Topic: Everyone says US can't raise debt ceiling forever. Why? - page 4. (Read 5130 times)

Bitcoin co-exists with dollars the way sterling does.  Bitcoin is great for international transfers and for things you want kept private.  I don't accept its a wealth storage vehicle - I wouldn't expect someone saving for a pension to invest in bitcoin as the fluctuations would kill them. 

Actually they can.  Think about it.  A company make as many shoes as they want and sell for whatever the market will bear.  If they don't like the price, they will stop.  And its the exact same with governments and money.

Except, going back to money, bitcoin is the nongovernment "whisky" and it does the jobs of wealth storage and international transfer far better.

You're forgetting that whisky is an analogy only, and like all models fails in many respects.  Though the whisky made by people other than the government issuer may look & taste like whisky, it won't get you drunk like gobment whisky.  The "drunk" is the "backing" of currency.

But they can't.  There are only so many feet that need shoes.

OK scratch whiskey - Ergogan used the analogy of whiskey being diluted in a bar.  

A government and money is like a shoe factory and shoes.  They can make as much as they want and charge whatever the market will bear.  

More money does not imply inflation.  That's a misunderstanding on your part.  If for each new dollar printed an extra dollar's_worth_of_goods (stuff to buy with dollars) is created, the prices stay the same = no inflation.  


Again, this is false.  No one is lending "non-existing money" -- that money is as real as bitcoins.  As far as "bullying" goes, that's neither here nor there when discussing how things work IRL.  Personally, i think nice people should have more money than not-so-nice people.  Unfortunately, my opinion has no bearing on how wealth is distributed or the mechanics of national debt.

Its game theory & con game rolled into one.  If the debt ceiling can be raised forever, I can assume at some point it will be 950+ Trillion and growing. This requires dollar creation to pay off. Knowing that each dollar is worth less in the future ad infinitum, I can conclude the dollar today is worthless.

But keep the dog and pony show going every time the ceiling is hit, and I might not make that conclusion. Expect bigger and better shows in the future.

Because there are laws keeping out competition.  If anyone could make whisky, they would easily meet demand and price would be a small markup over costs.

Bernanke is right - the current danger comes from unemployment not from inflation.  He can print money all day and all night but if the market is benefiting from massive oversupply of  capacity and labour, prices of manufactured goods won't rise.

When it comes to government and currency, the better analogy to compare to is a distillery and whiskey.  They can make as much as they want and charge whatever the market will bear.  

Bernanke says "appearantly, there is no inflation". He appearantly knows that more money leads to inflation, can't see it, and then shrugs and takes advantage of the situation.

The government is really like a person with a credit card, but with these differences: The governement lives forever, so the lenders don't  worry about that. Second, like a bully, it can just take whatever it wants from the constituents in taxes. Third, it can print new money and lend out non-existing money, which is analog to a bar owner diluting the whisky.

Well, what's the point of having a debt ceiling when they increase it every time when debt is almost there. Its as good as not having .

In other words, this can't go on because fuck you, that's why.
Hwaker's argument ("Classic fallacy comparing a person with a credit card to a government.") is spot-on.
Unlike bitcoin miners, which only shut down when the expenses of running them become greater than the coin they mine, government printing presses are extremely energy-efficient, and have plenty of margin to eat through before printing paper becomes unprofitable.

Further, fiat currency has no artificial ceiling which exists for bitcoin.  The maximum number of dollars in circulation is not limited to 21 million, 21 billion, or 21 trillion, and the only other "miners" the dollar needs to compete with are other fiat currencies.
Cheer up, the future of USD is bright

they have to pay interest rates for this debt. Japan is paying 1/3 of its income as interest rates. Guess what will happen when it will be 100% of income.

As kokomoko said "If interest rates get to high, the American government won't be able to sustain itself. At this point, it doesn't matter how high the debt ceiling is, foreigners won't lend their capital to the government."

Which is pretty much equal to "cannot raise dept ceiling forever".

I personally and subjectively think that US keeps doing what it has been doing because
a) if they get more money from other countries they just use it to prepare for the great default
b) should great default happen, US will say "sorry dudes, I'm broke and you will never see your money again"
c) should other countries demand US to pay with its natural resources it will use the military force to defend itself (initially funded with the lenders' money).

win win for the US, am I right?

To me it seems like "C'mon man, borrow me your money so that I can become more powerful than you in the military aspect and will never have to pay you back because I'm stronger than you."

Well, I still believe that debt ceiling can be raised forever. Where did you get the info from?

The second question is actually the answer to the first question, if you ask me. The US has been borrowing more than it can afford to repay for at least 50 years, and has spent most of it on military campaigns. Makes the ones doing the lending look just as guilty in the war crimes committed by the US.  

Classic fallacy comparing a person with a credit card to a government.  Of course you could live on a credit card forever if you owned a money printing press.  The best thing is that once you are really seriously in debt, the lenders are screwed.  They are more scared of you defaulting that you are of borrowing.  So they reduce your interest rate.

Provided there is no better use for the money, the state can raise its debt ceiling forever.  It only starts to matter when there are lots of safer more profitable places to invest a few trillion than government bonds.  And that isn't ever likely to happen.

Most countries don't have a 'debt ceiling', thats all just part of a big charade in the US. However the US government has a huge deficit, like 1 trillion dollars per year or something, they're paying it off with more debt. This can't go on forever because its mental. You can't live on a credit card forever. 

The debt ceiling can be raised as high as the US government wants, but where do you think all that debt came from?

Foreigners and/or American citizens need to be persuaded to lend the country money. The interest on the debt is their incentive to lend money. If the American debt gets to high, they will insist on higher interest rates to compensate them for the risk. If interest rates get to high, the American government won't be able to sustain itself. At this point, it doesn't matter how high the debt ceiling is, foreigners won't lend their capital to the government.

There is a temporary reprive for the government. Becuase the US dollar is fiat money, they can print unlimited quantities. (This is known by the euphamism "quantitative easing"). However, as the amount of dollars in circulation increases, the value of each individual dollar falls. In this instance, interest rates still rise because the lenders factor in the fact that the money they are getting back is worth less and less. Simultaneously, this causes inflation. People who hold the currency, (predominately the middle and upper classes) are effectively stolen from to fund the government.

In summary, the debt ceiling is irrelevant. If politicians actually honored the debt ceiling, then it would be relevant, but by simply raising it every time they need to borrow more money the countries leadership shows that it has no intention of getting it's finances into shape.

You second question isn't theoretical. It is happening right now. There is no way the American, Japanese and British governments can ever pay back the debt they owe. None. By printing currency the USA and GB have effectively defaulted on thier debts. The Western world will at some point be forced into a severe recession of the type Greece and Portugal are currently experiencing. At this point the governments will be forced to cut spending back to a sustainable level. It is this brutal recession that fixes the problems that have been building up during the "great moderation" which is a term used to describe the period between the 90's and 2008 when interest rates where low and the economy was booming.

You mentioned that these countries could effectively threaten others that they owe money too. I don't think this is fesible. The Obama administration has shown it wants other countries to take the lead in Libya and Syria. The next president may be more gung ho, but bear in mind that enormous military spending has been financed with borrowed money, so this will have to be cut soon when interest rates start to rise again.

Peter Schiff and Kyle Bass are two hedge fund managers that have discussed this point in detail. A quick you tube search will give you a lot of info on this topic.