The U.S. Does Not Have a Debt Problem

How are people going to get their money out of America? Is the money just going to disappear? And why would it matter if people sold off their treasuries? A third of the national debt matures every year and we pay out trillions upon trillions of dollars to individuals/entities that want to be paid for their treasury.

And why would serious inflation happen? Would people sell their treasuries and start buying tons of houses, cars, and iphones?

 

People would wire their money out of the US to foreign banks.

There's a reason why every single Treasury bill, note and bond is not owned by the Fed. Monetization of the debt is inflationary.

In a crisis, if people started wiring money out of the US en mass, the dollar would fall precipitously. To stop capital flight, the Fed would have to jack up interest rates. If it chose not to do so, investors would dump their Treasuries and move their savings out of the country. Interest rates would spike as bond prices plummeted. If the Fed tried to buy all of the Treasury supply, the market would almost certainly lose confidence in the Fed as the market would view it as monetizing the debt and thus inflationary. Then you'd have the ultimate currency crisis as the world would lose confidence in the reserve currency.

Currencies are the ultimate confidence game, and I don't mean that in a pejorative manner. There's nothing magical about gold as a currency other than people believe it has value. The dollar is no different. There is nothing magical about the dollar as a currency other than people believe it has value. People believe that the US government will protect the value of the currency. If people lose confidence that the government will protect the dollar, it will cease to be a functional currency or the monetary system will significantly realigned to restore confidence in the dollar.

 

What monetization are you talking about? The Fed does not buy treasuries directly from the Govt. That money already has been monetized which is why you haven't seen large increases in broad money. Which is why base money isn't included in M2 money supplies, because it's already represented in them and would be double counting. The Fed is monetizing the debt. The reason every bill isn't owned by the Fed is because there is no reason for them to own all the bonds and bills. They do things for a reason.

None of this matters. It's all USD. It doesn't matter whether it's in an American bank or taken out and put in a British bank. It's still USD. That would not cause interest rates to spike and that would not cause inflation. How would people taking their money out of America cause inflation? None of this is even remotely possible or logical.

Yes, what gives people confidence is productivity. When we stop producing and stop consuming, then we will run in to serious problems. But having a large debt and the Fed buying treasuries is not really going to destroy our ability to produce. As even last year we produced almost a quarter of the entire world's output. You would think after the biggest crisis this country has faced that some of what you just said would have happened... but the complete opposite happened. More money was poured in to banks, the demand for USD increased, and the demand for Govt debt increased.

People will not lose confidence in the USD until there is another viable option in a country that can produce and innovate more than us. Unfortunately, the US is still king, and the confidence is still very high as indicated by our treasury yields. We are much more stable of a country than any large developed country out there.

 

Foreigners own half our debt. If they decide they no longer want to buy it or to dump it indiscriminately, you could see a dollar crisis and interest rates spike, causing disruption in financial markets and the economy.[/QUOTE]

False, two thirds of our debt is owed to Americans. China owns about $1.16 trillion of our debt.http://www.foxnews.com/politics/2012/09/04/who-do-owe-most-that-16-trillion-to-hint-it-isnt-china/

 

Oh yeah, and the FED has loaned more in one day then we owe to foriegn nations.

 

If sixteen trillion of debt isn't a problem (fast closing on 20) then apples taste like peaches and chocolate taste like and old aardvarks ass.

 

Why is it a problem? Is it just because it's too big of a number for you to comprehend?

 

I would have thought that any person with common sense, would know that (high) debt is not good.
And the US government has (high) debt its around 100%-to-GDP.

Any person with knowledge of economics and government knows, that high national debt is bad for an economy, and bad for a country.

The following wiki link clearly shows that the lower a countries national debt the healthier its economy is.
http://en.wikipedia.org/wiki/Debt-to-GDP_ratio


If you believe a country having high national debt is OK then you have lost your mind !!!


Reality is high national debt does (not) matter to the CEO's who fund Fox news, Rush radio, and Forbes. And since republican tax cuts for CEO's and large corporations have created our national debt, these same CEO's say "high national debt does not matter." These CEO's want to continue to get their tax cuts.

These CEO's get places like Fox news to say "high national debt does not matter."
The following Australian made documentary explains how these CEO's get places like Fox news to say these things.

http://www.youtube.com/watch?v=oSAzYWmsiwI


Republicans give these CEO's (incredible) amounts of money in tax cuts. The following link shows that Mitt Romney wanted to give these CEO's and large corporations ($6.6 trillion dollars in tax cuts.)
http://thinkprogress.org/economy/2011/09/07/313068/romneys-tax-plan-cost-6-6-trillion/?mobile=nc


The CEO's who fund Fox news and Forbes want that $6 trillion dollars, and Americas republicans will fight to give it to them.

 

You are not an economist at all, obviously. First off most real economists do not consider us at 100% debt to GDP because they do not include intragovernmental debt in the equation. And on top of that you shouldn't even include the debt that the Fed owns since they give 95% of the money the Govt pays them back. So our debt really isn't that high. That's just your uneducated opinion. Most educated economists realize why Japan runs 200% debt to GDP's and why our debt to GDP has been increasing. Very few educated economists have an irrational fear of the debt like you do.

You aren't talking about educated economists, you are talking about Fox News pundits.

 

Of course, most economists didn't see the Tech and Housing Bubbles, so it's not like they're particularly adept at anything other than a trendline.

 

Logical fallacy. Just because there was a tech and housing bubble doesn't mean they don't know how to control the Govt debt market. That's like saying Tom Brady is a horrible quarterback when he throws an interception and that you should be quarterback instead. Nope, they are still the most educated and qualified humans on the planet to be running a monetary system.

 

That "It's all USD" is irrelevant. If your implication was true, the value of the dollar would never fluctuate.

Interest rates would spike either a.) because investors are dumping Treasuries and moving their assets out of the United States or b.) to stop capital flight, the Fed hikes interest rates. Go look at every currency crisis over the past 50 years. This is what happens.

Inflation would happen if, instead of trying to stem capital flight, the Fed decided to buy the Treasuries being sold by fleeing capital to keep interest rates down, which is effective monetization of the debt.

We are de facto monetizing the debt. That the debt isn't bought directly from the Treasury is semantics. If a bond is issued then bought a week later by the Fed, that is de facto monetization.


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

 

That is a logical fallacy. Simply because they are the most educated and qualified humans on the planet does not mean they can effectively run a monetary system.

Economists are slaves to their models. Their models are based upon assumptions of human behavior that are often unrecognizable to others in the humanities.

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So what number is too big?

 

Well, it might be a logically fallacy, but the data definitely shows that it's a possibility they know what they are doing. I love how people only focus on the 2 recessions we have had in the last 20 years and completely forget about the 18+ years we weren't in a recession.

 

I'd say a real fed funds rate averaging less than zero for 13 years is not a sign of success.

 

Where do you get the fed funds rate averaging close to zero? The average is actually 2.15% between 2000-2013.

 

Fed funds less CPI

 

That's not even a calculation anyone uses. Two completely separate indicators.

 

The office of management and budget is an objective source on federal spending policy in much the same way that Bernie Madoff was an objective source on how good his investment scheme was...

 

Then what "objective" source do you get your data from?

 

If the USA doesn't have a debt problem, pay it off, akphidelt2007. You, not me. Handle it and come back when there is a balanced budget.

 

Over a third of the national debt will mature this year and we will pay off over $4 trillion worth of maturing debt. If we had a debt problem we wouldn't be able to pay people off who own our debt. Unfortunately for you, we pay off every single penny we owe to anyone who has our debt.

 

Argumentum ad populum.

Notwithstanding, I have seen it used on Wall Street.

The Fed Funds rate has averaged below the rate of inflation for over a decade. That is a damning indictment of the inability of the academics who run the Fed to understand the economy.

 

No it isn't. You have literally just made up that comparison. The borrowing cost of money has nothing to do with prices of goods and services.

 

The borrowing cost of money has nothing to do with the prices of goods and services? More economic brilliance from akphidelt...