What's wrong with US national debt?

[Hygro]

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?

China uses dollars as its reserve currency for its banking system, and it only acquires dollars by giving us real stuff for our printed money.

Basically, we aren't borrowing Chinese money. We're borrowing our own money that we print and give them.

But borrowing is too strong a term: we print dollars, buy their stuff, then with their dollars they buy treasury bonds. Aka, they convert their dollars into a different kind of dollars (slightly more interest, way better insured). The best analogy I've seen (and it's almost literal) is that fed-note dollars aka cash is effectively a checkings account and t-bills aka bonds is a savings account, both accounts via the Federal Reserve. So their exports turn into cash (checkings) which they swap into bonds (savings). They already own their money one form or another so it's not debt like a loan.

Their having $1 trillion in reserves however makes their money good to other countries, and gives them therefore access to our technology. Pretty win-win.

Not sure how they get to control us with it though, you'll have to explain that one to me, CavLancer.

 

[ParkCungHee]

Doesn't Japan hold a comparable amount of U.S. debt to China?

 

[Cutlass]

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?

China has no hold on the US about money and foreign dept. They play that card and we will frak their crap up.

 

[Cutlass]

Doesn't Japan hold a comparable amount of U.S. debt to China?

Yes..

 

[potatokiosk]

Imposing a financial burden on future generations is a bad thing.

 

[Cutlass]

Imposing a financial burden on future generations is a bad thing.

Building the infrastructure future generations need is a good thing.

 

[Hygro]

Imposing a financial burden on future generations is a bad thing.

Can you explain how? If not, can you explain how strongly you believe this and why you think it is a valid position?

 

[Farm Boy]

Building the infrastructure future generations need is a good thing.

Especially if you are rich enough that not only will the government build that infrastructure for you, it will pay you for the honor of doing so!

Thank you Wall Street, may I have another?

 

[Hygro]

Especially if you are rich enough that not only will the government build that infrastructure for you, it will pay you for the honor of doing so!

Thank you Wall Street, may I have another?

Probably worth mentioning that I agree with a large portion of your critique of who the money is going to, which is itself a separate issue from the nature of the money itself.

 

[Farm Boy]

I'm less interested in the slips of green paper itself, or the code that symbolically stands for the slips of green paper, that stand for metal or do they stand for labor. None of that, itself, is particularly valuable to me. But when we talk about national debt the way this nation is structured we talk about an additional measure of servitude to the already powerful, ignorance of that servitude, and the servitude of my child's generation. And I'm even supposed to see it the other way around? That my support of getting rid of this bleeding of power to the powerful is throwing my lot in with the supporters of naked rapacious capitalism instead of what it actually is? You're screwed on this issue in the popular understanding. Which is predictable, because the powerful have structured it to win on every possible combination of the dice rolls short of massive blood. They don't have to win big. They can play the margins, run the numbers, and stack up the 1%, 2%, 3% on every transaction always and forever while everybody else plays the lotto.

 

[potatokiosk]

Can you explain how? If not, can you explain how strongly you believe this and why you think it is a valid position?

You want me to explain how it would be bad to spend a bunch of money on stuff and leave your kids with the debt? I give up.

 

[Evie]

No, we want you to pay attention to the ways in which a national debt differs from a personal debt (explained in this discussion) and realize that generalized sweeping statements of this sort bring nothing useful to the debate.

 

[potatokiosk]

Are we reading the same thread?

 

[timtofly]

Reading on how to read is getting old, but yes unfortunately.

Would someone please clarify why all spending is not debt, and all debt is not spending?

I actually live in an area that gave away most all jobs to other interest and I am just not seeing how doing that is currently helping people's grandchildren in the area.

 

[Antilogic]

Are we reading the same thread?

I think so and Oda makes a good point to call attention to the differences between personal and national debt.

 

[Masada]

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?

You laugh because all those bonds they hold are now worthless.

 

[Hygro]

You want me to explain how it would be bad to spend a bunch of money on stuff and leave your kids with the debt? I give up.

Can you answer one of these two prompts:

1) The literal financial mechanisms that makes your concerns real
or
2) An honest self assessment of a) how strongly you believe in what you say (like "I think I'm vaguely right." or "I know 110%" etc) and b) why you believe what you believe.

I'd prefer the first but I'll take the latter, since it's a lot more an honest answer than anything involving saddles and future generations. Unfortunately the other folks with your take backed out of the thread.


@Farm Boy, you might be keen to note that we could if we wanted not issue treasuries when we spend. Upfront dollar per dollar (counting bonds as dollars, of course) it would be the same change in the money supply. It's interesting we call treasuries debt and not cash, when both equally are (and aren't). You heard it here first, we should rename the national debt the "bond supply" as we call fed note cash the "money supply"... or just call it all the money supply

 

[KmDubya]

Now I am not an economist by any stretch, just a simple guy. The numbers I've heard and can comprehend are from John Stossel - roughly that the US earns $24K a year, spends $37K a year and owes $179K on its credit card.

That said this is how I understand the situation. The US has borrowed (owes?) roughly $17 trillion. This does not include unfunded future liabilities such as social security. The interest on the debt payments are historically low due to fiscal policies that print large quantities of federal reserve notes in order to service the debt. At some point interest rates will rise and the debt payment will grow substantially.

If interest rates do not rise the constant flood of cheap dollars will devalue the currency and effectively steal value from everyone who holds dollars. If in response to the devaluation of the dollar the world chooses a new reserve currency the US would be in real difficulty.

If a foreign power (China) had a fire sale of all its US debt, their economy would be hurt but the US would be devastated. If China says give us Taiwan or else we flush the debt what could the US do except capitulate? Being hostage to someone else can't be a good thing.

At some point the debt has to be paid off right? If not by the baby boomers who ran up the tab but by their children and grandchildren.

To me it is a moral issue, paying your own way is the way it should be, not running a tab and then welching on it.

 

[KMRblue1027]

No on pretty much any of those points, if the interest rates increase it wouldn't affect the current debt, besides if they do go up that means the economy is improving so debt to GDP ratio would be decreasing, it wouldn't matter.

The US is still by far the most stable currency except maybe the British pound, there's no significant risk of the Dollar being "dumped" as the reserve currency, if it happens at all it would be a long transition and the Eurozone would have to stabilize first. We're dangerously close to fiscal contraction anyway so this irrational fear of inflation and devaluing currency completely dumbfounds me.

This Chinese "firesale" is complete nonsense, even if such a thing were legal or had any impact if it is it would be literally the dumbest move in international history for the Chinese to tank the US economy. The whole global economy would take practically equal hits from a collapse of the largest consumer base in the world, the Chinese don't have a middle class to replace the 250+ million people no longer buying their goods, plus the European economy would take a just as hard hit from the many international corporations based in the US suddenly being bankrupt. It would effectively end the industrial world at least for a couple decades. The simple fact is everyone is too tied together now.

And the last point is probably the biggest failing of any argument of anyone who uses the debt as a political tool: it's not relevant ever, it doesn't need to be paid off, it's not a problem even though the numbers look big our GDP is also huge.

 

[Masada]

If a foreign power (China) had a fire sale of all its US debt, their economy would be hurt but the US would be devastated. If China says give us Taiwan or else we flush the debt what could the US do except capitulate? Being hostage to someone else can't be a good thing.

That'd be awesome for the US because it would have no effect on the US whatsoever. It would hurt China because it'd take huge losses on the sale.

Think of it this way. If you have a credit card there's a counter-party who has your debt (a promise to pay) written up as an asset (a future cash flow). If that counter-party sells your debt at a huge write-down for absolutely no reason someone else will purchase it because they know they can make a lot of cash by purchasing the undervalued asset. The counter-party (China in this case) would therefore take a significant loss on the value of the asset it purchased, while the purchaser will book a sizable profit because the underlying value of the asset will not have changed.