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55% of the US National Debt Is the Result of Repaying Debt with More Debt

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Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#31

Post by teslabox »

This is an inevitable consequence of basing the money supply on debt. The Federal Reserve banks are responsible for making money and loaning it out into circulation. There is never enough money to pay back the interest on the loans, so the federal reserve loans out a little bit more every year.

A solution to this quandary was figured out in 2011. Due to a quirk in the laws, the US Government has the ability to issue platinum coins of any value. These 'coins' never have to be paid back. The U.S.'s national debt could be retired by minting a couple "trillion dollar coins":

https://en.wikipedia.org/wiki/Trillion_dollar_coin

The Federal Reserve does a decent job at keeping the money supply growing at less than a hyper-inflationary rate, but the value of our money has collapsed since I was a kid, since we all were kids...

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#32

Post by sp332 »

5874-4b22-a4e0 wrote: post #30
sp332 wrote: post #21

Earlier quoted context omitted.

The treasury has a one-page breakdown of the kinds of debt. https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opd... It's not a deep dive but I thought it was a great overview for fitting on one page. (edit: more recent link)

19k could be paid off by a single person, has this increased in the last two years?

In tiny print above that: (Millions of dollars)

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#33

Post by JumpCrisscross »

yuhong wrote: post #29
stephen_g wrote: post #25

I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business. This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and t…

That is partly because of the petrodollar BTW.

> That is partly because of the petrodollar BTW

No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#34

Post by tialaramex »

swebs wrote: post #12

Where are these interest payments going to? Who profits off the US being perpetually in debt?

Interest payments go to whoever holds the relevant debt security when the interest payment is made. But since the size of this payment is known in advance and the United States is (so far at least) a good debtor, this will be priced into the security before the payment is made.

In the case of T-bills, this is just baked into the price. The way that works is the US government says OK, a year from now we will give you $1000 for this piece of paper, now, how much will you buy the piece of paper for? And maybe they can find buyers for $985, so they get $985 now (which they can spend on stuff the United States needs, now) and they pay back $1000 in a year, by which time it's very possible that they've benefited by far more than $15 in practical terms.

If you have a generic investment that can't afford to accidentally fall in value massively overnight, but does need some liquidity, particularly if you're American, there's a good chance it's invested in buying these securities, whether T-bills, notes or bonds, because the US government has, so far at least, been good for the money. For example if you're going to need your pension funds in two years, you can't afford to have them tied to the NASDAQ just as the dotcom crash smashes it, but Treasury notes are a much safer place to keep it, even though say MSFT _on average_ makes more money over a long time.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#35

Post by yuhong »

JumpCrisscross wrote: post #33
yuhong wrote: post #29

Earlier quoted context omitted.

That is partly because of the petrodollar BTW.

> That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.

Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#36

Post by JumpCrisscross »

teslabox wrote: post #31

This is an inevitable consequence of basing the money supply on debt. The Federal Reserve banks are responsible for making money and loaning it out into circulation. There is never enough money to pay back the interest on the loans, so the federal reserve loans out a little bit more every year. A solution to this quandary was figured out in 2011. Due to a quirk in the laws, the US Government has the ability to issue…

> This is an inevitable consequence of basing the money supply on debt

Not really. The U.S. government ran surpluses in the nineties. This led to hand-wringing as banks imagined a world without Treasuries, which would make collateralisation quite complicated. (We had the same "not enough safe assets" conversation after the financial crisis.)

The U.S. government could wipe out its debt. The Federal Reserve couldn't, as every dollar bill is technically a Federal Reserve note, but that's a different beast.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#38

Post by thetaclear »

This reminded me of a documentary I watched quite a while ago: The Money Masters - https://www.youtube.com/watch?v=HBk5XV1ExoQ I always wondered which parts are an accurate description of the current monetary system and which are unfounded conspiracy theories.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#39

Post by adventured »

yuhong wrote: post #29
stephen_g wrote: post #25

I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business. This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and t…

That is partly because of the petrodollar BTW.

You're inverting cause and effect. The petro link to the dollar is because the US was the first major oil nation, it had a relatively dependable currency, and it developed the world's largest market economy. The dollar didn't become standard due to oil, oil (and most every other commodity) became priced in dollars because of the might of the US economy.

Japan's debt being overwhelmingly domestic, priced in yen, is also not due to the petroyen (which doesn't exist).

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#40

Post by JumpCrisscross »

yuhong wrote: post #35
JumpCrisscross wrote: post #33

Earlier quoted context omitted.

> That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.

Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.

> it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973

The U.S. dollar was put at the centre of the Bretton Woods system in 1944 [1] because the United States, at the end of WWII, (a) held a global nuclear monopoly and (b) was the sole industrial power not bombed to the turn of the century. The dollar thus took its central place in global trade. That, in turn, led to oil being priced and traded in dollars.

[1] https://en.wikipedia.org/wiki/Bretton_Woods_Conference

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