Can the USA fund its debt?

[CamKawa]

A couple of interesting short videos on US debt

The National Debt Road Trip

Obama Budget Cuts Visualization

 

[Green08]

They will be more selective in depopulating their masses. Have to keep the earners on for tax. The rest a waste. Lets see how it pans out in the next couple of years. But hey, isn't the front line where they send those exspendable.

 

[CamKawa]

That's actually not a bad article and a good summary of the fractional reserve system and money creation therein. Re:



I think to be clear, and to understand how the system works, this quote from that article needs to be considered in proper context. What people do expect is that the government will pay the INTEREST on their "borrowings" (ie the regular yield on the bond they issued), much like the bank expects you as a private borrower to pay your mortgage payment each month.

When a bond reaches it's expiry and the "lender" wants their capital back, the lender also does certainly expect to get their capital back. The government always has the option to "roll over" the debt in effect by issuing a new bond to cover the pay out requirement on an old one, much as corporations often do with their debt. So I think this is what is meant when the above article states that no-one expects the government to repay it's debt.

There is nothing inherently evil in the above - the lenders are happy as they get their interest, and they get the capital back at the end. If the government did have the cash (raised through taxation on productive activity within their economy). The fact that the interest is paid via taxation of productive activities is what makes the "ponzi scheme" allegation incorrect IMO. In a true ponzi the "interest" is paid purely from newly invested funds, with no ability for the "interest" to be paid when/if the inflow of new funds ceases. This is absolutely NOT the case with government debt/bonds.

A government can reduce/pay back debt ultimately by buying the bonds back or paying them out with surplus cash - as has been the situation in Australia for example for the past 10 years (up until present time anyway).
Or they can "roll the debt over" - a government in theory lives "forever" so again it's the interest bill that matters more than the actual debt in terms if the impact on government budgets, revenues etc etc in the long term.

Cheers,

Beej

Russell Napier reckons that when yeilds get to about 6% the US maybe in trouble.

The Ascent of Money is a good doco that explains bonds. Take note of the Argentinean experience. Will the US go down this path?

 

[bongcso]

Yeah, I watched the Ascent of Money on bond markets too and it sure is scary. The host Niall Ferguson wrote an article in the Financial Times on 29 May 2009 and he was very concerned about USA's escalating debt. I could not read the full article because I don't have a paid subscription to ft.com but a synopsis of what he wrote can be found in an article in
businessinsider.com/henry-blodget-niall-ferguson-paul-krugman-is-wrong-2009-6

Even more worrying is what Bill Gross, CEO of PIMCO the world's largest bond fund has said recently. He says holders of dollars should diversify their own baskets before central banks and sovereign wealth funds ultimately do the same. I read in The Age last Friday that last month, Temasek Holdings announced it had sold its stake in Bank of America and Temasek's chief executive Ho Ching said that it would reduce its exposure to Western nations and increase its focus in Asia and other emerging markets such as Latin America and Russia.

IMHO, if USA does not find a way to reduce spending, high inflation and devaluation of the dollar would be inevitable.

Christina
slisuper.wordpress.com/category/opinions/

 

[Uncle Festivus]

Russell Napier reckons that when yeilds get to about 6% the US maybe in trouble.

The Ascent of Money is a good doco that explains bonds. Take note of the Argentinean experience. Will the US go down this path?

6% you say? I would say that due to the higher debt burden things will start to get interesting long before that, going on the 10 years T's?

 

[rainylake]

I agree on Treasury rates going up. It may take longer than a lot of people think but it's probably one of the most solid trends out there IMHO.

 

[Wysiwyg]

In the past the USA has had blowout debt and has managed to pull the debt back down again. As seen in the graph below, debt has peaked and come back down on every occasion. It will again but the blowout could be over 100% of GDP (presently about 88%) with the baby boomers adding to the social security and health care systems in increasing numbers. The USA will pull their debt down but it still has yet to peak.

my after watching I.O.U.S.A.

 

[Aussiejeff]

*** 12 TRILLION & counting...... ***

The US public debt topped $US12 trillion ($A12.8 trillion) for the first time in history, Treasury officials disclosed on Tuesday, moving past a key barrier that raised hackles in Congress.

Treasury data showed Monday's outstanding debt at $US12.031 trillion ($A12.83 trillion), up from $US11.999 trillion ($A12.8 trillion) on Friday.

The ballooning debt reflects the massive deficit spending by the government in an effort to revive an ailing economy over more than one year.

The public debt topped $US10 trillion ($A10.67 trillion) in September 2008.

The debt is quickly approaching the statutory limit of $US12.104 trillion ($A12.91 trillion), meaning Congress would have to raise the ceiling to prevent a shutdown of government operations.

http://www.thebull.com.au/articles_detail.php?id=7435

Time for Unca Obamasan to crank up the ol' DollaBill Fax machine agin'.

 

[Nyden]

In the past the USA has had blowout debt and has managed to pull the debt back down again. As seen in the graph below, debt has peaked and come back down on every occasion. It will again but the blowout could be over 100% of GDP (presently about 88%) with the baby boomers adding to the social security and health care systems in increasing numbers. The USA will pull their debt down but it still has yet to peak.

my after watching I.O.U.S.A.

Long time ago, but good post Wysiwyg. It's good to see some sense around here.

 

[Agentm]

forget the quadrillions in dollars to be funded to bail the last subprime securities failure....

here is the next bubble in the USA that needs to be funded as we hit the second collapse in the very near future.. and is being ignored by everyone here on these forums...

where its different to the subprime bubble, this one is extremely visible, but regardless its being totally ignored by all.

no lessons learned from the last one, no leglislation changes, no watchdogs looking for the bubbles, nothing in place to regulate against this, and all this at the detriment of a further financial collapse.. or can the markets just sustain this one for ever more??

lol

wake up and smell the roses!


Commercial mortgage-backed securities (CMBS)

 

[lasty]

forget the quadrillions in dollars to be funded to bail the last subprime securities failure....

here is the next bubble in the USA that needs to be funded as we hit the second collapse in the very near future.. and is being ignored by everyone here on these forums...

where its different to the subprime bubble, this one is extremely visible, but regardless its being totally ignored by all.

no lessons learned from the last one, no leglislation changes, no watchdogs looking for the bubbles, nothing in place to regulate against this, and all this at the detriment of a further financial collapse.. or can the markets just sustain this one for ever more??

lol

wake up and smell the roses!


Commercial mortgage-backed securities (CMBS)

There will be a foreclosure sign on the lawns of the Whitehouse very soon.

 

[Ageo]

Just by going off all those graphs it looks like the U.S is pretty f****d at this stage dont you think??

 

[pilots]

Ageo, we could be in the same boat when it comes to Commercial real estate, I know of places that the banks would sell up if they could get a buyer, as no one is interested they banks are leaving the owners in place.

 

[Aussiejeff]

Just by going off all those graphs it looks like the U.S is pretty f****d at this stage dont you think??

IMO, won't happen.

US is TOO BIG TO FAIL.

Ergo, the Great World Bank Of China & others funding the spending habits of rich, fat Americans will almost certainly "forgive" UncaSam's sinful descent towards debt oblivion with a mere penstroke. Them with the moolah to burn can afford it. Think of the cred.

So, they will let UncaSam off with a "clean sheet" - next best thing to going bankrupt, eh?!

All that bad do-doo's will be consigned to a paper shredder. So no need to fret. ChObamaInc has it covered.

Ain't life grand?

 

[lasty]

"US is TOO BIG TO FAIL"

Thats what they think.. The Brits still wont let their fallen empire go...

 

[Wysiwyg]

Just by going off all those graphs it looks like the U.S is pretty f****d at this stage dont you think??

Does that mean a solid bull run on U.S. equities. Maybe the DOW to push 18000 points.

 

[Wysiwyg]

"US is TOO BIG TO FAIL"

Thats what they think.. The Brits still wont let their fallen empire go...

Thinking of our northern cousins, when are all those English roses coming to Australia to share a wonderful new life beside the coast with a strong supportive loving Australian man.

 

[tunrida]

[The U.S. and the U.K.] “deserve to keep the Aaa rating (…) the likelihood of a default is so small, particularly in the U.S. because all we do is print money to pay it back (…) The notion of a default is so absurd, it’s another reflection of the absurdities in the financial markets.” -- Nobel laureate Joseph E. Stiglitz, 2010.02.08

 

[acouch]

hope you don't get dizzy watching it
ac

http://www.usdebtclock.org/

 

[wayneL]

[The U.S. and the U.K.] “deserve to keep the Aaa rating (…) the likelihood of a default is so small, particularly in the U.S. because all we do is print money to pay it back (…) The notion of a default is so absurd, it’s another reflection of the absurdities in the financial markets.” -- Nobel laureate Joseph E. Stiglitz, 2010.02.08

Yet it is unlawful for us plebs to do so.

How is that fair?