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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

#61

Post by maxerickson »

SkyMarshal wrote: post #56
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…

The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

The big cost of the national debt is that we have stuff now instead of later.

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

#62

Post by jsoc815 »

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.

As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...

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

#63

Post by whb07 »

bubbleRefuge wrote: post #41

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Governm…

I agree with this statement: "There will always be demand for interest bearing risk free government debt".

Now go ask investors how they feel about Greek/Argentinian/Venezuelan etc bonds. A country is just a large collection of people and can be thought of as a giant person. They aren't magical creatures / objects. If a country has no steady job and loves wasting money no one will lend it money. Same applies to a business and a person.

If you hold that to be true, then there can definitely be a limit at which point a person will loan money (buy bonds) from a country. Now the question for the U.S is where is that limit, and if we hit it how painful will it be to get back into "healthy" shape.

Just like a 400 lb person being told its time to lose weight or they will die of heart attack/diabetes maybe its better to start eating right and exercising BEFORE you get to that point in life.

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

#64

Post by jsoc815 »

sp332 wrote: post #26
readhn wrote: post #19

Earlier quoted context omitted.

well the game will continue until you cant service your debt payments anymore. Then you default. Crisis, pain, recession. Rinse then repeat. https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises

There's an alternative to defaulting on debt and that is to pay it off. Is there even a case to be made that we are in or near a crisis?

> There's an alternative to defaulting on debt and that is to pay it off.

I think it's in one of my CFA books -- definitely in other materials I have or have viewed--, but I think the point of the game is to trade as much intrinsically worthless fiat for extrinsically valuable stuff as possible. If and/or when one exhausts one's ability to trade the fiat, then one is supposed to walk away a winner, so to speak.

This sort of came yesterday in a C-Span program, when a caller essentially asked what backs the USD.[1]

[1] https://www.c-span.org/video/?448590-3/washington-journal-ch...

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

#65

Post by UncleMeat »

arcbyte wrote: post #60

There's a lot of talk about how the Federal Gov't isn't like a household or business. It is different, but not to extent that people who preach that like to pretend. That aside, I wonder what opportunities and paradigm shifts we are missing out on by being ok with all this debt, good or not. The American gov't is so far in the hole that it doesn't have ANY wealth! What if we built up a Sovereign Wealth Fund such that…

Funding the government on interest is going to require more than 100T in capital.

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

#66

Post by zzzzzzzza »

SkyMarshal wrote: post #56
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…

The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.

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

#67

Post by jrs235 »

zzzzzzzza wrote: post #66
SkyMarshal wrote: post #56

Earlier quoted context omitted.

The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.

I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).

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

#68

Post by zzzzzzzza »

arcbyte wrote: post #60

There's a lot of talk about how the Federal Gov't isn't like a household or business. It is different, but not to extent that people who preach that like to pretend. That aside, I wonder what opportunities and paradigm shifts we are missing out on by being ok with all this debt, good or not. The American gov't is so far in the hole that it doesn't have ANY wealth! What if we built up a Sovereign Wealth Fund such that…

sovereign wealth funds underperform the market. They are the best solution out of a field of very bad solutions for what to do when your country has been struck by the resource curse. If you were an individual it would be like winning the lottery (lots of people's lives go totally down the shitter after winning the lottery). Setting a goal for your government of setting up a sovereign welath fund would be kind of like the average individual who hasn't won the lottery making a goal of setting up a trust fund, and getting the money to do so by working at mcdonalds instead of going to college (or some other more valuable alternative). The significant difference between this individual example and the government is the government is a worse decision maker than the individual since it can only make decisions by committee (or in a dictatorship by one uninformed individual who can't possibly be aware of everything going on in his/her country). Therefore the government should stick to the happy path (taking on college debt or equivalently funding basic social services/national defense/regulatory oversight through debt instruments).

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

#69

Post by lrajlich »

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.

Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it prevents the USD from being dumped, eg, prevent a devaluation of the USD by foreign holders of USD, which allows us to keep interest rates low and thus finance a large deficit cheaply (so the govt keeps doing it).

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

#70

Post by khuey »

jrs235 wrote: post #67
zzzzzzzza wrote: post #66

Earlier quoted context omitted.

that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.

I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).

Inflation is a tax on savers, not the poor.
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