>>>> An exactly balanced budget would have exactly the effect of
>>>> paying off only mature bonds.

>>> An "exactly balanced" budget would be able to pay off
>>> mature bonds by issuing new ones, thus keeping the debt the

>> Since paying off maturing bonds are part of the govt fiscal
>> policy, no further change than exacly balancing spending and
>> revenue is necessary to pay off the debt by the time the current
>> bonds all mature.

 EC> Paying off matured bonds without issuing new bonds to
 EC> replace them would require running a surplus, not a
 EC> balance.  At an exact balance, the total indebtedness would
 EC> remain the same.  Less aggregate indebtedness would mean a
 EC> surplus.  All of which has nothing to do with Greenspan's
 EC> point about the disruption that would come from buying
 EC> NON-mature bonds back prematurely.

 As I went into once before, the budget is not what we are really
 talking about, that's just a convenient term. What we are
 talking about is actual spending. Since maturing bonds are paid
 off, whether by tax money or borrowed money, your point is
 lacking accuracy.

 If we pay off the mature bonds out of revenue, then that
 requires balance, not surplus. When we borrow to pay off bonds,
 that gives us a deficit. If we pay off a portion of the mature
 bonds out of revenue, and borrow to pay off a portion, the
 result is a lower deficit. A surplus means we can pay off bonds
 that haven't matured.

 Paying off some mature bonds from revenue rather than borrowing
 reduces the debt at a slower rate that paying them all out of
 revenue, but it does reduce the debt.

 Any way you look at it, to pay off all mature bonds out of
 revenue all you have to do is have a balance between revenue and
 spending. Paying bonds is spending. Borrowing only to pay off
 mature bonds will not increase the debt, if the interest has
 been paid also. Borrowing to pay current expenses does increase
 the debt.

 All of which you argued ignored the original point, in which I
 pointed out that any bond payment plan that incurs more cost for
 paying early than waiting for maturity is illogical. At least
 from the borrower's point of view it's illogical. The lender can
 reasonably expect to charge a bit more for paying early, but not
 more than the total cost of waiting to maturity. That kind of
 penalty would be absurd from the borrower's point of view.


BOB KLAHN bob.klahn@sev.org   http://home.toltbbs.com/bobklahn

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