Ron Paul's son runs for KY Senate

Rand Paul (Really, he went with Rand? Just go Ron jr.) is running for the KY Senate seat being vacated by Jim Bunning. While I appreciate his, and his father's, deficit hawk nature his son appears to share the same economic deficiencies that his father does. First, they both don't get that sometimes borrowing is a good thing. It is a well established economic principle that spending stimulates the economy. Its pretty simple, I give you money, you buy stuff, that means the person you bought it from has more money, which they spend. Not only that, but they need to replace whatever it is you bought so they can make their next sale, which means they buy more stuff, and they hire more people and so on and so forth. More spending = more stimulus.

They are right that this can be problematic. They are wrong on why. First, deficits don't generally lead to inflation as Rand Paul claims (especially in a recession) they lead to higher interest rates. The government borrows the money. There is only so much money people are willing to lend out. That means that when more money is being borrowed by the government other people can't borrow as much, or will have to pay more for it (higher interest rate) to get people to lend more money. After all, everything has its price. Offer me 200% interest and Ill lend you whatever I have (assuming of course I know you won't stiff me) but offer me 5% and I'm not so interested.

Secondly, its not much of a problem that foreign countries hold a lot of our debt. There is a saying, if you owe someone a little bit of money they have you by the balls, if you owe them a lot of money you have them by the balls. Its counterintuitive at first but if you think about it it makes sense. If I owe you a little bit of money you can make my life miserable if I don't pay. Sue me, harass me, put collections agencies on me, etc. However, if I owe you so much money it'd be devastating if I didn't pay you, you can't do these things (or in the international world cut off trade or seek sanctions). You need to have my best interests at heart so that I am willing and able to pay you the money. If we told China, sorry, go to hell, we're not paying that debt you have it'd crush them. If our economy REALLY tanked (Great Depression style) and we couldn't pay, it'd crush them. This isn't economic theory, its basic logic, if your fate is tied to the fortunes of another you do everything you can to improve those fortunes so that your fate doesn't go down with them. Say what you want about China, the government isn't stupid or suicidal.

Madison