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Actually, back in 2009 - someone in Obama's administration was asked about debt to foreign countries and in particular to China. The response was that China's stake isn't that significant considering the amount of inflation by the time their payouts hit. Certainly an interesting take.
Last President to have the national debt shrink during a "Fiscal Year" = Eisenhower (1957).
Last President to have the national debt smaller on his last day in office than his first day = Coolidge.
Although our annual deficit is shrinking, it is primarily driven by artificially lower interest rates from QE money creation (a form of Trickle Down Economics). The problem is that if interest rates are to rise to recent historical norms, our annual deficit will shoot back up to 1 Trillion a year, as we will be paying more interest.
Our debt shall always grow, as a growing country and world will always require more money.
Deficits are coming down. Reduced central expenditures, increased revenues, along with interest rate control. And there is nothing artificial about the rates. The Fed/Treasury sets the rates. Not the markets.
But if you look at national debt interest vs GDP, where not in any uncharted territory at all.
It's nowhere as big of a problem if you have the income to support the payment.
But if one puts down 20 percent and then doesn't pay and the house gets repossessed or the market causes the value to drop the owners of that mortgage aren't left holding the bag. Neither are the taxpayers.
So your wages dropped 5%, and your costs of other goods dropped 20%? Lets use something more realistic:
Wages 1900
Mortgage 1000
Cost of other good 760 (same % as your income)
leaves $140
Then you refinance and lower your mortgage. Just as ones rent goes down in deflationary times. Granted if one put down a measly amount like 3 percent or less then there's trouble. Another reason why banks rarely did that until the housing bubble. Aren't we always told it's better economically to put down as much as you can when buying a house so in the long run one is better off?
My example was based on the purchasing power of the dollar getting stronger. Thats why I left mortgage off earlier in order to simplify it.
Last edited by Loveshiscountry; 05-14-2014 at 08:19 PM..
Our debt shall always grow, as a growing country and world will always require more money.
Deficits are coming down. Reduced central expenditures, increased revenues, along with interest rate control. And there is nothing artificial about the rates. The Fed/Treasury sets the rates. Not the markets.
But if you look at national debt interest vs GDP, where not in any uncharted territory at all.
High Debt to GDP ratios after WWII were fine to win a must win war and then being the only Industrial Power on Earth not ravaged by war to proceed into a long boom period...
Out current annual deficit is coming down due to low interest rates on the national debt. If these interest rates were to rise to recent historic norms, then our annual deficit would grow up to around $1 Trillion a year again.
Our deficits are not coming down because we are being more fiscally responsible, they are coming down, because we are creating money to lower interest rates.
Not everyone agrees with you that we can do this kind of massive QE forever, including people in the FED.
QE and its effects are obvious. But the how and why is not.
QE has been a massive asset swap program. Not a massive money creation program with intent to infuse the general circulation or markets as some of your references allude. Its intent and success is in interest rate reduction. And that has been a significant impetus to help spark up the markets to this point. Sure some of the QE must have reached the markets, or displaced other moneys into the markets. But the vast bulk is not in there driving up stock prices. It's predominantly the interest rate factor.
But if one puts down 20 percent and then doesn't pay and the house gets repossessed or the market causes the value to drop the owners of that mortgage aren't left holding the bag. Neither are the taxpayers.
If I have good credit, the income to make my payment, why am I going to not make payments? Right now for big investors it makes absolutely no sense to put a penny down.
I have $5 million in the bank. I'm going to buy a $1 million dollar home. I have great credit and can get under 3% on my mortgage. I can make more than that on my $200,000 you want me to put down in the markets.
This happens all the time. The banks risk is very low.
If I have good credit, the income to make my payment, why am I going to not make payments? Right now for big investors it makes absolutely no sense to put a penny down.
I have $5 million in the bank. I'm going to buy a $1 million dollar home. I have great credit and can get under 3% on my mortgage. I can make more than that on my $200,000 you want me to put down in the markets.
This happens all the time. The banks risk is very low.
Of course anyone with a lot of money is usually going to do the smart thing like that. It's not about you princess. I was speaking about the average Joe. The average Joe doesn't have 5 times the value of a 200k house sitting in a bank.
We haven't paid off a dime of the National Debt since before WWII.
(Well, I lied, there were a few years in the mid 1950s when the Natl Debt went down, from $274 billion to $270 billion, we paid off a whopping 1-1/2% of it before it shot back up the following year and has never come down again)
People thought $270 billion was huge, back then. Now it's $17 *trillion*.
So how come we aren't fiscally dead and buried by now? Easy. We made each dollar, worth a lot less. So the VALUE we now owe, is a lot less than it would have been. Neat trick, eh?
If you're wondering whose pocket all the VALUE vanished from to "pay off" the Natl Debt, consider the guy who saved up $15,000 in 1950. That was enough to buy ten pretty good, brand new cars then. If he saved it until now, it would be barely enough to buy one new car, and a cheap one at that.
That's the guy who paid off the National Debt. Him and his friends. And he probably didn't even realize he was doing it. And he's probably wondering why he can only buy one new car now instead of ten. Where did the other nine cars go?
If you're wondering if we are going to see inflation or deflation soon, the answer is: If we see any deflation at all, it won't last long. We've got a TON more debt to pay off. So we'll see almost entirely INflation, as far as the eye can see, from now on. It's the only way to pay it off.
And if you were wise enough to follow your grandfather's advice and save your money... YOU ar the one who will pay. Kiss most of your savings good-bye. Sucker.
Have you ever wondered why the government has never put a tax on savings and wealth?
Ha ha, fooled you. They HAVE put a tax on wealth, and it's been going for decades. It's called Inflation. And YOU have been paying it. That's why you're not rich now. Sucker.
Trying to inflate the countries sovereign debt away has an unintended consequense, it inflates away the nations capital and hence its wealth. Study Argentina after the advent of Peronism. Peronism was fascism with a kinder gentler machine gun hand. It made Argentina the place it is today!!!
Hiring isn't up, production is not up, wages are not up. How do commodities shoot up and the markets hit record prices?
We are in historically different waters. The tools are very different and the scale. Moving forward is going to be interesting for sure.
Don't forget about good old JPM either. (let's not forget the recent global bubble pop due to a repo run either.) A Record $2 Trillion In Deposits Over Loans - The Fed's Indirect Market Propping Pathway Exposed
quote:
for the past 3 years, a primary driver of "growth" in the US market, if not economy, has been the ability to transform asset and liability exposure off the books using various shadow conduits. The primary such conduit is and has always been repo funding (and various other forms of limited and/or unlimited rehypothecation made so popular after the collapse of MF Global).
....
the bank can still hold the original pledged security on its books for Fed "supervision" purposes, even as it obtains fungible cash equivalents via repo, cash which it can then use for whatever downstream purposes it desires such as purchasing stocks.
The alternative trade settlement systems are coming online, with bilateral swap facilities, settlement in gold, and eventually a rival method to the SWIFT bank settlement. Nations are actively seeking out the alternatives.
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