What's wrong with US national debt?

[Farm Boy]

But they at least get their nominal face value back.

If that's our bar, then so do dollars?

 

[Cutlass]

If that's our bar, then so do dollars?

Which is why the dollar is the international reserve currency. Though if you are concerned about inflation, T-bills are better than dollars, because if a t-bill is paying 2%, and inflation is 3%, then you've lost 1%. But if you have dollars, and inflation is 3%, you've lost 3%.

So US t-bills are not the most money you can make on an investment, but when seeking safety there just isn't a better option.

 

[CavLancer]

Real estate? Buy a duplex or more apartments depending on your circumstances. Then hopefully your building will appreciate, the neighborhood won't go to hell, and you'll collect rents. Might do pretty well...unless the dollar free falls. I was in Asia during the Asia economic crisis, seen it happen before.

 

[Evie]

Real estate? Buy a duplex or more apartments depending on your circumstances. Then hopefully your building will appreciate, the neighborhood won't go to hell, and you'll collect rents. Might do pretty well...unless the dollar free falls. I was in Asia during the Asia economic crisis, seen it happen before.

And hopefully the housing market won,t crash.

 

[Farm Boy]

Which is why the dollar is the international reserve currency. Though if you are concerned about inflation, T-bills are better than dollars, because if a t-bill is paying 2%, and inflation is 3%, then you've lost 1%. But if you have dollars, and inflation is 3%, you've lost 3%.

So US t-bills are not the most money you can make on an investment, but when seeking safety there just isn't a better option.

Sure sure. But and investment "barely being better than cash in your mattress" isn't much of an investment. Granted, it's how I would typically invest, maybe some year before I die but probably not, but I dislike adding more risk than necessary.

What confuses me is when people say that paying off the national debt would be bad because it would deflate currency, and that would be in and of itself a bad thing. Lets say I take that at face value. Paying off currency would deflate currency. I know deflationary periods suck. But, that's not the only thing that has an impact on the value of currency. Were we to pay down the debt and that deflates the currency some, would that not that increased confidence in value per dollar also free up the ability to print and spend some new money into the monetary system to bring the value back up to a stable level of inflation? Thus decreasing percentage of government expenditure going to servicing debt(which I view as government subsidization of the "haves" in society and abroad, because it is) and increasing some printing/spending capacity to spend on things that might actually benefit people who don't have enough money to be concerned about losing it on the margin of 1 or 2% like the filthy stinking rich people they are? End that debt and get the rich off the teat.

 

[Irkalla]

Absolutely nothing is wrong with a nation's debt so long as folks continue to lend to them. Public debt only becomes unsustainable when new loans stop being made. Public debt is very different from private debt.

When a politician makes a big deal about the national debt, they're scraping the bottom of the barrel for weapons to use.

 

[Cutlass]

Sure sure. But and investment "barely being better than cash in your mattress" isn't much of an investment. Granted, it's how I would typically invest, maybe some year before I die but probably not, but I dislike adding more risk than necessary.

What confuses me is when people say that paying off the national debt would be bad because it would deflate currency, and that would be in and of itself a bad thing. Lets say I take that at face value. Paying off currency would deflate currency. I know deflationary periods suck. But, that's not the only thing that has an impact on the value of currency. Were we to pay down the debt and that deflates the currency some, would that not that increased confidence in value per dollar also free up the ability to print and spend some new money into the monetary system to bring the value back up to a stable level of inflation? Thus decreasing percentage of government expenditure going to servicing debt(which I view as government subsidization of the "haves" in society and abroad, because it is) and increasing some printing/spending capacity to spend on things that might actually benefit people who don't have enough money to be concerned about losing it on the margin of 1 or 2% like the filthy stinking rich people they are? End that debt and get the rich off the teat.

Well, I think the people saying 'paying off the debt is bad' are not explaining themselves well.

To start with why would you invest in something that is barely better than cash, there are a lot of reasons. Look at the 3 things an investor needs to consider when choosing an investment: All other things being equal, safe is better than risky, a payoff which is soon is better than a payoff which is further off in time, and a high return is better than a low return. Now if you look into each of these, you realize that no one investment will give you all 3. And so you have to make a choice on what is most important to you. And for the sophisticated investor, what that amounts to is that they diversify their risks and rewards by holding a variety of investments. That way, best case scenario, they don't make as much money as they would otherwise, but worst case scenario they don't lose everything either. So there is always a market for US t-bills, because there is always a market for safety.

As to the paying off of all the US debt, well that ship has sailed for our lifetimes. GWB could have done it, but chose not to. Who would be harmed if he had? There are many companies, banks, insurance companies, countries, who really want US t-bills, because they want that safe investment. If they could not get the t-bills, they would have to take on more risk than they wanted to. There are some people who say that US t-bills have become so integral to the way US and international banks operate that there needs to be at least some (uncertain)number of them out there. I'm not certain the degree to which that is true.

 

[Farm Boy]

As to the paying off of all the US debt, well that ship has sailed for our lifetimes. GWB could have done it, but chose not to.

No side will. As it stands, for every expenditure the government makes be it roads or assistance for the poor, the haves get to take additional tax in interest off the top.

 

[timtofly]

As to the paying off of all the US debt, well that ship has sailed for our lifetimes. GWB could have done it, but chose not to. Who would be harmed if he had? There are many companies, banks, insurance companies, countries, who really want US t-bills, because they want that safe investment. If they could not get the t-bills, they would have to take on more risk than they wanted to. There are some people who say that US t-bills have become so integral to the way US and international banks operate that there needs to be at least some (uncertain)number of them out there. I'm not certain the degree to which that is true.

Could it have been paid off even while the war was going on?

 

[Cutlass]

Could it have been paid off even while the war was going on?

The primary cause of the Bush deficits was the Bush tax cuts.

 

[Tahuti]

The primary cause of the Bush deficits was the Bush tax cuts.

That and the wars.

 

[El_Machinae]

Bush's deficits weren't all that bad, really. Not compared to the total economy.

 

[Cutlass]

Bush's deficits weren't all that bad, really. Not compared to the total economy.

The problem is that Bush's deficits were permanent, not cyclical. There was no way to end them, and so they just kept accumulating.

That and the wars.

The wars were a part, but less than the tax cuts, less than fixing the economy, less than the expansions in domestic government.

 

[El_Machinae]

Right, but as long as deficits grow more slowly than the economy, they don't really matter. Ever-increasing debt per se isn't an issue.

 

[Hygro]

Hello everyone! Thanks for getting going without me.

I don't see a problem. The pills are working fine.

This is your chance to make the case: why US debt poses the same threat that Greek debt did.

My question would be what do the people get for their debt?

Both Federal Reserve Notes (dollars) and Treasury Notes (bonds) are U.S. currency debt instruments denominated in dollars. So the answer to your question is that debt is literally our money.

Debt destroys freedom of maneuvering to take action by spending money or forgoing taxes, same for any country. If the population faces a sudden decline or when there is an economic crisis, the GDP growth or even the GDP itself will shrink and the projected income necessary pay the projected debts cannot be met. Which results in further debt.

Eventually, time catches up. If it can't pay up with what it has, it has to print money. There is nothing bad about printing money in principle, but if it turned out the US could not meet its interest payments, it would have to print up a lot. And if debt is denominated in a foreign currency, you are even further <snip>.

And before you say that debt is necessary to get a nation out of a crisis, please note that John Maynard Keynes advocated DEFICIT spending, not indebting yourself into oblivion. Deficit spending simply means that you will be getting less than is necessary for a break even and sure as hell doesn't imply taking on any more debt.

Besides, the indebtedness of governments acts as a subsidy to banks, significantly oversizing them and giving financial institutions an undue clout over the economy.

How do you define "printing money" as different from "government spending".

What is "indebting yourself into oblivion" and what differentiates that from any other kind of debt? Where does Keynes worry about this?

It's a little higher than it should probably be, but not in an end-of-world kind of way.

Can you define where it "should be"?

There's nothing wrong with it so long as it has no meaningful competition in scale to make it a bad investment, keeping the costs of carrying it low. Do we really suppose this is a permanent state of affairs?

What might make this not "permanent"?

How can US Treasury bonds possibly be a good investment?

Bonds are 100% insured (cash is insured up to $250,000) and are thus AAA collateral whereas cash isn't. The value of bonds is not in compounding your retirement money interest but in holding extra high quality money.

While the numbers right now aren't too bad, continuing to have the debt climb will eventually be a bad thing, but as long as we are seeing a trend in yearly deficits coming down, then soon we will see a net positive and slowly bring down the debt.

Who does that net positive come from?

This to me is double talk. Sure, we were spending way, way too much and we're now spending way too much. Woohoo.

Thanks for the answers folks, sorry I can't agree that we're not spending too much. Something called "bite the bullet" emerged from the WW1 generation iirc. We need to cut everything until spending and income is the same.

Should have done it in the 70s when the balanced budget amendment first came up that I know of. Politicians who wanted to bleed us dry paying off their constituencies in return for votes shot it down. Now, things are worse and the politicians are crying there's not enough money.

How do you know if we're spending too much money? What does "too much" actually mean?

What confuses me is when people say that paying off the national debt would be bad because it would deflate currency, and that would be in and of itself a bad thing. Lets say I take that at face value. Paying off currency would deflate currency. I know deflationary periods suck. But, that's not the only thing that has an impact on the value of currency. Were we to pay down the debt and that deflates the currency some, would that not that increased confidence in value per dollar also free up the ability to print and spend some new money into the monetary system to bring the value back up to a stable level of inflation? Thus decreasing percentage of government expenditure going to servicing debt(which I view as government subsidization of the "haves" in society and abroad, because it is) and increasing some printing/spending capacity to spend on things that might actually benefit people who don't have enough money to be concerned about losing it on the margin of 1 or 2% like the filthy stinking rich people they are? End that debt and get the rich off the teat.

When you say "deflate currency" do you mean price deflation (normal deflation) or do you mean increasing the value of the dollar relative to other currencies?

When you say "free up the ability to print currency" what constrains us now?

What is "confidence" in the dollar? Are people not using dollars now?

Absolutely nothing is wrong with a nation's debt so long as folks continue to lend to them. Public debt only becomes unsustainable when new loans stop being made. Public debt is very different from private debt.

When a politician makes a big deal about the national debt, they're scraping the bottom of the barrel for weapons to use.

I hadn't thought of it that way. I hope so....

As to the paying off of all the US debt, well that ship has sailed for our lifetimes. GWB could have done it, but chose not to.

What would the US economy look like with sustained (i.e. increasing to the size of the economy) fiscal contraction? Hint, 2000 and 2007 were after short periods of brief domestic fiscal contraction.

 

[Hygro]

If that's our bar, then so do dollars?

We'll come back to this later. It's an important part of understanding the world's money system.

 

[Farm Boy]

Ok, then explain to me how paying interest on top of every piece of government spending isn't, in fact, a de facto subsidy to those fortunate enough in the economy to be investing in US debt? Be they businesses, or retirement plans, or state pensions, or whatever thehell. It's still a massive subsidy to people who already have money to invest. Feels like a negative tax to the rich it does.

 

[Hygro]

Ok, then explain to me how paying interest on top of every piece of government spending isn't, in fact, a de facto subsidy to those fortunate enough in the economy to be investing in US debt? Be they businesses, or retirement plans, or state pensions, or whatever thehell. It's still a massive subsidy to people who already have money to invest. Feels like a negative tax to the rich it does.

You didn't answer my questions!

But I will answer yours with another question: how is servicing the debt (at below inflation levels btw) any more of a giveaway to the rich than any other tax loophole or top-heavy spending? (Bonus: What makes this subsidy worse than your suggested deflation?)

 

[Farm Boy]

Other than size? Nothing. The house loophole is a subsidy to the haves as well. It's just a bit more tarted up.

 

[CavLancer]

What if one of the major nations you are paying interest to becomes an aggressor and uses the money as a tool to control your foreign policy? The 'I'll stop loaning you money if...' Remember Hillary going over to China with a big smile and kissing up to the politburo, or whatever they call it there? Usually if you go to your banker they want interest, but if your creditor has you by the short hairs they might want a bit more... So what did Hillary give?