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Meanwhile, GDP growth is slugging along at a 1-2%. Sure it's possible to get the debt under control, but only at the expense of the already-bad economy.
The United States has $0 in sovereign debt. We issue bonds in our own currency, not in pounds or pesos.
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DEFINITION of 'Sovereign Debt'
Bonds issued by a national government in a foreign currency, in order to finance the issuing country's growth.
The United States has $0 in sovereign debt. We issue bonds in our own currency, not in pounds or pesos.
I do see this being argued by many.
Basically their position is that the debt is a non issue because we print our own money. Is that right?
We pay off debt by issuing more debt and that's OK because we don't play by the same rules as individuals.
Is that about right as well?
Will there ever come a time when our debt should be addressed or is it simply a red herring or "the sky is falling" scare tactic used by the right to scare the uninformed?
Basically their position is that the debt is a non issue because we print our own money. Is that right?
Sort of. You're conflating two issues:
a. That the definition of sovereign debt refers to "government debt issued in foreign currency", and we have exactly $0 of that. That was the point of the post you just quoted. We don't denominate our debts in a foreign currency. That is something a small banana Republic would do.
b. That we do have government debt denominated in dollars, but the vast majority of Americans don't understand how it works or the 'rules of the game' so to speak.
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We pay off debt by issuing more debt and that's OK because we don't play by the same rules as individuals.
Is that about right as well?
Well, that's also confusing two different issues.
a. Yes, we pay off debt by issuing more debt, the same way private businesses would. All debt has a time-value.
b. This is not controversial, as it is not related to the 'special rules of currency issuers'. It would be sort of like refinancing your mortgage.
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Will there ever come a time when our debt should be addressed or is it simply a red herring or "the sky is falling" scare tactic used by the right to scare the uninformed?
Theoretically, over enough time, we could manage to always grow our economy faster than the debt. So with proper management, it's possible to have an eternally-growing public debt that is sustainable and normal, particularly if we can expand to tax base beyond wages and into wealth. Sort of like home prices can rise forever, provided that American households have the aggregate income to pay their mortgages.
However , if we mismanage it badly enough -- like if we keep putting bank bailouts and wars and medicare on the tab, and then add social security (which we probably will in ~30 years or so), if we keep relying on wages as our tax base -- eventually it *could* begin to cause inflation of prices of imported goods.
But here's the rub:
#1 - conservatives dramatically overestimate the severity of the public debt, largely for political means. Scare the crap out of the voters and promise a solution.
#2 - the potential inflation/hyperinflation is almost certainly going to come out of private sector debt, not government debt. And all these ideologues don't have a plan for controlling the constant debt bubbles coming out of the private sector.
a. That the definition of sovereign debt refers to "government debt issued in foreign currency", and we have exactly $0 of that. That was the point of the post you just quoted. We don't denominate our debts in a foreign currency. That is something a small banana Republic would do.
b. That we do have government debt denominated in dollars, but the vast majority of Americans don't understand how it works or the 'rules of the game' so to speak.
Well, that's also confusing two different issues.
a. Yes, we pay off debt by issuing more debt, the same way private businesses would. All debt has a time-value.
b. This is not controversial, as it is not related to the 'special rules of currency issuers'. It would be sort of like refinancing your mortgage.
Theoretically, over enough time, we could manage to always grow our economy faster than the debt. So with proper management, it's possible to have an eternally-growing public debt that is sustainable and normal, particularly if we can expand to tax base beyond wages and into wealth. Sort of like home prices can rise forever, provided that American households have the aggregate income to pay their mortgages.
However , if we mismanage it badly enough -- like if we keep putting bank bailouts and wars and medicare on the tab, and then add social security (which we probably will in ~30 years or so), if we keep relying on wages as our tax base -- eventually it *could* begin to cause inflation of prices of imported goods.
But here's the rub:
#1 - conservatives dramatically overestimate the severity of the public debt, largely for political means. Scare the crap out of the voters and promise a solution.
#2 - the potential inflation/hyperinflation is almost certainly going to come out of private sector debt, not government debt. And all these ideologues don't have a plan for controlling the constant debt bubbles coming out of the private sector.
So in theory we could double our national debt overnight and it would have zero impact?
Or perhaps the better way to phrase the question would be:
If we doubled our national debt overnight, what would be the likely effect?
So in theory we could double our national debt overnight and it would have zero impact?
I think we could double our national debt overnight and not have serious problems. I wouldn't say "zero impact." Our ability to pay the debt would remain the same, but anything that major, that fast, will have a major impact on investor psychology across the world. It would certainly cause a decline in the value of the dollar, if for no other reason than investor perception.
However we couldn't keep doubling our national debt every night. There are limits; it's just that nobody can say precisely what those limits are, since there's no historical precedent for what we're describing. (This is normally where people bring up Zimbabwe, Greece, etc., but this are not valid comparisons.)
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Or perhaps the better way to phrase the question would be:
If we doubled our national debt overnight, what would be the likely effect?
I can't say exactly. One thing: it depends on what the money is spent on. Just printing 20 trillion dollars and putting it in a vault would do literally nothing. It needs to circulate to matter, and I can't speculate on what sort of event would compel us to try and create 20 trillion dollars overnight.
You'd certainly see a short-term reaction, it would not just pass through unnoticed. Doing something that dramatic that quickly would have consequences. People on television would flip out, but in terms of our balance sheet and ability to pay it off, it wouldn't "break the country" or "send us into hyperinflation" like many people claim.
We already do... The numbers don't add up to how we HAVENT hit hyper inflation yet
I believe it's because the banks are still holding most of the QE money and trying to look capitalized.
It's not all out in circulation -- still pretty hard to get bank loans.
Not to worry, FED will just start printing money again and monetize the debt some more -- QE Infinity
We could double our national debt overnight and not have problems. I wouldn't say "zero impact."
However we couldn't keep doubling our national debt every night. There are limits; it's just that nobody can say precisely what those limits are, since there's no historical precedent for what we're describing. (This is normally where people bring up Zimbabwe, Greece, etc., but this are not valid comparisons.)
I can't say exactly. You'd certainly see a short-term reaction, it would not just pass through unnoticed.
Why are those countries that have exceeded 100% of debt to gdp not valid corollaries, if not direct comparisons? (Question, not a leading question)
Why are those countries that have exceeded 100% of debt to gdp not valid corollaries, if not direct comparisons? (Question, not a leading question)
Greece is not a valid comparison because they are not a monetary sovereign. From a currency perspective they have more in common with the state of Illinois (which can go bankrupt) than the United States (which cannot go bankrupt). This is because they share the Euro with other nations, and none of them really control it.
Zimbabwe is not a valid comparison because they owed a lot of money denominated in foreign currencies (sovereign debt). And they experienced hyperinflation trying to pay off excessive loans denominated in foreign currencies by sacrificing their own currency.
Greece is not a valid comparison because they are not a monetary sovereign. From a currency perspective they have more in common with the state of Illinois (which can go bankrupt) than the United States (which cannot go bankrupt). This is because they share the Euro with other nations, and none of them really control it.
Zimbabwe is not a valid comparison because they owed a lot of money denominated in foreign currencies (sovereign debt). And they experienced hyperinflation trying to pay off excessive loans denominated in foreign currencies by sacrificing their own currency.
I was actually thinking more like Argentina that experienced this in 01-02 when they unpegged their peso from the dollar.
Greece shares so they are just bringing the Euro down with them (and UK's vote to recede from the E.U. And euro) so I understand that.
Dollar will lose its reserve-currency status. Int'l banking will try to push a world SDR onto America as the cure. The U.S.'s standard of living will decrease, crime will rise, national sovereignty will be eroded. Constitution may undergo revision in the 2020s.
So all these central banks and government across the world holding over a trillion US Dollar as reserve will have to dump the dollar and purchase the new world SDR.
Who is this person who can sit across the table from the world leaders and convinces them to go along with losing billions just to switch the reserve currency?
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