NationStates Jolt Archive

This post is just an offshoot of another discussion thread. I find it an interesting topic because so many people really don't know much about it. However I do not claim to be an expert but do think I know something about it. Anyway I know alot of you can add to this. this website I found basically describes a bit about some of the myths of the US national debt.

http://www.oswego.edu/~edunne/debtmyths.html

The two negatives on the bottom of the page are the real issues with it I believe.

basically, as long as we dominate the world it isn't really much of a problem. but bob help us when the empire collapses.

It's far overblowen. The debt isn't as big of a deal as some make it out to seem. The US is still a good place to do business or people would stop investing.

The main problem with the debt is the interest payments; we're talking expenditures on the level of the defense budget being spent on interest on our debt. That's money being literally thrown away because we continue to borrow more and more money; even worse, the interest payments are growing faster than the general budget meaning they take up a bigger and bigger share of revenue each year.

Another problem is the unfunded entitlements that are coming in the next half century; these liabilities are on the scale of the entire economy or multiples of it, and there is no plan to pay for them or reform them. The government needs to ditch its cash-accounting propaganda numbers and report the real deficit numbers; if we did that, we wouldn't be as likely to waste money. For example, according to the GAAP standards the US ran a deficit of over $700 billion last year, $11 trillion in 2004 and $12.7 trillion in 2000.

basically, as long as we dominate the world it isn't really much of a problem. but bob help us when the empire collapses.

Its gonna happen in the near future. I beat $20 on it...erm...well $20 will be worthless at that point. So like..20 euro then :)

In the short term, we might be able to handle it. In the middle-term, we're fucked. And in the long term, we're all dead and it's someone else's problem.

In the short term, we might be able to handle it. In the middle-term, we're fucked. And in the long term, we're all dead and it's someone else's problem.

Well, I'll hopefully be alive in the 2050's; I'll only be in my 70's by then and with advances in medical technology it's a pretty safe bet I'll be alive for the aftermath as well.

Luckily, I won't need SS/Medicare if I invest wisely...

Oh my yes. Lets pay off the U.S. National debt, and while we're at it, collapse the Global Economy all the way into the fourth world.

Do you have any idea how mamy banks hold the U.S. National Debt? There are entire economies based solely on the fact that the U.S. is indebted to their national bank. If the U.S. was to decide to pay off the national debt, hundreds of banks would collapse overnight in a 'Great Depression' that would make the one in the thirties look like a little teen angst.

Well, I'll hopefully be alive in the 2050's; I'll only be in my 70's by then and with advances in medical technology it's a pretty safe bet I'll be alive for the aftermath as well.

Luckily, I won't need SS/Medicare if I invest wisely...Aw, I was hoping you'd catch the Keynes reference.

Oh my yes. Lets pay off the U.S. National debt, and while we're at it, collapse the Global Economy all the way into the fourth world.

Do you have any idea how mamy banks hold the U.S. National Debt? There are entire economies based solely on the fact that the U.S. is indebted to their national bank. If the U.S. was to decide to pay off the national debt, hundreds of banks would collapse overnight in a 'Great Depression' that would make the one in the thirties look like a little teen angst.

Well, considering that we couldn't pay off the national debt quickly without utterly destroying our own economy, I think there's little chance of that happening. We can, however, stop adding to that debt, and start reducing it slowly without that threat.

Do you have any idea how mamy banks hold the U.S. National Debt? There are entire economies based solely on the fact that the U.S. is indebted to their national bank. If the U.S. was to decide to pay off the national debt, hundreds of banks would collapse overnight in a 'Great Depression' that would make the one in the thirties look like a little teen angst.

No it wouldn't! When you pay back debt, the money goes back to the lender who can lend it to others and reinvest it in their business; paying off that debt would just result in it being lent to someone else, invested in to a business or simply held as cash until a better investment is found. There would be absolutely no negative effect on the economy because the money is simply changing hands.

In fact, paying back that debt would make it even harder for a bank to collapse because they have the money; it's not like a non-performing loan, when the debtor defaults on the money and the bank doesn't get it causing them to lose money.

Even so, the US national debt is only $8.5 trillion dollars or less than 15% of the world economy; global trade volume is larger than this and one year of world GDP growth is equal to nearly half of it; this year, the world economy will grow by about $3 trillion dollars (or 4%) and will grow between 3-4% for the next few years. Our national debt has been totally absorbed by economic growth over the past decade.

Aw, I was hoping you'd catch the Keynes reference.

I caught it, but Keynes didn't take in to account the fact that there will be unlucky bastards who live long enough to see the long term. :p

Well, I'll hopefully be alive in the 2050's; I'll only be in my 70's by then and with advances in medical technology it's a pretty safe bet I'll be alive for the aftermath as well.

i figure that if we make it that far the debt won't be of much concern, what with the revolution and all

No it wouldn't! When you pay back debt, the money goes back to the lender who can lend it to others and reinvest it in their business; paying off that debt would just result in it being lent to someone else, invested in to a business or simply held as cash until a better investment is found. There would be absolutely no negative effect on the economy because the money is simply changing hands.

In fact, paying back that debt would make it even harder for a bank to collapse because they have the money; it's not like a non-performing loan, when the debtor defaults on the money and the bank doesn't get it causing them to lose money.

Even so, the US national debt is only $8.5 trillion dollars or less than 15% of the world economy; global trade volume is larger than this and one year of world GDP growth is equal to nearly half of it; this year, the world economy will grow by about $3 trillion dollars (or 4%) and will grow between 3-4% for the next few years. Our national debt has been totally absorbed by economic growth over the past decade.
I took him to mean using something like devaluation to pay back the debt, like Britain did in the late 20s when they devalued the pound and helped trigger the Great Depression. We could certainly print enough dollars to pay China and everyone else, but the damage it would do would be staggering to ourselves and the rest of the world economy.

I took him to mean using something like devaluation to pay back the debt, like Britain did in the late 20s when they devalued the pound and helped trigger the Great Depression. We could certainly print enough dollars to pay China and everyone else, but the damage it would do would be staggering to ourselves and the rest of the world economy.

Oh, you mean printing money...devaluation leads to economic disaster, and I'd rather pay vastly higher taxes to fund it than collapse the entire system.

I think I said it before in another thread: if you ever hear that the US needs to print money to pay its debt, it's time to GTFO as fast as possible because everything is going to hell.

Its gonna happen in the near future. I beat $20 on it...erm...well $20 will be worthless at that point. So like..20 euro then :)


Given the interdependcies of the modern world economy, 20 EU (or Yen, or just about anything) would be worthless at that point. When 20-25% of the global economy goes, it's taking EVERYTHING with it.

Aw, I was hoping you'd catch the Keynes reference.
Especially since the article-in-question is one big homage to Keynes.

Two words: Generational Accounts.

Who's up for 70% tax rates?

Myth #1: The National Debt will cause the United States to go bankrupt
Reality: The U.S. is not like you or me. The U.S. government has the power to tax the largest economy in the world, the power to print money and has an infinite life expectancy. All of these factors mean the federal government can incur large amounts of debt.
So we shouldn't be worried because the US govt could:
Tax the worldest biggest economy into the ground, thus causing a worldwide depression (and of course this massive tax hike would be happily accepted by the US public), or
Cause massive inflation by printing trillions of extra bills.

hmm...That really makes me feel so much better.


(Also, I wasn't aware any country, let alone the US, had an infinite life expectancy. Someone best tell Stephen Hawkings his views on the Universe, and the life-cycle of the sun are wrong)

(Also, I wasn't aware any country, let alone the US, had an infinite life expectancy. Someone best tell Stephen Hawkings his views on the Universe, and the life-cycle of the sun are wrong)

Well, he only has a theory so its like evolution. And as we all know a theory is unproven.

Like the theory of gravity

I think it's bad policy to run a large debt, because it basically sends the taxpayer's money away to other people (namely the people who have the money to pay for bonds. This means that the lowest class isn't going to benefit; only those with large amounts of spending money), rather than spending it on useful programs.

On the other hand: Keynes said to run a debt in hard times, and a surplus in good times. I'm not sure I agree with him, but I am sure he knew more about economics then I'll ever know.

The last thing to keep in mind is that while most of the world holds it's debts in US Dollars, the US owns all of it's debt in US dollars. That means if things get bad enough, the US can just inflate the dollar. That's not a good thing, but if the difference is harrassment because the US has failed to pay a debt (say, to China), the US can say "We've payed you" in a second.

Myth #5: The national debt is out of control.
Reality: The true measure of the debt of a nation is the ratio of that debt to the size of the economy. The debt-to-GDP ratio for the U.S. is relatively modest compared (1) to other nations and (2) historically
"modest" is obvious a relative term, here.
As is "historically".

The last the US had a debt-GDP ratio this high was way back in 1950. Beginning of WWII (1940) it was around 50%. By 1944, it started increasing obscenely, peaking at approx 120% (!) by 1946.
However, it then started fall back quickly and was back down below 50% by the mid-50s.
It continued to fall consistently over the next 3 decades, until 1980.
When Reagan got in, partially on the back of his promise to balance the budget.
When he came to power, the US debt-GDP ratio was down to 33%.
By the time he left, it was up to 52% - a 64% increase in debt-GDP.
This continued with Bush snr, predictably (as he was in the same "cut taxes to the rich and increase spending" mind-set as Reagan).
It (the Debt-GDP ratio) peaked in 1996 at 67%, when Clinton was finally able to reign in spending even with a hostile congress.
By the time Clinton left, it had dropped down to 57% - a 15% drop in 4 years.

Since the Bush jnr admin...
First tax cut led to the Debt-GDP ratio immediately rising to 60%. Since then, with the massive increase in military spending (which has increased by around $50Bill every year), tax cuts and increased spending, the Debt-GDP ratio has grown to almost 70% - the highest in over 50 years.

Historically it's 'modest'?
Not when you take the time to look at the actual historical figures it ain't.

http://www.cedarcomm.com/%7Estevelm1/usdebt_files/image004.gif

Now if you still don't think that's a problem, then let's look at the ratio of the increment in the dollar volume of the U.S. economy's debt, to the increment of the dollar size of Gross Domestic Product.
Throughout the 1970s, for every dollar of increase in GDP, there was $1.75 increase in debt;
throughout the 1990s, for every dollar of increase in GDP, there was $3.64 increase in GDP.
But for the period of 2001-03, every dollar increase in GDP required an increase in debt of $7.11 - double the rate a decade ago, and quadruple the rate in the 70's.

If we then turned to compare debt to real GDP - that is the productive portion of GDP, which consists of the productive output of the manufacturing, agriculture, construction, mining, public utilities, and transportation sectors. In other words the part of GDP that actually makes things and produces the wealth with which debt can be paid off.

Throughout the 1970s, for every dollar of increase in productive, or real, GDP there was a $4.25 increase in debt;
throughout the 1990s, for every dollar of increase in real GDP, there was a $13.90 increase in debt.
However, in the 2001-03 period, each dollar of increment in real GDP required a $63.51 increase in debt.
http://www.larouchepub.com/other/2004/3106usdebt_pt2.html

Does anyone truly believe that is manageable and controllable?


(as an aside, I see the place I live in now - HK - has the lowest Debt-GDP ratio in the world at a ridiculously low 1.8%!
Want to know something even more ridiculous? The Administration is pushing to have a 5% GST introduced! This is inspite of having a massive year-on-year surplus)

So, according to the graph above, we need to spend more on defense. :nods:

I think it's bad policy to run a large debt, because it basically sends the taxpayer's money away to other people (namely the people who have the money to pay for bonds. This means that the lowest class isn't going to benefit; only those with large amounts of spending money), rather than spending it on useful programs.

On the other hand: Keynes said to run a debt in hard times, and a surplus in good times. I'm not sure I agree with him, but I am sure he knew more about economics then I'll ever know.
All he knew was every single wrong economic approach, ever. And that's what he advocated.


The last thing to keep in mind is that while most of the world holds it's debts in US Dollars, the US owns all of it's debt in US dollars. That means if things get bad enough, the US can just inflate the dollar. That's not a good thing, but if the difference is harrassment because the US has failed to pay a debt (say, to China), the US can say "We've payed you" in a second.
And then we run into hyperinflation.

All he knew was every single wrong economic approach, ever. And that's what he advocated.


I wonder, is this your 'professional' opinion?

I'm no economist, but from what I understand of what my last macro-economics teacher explained it.
The U.S. debt is held by many banks.
These banks count the debt as capital (the debt is not owed to them, it is just held by them) and can incur loans on the U.S. debt (borrow money from governments, esp. the U.S. and nations to which the U.S. owes money) which can then be dispensed to the populace as loans and investments.
If the U.S. were to come up with the money to repay the debt without causing inflation (new source of capital, raised taxes, etc.) and then payed of the debt, these banks would collapse because they would suddenly have no capital to back up the various loans and investments they've made based on the debt.

I'm no economist, but from what I understand of what my last macro-economics teacher explained it.
The U.S. debt is held by many banks.
These banks count the debt as capital (the debt is not owed to them, it is just held by them) and can incur loans on the U.S. debt (borrow money from governments, esp. the U.S. and nations to which the U.S. owes money) which can then be dispensed to the populace as loans and investments.
If the U.S. were to come up with the money to repay the debt without causing inflation (new source of capital, raised taxes, etc.) and then payed of the debt, these banks would collapse because they would suddenly have no capital to back up the various loans and investments they've made based on the debt.
They don't have the capital to do that now, anyway. The "capital" is unbacked--that's why what we have now is called "fractional reserve banking". The whole system is based on smoke and mirrors.

It's far overblowen. The debt isn't as big of a deal as some make it out to seem. The US is still a good place to do business or people would stop investing.

OVERBLOWN?!?! OVERBLOWN?!?! We owe 5.6 TRILLION dollars in debt. 15% of that to other countries. And we HAVE to pay that back eventually. People will eventually stop taking us for our word and say "Pay up.". And we won't be able to. And voila. The U.S. is in deep shit.