National debts...

[Scuffer]

They seem to be very popoular, everyone seems to have one

How does that work, that everyone owes everyone else money? Does it all cancel itself out, or is there a strange money black hole where it all lives. How has the difference arisen? Do the citizens have the money stashed in bank accounts or under the mattress? Does it really matter either way?

 

[WickedSmurf]

Heh, I was thinking of making a thread about this. I was wondering how big each nations debts are.

AFAIK, nations owe each other and the World Bank money.

And no, I don't think it really matters. At least not to me.

 

[BasketCase]

I borrow ten bucks from WickedSmurf, WickedSmurf borrows ten bucks from Scuffer, Scuffer borrows ten bucks from me.

So $30 worth of debt has accumulated. It only looks ridiculous to the participants if all three are aware of all the transactions that have occurred.

Anyway, nations can be in debt to other nations, or to individuals. Somewhere I heard the U.S. was mostly in debt to Americans.

Edit: oh yeah--and America's national debt is around $7 trillion right now.

 

[Scuffer]

I borrow ten bucks from WickedSmurf, WickedSmurf borrows ten bucks from Scuffer, Scuffer borrows ten bucks from me.

So $30 worth of debt has accumulated. It only looks ridiculous to the participants if all three are aware of all the transactions that have occurred.

True, I would have a debt of $10 to you, but against that I would have a credit of $10 from WS. My books balance, and I don't really have an actual overall debt at all. If that's the case, would I record the Scufferland National Debt as $0 or $10?

If it is recorded as $10 (as in only 'money owed'), then presumably there must be another figure somewhere that records the difference between debt and credit, (i.e. balance, in my limited knowledge of these things). Now that really would be an interesting thing to see.

 

[BasketCase]

It gets more interesting if I borrow ten bucks from WickedSmurf's wife, WickedSmurf borrows ten bucks from Scuffer's wife, and Scuffer borrows ten bucks from my wife.

(Err, spouse instead of wife--possibly not all of us are guys--bah, never mind, you get the idea)

Now nobody knows the books are actually balanced. Further, the individual debts to Scufferland, WickedSmurfany and BasketCasia can't really be cancelled, because the debts are owed to individual citizens within those nations. However, the debts and credits still total up to zero.

 

[Hotpoint]

One thing that differentiates US Debt from that of other countries is the very low savings rate there.

In Europe and Asia individual citizens tend to save much of their incomes which means that the banks that loan money to their governments are doing so for a large part from money originating within that state and the interest paid on that debt doesn't leave the country.

Because of the low savings rate in the US both the national debt and individual debt to creditors is actually owed largely to foreigners. This means that the US is disproportionately reliant on overseas credit and the interest on their debts goes into the pockets of overseas banks and governments.

Goldman Sachs expects the U.S. trade deficit to reach $613 billion this year and top $670 billion in 2005. The current account deficit, the broadest measure of trade because it includes the interest on investment flows, grew to a record $166.2 billion in the second quarter, equivalent to 5.7 percent of the nation's $11.6 trillion economy.

Goldman Sachs predicts the current account imbalance will reach $759 billion in 2005, up from a projected $663 billion for 2004. The U.S. government wrapped up its fiscal year on Sept. 30 with an unprecedented $413 billion budget shortfall.

The nation's low savings rate and fiscal deficit create an ``unstable'' situation, Fed Governor Edward Gramlich said in a Nov. 13 speech at the University of Michigan. ``If we were any other country in international history, it would have long ago been stopped,'' Gramlich said.

http://www.bloomberg.com/apps/news?pid=10000103&sid=aXU7mTwsBAyI&refer=us

 

[Scuffer]

Knowing my missus, Scufferland owes a huge amount of money to Creditcardland, but has recieved a large amount of cushions and other soft furnishings in return .

 

[neviden]

National debt is money borrowed by the state from others.

In Europe state borrows (usualy by bonds) from it's own people, intrests are paid to it's own people. Money just circulates and there is no problem. Indebtnes is around 30-80% of yearly GDP.

In America savings rate is low (2% compared to 10-30% for the rest of the world). Then there is the problem that the state spends more money than it gets from taxpayers. 500 bilion $ more. Because of low savings rate, it must loan that money from forighners. Basicly, rest of the world saves more, than lends 85% of the world's savings to America. America can then buy more »stuff« from the rest of the world (trade deficit) with that money.

America has GDP of 10 trilion $. Every year America borrows 0,5 trilion $ from the rest of the world, for wich it has to pay intrests. Curently national debt is 4 trilion to americans, and 3 to forighners (+ 0,5 trilion every year). After the WW2 it was biggest lender, now is the biggest debitor. It will ony get worse. Baby boom generation is about to retire, and the state will have to pay for them (medicare, social security,..). That means even worse deficit. 48 trilion worse..

America will try easy way out.. inflation and devaluation.. they can alway print money, because debt is nominated in dollars.. but, that will mean that dollar will lose it's »reserve curentcy« status.. euro will slowly gain ground (because, euro will not fall), asians will loose lots of money, but they will have new factories. That's also the reason why dollar is sliding against the euro. It would also against chinese and other asian's curencies, but their central bank's like to keep local curencies weak, so they can sell more to America. China does not care about dollars, but they care about factories, growth, work and modernization. Because China does not let yuan fall, nobody else in asia doesn't also.. China will lose lot's of money, but it will be strong and prosperus county, so they will not care..

If you think I am overstating, use google and look for yourself..

 

[Scuffer]

It does explain why hte US has a large debt, but even those countries with high savings rates still have a national debt.

It doesn't seem to make sense to me. If you have to loan money from other people, then they must have spare money to loan you.

However, as far as I can tell, nearly everywhere runs a debt. So they are loaning money from other people, but at the same time lending money they don't have (or why loan from others?) to everyone else.

Unless the 'national debt' doesn't take into account the money others owe you. In which, as an economic instrument it is lousy. It is like me looking only at the 'debits' part of my bank statement and deciding I am broke.

 

[neviden]

Money is created out of thin air. It's byproduct of a credit and monetization. Money is representation of work and means of distribution. In itself it is just paper.

Value of money = quantity of money / stuff

The thing is, things work best if there is small inflation (japan has deflation last 15 years - not good).. it forces people to use money (buy, invest, whatever) or else they loose 2-5% of it's value in a year. That basicly means that every year there are 2-5% more money than there are things to buy with.. it's actualy more complicated, but that's basic point.. Asian central banks print lots and lots of local money. Then they buy dollars (wich get created in US) from asian companies. That act creates more local money (yuan, yen) which would lead to local inflation. But it does not, because Japan is in deflation (oposite of inflation) and China's economy is growing fast (so, value of stuff is bigger). Central bank's purpuse is to regulate amount of money in economy.. they can print trilions of their local curentcy if they want.. but, only way you can get them is to work (or steal ..

central bank is not the state.. if state needs money, than it must borrow it like everybody else.. (well.. it can ask central bank to print it lots of money, but that creates inflation, witch defeates the purpuse of central bank. so most of central banks are independant)

Who do states borow from? From those that have money to lend. You as a citizen can lend whomever you wish. You can lend to the bank (and bank buys bonds from goverment). You can actualy buy US public debt (T-bils) .. Then you get intrests, which get payed by taxes witch you pay..

Why do states borrow? Hey, somebody has to pay for things like roads, army, hospitals,.. you as a state borrow, make rad, then slowly return with intrests. That's the way you make buget and planing.. one year you make road, then pay for it by taxes which you get in later years.. if you just print money, then value of that money will decrease, and you will pay for it by inflation...

 

[Scuffer]

Well, yes, absolutely.

However, it still doesn't quite explain who is lending that money. Is it that I, as a UK citizen, can buy a US bond and loan the money to the US that way? That is, national debts are owed to private individuals/companies as well as countries. That would explain how every country seems to run under a debt. Even with inflation, it doesn't seem very sensible long term, as I wouldn't buy a bond unless it would continue to make money. Therefore countries must be paying out stacks of interest

That seems a bit weird too. The country is borrowing money from the people to give to people what it couldn't afford to give them itself?

So higher taxes could reduce the amount that the government needed to borrow from people to give back to the people, but would ruin any chance of reelection and maybe screw the economy - requiring more borrowing.

The more I think about this, the more it seems like some idiot running up bigger and bigger debts on a credit card, and having to borrow to pay to pay it off, and spending a load more anyway. What exactly are our governments buying here, except votes?

 

[neviden]

well.. if people elect politicians that say "no more taxes", guess what will happen.. US cut taxes (to rich mostly) AND spent more on such thing as army (iraq? 100 bilion+)..

There is no such thing as free lunch.. sure, you can cut taxes.. but then don't complain about hospitals, security, roads, education,.. and don't complain about intrests.. US pays 300 bilion $ of intrests every year on it's national debt. By comparison: US spends more on it's military than the rest of the world combined and that is 400 bilion $..

Oh and yes.. you as a UK citizen can buy treasury bills from US.. it has 1,75% intrests.. oh, and.. if you had 1000 pounds two years ago, bought dollars, bought t-bills, they ware worth about.. 700 pounds today.. exchange rate pound : dollar has changed.. smart money bought euros with 1000 dollars year ago, and now has about 1300 dollars worth of euros in a bank (plus intrests on euros of course)..

dollar is reserve curentcy.. you need it to buy oil.. most of things are nominated in them.. guess what.. price of oil, metals, comodities,.. has RISEN.. but if you compare them to euros, they hardly moved.. but.. if you make things in Europe, and sell them in America, you are sudenly 40% more expensive.. or to put it another way.. if you are living in America.. your money will buy you 40% less.. that's the price for "no more taxes"..

 

[zorven]

Relevant information from http://www.publicdebt.treas.gov/

Public Debt: $4,410,432,015,750.03
Intragovernmental Debt: $3,112,170,337,047.76

Debt Held by the Public -- Is all Federal debt held by individuals, corporations, state or local governments, foreign governments, and other entities outside of the United States Government less Federal Financing Bank securities. Types of securities held by the public include, but are not limited to, Treasury Bills, Notes, Bonds,and TIPS, United States Savings Bonds, State and Local Government Series.

Intragovernmental Holdings -- Government Account Series securities held by Government trust funds, revolving funds, and special funds; and Federal Financing Bank securities. A small amount of marketable securities are held by government accounts.

******
Please follow these important steps to make a contribution to reduce the debt.

1) Make check payable to the "Bureau of the Public Debt"
2) In the memo section of the check, make sure you write "Gift to reduce the Debt Held by the Public "
3) Mail check to -
ATTN DEPT G
BUREAU OF THE PUBLIC DEBT
P O BOX 2188
PARKERSBURG, WV 26106-2188

 

[Desmond Hawkins]

Overall, governments have a net owing of money to private citizens.

If almost every country is in debt, the money has to come from somewhere.