when it actually seems to be the real indicator of how bad an economy is doing?

Let me explain what I mean, Public Debt (internal public debt+ external public debt), and external debt (external public debt + external private debt)

Example:

United Kingdom
The Public debt of United Kingdom is 88.7 % of its GDP but its External Debt is 413 % of its GDP

Ireland
The Public debt of Ireland is 118 % of its GDP but its External Debt is 1028 % of its GDP

Japan
The Public debt of Japan is 214 % of its GDP but its External Debt is 50.7 % of its GDP

So Japan seems be doing OK, though it has high public debt, because its government debt is mostly domestic, however, Ireland and United Kingdom though both are having lower Public debt seem to be more in trouble.

What do you think?

The Japanese economy has been in recession or stagnant for nearly 20 years so I'm not sure it is a great example.

Originally Posted by justme335

Could someone please explain to me why is all the media's focus always on the public debt and not the external debt when it actually seems to be the real indicator of how bad an economy is doing?

Let me explain what I mean, Public Debt (internal public debt+ external public debt), and external debt (external public debt + external private debt)

Example:

United Kingdom

The Public debt of United Kingdom is 88.7 % of its GDP but its External Debt is 413 % of its GDP

Ireland

The Public debt of Ireland is 118 % of its GDP but its External Debt is 1028 % of its GDP

Japan

The Public debt of Japan is 214 % of its GDP but its External Debt is 50.7 % of its GDP

So Japan seems be doing OK, though it has high public debt, because its government debt is mostly domestic, however, Ireland and United Kingdom though both are having lower Public debt seem to be more in trouble.

What do you think?

Wouldn't you have to compare countries with a roughly equivalent % of overall debt in order to make that assessment? Japan's percentage of overall debt is the least of the three, if it were in a better economic state than the UK or Ireland would that not be a more likely reason?

Originally Posted by stander-j

Wouldn't you have to compare countries with a roughly equivalent % of overall debt in order to make that assessment? Japan's percentage of overall debt is the least of the three, if it were in a better economic state than the UK or Ireland would that not be a more likely reason?

Japan's Public debt is the highest of all, but as you and Strange said, I will try to find better examples

Originally Posted by Strange

The Japanese economy has been in recession or stagnant for nearly 20 years so I'm not sure it is a great example.

Is it really in recession for the last 20 years? Why don't we hear about it as much as Ireland, Italy, Spain, Greece? anyway thanks for the reply, I will try to find better examples

Ok how about Canada vs Spain

Spain in Recession and Canada is not

Spain: public debt 85 % of it's GDP and External Debt 171% of its GDP

Canada: public debt 84% of its GDP and External Debt 72% of its GDP

Almost the same value of the public debt, however why is Spain in debt? it has high External Debt (private + public)

Okay, but Spain's overall debt percentage is 100 percent higher than Canada's... You can't just look at public debt, you need to account for the total debt percentages. All you're showing is: Higher Percentage of Total Debt = More Economic Difficulties. Find an example of two countries with an equal percentage of total debt.

Originally Posted by justme335

Originally Posted by Strange

The Japanese economy has been in recession or stagnant for nearly 20 years so I'm not sure it is a great example.

Is it really in recession for the last 20 years?

Yep. Ever since I left. But it wasn't my fault, honest. It just came apart in my hands.

Why don't we hear about it as much as Ireland, Italy, Spain, Greece?

Because it is old news, perhaps? China and Europe are more newsworthy, I guess.

Originally Posted by justme335

Originally Posted by Strange

The Japanese economy has been in recession or stagnant for nearly 20 years so I'm not sure it is a great example.

Is it really in recession for the last 20 years? Why don't we hear about it as much as Ireland, Italy, Spain, Greece? anyway thanks for the reply, I will try to find better examples

No need to find other examples, the ones you posted are fine examples concerning the topic at hand. The Japanese government has been trying to devalue their currency for a few decades now but the japanese people are saving more than they are spending, or living within their means, and thus the high public debt (government) and the low individual and personal debt.

The problem with other countries is that their people are not only broke, they are also saturated in debt. This means that credit bubbles and financial institutions are going to pop and implode again at some point in the future.

Originally Posted by justme335

Could someone please explain to me why is all the media's focus always on the public debt and not the external debt when it actually seems to be the real indicator of how bad an economy is doing?

Let me explain what I mean, Public Debt (internal public debt+ external public debt), and external debt (external public debt + external private debt)

Example:

United Kingdom
The Public debt of United Kingdom is 88.7 % of its GDP but its External Debt is 413 % of its GDP

Ireland
The Public debt of Ireland is 118 % of its GDP but its External Debt is 1028 % of its GDP

Japan
The Public debt of Japan is 214 % of its GDP but its External Debt is 50.7 % of its GDP

So Japan seems be doing OK, though it has high public debt, because its government debt is mostly domestic, however, Ireland and United Kingdom though both are having lower Public debt seem to be more in trouble.

What do you think?

Let me explain through the use of the US DEBT CLOCK:
http://www.usdebtclock.org/
That's a big number!

Originally Posted by jakesyl

Originally Posted by justme335

Could someone please explain to me why is all the media's focus always on the public debt and not the external debt when it actually seems to be the real indicator of how bad an economy is doing?

Let me explain what I mean, Public Debt (internal public debt+ external public debt), and external debt (external public debt + external private debt)

Example:

United Kingdom
The Public debt of United Kingdom is 88.7 % of its GDP but its External Debt is 413 % of its GDP

Ireland
The Public debt of Ireland is 118 % of its GDP but its External Debt is 1028 % of its GDP

Japan
The Public debt of Japan is 214 % of its GDP but its External Debt is 50.7 % of its GDP

So Japan seems be doing OK, though it has high public debt, because its government debt is mostly domestic, however, Ireland and United Kingdom though both are having lower Public debt seem to be more in trouble.

What do you think?

Let me explain through the use of the US DEBT CLOCK:
http://www.usdebtclock.org/
That's a big number!

LOL, yes it is certainly clearer now... I like the site btw

Debt is debt....risking either the ability to pay off your own people, or foreign investors when the time comes. I don't see how one is necessarily better than the other.

The answer is because major networks are puppets. Public debt for countries that can and do create their own currency is really not debt at all. For these nations, those governments, there is no "debt". What there is, concerning these nation's, is the strengthening or weakening of their currency. There is no limit to the amount of currency they can create and so there is no real debt for them. Nations that do not create and/or control their own currency (just as common people do not) are the ones that are beholden to debt and to the issuers of it.

The health of a nation and its peoples economy is understood by knowing who is beholden to debt and who is issuing it.

The extrenal public debt represents an exaggerated view of a nations finances, it's not a true representation of financial health. For example the figure quoted for the UK of 413% of GDP represents a debt level of around $10 Trillion, which of course would be completely unsustainable for a nation of the UK's size and population level. The reason for this apparent distortion is the size of the UK financial sector. Because the UK has one of the largest financial sectors in the world it's trading liabilities appear as potential external debt which misrepresents the true picture.

This is the same with any country with a particularly large or small financial sector, you end up every time with a distorted debt level, this really one of the main reasons why it isn't generally used to measure financial health or economic performance.

Originally Posted by gonzales56

The answer is because major networks are puppets. Public debt for countries that can and do create their own currency is really not debt at all. For these nations, those governments, there is no "debt". What there is, concerning these nation's, is the strengthening or weakening of their currency. There is no limit to the amount of currency they can create and so there is no real debt for them. Nations that do not create and/or control their own currency (just as common people do not) are the ones that are beholden to debt and to the issuers of it.

The health of a nation and its peoples economy is understood by knowing who is beholden to debt and who is issuing it.

How significant to our nation's problems, overall, do you feel is the effect of having absolutely no "hard backing" for the currency? jocular

Originally Posted by gonzales56

The answer is because major networks are puppets. Public debt for countries that can and do create their own currency is really not debt at all. For these nations, those governments, there is no "debt". What there is, concerning these nation's, is the strengthening or weakening of their currency. There is no limit to the amount of currency they can create and so there is no real debt for them. Nations that do not create and/or control their own currency (just as common people do not) are the ones that are beholden to debt and to the issuers of it.

The health of a nation and its peoples economy is understood by knowing who is beholden to debt and who is issuing it.

This makes a lot of sense to me now, which again brings up another reason why Greece, Spain and Portugal are in real trouble, devaluing / creating more money is not an option for them.

Originally Posted by Ascended

The extrenal public debt represents an exaggerated view of a nations finances, it's not a true representation of financial health. For example the figure quoted for the UK of 413% of GDP represents a debt level of around $10 Trillion, which of course would be completely unsustainable for a nation of the UK's size and population level. The reason for this apparent distortion is the size of the UK financial sector. Because the UK has one of the largest financial sectors in the world it's trading liabilities appear as potential external debt which misrepresents the true picture.

This is the same with any country with a particularly large or small financial sector, you end up every time with a distorted debt level, this really one of the main reasons why it isn't generally used to measure financial health or economic performance.

isn't having trading Liabilities 4 times your GDP an issue to worry about? Why does having a large financial sector imply that you can have high debt and still have a tripple AAA credit rating, like UK and Singapore?

Originally Posted by justme335

Originally Posted by Ascended

The extrenal public debt represents an exaggerated view of a nations finances, it's not a true representation of financial health. For example the figure quoted for the UK of 413% of GDP represents a debt level of around $10 Trillion, which of course would be completely unsustainable for a nation of the UK's size and population level. The reason for this apparent distortion is the size of the UK financial sector. Because the UK has one of the largest financial sectors in the world it's trading liabilities appear as potential external debt which misrepresents the true picture.

This is the same with any country with a particularly large or small financial sector, you end up every time with a distorted debt level, this really one of the main reasons why it isn't generally used to measure financial health or economic performance.

isn't having trading Liabilities 4 times your GDP an issue to worry about? Why does having a large financial sector imply that you can have high debt and still have a tripple AAA credit rating, like UK and Singapore?

Hi Justme,

Yes ordinarily this kind of debt level would be massive problem, it would have meant a country required a bale out long before it ever got to that level of debt. But for the UK again it is the size of the financial services industry that's distorted the figure. UK banks take trades from all over the world along with selling insurance globally and other financial products, so many of these appear as liabilities out to other countries, where as in reality much of the money and risk is still held by foreign investors with the UK acting as middle men, this does still show up as UK debt.

The reality of the situation for the UK is that most of this debt represents foreign trades and a revenue stream, rather than actual debts requiring massive amounts of servicing. It represents a rather large part of our economy and helps the UK generate money to make payments on the UK's actual debt accrued plugging the hole caused by the structural deficit.

Originally Posted by Ascended

Hi Justme,

Yes ordinarily this kind of debt level would be massive problem, it would have meant a country required a bale out long before it ever got to that level of debt. But for the UK again it is the size of the financial services industry that's distorted the figure. UK banks take trades from all over the world along with selling insurance globally and other financial products, so many of these appear as liabilities out to other countries, where as in reality much of the money and risk is still held by foreign investors with the UK acting as middle men, this does still show up as UK debt.

The reality of the situation for the UK is that most of this debt represents foreign trades and a revenue stream, rather than actual debts requiring massive amounts of servicing. It represents a rather large part of our economy and helps the UK generate money to make payments on the UK's actual debt accrued plugging the hole caused by the structural deficit.

Thanks for taking the time to explain this to me.

Originally Posted by jocular

Originally Posted by gonzales56

The answer is because major networks are puppets. Public debt for countries that can and do create their own currency is really not debt at all. For these nations, those governments, there is no "debt". What there is, concerning these nation's, is the strengthening or weakening of their currency. There is no limit to the amount of currency they can create and so there is no real debt for them. Nations that do not create and/or control their own currency (just as common people do not) are the ones that are beholden to debt and to the issuers of it.The health of a nation and its peoples economy is understood by knowing who is beholden to debt and who is issuing it.

How significant to our nation's problems, overall, do you feel is the effect of having absolutely no "hard backing" for the currency? jocular

I personally believe that currency should be backed by (its value should come from) commodities and/or labor. I am an American, and as such, the currency I overwhelmingly use, the U.S. dollar, because it is not backed by commodities and/or labor, it has to be backed and supported by threats and acts of punishment and brutality, and it is.

Some of the problems with such a currency is all the wars, bloodshed and oppressive installed governments it creates all over the world.

Originally Posted by justme335

Originally Posted by gonzales56

The answer is because major networks are puppets. Public debt for countries that can and do create their own currency is really not debt at all. For these nations, those governments, there is no "debt". What there is, concerning these nation's, is the strengthening or weakening of their currency. There is no limit to the amount of currency they can create and so there is no real debt for them. Nations that do not create and/or control their own currency (just as common people do not) are the ones that are beholden to debt and to the issuers of it.The health of a nation and its peoples economy is understood by knowing who is beholden to debt and who is issuing it.

This makes a lot of sense to me now, which again brings up another reason why Greece, Spain and Portugal are in real trouble, devaluing / creating more money is not an option for them.

Exactly. If you can create your own currency, and make people take/use it, or have a friend that can, then you are good. It is the creditor / creditee relationship. What is most unjust concerning this relationship at this point in time is that the creditors are the only people who can create/make money, and they can create/make as much as they want instantly. No labor, no effort, no way for anyone else to get it, find it or create it, and they have an unlimited supply of it.


Now to the creditors of greece, spain, etc..... what did they lose? The money they gave them cost them nothing. They did not work for it... What did they give up, what did they pay? Nothing.... But now, because these nations are in debt to them, they can gain/take everything from them they can get their hands on.

Originally Posted by gonzales56

Originally Posted by jocular

Originally Posted by gonzales56

The answer is because major networks are puppets. Public debt for countries that can and do create their own currency is really not debt at all. For these nations, those governments, there is no "debt". What there is, concerning these nation's, is the strengthening or weakening of their currency. There is no limit to the amount of currency they can create and so there is no real debt for them. Nations that do not create and/or control their own currency (just as common people do not) are the ones that are beholden to debt and to the issuers of it.The health of a nation and its peoples economy is understood by knowing who is beholden to debt and who is issuing it.

How significant to our nation's problems, overall, do you feel is the effect of having absolutely no "hard backing" for the currency? jocular

I personally believe that currency should be backed by (its value should come from) commodities and/or labor. I am an American, and as such, the currency I overwhelmingly use, the U.S. dollar, because it is not backed by commodities and/or labor, it has to be backed and supported by threats and acts of punishment and brutality, and it is.

Some of the problems with such a currency is all the wars, bloodshed and oppressive installed governments it creates all over the world.

I understand why you want something substantive to back the currency, it certainly seems unnerving how the government or banks seem to be able to create money at will. I think though there are some serious problems in tying a currency to any particular commodity or for that matter even to labour.
If the currency gets it value in this way then it can be manipulated and also could be subject to vast random fluctations, for example lets imagine that value of the dollar is once again being backed by gold, in order for this to work there would have to be some level of fixed amount of gold to back each dollar, if not then there isn't much point of having the gold backing it in the first place as they could simply produce as many dollars as they wanted whilst keeping the same original amount of gold to back all of the dollars produced including any new ones they decide upon.

So once we accept a fixed gold to dollar exchange rate we have to ask how are we going to pay for the gold to back the dollars already in existence or any new ones we wish to create. This is the first problem.
The second problem is that such a large demand for gold would send it's price sky rocketing along with the dollars you've now pegged it to. Next comes a world wide upsurge in gold mining driven by massive demand and high prices which would result in huge amounts of gold coming on to the market sending it's value plummeting along with the dollars it's attached to.

This is just one senario of using a commidity to back a currency, the problem is that you always end up with the commidity price and currency price being interchangeable and the fact is any other country in the world can then effect your currency price by either mining or growing whatever commidity you have pegged to your currency.
The same problems of manipulation and fluctuations would still exist if you tried to back your currency using some kind of labour system.

But also besides this are the natural problems that this would create within an economies money supply, where flexibility and liquidity are vital to allow businesses to fuction properly. As goods and services are being produced all the time there has to be some mechanism to allow the expansion of the money supply to take place, this is necessary to ensure that people have money to buy these goods and services. If your money supply is restricted to the availability of one or only few commodities to back it then it hasn't got that flexibility.

Everytime people borrow money from banks new money is being created and that money then goes into the economy increasing the money supply, this means there is more available to buy the things being produced. In turn it is the economic activity, the very goods and services being produced that gives the value to the currency.
If there was nothing to buy with the currency it would be worthless, conversely the more things available to buy the more value the currency has.

Ascended:

One problem with multi-nation gold standard backing was that, as these nations continued to grow, their necessary economies outstripped in value the amount of gold realistically available for backing. Then, to continue required an adjustment in gold's "value", and there again you get fluctuating "buying power" instead of "fixed".

Interesting to note that many deposed tyrants have historically sneaked away with supposed rail-cars filled with the "hard-stuff" (not alcohol!). jocular

All these issues are removed by returning to a free and open market though. Whatever currencies governments wish to establish, those currencies should have to compete in the market place, same goes for all currencies, monies and means of exchange used and or created by whomever. If the U.S. government wants to return to the definition of a dollar or they want to redefine it as a certain weight in silver or gold, that currency will not be the only one but, rather one of many competing in the market place. Currencies in a free market have never just been pegged to one thing, they have been pegged to many/multiple things. However, and unlike today, all currencies in free markets are backed by and with something of real value.

Concerning liquidity, the time needed to get a fair trade, depends on who you know. Most in their specific field find things/objects/commodities in their own fields to be extremely liquid. I do not expect a corn farmer to trade all his corn for medical equipment and twinkies. This just not how it works. Cash and coins are liqiud but, they are only so today because people have no choices/options. Given the choice to take and refuse currencies I would bet/assume fiat currencies would begin to fail. Todays currencies, minus the threats of punishment and death, are wothless, and in a free market they would lose all liquity outside of a historic or story factor.

As long as a few have absolute control and monopoly over the currencies others have, hold and use, those people will never be free. It does not matter if its spain, greece or a single man or woman. Allowing a country, bank or entity to make, create and dictate what you must use and accept for trade is always a mistake.

Originally Posted by gonzales56

All these issues are removed by returning to a free and open market though. Whatever currencies governments wish to establish, those currencies should have to compete in the market place, same goes for all currencies, monies and means of exchange used and or created by whomever. If the U.S. government wants to return to the definition of a dollar or they want to redefine it as a certain weight in silver or gold, that currency will not be the only one but, rather one of many competing in the market place. Currencies in a free market have never just been pegged to one thing, they have been pegged to many/multiple things. However, and unlike today, all currencies in free markets are backed by and with something of real value.

Ok now is the problem though with pegging a currency to anything tangible places serious restrictions on your ability to control either the amount or value that currency. What you end up doing is just turning the currency into an imaginery representation of whatever tangible thing you are using to back it, the currency adopts all the properties of the tangible thing. With anything tangible there is always an issue about supply, available amounts, the supply issues will exist naturally as there is a finite amount of anything. Also there is the demand issue that would be created by a need to periodically increase the currency supply, now you put these two factors together of both supply and demand and you have a recipe for huge value fluctations, driven by the law of supply and demand, now given that your tangible thing is interchangeable in terms of value with your currency which it is supporting means that your currency is capable of experiencing these same huge value fluctations which simply are virtually impossible to control.

One thing that all economies need is relatively stable currency prices, whilst currencies do fluctuate these changes are usually small and take time to occur especially in countries with large well balanced economies, the reason for this is that when people or businesses plan what they wish to buy they need to know that they can still buy the same value of products this week as opposed to next without spending any more money. Also you don't want a situation where you're loaf of bread costs twice as much as it did last or your gas/petrol bill doubling over night. This is why we need stable fixed values of currency.

Originally Posted by gonzales56

Concerning liquidity, the time needed to get a fair trade, depends on who you know. Most in their specific field find things/objects/commodities in their own fields to be extremely liquid. I do not expect a corn farmer to trade all his corn for medical equipment and twinkies. This just not how it works. Cash and coins are liqiud but, they are only so today because people have no choices/options. Given the choice to take and refuse currencies I would bet/assume fiat currencies would begin to fail. Todays currencies, minus the threats of punishment and death, are wothless, and in a free market they would lose all liquity outside of a historic or story factor.

As long as a few have absolute control and monopoly over the currencies others have, hold and use, those people will never be free. It does not matter if its spain, greece or a single man or woman. Allowing a country, bank or entity to make, create and dictate what you must use and accept for trade is always a mistake.

Ok here we have to decide what we think our currency really is, or more accurately what we want it to be. At present the only real value a currency has it what you can buy with it. It doesn't have any value of it's own, essentially currency is an exchange mechanism to allow fair exchange between goods. This mechanism works on cconfidence and, as you mention, the fact that everybody has to use it as the medium for trade and commerce. The advantage of this though, is that we can make more currency/money to enable people to keep exchanging their goods regardless of how many goods they have to exchange.

There are problems with such a confidence based system when an economy gets into trouble yes sure, but what it means also is that when a country's economy does get into trouble they are able to devalue their currency, where as a currency that has intrinsic value of it's own from being backed by a tangible asset can't be devalued in the same way. This means it is very difficult for the effected country to rebalance it's economy. We have seen examples of this problem with Eurozone countries that experienced real economic problems yet have found these very difficult to solve since they have pegged their economies to the Euro. They have no control over the supply or value of the Euro and as such have ended up in debt cycles.

The point about the not allowing a country, bank or entity to create and dictate what you must use and accept for trade is interesting, because for a level and stable playing field to exist everybody has to play by the same rules and accept the same value for goods and services, otherwise a dollar might be able to buy a gallon of gas in one place and yet it may requite 50 dollars for that same gallon in another. You need a regulated system where your currency is always worth the same everywhere, now if not government who sets and decides this then who? Also if you do use a currency backed, pegged & interchangeable with a tangible asset then you are effectively handing some of that control over your currency to anyone involved with or has an interest in the industry of the asset you're using as collateral against your currency, surely this isn't at all desirable.

Any and all means of exchange should swing/fluctuate, that's the nature of a free, open and fair market. The value of a currency should not be dictated by an entity... when there's no intrinsic value and the value of a currency is set arbitrarily by an entity, the value of that currency must always be set by brutality and/or fear of death or punishment.

When I say that currency should swing and fluctuate I'm talking about periods of inflation and deflation. Economic stability and sustainability require inflation and deflation. They must balance each other, there has to be a balance, there will be , sooner or later, in the United States as well as the rest of the world, a period or amount roughly equal to the size or amount of inflation.

The idea that a steady march of inflation is stability, stable or sustainable is inaccurate. Periods of inflation and deflation are required for economic stability and sustainability. They simply work together to create stability/ sustainability.

Originally Posted by gonzales56

Any and all means of exchange should swing/fluctuate, that's the nature of a free, open and fair market. The value of a currency should not be dictated by an entity... when there's no intrinsic value and the value of a currency is set arbitrarily by an entity, the value of that currency must always be set by brutality and/or fear of death or punishment.

Yes I agree about the point on the "free, open and fair market", though this being said the government still needs to keep this in check, more so for samller countries where their currency is more vunerable to the exchange markets.
The next part "The value of a currency should not be dictated by an entity... when there's no intrinsic value and the value of a currency is set arbitrarily by an entity" again comes
down to a choice. If want to have currency with value of it's own, over and above the ability to use it to buy things with, then you have to decide to to achieve this and again all the factors come into play which will affect it's value, I've already highlighted some of these factors that would affect the use of gold to give a currency value in the previous posts above, buts that's if you choose to go down that route.
The last part "the value of that currency must always be set by brutality and/or fear of death or punishment" is lost on me I afraid, I not really sure here what you're trying to convey.

Originally Posted by gonzales56

When I say that currency should swing and fluctuate I'm talking about periods of inflation and deflation. Economic stability and sustainability require inflation and deflation. They must balance each other, there has to be a balance, there will be , sooner or later, in the United States as well as the rest of the world, a period or amount roughly equal to the size or amount of inflation.

"When I say that currency should swing and fluctuate I'm talking about periods of inflation and deflation" Yes currency may be affected during periods of inflation or deflation but this shouldn't be large variations in exchangeable value or spending power in either direction in the short term. During larger trends of inflation, which is pretty much the norm, we will see spending power decrease but this happens over years if not decades.
"Economic stability and sustainability require inflation and deflation. They must balance each other, there has to be a balance, there will be , sooner or later, in the United States as well as the rest of the world, a period or amount roughly equal to the size or amount of inflation" Generally to achieve a healthy balance the only time deflation is required is to cool the affects of excessive economic growth spurts other an economy can achieve a very healthy balance of near continuous steady inflation. Inflation tends to accompany economic growth, this why today a dollar won't buy you what it could have a hundred years ago in the United States, but also the size of the US economy has grown vastly compared to that of a century ago.

Originally Posted by gonzales56

The idea that a steady march of inflation is stability, stable or sustainable is inaccurate. Periods of inflation and deflation are required for economic stability and sustainability. They simply work together to create stability/ sustainability.

See now whilst the world can't see steady inflation go on forever, because infitine growth is impossible, there is still no reason to believe that many countries can't still achieve a healthy rate of steady growth and steady inflation to match for the next century just like the previous one. So I think we have some disagreement here on the world's future economic potential.

When one's means of exchange has intrinsic value the price fluctuations in a free market comes from supply and demand. When a means of exchange has no intrinsic value and has no limits on how much can be created, that currency is no longer governed by supply and demand. What fiat currencies do is overwhelm any and all supplies, and a currency with intrinsic value can not do that. In theory, fiat currencies can go on until the planet is completely stripped of everything and/or everyone and everything is dead, although I suspect that this current period of fiat inflation will be stopped just short of that.

In other words, if governments want all the oil out of the ground, what do they do? They print/create all the money they want to inorder to do just that. The price of oil can never hit a price at which it will stop being pulled out of the ground, grown in fields or created. Governments will simply inflate the supply of currencies.... They will create, as they have been, enough money to overwhelm and then deplete the supply. This is not stability though, it is manipulation.

Originally Posted by gonzales56

When one's means of exchange has intrinsic value the price fluctuations in a free market comes from supply and demand. When a means of exchange has no intrinsic value and has no limits on how much can be created, that currency is no longer governed by supply and demand. What fiat currencies do is overwhelm any and all supplies, and a currency with intrinsic value can not do that. In theory, fiat currencies can go on until the planet is completely stripped of everything and/or everyone and everything is dead, although I suspect that this current period of fiat inflation will be stopped just short of that.

In other words, if governments want all the oil out of the ground, what do they do? They print/create all the money they want to inorder to do just that. The price of oil can never hit a price at which it will stop being pulled out of the ground, grown in fields or created. Governments will simply inflate the supply of currencies.... They will create, as they have been, enough money to overwhelm and then deplete the supply. This is not stability though, it is manipulation.

But this is the choice, do we want a flexible currency that can be expanded to meet the needs and allows everybody to sell/exchange their goods and or buy goods and services from abroad, or do we want a fixed limited supply governed by the laws of supply and demand of whatever we're are using to give the currency value, meaning that governments can't create growth within an economy, we can't get any richer and that all the money we have now would be having to be stretched as the population grows meaning each of us get an ever smaller share. Also watching other countries grow and progress, getting richer and aquiring more things all the time whilst knowing that your country can't grow or get any richer and is stuck in a near permanent state of stagnation until more of whatever we are using to give a currency value becomes available.

I just can't see why we would want to create a situation of restricted currency growth or currency that has value of it's own, where's the upside, how does this benefit people individually or as a country? If the idea is to control inflation it simply won't work because the problem is not with the currency and is more about labour and material costs that govern what consumers have to pay for their products and services, also by global competition for resources. Having a currency that has a particular value will not stop things that people may want to buy from rising in price, it just doesn't work that way.

Here's the point.... economically. There is a finite amount of all things on this planet, and from those things there is an exact amount of things that can be made or created from them. Now if you want stability/sustainability, you cannot have a currency that is infinite/limitless.

Originally Posted by gonzales56

Here's the point.... economically. There is a finite amount of all things on this planet, and from those things there is an exact amount of things that can be made or created from them. Now if you want stability/sustainability, you cannot have a currency that is infinite/limitless.

Yes a finite amount of resources, but as yet we can't quantify how much because we are still finding things all the time, new gas fields or oil or metal sources, also we don't know the full extent of human industry, just what is still to be made or created. This all means we can't as of yet possibly know how much currency we will need, things change all the time. What we do know based on the last few centuries is that the trend is for expansion, more and more things. This is why we need a flexible currency system that is able and capable to expand enough to ensure that everybody has enough money to buy all these new things, it's been the way we've all been getting richer over the centuries.

Until we reach the limits of our expansion potential then we will always need to be able to change and manipulate currency to ensure people will have the currency they need, at present there is no way of making a flexible currency that has value of it's own that could successfully replace our 'paper money'.

Originally Posted by Ascended

Originally Posted by gonzales56

When one's means of exchange has intrinsic value the price fluctuations in a free market comes from supply and demand. When a means of exchange has no intrinsic value and has no limits on how much can be created, that currency is no longer governed by supply and demand. What fiat currencies do is overwhelm any and all supplies, and a currency with intrinsic value can not do that. In theory, fiat currencies can go on until the planet is completely stripped of everything and/or everyone and everything is dead, although I suspect that this current period of fiat inflation will be stopped just short of that.In other words, if governments want all the oil out of the ground, what do they do? They print/create all the money they want to inorder to do just that. The price of oil can never hit a price at which it will stop being pulled out of the ground, grown in fields or created. Governments will simply inflate the supply of currencies.... They will create, as they have been, enough money to overwhelm and then deplete the supply. This is not stability though, it is manipulation.

But this is the choice, do we want a flexible currency that can be expanded to meet the needs and allows everybody to sell/exchange their goods and or buy goods and services from abroad, or do we want a fixed limited supply governed by the laws of supply and demand of whatever we're are using to give the currency value, meaning that governments can't create growth within an economy, we can't get any richer and that all the money we have now would be having to be stretched as the population grows meaning each of us get an ever smaller share. Also watching other countries grow and progress, getting richer and aquiring more things all the time whilst knowing that your country can't grow or get any richer and is stuck in a near permanent state of stagnation until more of whatever we are using to give a currency value becomes available.I just can't see why we would want to create a situation of restricted currency growth or currency that has value of it's own, where's the upside, how does this benefit people individually or as a country? If the idea is to control inflation it simply won't work because the problem is not with the currency and is more about labour and material costs that govern what consumers have to pay for their products and services, also by global competition for resources. Having a currency that has a particular value will not stop things that people may want to buy from rising in price, it just doesn't work that way.

A currency or means of exchange can be anything of value, and the value of all things will fluctuate. If nations are producing more products, goods and services than they are consuming, then they will be wealthy, they will grow. This however, has nothing to do with what we're talking about. The question is, is it better to have a means of exchange that has intrinsic value and is attached to an economy, supply and demand, or is it better to have a means of exchange that is not.

The problem here is that your not understanding how multiple things can be used as a means of exchange in an economy. One does not have to use just gold or copper or silver. Metals do not even have to be used, and at the same time all metals can be used. Anything and all things of value can be used as a means of exchange. There are enough things with intrinsic value to run the world economy and then some. The idea that there are not enough things with intrinsic value to run the world economy, And therefore we need paper fiat currency to be the means of exchange, is false. Fiat currencies are for those that do not want to work for their wealth, Who wish to control wealth and control markets. God forbid if their fiat currency had to be back by products, goods or services..... Then they would have to work, they could not control markets or have complete monopoly and control of all currencies.

Originally Posted by gonzales56

Originally Posted by Ascended

Originally Posted by gonzales56

When one's means of exchange has intrinsic value the price fluctuations in a free market comes from supply and demand. When a means of exchange has no intrinsic value and has no limits on how much can be created, that currency is no longer governed by supply and demand. What fiat currencies do is overwhelm any and all supplies, and a currency with intrinsic value can not do that. In theory, fiat currencies can go on until the planet is completely stripped of everything and/or everyone and everything is dead, although I suspect that this current period of fiat inflation will be stopped just short of that.In other words, if governments want all the oil out of the ground, what do they do? They print/create all the money they want to inorder to do just that. The price of oil can never hit a price at which it will stop being pulled out of the ground, grown in fields or created. Governments will simply inflate the supply of currencies.... They will create, as they have been, enough money to overwhelm and then deplete the supply. This is not stability though, it is manipulation.

But this is the choice, do we want a flexible currency that can be expanded to meet the needs and allows everybody to sell/exchange their goods and or buy goods and services from abroad, or do we want a fixed limited supply governed by the laws of supply and demand of whatever we're are using to give the currency value, meaning that governments can't create growth within an economy, we can't get any richer and that all the money we have now would be having to be stretched as the population grows meaning each of us get an ever smaller share. Also watching other countries grow and progress, getting richer and aquiring more things all the time whilst knowing that your country can't grow or get any richer and is stuck in a near permanent state of stagnation until more of whatever we are using to give a currency value becomes available.I just can't see why we would want to create a situation of restricted currency growth or currency that has value of it's own, where's the upside, how does this benefit people individually or as a country? If the idea is to control inflation it simply won't work because the problem is not with the currency and is more about labour and material costs that govern what consumers have to pay for their products and services, also by global competition for resources. Having a currency that has a particular value will not stop things that people may want to buy from rising in price, it just doesn't work that way.

A currency or means of exchange can be anything of value, and the value of all things will fluctuate. If nations are producing more products, goods and services than they are consuming, then they will be wealthy, they will grow. This however, has nothing to do with what we're talking about. The question is, is it better to have a means of exchange that has intrinsic value and is attached to an economy, supply and demand, or is it better to have a means of exchange that is not.

But then what is the point of having a currency of one value, but the actual buying power of a different currency. If the actual value of the currency is greater then the buying power then the currency will start to disappear out of circulation, because knowbody would wish to spend it buying things of less value than currency has if they were simply to sell it. If however the currency had less value than it's spending power then there really isn't all that much point of it having it's own seperate value anyway if you can spend it for more than it's worth, you're pretty much back in the same place as you are now.

There is no way you can guarantee that the value of the currency will stay the same as it's buying power, why would it? What you can buy with currency is set individually for each seperate thing, for example a dollar might buy you a litre of milk but the cost of that milke may go up to $1.10 or down to $0.90 whilst a loaf of bread may stay the same say $1.50.
The point is the actual value of the is individual like the milk or the bread it could, and will, go up or down whilst the currency's buying power will be different. What this means is, even if you exactly fix the value of your currency to it's spending power today then in 3 months time it could have changed significantly.

To make this easier to understand think of a silver dollar, the face value may say "1 Dollar" this is implied as the buying power, but because it is made of silver it has value of it's own much greater than that of it's spending power. Now the value of the silver changes at a different rate from all the other independant items you could buy with a single dollar.
This is but another of the problems with trying to give a currency a value of it's own.

Originally Posted by gonzales56

The problem here is that your not understanding how multiple things can be used as a means of exchange in an economy. One does not have to use just gold or copper or silver. Metals do not even have to be used, and at the same time all metals can be used. Anything and all things of value can be used as a means of exchange. There are enough things with intrinsic value to run the world economy and then some. The idea that there are not enough things with intrinsic value to run the world economy, And therefore we need paper fiat currency to be the means of exchange, is false. Fiat currencies are for those that do not want to work for their wealth, Who wish to control wealth and control markets. God forbid if their fiat currency had to be back by products, goods or services..... Then they would have to work, they could not control markets or have complete monopoly and control of all currencies.

I understand your meaning, but it seems you want something tangible to support the value of an entire economies currency in usage, rather than the "Fiat" currencies we have in usage today. What I've tried to explain though is some of the many drawbacks and disadvantanges of using tangible things to give value to a currency. I've explained this before but I'll explain again. The "Fiat" currencies we have in usage today are already backed by not just all the tangible assets of the nation but also it's entire economy, that's all the productive capacity of all it's citizens and all of it's natural resources. So whilst the "Fiat" currencies don't have a specific value of their own over an above their buying power/face value, exchangeability etc..., they are still backed by every asset, that's all of them. Pretty hard to give actual value to a currency that would be over and above that.

The US dollar is not backed by goods, products or services. It is only supported by punishment and/or threats of punishment. There is no connection between the US money supply and the amount of goods, products and services available.

Originally Posted by gonzales56

The US dollar is not backed by goods, products or services. It is only supported by punishment and/or threats of punishment. There is no connection between the US money supply and the amount of goods, products and services available.

Ok, let's see if I can explain this in an easily understandable way. A currency, we can use the US dollar as an example, is normally backed by the government of the country that uses it. It doesn't have an independant value, however it has it's face value which give's it value or buying power to the tune of the said face value. The face value comes from the promise of government, or it's representatives, that this money will be honored. This means they guarantee you can spend it, that it has the purchasing power of it's face value. In order to do this people must have confidence in the said currency, the confidence comes from the fact that the government has control over the currency and also control over the nations assets, which means they are able to levy taxes against goods or assets, they are sell or trade resources and are able to offset the future earning & revenue generating potential of it's citizens into supporting the currency if necessary, it should be noted that where a number of countries are using the same currency things work a little differently but again basically towards the same ends just usually in a collective manner.

Now also what you need to understand here and this concept is perhaps a little more difficult to grasp, is that money is an exchange mechanism. In short this means it is a way of exchanging goods and services and having money allows you to be able own a small percentage of a nations total goods and services without actually having to have them. When you have money, because you can spend it within that country, it means you can directly exchange it for a share of goods or services at any time you choose to. Money is if you will a representation of ownership of the totallity of a nations goods, services, resources and future industry, it is all linked together. This is why when the nation is producing more goods it needs to able to expand it's money supply.

Originally Posted by justme335

Could someone please explain to me why is all the media's focus always on the public debt and not the external debt when it actually seems to be the real indicator of how bad an economy is doing?

Let me explain what I mean, Public Debt (internal public debt+ external public debt), and external debt (external public debt + external private debt)

Example:

United Kingdom
The Public debt of United Kingdom is 88.7 % of its GDP but its External Debt is 413 % of its GDP

Ireland
The Public debt of Ireland is 118 % of its GDP but its External Debt is 1028 % of its GDP

Japan
The Public debt of Japan is 214 % of its GDP but its External Debt is 50.7 % of its GDP

So Japan seems be doing OK, though it has high public debt, because its government debt is mostly domestic, however, Ireland and United Kingdom though both are having lower Public debt seem to be more in trouble.

What do you think?

Just to go back to your original question, I think this might help to explain the way assets balance against external debt for the UK.

I'll post some extracts and a link to the full article:

• "UK debt (public sector debt) is government borrowing.
  
• UK external debt, is the debt the whole country owes to the rest of the world. This primarily composes bank and corporate liabilities. Though we do have assets in exchange for these liabilities.
• As it happens it appears the US external debt is very similar to the US public sector debt

Therefore, they are really quite separate statistics

The official UK public sector debt is currently around £920bn (forecast to rise to over £1trillion next year).

This statistics is a measure of how much the government has borrowed from the private sector and other purchases of UK bonds and gilts.

Note, most of this UK national debt is held by domestic UK investors (e.g. British pension funds). About 20-30% of the UK debt is financed by selling bonds oversees."


"External Debt


External debt is a different statistics. It measures the net debt of the UK to overseas investors. This includes both government debt to oversees, but also private sector debt. E.g. British banks have liabilities oversees.
The latest figure for UK external debt in Q1 2011 is £6,114bn over 400% of GDP. I have seen a CIA statistic which puts UK exteranl debt at £8,000bn. This measure may include a bigger definition of external liabilities.
By far the biggest component of UK external debt is the Banking sector. Government debt abroad only accounts for £31bn of the £6,114bn."


"UK External Assets


External debt seems a very big figure. But, as well as these external liabilities, we do have assets. The problem would come if there was a sharp deterioration in the value of the assets we got in exchange for the liabilities.
In 2008, the UK had net external assets of £7,135.1 billion and total liabilities at £7,042.1 . (source:HSBC). Therefore our assets exceeded our liabilities by a very small amount."



UK External Debt and Assets - Economics Blog

This may help give some insight on where money is actually owed.

"A frequently asked question is – Who does the UK Borrow from? Who owns the UK debt?

• Firstly, government debt is different from the external debt of a country (total owed by private and government sector to foreign debtors)
• It is also different to the balance of trade (concerned with the level of UK imports and exports)

The government needs to borrow because it spends more than it receives in tax revenue. To finance this shortfall the government (in the UK through an intermediary such as the Debt Management Office) sell bonds, gilts and treasury bills."






Who Owns UK Debt? - Economics Blog

Originally Posted by Ascended

Originally Posted by gonzales56

The US dollar is not backed by goods, products or services. It is only supported by punishment and/or threats of punishment. There is no connection between the US money supply and the amount of goods, products and services available.

Ok, let's see if I can explain this in an easily understandable way. A currency, we can use the US dollar as an example, is normally backed by the government of the country that uses it. It doesn't have an independant value, however it has it's face value which give's it value or buying power to the tune of the said face value. The face value comes from the promise of government, or it's representatives, that this money will be honored. This means they guarantee you can spend it, that it has the purchasing power of it's face value. In order to do this people must have confidence in the said currency, the confidence comes from the fact that the government has control over the currency and also control over the nations assets, which means they are able to levy taxes against goods or assets, they are sell or trade resources and are able to offset the future earning & revenue generating potential of it's citizens into supporting the currency if necessary, it should be noted that where a number of countries are using the same currency things work a little differently but again basically towards the same ends just usually in a collective manner. Now also what you need to understand here and this concept is perhaps a little more difficult to grasp, is that money is an exchange mechanism. In short this means it is a way of exchanging goods and services and having money allows you to be able own a small percentage of a nations total goods and services without actually having to have them. When you have money, because you can spend it within that country, it means you can directly exchange it for a share of goods or services at any time you choose to. Money is if you will a representation of ownership of the totallity of a nations goods, services, resources and future industry, it is all linked together. This is why when the nation is producing more goods it needs to able to expand it's money supply.

Surely dollars can still be used today but, they are not connected to the supply of goods and services, and as inflation keeps marching forward, the disconnect between the two will become more and more apparent.

Originally Posted by gonzales56

Surely dollars can still be used today but, they are not connected to the supply of goods and services, and as inflation keeps marching forward, the disconnect between the two will become more and more apparent.

Ok this is the way things are supposed to work. On the whole inflation will increase every year by a small amount, now ordinarily without any increase in the economies production this would mean the money in your pocket buys less because of the inflationary effect. However since it is also normal for an economy to achieve growth every year this usually cancels out some of the inflationary effect thats affects the spending/purchasing power of the money in your pocket in one of two main ways. The first one is prices stay the same because even though your money in now worth less due to inflation there are more products competing for that money, in other words a real terms fall in actual prices. The second way is through wage & income increases and bank increases, in this way rather than prices falling or staying the same spending parity is maintained via having more available money.

Usually when an economy is doing well this mechanism works so successfully that purchasing parity is not only maintained but also exceeded so as to have a general pattern of everybody getting richer and richer in real terms. We can often see the effects of this if we look back a few decades at the types of and quantity of products people were able afford then as opposed to now.

Of course this situation cannot work perfectly all the time an indeed when an economy is experiencing difficulties we can and do see real terms drops in the purchasing power of people's incomes, but this is part of the nature of the way economics works, you have to have both the swings and the roundabouts.

It can seem frustrating when the government seem to be creating endless amounts of new money aparently out of thin air, certainly people can be forgiven for feeling like these guys have their hand in everyone's pocket. There are solutions to this issue but with come consequences and the question then becomes are these new problems easier to live with than the original one. For instance we could say "Look everyone is fed up could you please stop creating any new money", now the government might listen it might not, you could go so far as enforce this through legislation. You make new laws meaning that new money could only be created at a level that matched growth, this would certainly seem to help to prevent further unwanted inflation. But again you are creating problems, you are restricting the governments ability to spark and create growth or make the economy more competitive. You are putting people's jobs at risk, because you have to remember if people don't have enough to go out and buy the things people are making then the companies making them can't afford to keep paying their employees.

You only really have to look at the European Union to see how some countries have been badly affected by not being able to create new money. Countries such as Spain, Portugal and Ireland have had economic growth slashed to the point where they have suffered serious recessions. Ordinarily these countries would have gone through massive stages of quantitive easing to create enough money to allow people to keep buying things within these counties, however since they are all using the Euro it has meant they have no control of their currency and no real solution to the problem. Now if we look at two other economies within the EU we can really see this in action, both Greece and the UK have huge debts and deficits, this means that their annual income is far less than their annual expenditure, however because the UK use their own currency, the pound, they were able to go through that period of competitive devaluation and quantitive easing. They were able to create the billions of pounds required to service the debt and also ensure people still had money in their pockets to spend in the shops. This has mean't even though at the time of financial crisis the UK was in a worse mess the Greece financially they are now in growth.
Where as by contrast Greece who couldn't devalue and create any new money have had to slash public spending across the all sectors, their economy has been in constant decline, they have need massive financial assistance from the rest of the EU and have some the highest unemployment in Europe, with their youth unemployment now topping 65%!

What this demonstrates is that although we can seek to put restraints on governments ability to affect the money in our pockets in one way and can suffer much further in other ways down the line. It comes down to a simple fact when an economy is healthy and doing well eventually we ill all start to get richer, when it is do badly or not so well then we all take a hit in the wallet, whether we like this or not there's no way around it.

This being said there are steps that we as individuals can take to limit the negative affects when we are being hit by inflation. The interest rates being offered by banks these is pretty pathetic, but we have a choice we don't have to leave our money in the banks we can choose to invest it in something that will, and most definately out perform the interest rates.
By doing this we can all work at beating the worst effects of inflation.