If the US goes bankrupt can we still go to war?

Notice you will still receive exactly what you originally expected when you purchased the Treasury bonds last January. Your payment structure received is still 50,000 every January for the next 29 years and 1,050,000 on the 30th year in exchange for the initial 1,000,000 investment.

So how can it be your bonds have essentially lost 90% of their value after just one year. The answer is, your Internal Rate of Return is indeed exactly 5.00% which won't change (if I correctly recall my calculus). What has occurred is the IRR does not account for inflation reducing the future value (FV) of the repayments. It merely indicates an interest rate of 5.00% will result in the same amount of dollars in 30 years as this bonds repayment structure (obviously). If there is no inflation over the 30 years you will receive a Rate of Return (RoR does account for inflation but here I have assumed 0% inflation) of exactly 5.00% because the future repayments aren't diminished by inflation. But if you adjust each repayment to include the loss in value of each payment in the repayment structure due to inflation you will find you ARE NOT getting back a present value (PV) of 5% because these future payments aren't each worth 5% in today's dollars. The bond market purchasers each try to guess what the diminished values of each coupon in the repayment structure will be AFTER INFLATION. Of course they can't know this precisely. The aggregate guesses of all the purchasers does arrive at a "market guess" as to what the total diminished value of all these repayments will be in today's dollars. The aggregate guesses are what sets the price of bonds. If they guess the inflation will be less than the eventual inflation they will pay too much. If they guess the inflation to be more than the eventual inflation, they will be happily surprised to receive repayments whose value is in excess of what was anticipated. However, currently your purchase in January of 2024 at the moment looks pretty bleak having currently lost 90% of its value if you sold it today. If you had the opportunity to redo the purchase, you would likely be better off to purchase January 2025 bonds at a discount with 10X the face value which additionally might also promise an increased repayment structure.

This is what often confuses people. Once purchased you are guaranteed to get the promised repayments in dollars (FRN's) on the dates promised. You are not guaranteed they will be worth the same (possess the same purchasing power) as the contemporary dollars you used to purchase the bond. This is an important distinction to keep in mind when buying bonds.

Point of note: You could also make a lot of money purchasing discounted bonds (e.g. January 2025 bonds at 10% of face value - hypothetically) only to gleefully discover a financial genius is elected POTUS and gets the USG's financial house in order. Instead of the dreary inflationary prospectus what actually transpires is a return to 1-2% inflation. Suddenly those same discounted bonds purchased at 10% of face value are now being offered a premium well in excess of the face value. Large profits indeed! The important thing to remember is bond prices are heavily influenced by the expected rate of inflation because the repayments are often made well out into the future where inflation is difficult to predict. This is why short term bonds (<5 years) tend to give lower yields or interest. Shorter time frames are easier to predict. This isn't always the case. Sometimes short term bonds have yields in excess of the long-term bonds (referred to as INVERSION). Essentially what this tells you is the market is uncertain of the inflation over the short term (first couple of years) but for whatever reason expects inflation to return to lower levels in the later years. The market will therefore demand higher/inverted yields for short term bonds and lower yields for long term. Inversions are seen by many as a sign recession is just around the corner.

 

I can't say I can argue with that. I routinely run across those whom I wish to demand their apology to the tree which works sooooo hard needlessly producing the oxygen in the air they breathe.

 

At any point in time there are many trillions of dollars in outstanding Treasuries. As Treasuries mature you can probably guess what the Treasury does. The Treasury will issue more bonds to cover the bonds reaching maturity. Naturally, this should clue you in the impact of the terms of these outstanding bonds. 30-year bonds don't have to get rolled over for another 30-years. Short term bonds like 6-months get rolled over every 6-months (obviously). You could probably guess the implications this has. Let's say the Treasury has 34.5 Trillion$ in outstanding bonds, all of which are 30-years. This means short term fluctuations in the inflation rate aren't as much of a concern. Only about 1/30th of those can be expected to reach maturity over this coming year (~1.15 T). Normal increases in inflation for a year or two don't substantially affect the financial position of the Treasury, since only a small percentage of the bonds have to be refinanced. However, suppose the Treasury has 34.5 Trillion$ in outstanding 6-month bonds. This is a completely different animal. If inflation rises significantly the Treasury could find itself in a world of hurt as the conditions of the loans which must be rolled over won't be very favorable, and in this case, there are a whopping 34.5 Trillion$ in bonds which must find new buyers. The amount the USG must pay to finance the debt (interest on the debt) would likely rise substantially in a very short period of time (rolled over every 6 months). There are statistics which are generated which basically track the average duration weighted by the face-value of the outstanding bonds. One is Weighted Average Maturity (WAM) and the other is Weighted Average Duration (WAD).

This is a great link which gives a simple description of the Treasuries strategy.

Projecting the structure of US Treasury debt | Brookings

During the Obama administration moves were made towards increasing volumes of short-term bonds in order to take advantage of what are normally slightly lower rates. Remember, predictions further out in time are more difficult, carry more risk, and therefore normally come with higher interest paid. As one can see though, it leaves the Treasury dangerously exposed to sharp changes in the rate of inflation. Thankfully under Trump steps were made to a more secure position with lower exposure to short-term rates.

In the link above notice the trend towards longer duration bonds. This is the Treasury decreasing exposure to inflation rate fluctuations. Smart.

 

My argument would be that I dont have a CoG bunker.

...though I do aim to survive depopulation anyway. But its gonna be a bad time.

 

There is still time for us to get our financial house in order. China is a disaster and imploding as we speak. It is imperative the Left-Wing idiots in the US come to grips with the fact we cannot spend our way to prosperity. There are consequences to socialist policies. There is no such thing as a free lunch. The USG has to balance its ledgers and the Congress has failed abysmally to rein in spending. Mainly Democrats but the GOP also bears some responsibility. The ultimate culprit is the American electorate. We can't expect our elected officials to act responsibly when there are no repercussions. The left just keeps believing socialism, deficit spending and free food and services can continue without bounds and puts the same socialists right back in. The GOP talks a good game, but once in office they either don't have the balls to make the cuts necessary or they cater to the lobbyists.

 

We actually prolly could have free food if we made that a priority over trying to militarily democratize the planet... but I get your meaning.

 

Why would we want to provide free food?

 

I'm not saying we should. Just I think we could, if we wanted to. Personally I think we should focus on further incentivizing and easing barriers to entry to private home ownership, rather than, say, a bloated military empire to protect the planet from dictatorships. We need to protect ourselves from them of course, but thats not the same as what we been doing.

 

The reality is, we do have free food. Not everyone participates. This allows them to contend some kind of moral elevation, claiming it is for the "starving poor". There hasn't been a single case of isolated death by starvation in the United States since around the time of the Donner party (1846-1847). Malnutrition in rare cases does contribute to illness and medical complications. Even here it isn't due to the lack of funds. Of the small number of starvation deaths which have occurred, they are due to neglect not funding. Rare cases such as the infirmed who are neglected in nursing homes or children who are starved by their parents through neglect due to drug addictions or outright cruelty. A paraplegic being cared for by his elderly mother who unknowingly died of natural causes months earlier. Food stamps do not address these issues whatsoever. It is strictly a handout supplementing the incomes of those who decide having others forced to pay for their food is more palpable than making alternative life decisions. Food stamps only address who should have to pay. It is nothing more than socialist "spreading the wealth" and has ZERO impact on the lack of access to food due to neglect, cruelty or even ability to fund. Claims of food stamps fighting starvation are laughable.

As for the "bloated military empire", we do have a significant amount of waste in the defense industry. As for the need I'm not so convinced this is a role we wish to relinquish. Identical statements were made throughout the 1930's when Hitler, Mussolini and the Japanese were making their ascendancy. At the time they were made, the Axis of evil could have been subdued without a shot fired. The means to do so existed without contest, only the will was absent. The resulting war resulted in the deaths of many tens of millions. Entire generations virtually wiped out. One could argue this is actually the more moral, caring, and lifesaving stance. Half a million have already died in Ukraine due to the Russian invasion. The time to prevent this was prior to the first shot (2014? 2022?). Obama's and Biden's weak and feckless actions convinced Putin he could benefit without repercussions. There will be many more deaths still to come. At some point we (NATO allies) will enter the conflict directly. The outcome will be swift and assured. All of which could have easily been prevented if we had made it clear we would protect the planet from dictators.

As for "incentivizing home ownership" I recommend avoiding the tendency to look to the government to solve every problem or satisfy every desire you might imagine. Government is almost never the best alternative. Getting a home is something I'm sure you can easily resolve on your own in a manner much less intrusive to the interests of your fellow Americans.

 

As you said- WW2 could have been avoided, not by a global military empire, but merely by a will to stop Germany early. And of course there would not have been a Nazi Germany if not for WW1, which we had no business getting involved in.

I dont think it would require more govt intervention to suitably incentivize home ownership. We just need more land, which FedGov has plenty of if only more of it could be settled, and to avoid the primary method of storing of wealth being residential real estate, which could be accomplished by taxing land differently, such as: no taxes on primary residences and higher taxes on non-primary residences (rentals could be a complicated factor, but Im sure we could find a solution). Oh, and no more selling our land to foreign entities, of course. This would have to be done gradually to avoid collapsing the economy, but if ever there was a way to proliferate independence, equality of opportunity and a 'stake' in society, its by helping more people break out of the 'company store' rental economy. That is not compatible with the American Dream of self determination and independent prosperity.

 

Naah! We just print more money! Print enough to cover my taxes anyway!!

 

Do you have a particular plot currently owned by the government on which you wish to build a new home? If the government puts it on the market couldn't someone else snatch it up compelling you to buy it from a non-government entity? The GSA routinely puts government land up for sale when they decide it is in the governments interest. I'm not sure what criteria they use to make such decisions. Could be graft is a concern which is why it costs so much in process. The government doesn't even trust their own civil servants to make decisions on their behalf. Which is why the process is so involved. My preference is the elimination of all property taxes and as little government influence or interference as possible. That is something the People can figure out themselves more efficiently with more informed decision making. No need for the government to put their finger on the scale. The USG has been granted limited powers to regulate commerce in the charter (USC). This does not extend to favoring one side over another in private contracts. The USG interest here is and should be oversight, ensuring contract law is followed.

 

If they printed the money to cover your taxes, your taxes wouldn't be covered. It would be the same thing if they just declared you don't have to pay your taxes. Again, printing money does not make something free or without cost. In fact making something free does not make it without cost. That is what the left just cannot get their heads around.

Free cars? Oh well, Ford will just have to give them away for free. What about the UAW? Oh well, the UAW will just have to continue making the cars and forego all compensation. Ok, print money for Ford and the UAW! The price of all non-automobile purchases will rise by the same amount or more due to inflation. Why more? Because the number of cars obtained when they have to be purchased will pale in comparison to the number "needed" when they are free. So the costs would likely double or triple. This is currently the situation with food stamps. This doesn't even address the issue of continued competition induced improvements to these automobiles. Who would bother to improve them without incentives to do so?

I grew up along the French/German border. Often you would see these little tiny refrigerators on the streets for waste disposal. In their generosity and wisdom the government had decided it would be beneficial to provide free "efficient" refrigerators to all newlyweds. Not something the government does well. What resulted were refrigerators so small they could hardly contain a 6-pack and a sandwich inside them... keeping them cold was a different problem. Power consumption data was altered to avoid embarrassing those elected officials who approved the funding. The value to the populous was so small they were invariably just tossed into the garbage upon arrival being more of a nuisance to dispose of than they were worth. It was like a wedding notification for everyone on the block. When you saw one on the street folks would stop by to congratulate the new couple. That was the extent of their value to the populous. Investigations into the problems produced several prosecutions for graft. There is a reason the founding fathers delegated so little authority to the government.

 

continued:

Not to be outdone: In the US in 1981 when Reagan came into office he selected a budget director by the name of David Stockman. A real wiz kid at accounting. Brilliant guy. Anyway, RR tasked him with going through the enormous budget looking for waste. One of the items RR brought to his attention was a $5 Billion budget subsidy item given to the railroad industry. He asked David Stockman to look into it. When he returned Stockman reported they didn't really know why it was in the budget but it was an item entered in 1932 under Roosevelt during the New Deal. It was just included in every budget since. Digging deeper they discovered its origins. In the early 1930s a new invention was developed called the Diesel Electric Locomotive. Initial findings indicated it would revolutionize the railroad industry. The cost to produce was low, it was able to produce more power at far lower fuel consumption moving a ton of cargo over 100 miles on a gallon of diesel fuel, and it didn't produce so much pollution like the contemporary coal burning steam engines. The benefits to the industry were exactly what America needed during the economic downturn.

So the Roosevelt administration decided these needed to be rushed into production instead of the gradual phasing in planned by the railroads. The USG would subsidize all new diesel electric locomotives purchased by the railroad industry. The railroad union went ballistic. These new engines didn't require a "fire man" to shovel coal into the furnace. A major percentage of their union workers would get laid off. They also had much lower maintenance costs. So union maintenance workers would get laid off as would those employed to clean the furnaces. Roosevelt COULD NOT have that. The whole purpose of rushing them into service was to combat the unemployment problems. So they included a provision where the union labor in jeopardy would get subsidized by the government enjoying employment guarantees. Furthermore, a regulation would be put in place requiring the railroad to have a "fire man" on duty sitting in the locomotive next to the engineer whenever it was running to avoid them being laid off. Essentially pretending to shovel coal into a diesel electric locomotive. Then others came forth to complain. Apparently, there were companies providing the asbestos protective suits and gloves to those fire men. The coal shovels too. So they too were regulated to be on hand when the engine was in operation.

This madness continued for almost 50 years! At first I laughed uncontrollably. That is, until I realized the harm it had done. Over a 50 year period, $5 billion/year was paid by the taxpayers to have someone sit in electric locomotives pretending to shovel non-existent coal (in full regalia!!!). At the time the deficit was around 1 Trillion (998B). So 25% of the deficit existed due to this stupidity. The reason the diesel electric locomotive was so lauded for it's potential savings were precisely those things they systematically charged taxpayers to prevent from being realized. In essence a wonderful invention ended up providing ZERO benefit to America at enormous cost.

 

It looks like it's going to be a close thing, but is Biden going to be able
to destroy the US before his term in office ends?

Can he do it without starting another war?

 

The problem is there are those who seek more than their own enrichment, using their wealth as a means to entrap and control others, often in alliance with the bureaucratic authority of govt. Regulatory capture is the primary means whereby wealth is being increasingly condenced into fewer and fewer hands. The problem no longer appears soleable via free market- there is not enough real wealth (land, resource) currently in play for free market competition to have a meaningful shot at reversing the innevitable conclusion- all wealth eventually condensing into the hands of a single entity. Once achieved, any rights we have on paper will mean nothing as we'll be dependent for resource. Some time before that, of course, we'll have a big 'eat the rich' style war about it, and probably reset the trend. But I'd prefer to try to reverse the trend peacefully first. If you have a better idea how to do that, I'd love to hear it.

 

And when you need to replenish your war stocks... it takes time. You don't just run down to the WAR STORE and buy what you need. Sophisticated weapons often require "long lead items"... like the crystals required in Stinger Missiles which can take a year or more to generate. If you want a brand new F-16, it takes a year to produce it... not counting delays caused by production line startup processes for production lines that have fallen dormant. Your question is complex and has a lot more aspects than just funding.

 

One of the things we do is purchase inventories of components for "projects". Most all include funding for just this purpose. For the sake of discussion let's assume this is for a missile system called Hallmark (for those who care enough to send the very best ). The Pentagon (5) decides they like the early test results for this system, but there are earlier systems in place which provide similar capabilities. So they don't anticipate the need for very many of these. The 5 decide the inventory should be sufficient to maintain full production for 2 years. Normally, it is around 3 full years of production, but for key systems I've seen up to 10 years. Let's say they anticipate at most the need for 2500 Hallmarks/year. So they will need 5K of every single component needed (some components do get left off the list if they are easily produced without supply chain risks). Every contract issued for such designs contains a list of parts (military grade parts) which the engineers must select from. We pull parts from this inventory during design, preventing delays. Remember we are still designing, so many of the acceptable parts won't necessarily even be needed if we don't include them in the design. If I need to use a component (perhaps a particular Op-Amp) which isn't on the list I either use one from the list or put in a special request. If I can justify the need for this special Op-Amp it will get approved and 5K of these will also get added to the inventory (I may have to wait though, so we try to avoid this and use the ones on the list ). While design is underway every single one of these components has its pedigree verified. By pedigree, we mean its chain of possession is verified all the way back to the original manufacturer. Anyone distributor selling the part must have proof of purchase of those lot numbers back to let's say Texas Instruments. This is because in China labor is so cheap they will actually break open the semiconductors, remove the chips from non-military or non-exo-atmospheric components, put them in fake packaging, remark them as military grade and sell them as higher quality parts to make more money. All manufacturers of military grade components must notify the 5 if they plan on discontinuing a military grade component which may go obsolete at least 2-3 years in advance. They will often recommend a newer part which will be its replacement. When notified a component is going obsolete the project may purchase extra spares immediately while they can still be obtained. A database of the inventory is tracked. Once certain design phases are reached (Low-rate-initial-production LRIP or say Extended-Production-Program(?)) any components which didn't end up in the final design may be made available to other non-critical projects. After each phase decisions are made as to the amounts in inventory. If a component is ever found to be defective it is examined for the root cause of the failure. If the manufacturing is suspected samples are pulled from inventory and tested to determine whether the quality of the lots in inventory are problematic. Much like when they do presidential polling.

The private industry does keep some inventory, but IMHO they won't be so prepared. Depends on the company. Private industry is more driven by profits and has gotten accustomed to just-in-time-manufacturing. Defense even insures they can ramp up testing if needed. Though testing requires much smaller inventories.

The Chinese and the Russians do not much concern themselves with quality let alone inventories in my assessment. Many of the critical components they use are under ITAR restrictions meaning they cannot be released outside the US (perhaps trusted allies). Since they rely on copying our stuff (espionage) for a great deal of their hardware (and commercial theft too) it not only puts them behind the production curves, quality suffers. When foreign hardware is examined the pedigrees indicate many of the components are counterfeit. If they aren't counterfeit, the source of the restricted components can be tracked back to the unscrupulous supplier. Many have been prosecuted for both counterfeiting and illegal sales of these components. They are required to get their components through shady sourcing. I once read a story (no clue if it was true) about just such an incident. Some type of key equipment used in the piping of natural gas and petroleum was traced through a treasonous supply company. Rather than prosecuting the traitors, they put the screws to them and had them supply components which would cause disastrous failures after a number of random clock cycles. Several months later when the pipelines were in operation huge explosions occurred causing massive damage to whole sections of the pipelines. After extensive repairs more explosions occurred. It was attributed to poor quality standards on their part. Something they are all too accustomed. This was many many years ago early in Reagan's 1st term if I recall. If it was true they didn't find out the real reason for decades. It is plausible more sophisticated alterations could cause catastrophic failures on command. To make matters worse for them, I'm convinced their affinity for stealing intellectual property likely comes with additional headaches. Stealing the designs of a control board of some sort or other subsystem might allow them to produce the items, but my gut tells me having the personnel who actually understand how it "ticks" is another matter. This would seem problematic when they go to manufacture and test things. Anyway, their quality is improving but still has a ways to go.

 

Why can't we just raise minimum wage to $100? Then everyone can be well off? I think you understand leftist thinking!

 

Yup. But that is likely what they will end up doing. And when the tradeoffs occur and they find the problem gets worse they will make it $1000 or more. Soon a #1 combo meal at McDonalds will cost all the currency you can deliver in the back of your truck bed.