The U.S. Does Not Have a Debt Problem

This is why people are flocking to the world's reserve currency:

http://www.politicalforum.com/latest-world-news/286758-gfc-part-duex.html

 

Brinkmanship is the only weapon a minority opposition party in control of 1/3rd of the government has.

I elected my reps to fight and stonewall and obstruct the advancement of the liberal economic agends at all costs. I don't believe in "stimulus", I don't believe in green energy and I don't believe in setting up a centrally planned economy.

Better to fight and lose, then just cave.

Also don't sit there and dare mention tax increases, because democrats refuse to tell the American middle class the truth. That sky high taxes for them too is on the table.

 

There's a reason that thread is a dud. Alarmists predicting the next major market crash can join their gullible brethren over at the Church of the Failed End-of-the-World Predictions. We can't base our decisions on the fears of the paranoid.

 

I elected mine to get (*)(*)(*)(*) done and keep our society stable.

 

Then perhaps you won't mind my updating your outdated article?

Treasury Scarcity to Grow as Fed Buys 90% of New Bonds

Even as U.S. government debt swells to more than $16 trillion, Treasuries and other dollar fixed- income securities will be in short supply next year as the Federal Reserve soaks up almost all the net new bonds.

The government will reduce net sales by $250 billion from the $1.2 trillion of bills, notes and bonds issued in fiscal 2012 ended Sept. 30, a survey of 18 primary dealers found. At the same time, the Fed, in its efforts to boost growth, will add about $45 billion of Treasuries a month to the $40 billion in mortgage debt it’s purchasing, effectively absorbing about 90 percent of net new dollar-denominated fixed-income assets, according to JPMorgan Chase & Co.

Thanks not necessarily. I'm glad to educate.

 

Debt is OK if you get an asset. If you take a loan for a house or something that will be of value and you can afford the debt and the interest, it's Ok. It's not OK to take out a loan for 3/4 of a year's salary for a vacation to the bahamas. It's also not good to take a loan to pay your electric bill every month. It's about being smart with debt.

 

Your original claim remains unsubstantiated:

In fact, your own source contradicts your claim:

The world bond market isn't fleeing the dollar, it's just that the Fed plans to buy up most of the bonds next year. Why would you interpret that to mean no one else wants to buy them? At this point you're kind of embarrassing yourself.

 

I agree with this. My problem is that some people think the only way to be smart with debt is to not have any. For the rest of us, the trick is understanding the "good" use of household debt - like owning an appreciable asset - in terms of public debt. We don't want our government to own a buy up property (well maybe the socialists do), and it does the country no good to have our government buy up precious metals. In my opinion, the "good" use of public debt is investment not in appreciable assets but in future productivity.

 

The debt is bad because it borrows against the credit of the United States, ie: our money. If they're too scared to tax to fund what they spend then they shouldn't be given a blank cheque through borrowing and printing. It creates unaccountable spending power. Politicians hate having to pass tax increases, they much prefer to simply print more money or borrow it from overseas. A large national debt is a huge inefficiency - you're basically burning a few hundred billion dollars a year in interest.

Moreover, paper dollars did destroy value and rob the middle class (well, anyone with US dollars). The Fed has been able to purposely devalue it to the point where it's worth only a small fraction of what it used to be. This is a hidden tax on all of you.

 

I think it's more accurate to say that it borrows against our future productivity. I also think that much of our current productivity would not have come about had we refused to go into debt to pay for it.

That's true for those who sat on their dollars or stuffed them under a mattress. But what good is any kind of money if it isn't encouraging people to get off their duffs and be productive through the creation of goods and services?

 

On what basis? If there is a demand for something business will provide it. If not then people don't want resources allocated to it enough to justify construction. Also, infrastructure in the US is still (*)(*)(*)(*) even with 120% of GDP as the national debt lol. The solution is to unshackle the free market, not to tax it.

There's no such thing as free money. It must all ultimately come from the people. Borrowing has in effect been used to avoid direct taxation at the cost of interest.

Additionally, even if taking money from the people to fund government spending brought about prosperity it's still wrong to take money from people who earned it. The government shouldn't be Robin Hood - taking money from individuals by force is wrong in itself.

Forcing people to spend because their money will be worthless isn't a great plan. The problem comes when you promote over-consumption above the efficient market level. The ratio of investment to consumption is artificially altered and it corrects itself back to reflect consumer preferences in recessions.

 

Because money is utterly worthless without goods and services ("productivity") you can buy with it.

The first part is true in free market utopia. But the second part is not true. The private sector manufactures demand for new products and services all the time. Apple is a master at this. The public sector does something similar when it funds education, sends people to the moon, and researches computer networking (aka the internet).

How will an "unshackled" free market fix public infrastructure?

It sounds like you're opposed to government taxes outright, and I can't help you with that. But this is about debt. The government is not taking money from the people who earned it, it's taking money they haven't earned yet and allocating it in ways the free market is too short-sighted to do. If that brings about prosperity, how can you say it's wrong?

 

Manufacturing demand is another way of phrasing "convincing people to demand goods". It's still their will/preference, no matter how they were convinced of it.

Never said it would. Theft via taxation is wrong regardless of the consequences it brings about.

In other words, it's taking money they haven't earned yet and using it to whatever end they see fit. ie: they're stealing it.

By killing the poor I take a very large burden off of the welfare state and thus free up these funds for infrastructure projects and other prosperous activities. Yet this is still wrong, because it denies the individual the right to his person. What you advocate denies him the right to his property. I see little difference.

 

I agree with this. My point is that demand doesn't always lead supply like your earlier statement implies.

You specifically said, "The solution to this [referring to the infrastructure that is '(*)(*)(*)(*)'] is to unshackle the free market." But if you're not posing that as a solution to poor public infrastructure then it must have been a misunderstanding.

If you want to compare borrowing money with killing people, then we are not even on the same logical plane here. People who are killed do not come back. People who have money borrowed from them can get that money back and then much, much more. The term for those people in the private sector is "investors."

 

The current level of debt is fundamentally bad for three reasons.

1. Servicing the debt (interest payments to debt holders) are unlikely to go anywhere but up. What happens when the world economy picks up and global interest rates creep up again. Will the increase in taxes and revenues from an improved economy be enough to offset higher costs of servicing the debt?

2. The ratio of debt to GNP has now passed the 100% mark (more debt than a year of GNP). This is historically a danger point for any country managing debt and it encourages outsiders to pay more attention to what is going on in the deb-ridden country. Fears about Greece's participation in the Euro really jumped into prominence after they passed that dubious milestone, for instance.

3. There are a lot more dollars and dollar instruments out there than can be supported by the intrinisic value of the American economy. The reason we don't have horrible inflation (too much money chasing too few goods and services) is that the U.S. Dollar is the de facto world currency and as such has been the investment haven of choice for decades. This is why OPEC made trading in crude oil valid when using American dollars, for instance.

So what happens when the world inevitably loses confidence in the status of the dollar? We may experience a gradual slippage in value and an increasing need to reduce our debt load with austerity (the British experience in the 20th century) or we may end up faced with a catastrophic loss of confidence that effectively crashes the value of the dollar, The latter scenario is really scary; imagine if the dollar was only worth a fifth of what it was worth a year earlier in the global market, and what the consequences would be!

 

That's an odd way to phrase that! "The world bond market isn't fleeing the dollar, it's just that the Fed plans to buy up most of the bonds next year."

I don't think the FED would feel the need to buy 90% of new bond issues if the foreign and non government domestic were supplying the demand to purchase those bonds. The fact that the FED has a bond buying program to purchase billions in bonds every month seems to answer it's own question.

 

Good points. Since our unusually low interest rates make dollar an unattractive investment choice except for the fact that the dollar is the world's reserve currency. This guarantees a constant, steady, demand for the dollar, but only to the point that the dollar looks unattractive to keep as a reserve currency. We may wake up one morning to read in the paper that OPEC has switched from the dollar to a basket of currencies. Then what happens to interest rates and the dollar?

 

Good post...spot on. (I really know how to load a 6 word statement, huh? Lol )

 

You're only affirming your ignorance on this subject. The Fed isn't buying the new bonds from the Treasury, it's buying bonds on the open market. If demand were low, as you continue to insist, then the interest rate on T-notes wouldn't be at record lows. The bottom line is that the USD is still considered a "safe haven," and your claims otherwise are just fear mongering.

 

Are you two done giving each other hand jobs in here?

 

Thanks for coming in here and slinging conjecture and baseless accusations around while offering no substance. Most of your post is not worth responding to, but this last part is revealing: You don't seem to believe there is such a thing as a "Liberal" business owner. The real world is a bit bigger than the one you've limited yourself to.

 

This was a good post, but I think this particular statement gets at the heart of the matter. It suggests that we've borrowed beyond our capacity to produce (goods and services) in any reasonable amount of time. The statement itself can't be proven or refuted, I don't think, except by waiting a hundred years or so then looking back in hindsight.

The pessimists (who no doubt consider themselves realists) think that what you wrote is true, that our government has overextended itself at the expense of future generations, and that at some point it will have to come crashing down in a manner similar to the Greek and other European economic crises.

But the optimists think that what you wrote is false, and that the "intrinsic value of the American economy" is not even close to being tapped out. Borrowing money now while it's cheap is perfectly reasonable because our trending growth in productivity will continue.

Who knows, maybe we are doomed. But I still have a hard time believing the hype predicted by the pessimists.

 

The US is like a space ship flying into the sun... And you are like its robot chanting, "The US does not have a heat problem".

Well... It's flying into the sun... So... When it's gonna have the heat problem?

Every day, minute, year that goes by it becomes harder to rectify the US spending problem. So... When is the US going to finally have the debt problem? It's flying in that direction.