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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

#81

Post by damptowel »

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…

The government should just run deficits for financing projects and use tax for redistribution and inflation control, like it does today. The issue today is excessive private sector money creation and lack of federal deficits to offset the debt overhang created by private finance.

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

#82

Post by damptowel »

mindslight wrote: post #58
TheSpiceIsLife wrote: post #27

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend , which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state s…

> 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were You're drawing a false equivalence. A dollar (or a gold bar) does not represent a specific amount of goods or services that any specific counterparty is bound to deliver. So in general no, money is not inherently debt. > 4. If you believe the good times are going to keep rolling, and any bad times will, o…

> You're drawing a false equivalence. A dollar (or a gold bar) does not represent a specific amount of goods or services that any specific counterparty is bound to deliver. So in general no, money is not inherently debt.

This is confused. A dollar is a debt/credit dual created by central bank and private finance operations.

A dollar is a unit of monetary accounting, a physical dollar is a token representation of a debt/credit entry inside an accounting ledger.

A bar of gold is a commodity denominated in a monetary value. It is not a token representation of a state enforced contract.

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

#83

Post by damptowel »

readhn wrote: post #6
_bxg1 wrote: post #4

I was much more sad when I initially thought this was talking about the debts of individuals.

Consumer debt is at all time high as well. https://www.newyorkfed.org/microeconomics/hhdc.html

Private sector debt is at the highest level in recorded history. This is why the post 2008 recovery was so sluggish, since on average every unit of currency circulated has to pay for a fraction of the debt servicing cost. If it stops doing this a crisis will occur, which will either be contractionary or bubble financed by creating new debt to finance old debt. The national authority, with it’s monopoly on coercion can use it’s power to declare debts null and void (this happens all throughout history), create new currency free of debt (pure credit) and spend it into the economy. It can also create an artificial hyperinflation to reduce debt burdens, instate a new currency region altogether (money is simply legal tender subject to the laws the state dictates for it), etc

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

#85

Post by nybble41 »

damptowel wrote: post #77
JumpCrisscross wrote: post #45

Earlier quoted context omitted.

> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fisc…

Government debt isn’t “debt” in the classical sense. Let me suggest an analogy: a bank lends you a loan at intrest, but no expiry date. You can pay back the loan at any point in the future. Not only that, the bank has no ways of enforcing you to pay it back through legal action. On top of that, you are infinitely credit worthy, you can get as much loans as you want, including loans to cover existing loans. Would you…

Forget the currency aspect, which is nothing but a distraction. What matters is the balance between production and consumption. Without debt one must first produce goods before one can consume. Individuals can get around this by taking out loans, borrowing the opportunity for consumption in the present from someone else with a positive balance. For society as a whole, however, there is no avoiding it: goods which have not yet been produced by someone are not available to be consumed. Introducing new currency in order to fund consumption disrupts the balance, since there is no production to offset the consumption. The result is that society becomes poorer; capital is consumed without replacement, productivity falls, and goods become less affordable. (By this I refer not not only to rising prices, but to prices rising faster than wages, a increase in the cost of goods even after adjusting for the change in money supply.)

> Inflation is not a function of the money stock, it happens when sellers collectively mark up their price above current market rate.

The term "inflation" has multiple definitions. Yours is popular in political circles but is not very useful as an economic indicator because it conflates ordinary changes in prices due to supply and demand of goods and available production capacity with changes due to shifts in the money supply. The general increase in prices which results from consumption of capital is nothing like the change in prices which accompanies a deliberate increase in the supply of money. The former is a useful economic indicator which suggests a need for more saving and prudent investment, while the latter offers nothing but noise and tends to encourage malinvestment and waste.

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

#86

Post by nybble41 »

justsomedude43 wrote: post #37

If you lend money to yourself, why not just write the debt off?

Because we're not actually borrowing from ourselves, we're borrowing from future generations. That said, there is no plan (or will) to ever pay back the debt, so the difference is academic. The politicians will just keep borrowing (i.e. spending; it makes zero difference whether the funds come from loans or inflating the currency supply) until there is no capital left to consume.

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

#87

Post by maxerickson »

damptowel wrote: post #80
maxerickson wrote: post #61

Earlier quoted context omitted.

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

That’s only true of external debt. I.e. debts owed to other currency areas. Government debt is just the number of funds from the currency originator (central bank) to it’s distributor (treasury). Both institutions are a subject of the nation state, which is controlled by the government. So it’s not a “debt” in any colloquial sense of the term, neither is it an intergenerational transfer, since the souvereign nation s…

Yeah, "instead of later" would have been better constructed as "instead of waiting".

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

#88

Post by stephen_g »

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 limits are the resources that are available for sale in your country - goods, labour, services. Ultimately this is limited by the available natural resources.

It’s all about the real economy - to the money issuer the debt is just an accounting detail.

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

#89

Post by readhn »

graedus wrote: post #57
JumpCrisscross wrote: post #50

Earlier quoted context omitted.

> I briefly searched for inflation-adjusted debt per capita but couldn't find it You're looking for household debt to GDP [1]. It is a real (versus nominal) statistic because it's a ratio between two nominal terms. It also communicates financial health better than a per-capita term, since it measures against production. [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N

I managed to find that - thanks! A few other interesting angles: Household Debt Service Payments as a Percent of Disposable Personal Income[0] (10.3%, near 40-year lows), Consumer Debt Service Payments as a Percent of Disposable Personal Income[1] (5.9%, near 40-year average), Personal Saving Rate[2] (3.2%, near 50-year lows). [0] https://fred.stlouisfed.org/series/TDSP [1] https://fred.stlouisfed.org/series/CDSP [2]…

Part of the problem might be that it became harder for folks to obtain debt (mortgages specifically).

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

#90

Post by candiodari »

TheSpiceIsLife wrote: post #27

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend , which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state s…

1. True for this discussion, but I still feel that it's important to point out that this is just one option. Money can have intrinsic value, like making it out of gold coins.

2. True, but NOT in this case. The US government finances it's own debt. So the US borrowing more does NOT represent a willingness (of anyone but the US government) to borrow to the US government. This is true for most/all governments worldwide.

3. True, with MAJOR caveats. If we're talking about 5%, -5%, then sure. If we're talking about a 50% shortage, then we're in the danger zone. If a government finances it's spending to a significant extent ... well there's no historical examples of it ending well. Even "when it works" it's very bad for the people living under such governments. Likewise, it's very bad for a government to run a large surplus.

So 3 only applies for "small" values of unbalanced.

4. Sadly, not true. This is a myth coming from the fact that the financial world effectively rewrites history to "erase" bankruptcies. If you reintroduce them it becomes clear that if you owned a global debt index, say, you'd be screwed.

(so, sorry mr. Bogle, you're only right for very recent history (given "too big to fail") and frankly, you know damn well that you're wrong for the long term).

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