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re: Someone explain National Debt to me
Posted on 7/21/19 at 4:37 pm to Diamondawg
Posted on 7/21/19 at 4:37 pm to Diamondawg
quote:Which is one area Funnystuff and I go round and round about while the Fed benchmark rate is >2%. Given trillion dollar deficits, <2% inflation and noncompetitive international rates (i.e., 0% in the EU), an extra 50BPS in the fed funds rate is pissing away several billion dollars every year.
For one thing, if interest rates go up, the percentage of the budget that goes to pay the interest on the debt consumes a larger portion of the federal budget.
1
Posted on 7/21/19 at 4:38 pm to Breauxsif
I 100% agree with all of that. I don’t think we are at any danger of defaulting on the debt unless the mentality proposed from the OP fundamentally changes our nation’s approach to borrowing.
My post was meant solely as a reflection of the worse case scenario where we did let ourselves default, not anything I find likely to happen.
My post was meant solely as a reflection of the worse case scenario where we did let ourselves default, not anything I find likely to happen.
Posted on 7/21/19 at 4:39 pm to WaydownSouth
China’s debt to gdp is about 300%, compared to our 100%.
The end game is global economic catastrophe if the US ever has lending cut off.
The end game is global economic catastrophe if the US ever has lending cut off.
Posted on 7/21/19 at 4:46 pm to NC_Tigah
Which I will agree is one of the most valid arguments for lowering the FFR right now.
But for the sake of not derailing another thread, I won’t repeat the arguments that I think outweigh the interest payments angle right now
But for the sake of not derailing another thread, I won’t repeat the arguments that I think outweigh the interest payments angle right now
Posted on 7/21/19 at 5:00 pm to gthog61
quote:Indeed.
China could say "We have almost twice as much debt as you" and in another year or two can probably drop the "almost".
*Estimates of exact Chinese dept are challenging, because China excludes reports on substantial local government financing vehicles as well as figures for China's shadow banking (loans outside of formal banks). The BIS chart above accounts for total debt.
Posted on 7/21/19 at 6:45 pm to WaydownSouth
quote:
What is the point of it?
The point of it is that being a fiat currency the value of the Dollar is tied to the belief that the US will always pay its debts. This is important because so much of that debt is loans made in the form of Treasury notes (one of the lowest risk investments there is). These notes aren't purchased just by foreign governments but by many investment funds as a hedge against market losses.
Were the US to default on a debt payment the value of the Dollar would drop like a rock. This would mean things would cost more domestically, killing small businesses and farms.
This doesn't mean that US can borrow indefinitely though, eventually the debt and/or payments will reach such a point that investors will begin being scared off from them (and thus devaluing the Dollar). While I have no idea when that point will be debt-wise, I believe the point of no return on annual payments will be when they are anywhere from 30%-50% of revenues (FY2018's payments were ~13.5%).
This post was edited on 7/21/19 at 6:47 pm
Posted on 7/21/19 at 6:48 pm to WaydownSouth
It's a number that is frequently cited by both sides for political gain but doesn't mean much without context - like percentage of GDP.
Much of it is made up by foreign and domestic investment. If I have a company and you give me $10,000, technically I'm indebted $10K to you, but it says nothing about my business without context.
Much of it is made up by foreign and domestic investment. If I have a company and you give me $10,000, technically I'm indebted $10K to you, but it says nothing about my business without context.
Posted on 7/21/19 at 6:56 pm to Dawgfanman
quote:
of that money is owed to Americans citizens. I’m assuming you don’t want your part defaulted on..
Yeah because the government is ever going to give us “our” part.....
Posted on 7/21/19 at 7:35 pm to geaux88
I think looking at it like it’s “debt” is somewhat incorrect. It’s not like the Federal government went to the Bank of China and took out a loan; the government “sold” treasury certificates/bills - some of which were indeed forced sales to various other parts of the government, but still.
It’s more like the federal government sold non-voting shares of the treasury with a controlled stock value.
It’s more like the federal government sold non-voting shares of the treasury with a controlled stock value.
This post was edited on 7/21/19 at 7:37 pm
Posted on 7/21/19 at 7:36 pm to NC_Tigah
As of right now, China is way worse off than the US. To the point we tell them the game, not China. The myth that China owns us is just that, a myth. We’ve only been playing nice the past 50 years. This is why our President is sticking to the tariffs for a better trade deal. Well, one, because they’ve had a free ride for far too long...and two, they have gotten themselves in a precarious situation. The yen has been on a steady decline vs the dollar the past couple of years. The gig is up. They literally need to build buildings no one lives in for sustainability.
Posted on 7/21/19 at 7:56 pm to SlapahoeTribe
quote:Cost of carry says otherwise. A nearly $400Billion cost this year (and at historically low interest rates) says we should absolutely look at it as debt.
I think looking at it like it’s “debt” is somewhat incorrect.
To take it a step further, the CBO projects interest payments on that "debt" will rise from $389 billion in fiscal year 2019 (the current fiscal year) to $914 billion in 2028. Overall, net interest costs will total nearly $7 trillion over the next decade.
Posted on 7/21/19 at 8:00 pm to I B Freeman
We are not going to default. We are going to do something worse. We are going to devalue our currency through debt issuance lowering the values of savings of US citizens. We are doing that today.
We need a restraint on politicians and that restraint is to end the Fed setting interest rates between banks. That should be open auction bidding. Trump wants to devalue the dollar now by having the Fed reduce interest rates. The rates might very well be lower today if the Fed did not set rates but they may be higher too given our spending.
Given our deficit spending one day our debt will not be worth as much and interest will rise and possibly rise a lot. I remember Volker and 18% rates (he was right to do that too if the Fed was going to be involved). My first mortgage was 12%.
The worst non action Congress ever took was the failure to pass a balanced budget amendment under Reagan and latter under Clinton. I doubt we would have been in any of the wars we were in after Viet Nam if Congress had to have actually paid for them. The welfare state would be much smaller too.
We need a restraint on politicians and that restraint is to end the Fed setting interest rates between banks. That should be open auction bidding. Trump wants to devalue the dollar now by having the Fed reduce interest rates. The rates might very well be lower today if the Fed did not set rates but they may be higher too given our spending.
Given our deficit spending one day our debt will not be worth as much and interest will rise and possibly rise a lot. I remember Volker and 18% rates (he was right to do that too if the Fed was going to be involved). My first mortgage was 12%.
The worst non action Congress ever took was the failure to pass a balanced budget amendment under Reagan and latter under Clinton. I doubt we would have been in any of the wars we were in after Viet Nam if Congress had to have actually paid for them. The welfare state would be much smaller too.
This post was edited on 7/21/19 at 8:03 pm
Posted on 7/21/19 at 8:15 pm to I B Freeman
quote:In a world of fiat relativism, the dollar is stronger today than it has been for a long long time.
We are doing that today.
But you are right in the long run. The fastest way to lessen standing debt will be to devalue the currency it's written in.
Who will pay the price?
The very people whom socialists claim to want to help –– salaried worker, pensioners, folks on social security.
Who will do well?
Folks wealthy enough to have fungible assets or inflation/interest-rate adaptable income streams.
C'est la vie I guess.
This post was edited on 7/21/19 at 8:16 pm
Posted on 7/21/19 at 8:27 pm to Junky
I believe one of the most asymmetric risk/reward play in any market is betting that the Yuan gets slammed again the Dollar. Well over the 7ish range that they have it pegged at. They're running a capital and fiscal deficit simaltaneously and that is never a good thing. Also those deficits don't include the shadow banking and misreporting their local government provide. Paper Tiger.
Posted on 7/21/19 at 8:37 pm to I B Freeman
quote:
We are not going to default. We are going to do something worse. We are going to devalue our currency through debt issuance lowering the values of savings of US citizens.
I agree wholeheartedly.
There is a lot of ignorance out there about what our debt is. It’s not a mortgage than can be defaulted on...it’s US Govt Treasury notes that are held not only by foreign govts but also every bank, 401K, corporation, pension, etc. if the govt quit paying interest on these it would be the ultimate SHTF moment.
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