THE US National Debt Thread pt 2 (merged)

[ralfy]

Fishman and the others got it right. Those "new assets" are essentially more debt.

[prajeshbhat]

After you first handed the bank your $1000 in cash, was the bank $1000 "in debt" to you? No!

Yes. Every deposit you make is a liability on the banks books. They have to repay it. The $ 1002.5 has to come from the banks reserves. The reserves are built when the bank's borrowing customers repay their loans with Interest. If the banks make bad bets and their customers don't repay, the banks become insolvent.
It is true that the US government can print money. Doesn't mean that money will buy you something useful. Russia too was an Industrial powerhouse. But their currency lost value pretty quickly.

[OilFinder2]

After you first handed the bank your $1000 in cash, was the bank $1000 "in debt" to you? No!

Yes. Every deposit you make is a liability on the banks books. They have to repay it. The $ 1002.5 has to come from the banks reserves. The reserves are built when the bank's borrowing customers repay their loans with Interest. If the banks make bad bets and their customers don't repay, the banks become insolvent.

You're right, after I wrote that I realized that *is* the case. Perhaps it wasn't a good analogy after all.

But the crux of the article, I think, is this:

We hear it because that’s the amount the non-government holds in Treasuries and people believe Treasuries to be a debt obligation, when in fact there’s very little difference between a Treasury note or bond and a dollar bill. They’re both accounted for the same way – as liabilities of the Federal Government – however, one has no duration (cash) and the other has some duration and pays interest.

In other words, when you buy a Treasury bill from the government, you're paying for it via the government's own currency, so you're basically exchanging one form of the government's money for another. The only reason you'd do this is because the one you're purchasing pays interest.

In the case of buying a CD from Chase, the money you're using to pay for it, and the money-plus-interest you receive upon maturity *isn't* Chase's own currency, it's the government's currency. So I suppose they aren't really the same thing.

Cancel analogy!

[peripato]

Yep, sure, this time it's different. Excessive borrowing and spending won't result in eventual disaster. Boy, where have we had that before?

[Fishman]

Oil, you state two conflicting points. For person A (government) to write a piece of paper $100, without $100 of something to back it up (perhaps gold), is debasing their currency. Because as you state later,

In their case, their problem is they cannot debase their own currency, because the currency they use is not their own. If they had their own currency, they could always do the cheesy-but-true-and-tried method of debasing their currency, which makes their debt load easier to pay off

[eXpat]

Another of this ones to Oily again

[OilFinder2]

Oil, you state two conflicting points. For person A (government) to write a piece of paper $100, without $100 of something to back it up (perhaps gold), is debasing their currency. Because as you state later,

In their case, their problem is they cannot debase their own currency, because the currency they use is not their own. If they had their own currency, they could always do the cheesy-but-true-and-tried method of debasing their currency, which makes their debt load easier to pay off

You've just pointed out the problem with a gold or silver standard: As long as one's currency remains at a fixed rate to the price of gold, one cannot devalue one's currency, so if they have debt loads they cannot handle, they cannot use the devalue-the-currency option to make the debt burden easier, and will thus default. Not long ago I read an article pointing out that Greece's problems are exactly the same problem faced by nations under the gold standard.

You should never use someone else's currency - and that "someone else's currency" includes gold.

[EnergyUnlimited]

Anyone with half a brain would see that the recipients of the checks or cash would be the recipients of a windfall of new assets.

OR
Anyone with half a brain would see that the recipients of the checks or cash would be the recipients of a windfall of new pieces of worthless paper. Somebody failed history and economics class and still calls themselves an economist

It seems that droppings of government officials are about the only assets left in the country...

[KrellEnergySource]

Where am I getting this wrong? Let's say the US government decides to borrow $60,000 in year 2011 to be able to keep paying an air traffic controller because they don't have the tax revenue coming in to do so, and does so by issuing a treasury note, and accepting payment for that note in 2011.

Now, fast forward to when the note comes due in, let's say, 2025. Let's really get crazy and say that in 2025 we have a balanced budget....meaning our tax revenue is supporting all of our expenditures including debt obligations and interest for fiscal year 2025. My kids are paying for my air traffic controller. How could they not be?

How is this not debt?

Sorry, I don't think there has ever been any federal budget summary that has ever had this at the bottom.

Revenue $XX,XXX,XXX,XXX,XXX
Spending $YYY,YYY,YYY,YYY,YYY
Thin Air: $YYY,YYY,YYY,YYY,YYY - $XX,XXX,XXX,XXX,XXX
Annual Deficit = $0
Additional burden on our children this year: $0

Debt matters. IIRC, it was decades ago when people were predicting that if deficit spending wasn't dealt with 'soon', it would be too late. I don't see how the same statement can be made year after year, so I assume it is too late and has been for quite some time. Implosion or drastic consequences are coming and they are imminent. By imminent, I make no prediction as to tomorrow, next week, next year. Let's just say within the lifetime of me or my children or my grandchildren. I know I'm concerned about all of those as I watch the actions of my 'representatives' as they failed to deal with reality.

Brian

[Oakley]

I think George Orwell would be very proud of the redefinition of debt to not be debt. The federal government owes nothing to anyone; some of their not-debts are not even pieces of paper; they have no obligation to pay the Social Security benefits they promised to workers when they collected payroll taxes from them.

Throw away your dictionaries because they are useless; we have OilFinder2, an apparent employee of the Ministry of Information, to give us new definitions out of the depths of his fertile mind.

[joewp]

The US government can never have that problem because they're the entity which creates the money in the first place. If, on a certain day, there are more bonds maturing than the Treasury has in "cash on hand," they can always create the additional money "out of thin air."

No they can't. The Fed creates the money out of thin air and loans it to the government (they buy t-bills). That's why every sovereign government is in debt up to their eyeballs these days. There is plenty of debt and the writer of the article is a fool .

[OilFinder2]

The Fed creates the money out of thin air and loans it to the government (they buy t-bills)

That's technically true, but since most people consider the Fed to be part of the government, the distinction is trivial. Are you suggesting the government could default on its Treasuries held by the Fed? I hope not. If the government had insufficient funds to pay off maturing Treasuries held by the Fed on a certain day, it's not like the Fed would care. If you borrow $100 from your sister and don't have the money to pay her back when you said you would, it's not like she's gonna take you to court and make you file for bankruptcy (unless she's a jerk). She'll just let you pay it back whenever you've got the money.

[eXpat]

$15,OOO,OOO,OOO,OOOBAMA! - It's Official: Total US Debt Passes $15 Trillion

Too sad for commentary, but here is some math: total US debt has increased by 41.5%, or $4.4 trillion, from $10,626,877,048,913 on January 20, to $15,033,607,255,920, under Obama as president.

http://www.zerohedge.com/news/its-official-total-us-debt-passes-15-trillion
Obama foes pounce on $15 trillion US debt

WASHINGTON — President Barack Obama's Republican foes pounced Wednesday on news the US national debt passed $15 trillion for the first time to assail his economic policies one year from November 2012 elections.

Republican House Budget Committee Chairman Paul Ryan said on his official Twitter feed that the figure "marks an infamous day in U.S. history. You deserve leaders willing to tackle this problem."

Texas Governor Rick Perry, a candidate for the Republican nomination to take on Obama next year, took to Twitter to blame "Obama's socialist policies" for "bankrupting" the country, and declared it was "time to overhaul Washington."

"This astounding debt is a heavy pair of cement shoes for our children and America's economic future," he added in a statement.

"America has crossed an unthinkable threshold: our national debt now exceeds $15 trillion. That's more than $48,000 per citizen," scolded Republican National Committee Chairman Reince Priebus.

http://www.google.com/hostednews/afp/article/ALeqM5hoI06w4xkWY2gPiFmdmkY1UvGzJQ?docId=CNG.057d302485046d67eb1dd7cc8372265e.b91

[smiley]

Are you suggesting the government could default on its Treasuries held by the Fed? I hope not.

As I understand it the US can default on part of the debt. That's the reason rating agencies like S&P, Moodies etc, use a lower estimate of the US debt 69% instead of 100% GDP.

Part of the US debt (~5 trillion) is in intragovernmental debt. The term intragovernmental debt is IMO misleading. These are surplus contributions to various federal programs, social security, pensions, disability funds etc, which are "invested" in treasuries. I guess this type of debt is more public than the "debt held by the public" which is mainly owned to various other governments and dodgy investment firms on the Cayman islands.

Since the government has no formal obligation to pay these out, just a vague "intention to", described by various laws which can be altered or repelled, they can kill these or reduce these programs and cross of the debt against the holdings of these programs. That would reduce the contributions made to these programs to extra taxes which have been collected and spend in the past.

Apparently the rating agencies go by the stance that a country defaulting on the promises made to foreign banks is much worse than defaulting on those made to its own citizens.

[rangerone314]

Does anyone here SERIOUSLY think that the Federal government won't ultimately INFLATE its way out of debt?

[Anvil]

The USA gov has effectively kept the USA public in the dark and fed them shit. Doing the best to make of there citizens zombies or mushrooms depending on how you see it. aka usa dream and shit like that

The trouble is when zombies are woken or mushrooms are left in the sun to long. Shit hits the fan and i think this is what is happening now.

One can only hope.

[Daniel_Plainview]

It's Official: US Debt-To-GDP Passes 100%

ZeroHedge -- US debt, net of all settlements for all already completed bond auctions, is now at precisely $15,182,756,264,288.80.

Why is this relevant? Because the latest annualized US GDP, according to the BEA, was $15,180,900,000.00. Which means that, as of today, total US debt to GDP is 100.012%. Congratulations America: you are now in the triple digit "debt to GDP" club!

[Cog]

We are going to need a bigger chart.

[vision-master]

More debt, more moola for the few....

[joewp]

The Fed creates the money out of thin air and loans it to the government (they buy t-bills)

That's technically true, but since most people consider the Fed to be part of the government, the distinction is trivial. Are you suggesting the government could default on its Treasuries held by the Fed? I hope not. If the government had insufficient funds to pay off maturing Treasuries held by the Fed on a certain day, it's not like the Fed would care. If you borrow $100 from your sister and don't have the money to pay her back when you said you would, it's not like she's gonna take you to court and make you file for bankruptcy (unless she's a jerk). She'll just let you pay it back whenever you've got the money.

Wow, since most people wrongly consider the Fed to be a part of the government, it's trivial? No, that money is owed, either to the Fed or to other entities, plus interest. And those t-bills the Fed holds are the basis for all the rest of the money in the system, money which is created by commercial banks when they loan it out. Debt upon debt upon debt. The only reason these European countries, the US and all the other countries are in so much debt is that the money is borrowed into existence. The "sovereign" governments aren't sovereign at all, they're beholden to their central banks, which are all beholden to the IMF, World Bank or BIS.

Now I see why you're so optimistic and "corny", OF. You're naive beyond belief!