How will the US pay back its debt? - Politics Forum.org | PoFo

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Everything from personal credit card debt to government borrowing debt.

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By rik
#13760459
It is mathematically impossible at this point, as this article suggests?

This is pretty much what is going to bankrupt America.
The debt has to be service, no matter what. That means Americans are eventually going to be working to serve the interests of other nations, such as China, Japan, and the UK.

There is one possibility of paying off the debt...

Start drilling for oil like Norway and Canada are doing, and cut government spending simultaneously.
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By Genghis Khan
#13760474
rik wrote:Start drilling for oil


If you had bothered checking official stats, you would know that under Bush, drilling went down and spiked up again under Obama.
By lucky
#13760498
The article doesn't make any sense.

If the U.S. government went out today and took every single penny from every single American bank, business and taxpayer, they still would not be able to pay off the national debt. And if they did that, obviously American society would stop functioning because nobody would have any money to buy or sell anything.

That's incorrect: if you pay off your debt the money does not disappear. The people you have paid the money to now have that money. They are confusing paying somebody money with destroying money.

Even if there is only $100 of cash in circulation, it is not impossible to pay off a debt of $200: pay $100 in cash, then earn (or tax) $100, then pay the other half.

In short: the ability to pay off a debt has nothing to do with money supply. Money supply has to do with liquidity preferences. Many people pay off mortgages much larger than what their savings account balance ever grows to.
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By dilpill
#13760509
Uh, this is a horrible article.
The Federal Reserve is a private bank owned and operated for profit by a very powerful group of elite international bankers.

The Federal Reserve is a (semi-)independent agency that determines and executes the monetary policy of the United States. It is not owned by a powerful group of "elite international bankers". As required by law, the profit that the Fed makes is given to the US Treasury as a source of miscellaneous revenue. Because of this, interest payments on the debt held by the Federal Reserve don't have a very large impact on the deficit.

So, when the U.S. government needs to borrow more money (which happens a lot these days) it goes over to the Federal Reserve and asks them for some more green pieces of paper called Federal Reserve Notes.

No, that's not what happens. The government sells Treasury securities to the general public. To carry out monetary policy, the Federal Reserve purchases (or sells some of its holdings of) these securities from (or to) the same general public. The biggest holders (in no particular order) of Treasury securities are banks, pension funds, foreign central banks, and the US government itself (the Federal Reserve, the Social Security trust fund, and various other places).

The rest of the article is a fundamental misunderstanding of "money". Money is used over and over and over. It doesn't matter that M2 is less than our national debt. M2 is less than our annual economic output! Money used to repay debt does not suddenly disappear; it goes back into the economy whenever the creditor it's returned to spends it or loans it to someone who spends it.
By rik
#13760587
If you had bothered checking official stats, you would know that under Bush, drilling went down and spiked up again under Obama.

What official stats?
How is your response relevant to this topic?

What's with all the lazy responses your people always post? I think you people post garbage like this, just to see your post count go up. Why that matters to you, I have no idea.

Even if there is only $100 of cash in circulation, it is not impossible to pay off a debt of $200: pay $100 in cash, then earn (or tax) $100, then pay the other half.

You're assuming the debtor can come up with $100 in cash.
You also forget that while the debt is not yet paid off, interest has to be paid continuously.

Here is a hypothetical. If you owe $80,000 in credit card debt, and you only earn $20,000/year. Can you ever pay off that credit card debt?

In general though, unless Democrats do what Republicans are asking, which is to cut government spending, America is going to continue borrowing, and borrowing. And the debt is going to grow forever. Unless other big sources of income is allowed, such as oil drilling.
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By Daktoria
#13760601
dilpill wrote:Uh, this is a horrible article.

The Federal Reserve is a (semi-)independent agency that determines and executes the monetary policy of the United States. It is not owned by a powerful group of "elite international bankers". As required by law, the profit that the Fed makes is given to the US Treasury as a source of miscellaneous revenue. Because of this, interest payments on the debt held by the Federal Reserve don't have a very large impact on the deficit.

No, that's not what happens. The government sells Treasury securities to the general public. To carry out monetary policy, the Federal Reserve purchases (or sells some of its holdings of) these securities from (or to) the same general public. The biggest holders (in no particular order) of Treasury securities are banks, pension funds, foreign central banks, and the US government itself (the Federal Reserve, the Social Security trust fund, and various other places).

The rest of the article is a fundamental misunderstanding of "money". Money is used over and over and over. It doesn't matter that M2 is less than our national debt. M2 is less than our annual economic output! Money used to repay debt does not suddenly disappear; it goes back into the economy whenever the creditor it's returned to spends it or loans it to someone who spends it.


Exactamundo.

Bad article. Doesn't understand the circular flow of income, doesn't understand money velocity, doesn't understand money supply...

...however...

...if debt grows faster than GDP growth, then yes, debt will be impossible to pay off.

Eventually, this will lead to a time when interest on debt grows faster than GDP growth. That's when your country is doomed to fall apart because the space in your budget for even mandatory spending will get squished. This will accelerate as the demand for treasury securities goes down from being a poor return on investment which will drive down prices and drive up yields.

Countries are becoming more lax on debt because people are becoming more and more socially democratic and less and less economically appreciative and aware. As pragmatism expands, financial literacy will die, and civil resentment will take off.

Eventually, (I'd say 50-60 years from now) there will come a point when countries will attempt to refinance their debt by introducing new currencies. This could go either way. Either one, financiers will cooperate and markets will implode such that worldwide logistics completely disintegrate, or two, financiers fail to cooperate, old currency is replaced by new currency, and a new age of social equality becomes paramount.

This will not be a good new age though. It will appear good, but the only reason is because most people will become docile and give up on certainty in the rule of law. They'll realize life sucks, but there's nothing they can do to change it, so charismatically ambitious people with insider information and political capital will have all the switches to pull and make people do whatever they want else risk not fitting in.
By Andropov
#13760607
I am pretty unknowledgable about economics. What are some books to get someone familiar with the subject?
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By Daktoria
#13760614
Andro, you don't want to ask me that question. I'll rattle off a list of libertarian texts you'll despise just from looking at it. :D
By lucky
#13760617
rik: Your argument is very different from the article's argument. I did not "forget" anything, I was just addressing the "mathematical" argument given in the article rather than every other possible reason the US might not pay off its debts.
By Kman
#13760631
dilpill wrote:The Federal Reserve is a (semi-)independent agency that determines and executes the monetary policy of the United States. It is not owned by a powerful group of "elite international bankers".


It is not independant, every position within the federal reserve system that exerts any significant power is filled by people the US government chooses. In such a situation it is not hard for the US government to make sure that the Fed will kiss the ass of Washington politicians because they can just choose to only appoint ass-kissers.

dilpill wrote:No, that's not what happens. The government sells Treasury securities to the general public. To carry out monetary policy, the Federal Reserve purchases (or sells some of its holdings of) these securities from (or to) the same general public.


Its all just a roundabout way to print money, the banks are in a cozy relationship with Washington where they buy treasury securities when the government needs money and then immediatly turns around and sell it to the Federal Reserve (making a nice fat profit in the process of this while suffering virtually no risk).

There is a reason why the dollar has not retained its value like it did in the 19th century but actually fallen by 95% since the Federal Reserve was created in 1913. That fall is the bankers and the US government impoverishing the average american by printing money out of thin air. It is slow, controlled and steady theft.
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By dilpill
#13760658
Kman wrote:Its all just a roundabout way to print money,

It's monetary policy, Kman. It works through the creation or destruction of money.
the banks are in a cozy relationship with Washington where they buy treasury securities when the government needs money and then immediatly turns around and sell it to the Federal Reserve (making a nice fat profit in the process of this while suffering virtually no risk).

The Federal Reserve doesn't automatically buy every single security issued by the Treasury... It currently holds $1.6 trillion out of a $14 trillion pool of debt. The amount of debt the Fed buys is determined by the monetary policy chosen by the Fed. The point of expansionary monetary policy is to inject more money into the banking system to lower interest rates.

As far as the profit earned by banks on selling securities to the Fed goes, it's not nearly as large or guaranteed as you are saying. The price the Fed pays for securities is the going secondary-market rate, which is very closely linked to the rates paid in Treasury bond auctions. Additionally, because of the extremely large size of the US Treasuries market and the number of investors involved, I don't see how it is likely for the profit derived from buying from the Treasury and selling to the Fed to be much more than normal profit.

There is a reason why the dollar has not retained its value like it did in the 19th century but actually fallen by 95% since the Federal Reserve was created in 1913. That fall is the bankers and the US government impoverishing the average american by printing money out of thin air. It is slow, controlled and steady theft.
I'm quite sure that people who kept all their savings in cash have been disappointed with the real rate of return for the last hundred years. Fortunately (for the economy as a whole and savers themselves), most people save by putting money in the bank or buying stocks and bonds.

But let's not try to derail this thread. We're getting a bit off topic.
Last edited by dilpill on 21 Jul 2011 03:16, edited 3 times in total.
By lucky
#13760660
Kman wrote:the banks are in a cozy relationship with Washington where they buy treasury securities when the government needs money and then immediatly turns around and sell it to the Federal Reserve (making a nice fat profit in the process of this while suffering virtually no risk)

What are you talking about? Treasuries are sold in public auctions. You can participate. If you see a no-risk profit opportunity in it, that's great, go for it.
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By Red Barn
#13760676
Rik wrote:And the debt is going to grow forever. Unless other big sources of income is allowed, such as oil drilling.

The only way that oil drilling would positively impact the debt would be if:

A) the oil companies were nationalized, or
B) private oil companies were taxed up the wazoo.

Which are you advocating?
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By Drlee
#13760703
^^

:lol: :up:

You forgot one Red. We could ban cars, ban manufacturing using US made plastic, ban the import of oil, sell our current production overseas and pay of the debt with the profits. Oh yea. We could ban abortion and gay marriage too. And ban taxes on private property. And ban income tax and force everyone to read Ayn Rand and go to the gold standard and open a school of alchemy and get more gold and sell the gold to China for electric cars and to India for tech support and to Mexico for a workforce that works and give gold to the UK because we like them and then we could ban social security and welfare and just give the old people and poor people all the gold they could carry and we could make Ron Paul king and that would make Rand Paul the prince and he could have children and one of them could date the Biebs and we would all want to go to the same church as him and be all Christian and stuff and eveyone could carry a gun but noone would shoot anyone because there would be no crime because there would be no poor people except the Mexians who are too busy doing all the work and the black people would not be poor anymore because they would have more gold than Mr. T and new kids would get older and go to college and get all pissed and become liberals and then they would un-ban gay marriage and abortion and become atheists and the whole thing would go to hell in a handbasket.......
By Kman
#13760866
dilpill wrote:It's monetary policy, Kman. It works through the creation or destruction of money.


Yeah and it is incredibly evil, most people recognize that price fixing on goods is very bad because it messes up supply and demand, people dont realize that what ''monetary policy'' actually is, is a form of price fixing of interest rates. Interest rates are the price for attaining loanable funds, the Fed is suppressing this price artificially in order to make it easier for borrowers to borrow money (and this practice of price suppression is the primary reason why the western world is up to its eyeballs in debt today).

dilpill wrote:The Federal Reserve doesn't automatically buy every single security issued by the Treasury... It currently holds $1.6 trillion out of a $14 trillion pool of debt. The amount of debt the Fed buys is determined by the monetary policy chosen by the Fed.


Yeah it holds that because private investors have pulled back from the treasury market because they think it is throwing money out the window to borrow to the US government at such low rates, so the Fed has stepped in and bought these treasuries in order to keep the whole rotten edifice called the modern financial system from collapsing again.

dilpill wrote:The point of expansionary monetary policy is to inject more money into the banking system to lower interest rates.


Yes thank you but I already know why they debasing the currency and holding interest rates far below their normal market rates.

dilpill wrote:Fortunately (for the economy as a whole and savers themselves), most people save by putting money in the bank or buying stocks and bonds.


Yes and that is part of what this whole evil scam is about, it is about constantly debasing the currency so that people saving up for retirement are forced to give their money to the investment bankers in order for the investment bankers to earn profits and commissions and artifically boost the price of stocks. The problem with this is that investing in stocks is incredibly risky, sometimes stocks go down and if you have invested your money in these stocks then you lose your retirement savings and have to depend on the government for support (which politicians love since this gives them more power over the people also). If you had a sound currency based on gold then it would not go down all the time, it would retain its value and that would enable people to save up for retirement without exposing themselves to risk. The evil financiers and politicians dont want that however because that means they will earn less money and be able to sell less government debt, so they make it impossible to protect your retirement savings with legal tender laws.

It makes me so angry to think about the enormous manipulation of these people, when you really get to understand economics like I do then you realize how incredibly rotten our current system is and how much suffering and misery this evil system inflicts on the general population (who for the most part dont know what is going on behind the scenes).
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By Potemkin
#13760924
Yes and that is part of what this whole evil scam is about, it is about constantly debasing the currency so that people saving up for retirement are forced to give their money to the investment bankers in order for the investment bankers to earn profits and commissions and artifically boost the price of stocks. The problem with this is that investing in stocks is incredibly risky, sometimes stocks go down and if you have invested your money in these stocks then you lose your retirement savings and have to depend on the government for support (which politicians love since this gives them more power over the people also). If you had a sound currency based on gold then it would not go down all the time, it would retain its value and that would enable people to save up for retirement without exposing themselves to risk. The evil financiers and politicians dont want that however because that means they will earn less money and be able to sell less government debt, so they make it impossible to protect your retirement savings with legal tender laws.

It makes me so angry to think about the enormous manipulation of these people, when you really get to understand economics like I do then you realize how incredibly rotten our current system is and how much suffering and misery this evil system inflicts on the general population (who for the most part dont know what is going on behind the scenes).

Wow. Libertarians are like Marxists who were dropped on their heads when they were babies. Just... wow. :eek:
By rik
#13760927
The only way that oil drilling would positively impact the debt would be if:

A) the oil companies were nationalized, or
B) private oil companies were taxed up the wazoo.

That is not the way I'm looking at it.

1. Drilling our own oil would reduce our deficit. Less import.

2. Reduced deficit, means stronger dollar. Since Chinese RMB is pegged to the Dollar, it means a stronger dollar = a stronger RMB. Stronger RMB makes Chinese goods more expensive. This would be an opportunity for American manufacturers to sell more goods globally. More sales = more export. More export = lower deficit.

3. You know that high gas prices = high energy prices over all. Drilling would reduce crude price globally, thereby boosting our economy.

4. Since oil prices directly affects the price of everything, price of groceries, and practically everything else would fall. That means more money for Americans to setup new businesses, and create more tax payers. More tax payers = more revenue for the government. When the government has more revenue, it can pay down the debt faster.

5. Oil drilling would create jobs, i.e. reduce unemployment -> meaning more tax payers -> meaning more government tax revenue -> meaning quicker debt payment.

6. Domestic oil drilling = less money sent to Saudi Arabia = less money spent combating islamic terrorism = more money to pay down the debt.

Drilling for oil would have such huge ripple effects than I can even think about.

Now, I understand that there is a huge group of people in this country with tunnel vision. They've been told that oil pollutes, and therefore must be banned. My feeling is, if we've used oil for this long, and are still OK, we can use it several decades more, while slowly transitioning to alternative energy sources.
Last edited by rik on 21 Jul 2011 15:21, edited 1 time in total.
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By dilpill
#13760936
Kman wrote:Yeah and it is incredibly evil, most people recognize that price fixing on goods is very bad because it messes up supply and demand, people dont realize that what ''monetary policy'' actually is, is a form of price fixing of interest rates.

No, this is not a form of standard price fixing. Since the Fed actually changes the supply of money instead of just telling banks that they have to lend at certain interest rates, there aren't the same problems as when the government has a price floor or price ceiling.

Kman wrote:Yeah it holds that because private investors have pulled back from the treasury market because they think it is throwing money out the window to borrow to the US government at such low rates, so the Fed has stepped in and bought these treasuries in order to keep the whole rotten edifice called the modern financial system from collapsing again.

The Fed didn't buy the treasuries because the government is in debt. They utilized expansionary monetary policy because inflation is low, GDP is below potential, and unemployment is high.

Kman wrote:Yes and that is part of what this whole evil scam is about, it is about constantly debasing the currency so that people saving up for retirement are forced to give their money to the investment bankers in order for the investment bankers to earn profits and commissions and artifically boost the price of stocks. The problem with this is that investing in stocks is incredibly risky, sometimes stocks go down and if you have invested your money in these stocks then you lose your retirement savings and have to depend on the government for support (which politicians love since this gives them more power over the people also). If you had a sound currency based on gold then it would not go down all the time, it would retain its value and that would enable people to save up for retirement without exposing themselves to risk. The evil financiers and politicians dont want that however because that means they will earn less money and be able to sell less government debt, so they make it impossible to protect your retirement savings with legal tender laws.

Uh... :|

People aren't forced to change how they save. People don't have to save their money in stocks, but for most people, the higher rate of return is worth the extra risks involved. Those who want safer ways to save can use CDs or bonds. For 5-year government bonds, there has been a positive real interest rate for most of the last fifty years. If that's too risky for them, then yes, they do have to settle for the negative real rate of return on cash.
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