Topic: Is the US national "debt" an illusion? - page 3. (Read 6690 times)

*bump*

As long as people trust USD and use it to measure value, the debt can always be paid back by printing USD. For most of the people, including people in other countries, that trust is almost unshakeable. So debt is the least to worry about

Sure, banks have printed 5x more USD and diluted the USD value dramatically, but for average people, they will never raise the price of their products/services based on USD money supply, their pricing is depends on cost and competition, and since we have continuous improvement over efficiency due to automation and computer, the price might even drop

I pity anyone who tries to understand the U.S. fiscal debate, given how much nonsense is out there.  Economics continues to be used as a way to dress up the most crass anti-government prejudices, and numbers can always be quoted out of context to twist reality. 

Most people do not know that the american dollar (fiat currency) is a government i.o.u. that you used to be able to cash in at a bank for gold or silver. the problem now is that there is only pennies of collateral (ffort knox) backing up all of the i.o.u. dollar bills floating around the world, so, when a large amount of them are cashed in...ooops, bye bye economy, us declares bankruptcy, and anyone that is invested in the us dollar goes down with it. no wonder all the u.s. creditor nations are selling u.s. dollars (fto other fools) for real assets like gold and other "real", tangible goods. The thing is this time there is also Bitcoin and the sky is the limit.

There are alternative, non-debt based fiat options the US Treasury could employ to pay off the debt and continue to stimulate economic growth. However, these strategies would be completely revolutionary, and would essentialy make the president an elected king. Conspiracy theorists suggest this was JFK's intention with EO 11110. I read the order and do not interpret it the same way as the tinfoil hat crowd, but I do understand the underlying philosophy. It is good economics, but terrible politics.

Any major move away from the Fed would be the nuclear option of monetary policy. It would result in an entire shift in the world order, and would not be without consequence. The emotional sense of false scarcity that central banks and sovereign debt create governs the amount of natural resources populations consume, and forces societies to work together. Unless your favorite movie is "300," the current world order is probably for you. It is better we play along with the debt game as enlightened participants than experience a complete revolution. And by revolution, I mean bloody.

However, if we don't step on the gas now and print our way out of this mess there will likely be another type of revolution. Or at least a big fire. That fact is pretty well laid out in history books, including the one King James commissioned.

yeah, I don't see how OP didn't think of that.  The National Debt is literally the Debt that we owe.  Isn't there a U.S national debt counter in Arizona or something?  the more the Debt goes up, the more there is an issue, when it starts decreasing, that is when we know the problem is fixed and over with. 

The corporate oligarchy is another ball of wax. At the end of the day, it really is the government's fault. In this case, I blame the SBA.

Isn't the widespread corporate consolidation really just a result of the difference between the cost of capital for small and big business? Big business borrows at a 2.5% interest rate, paying only interest for the term of the loan. Small business borrows at 5-7%, amortizing (paid off in full) over 5-10 years.

The debt constant (annual payment/total loan) for small business can be upwards of 25%-30% vs 2.5% for big business. Small business loan payments are typically TEN TIMES MORE EXPENSIVE than big business loan payments.

Additionally, small business loans are capped at $2-5 million. Big business loans have no limit. Also, small businesses loans restrict passive and "rent extracting" activities. Big business loans encourage them. These economic realities make small business investment nearly imposible and big business consolidation inevitable.

If America cares about small business and the middle class, we must lower interest rates on government-guaranteed small business loans (through SBA reform), offer more "interest only" options to keep small and big business borrowing costs competitive, increase small business loan limits, and widen the scope of small business loans to include financial and rent extracting activity. These moves would strengthen the small businesses that currently exist, stimulate the formation of new small businesses, and enrich American business owners and small business employees alike.

Otherwise we all be working at Wal-Mart for the rest of our lives. F- that. Let them eat my cake.

Debt is very different from the view of a private person than the view of the whole society

A private person can keep fiscal discipline and always first make more money then spend, so he don't need to take any loan. But in order for everyone as a whole to make more money, some money must flow into the society at the first place, and this new money is injected in the form of loan

Before, new money is injected by newly mined gold/silver, but since the removal of gold standard, new money only enter the society in the form of loan, e.g. government borrow it from central bank and spend, company borrow it from banks and spend. Since each borrowed dollar carry an interest, it is impossible to repay the loan with existing money, so more money must be borrowed each year just to cover the cost in interest, thus the debt keeps going up

Even the interest is zero, if economy expands and society becomes more wealthy, there will be more money needed each year, and those money can not be mined like gold as before, they must come into existence in the form of loan. In fact FED can purchase assets to issue money, that does not involve loan, but unfortunately they already ran out of assets to purchase, the only one left is bond

Currently, most businesses work on debt. But with sound money, this will not be strictly necessary. If one person or association does not have enough money to buy the capital needed, they can just team up with more persons. Lending to a company, or investing directly, both involve risk. The owners can take up a loan to avoid diluting their projected profit, and for a lender, the loan can be less hazzle and less risky (since loans have priority over share owners). A loan fraction of about half, was considered prudent in the old days. Loans for business is useful, but not absolutely necessary.

Private loans, however, are sometimes necessary. Sometimes you need a house or a car right now. Life does not wait. The "collateral" for the loan is your future earning potential. With a risk premium to the interest, risk can be spread over several loans, and can thus be quite safe for the lender.

This reminds me of an old school shipowner, when asked about the equity, he said: We have as much in the bank as all the ships costed. That means the equity was 200 % of working capital, 400% if you consider that the ships were worn by half on average. The point of the large equity base was, since shipowning is a risky business, to avoid having to sell when prices were low. Analogous to being margin called when you play with futures.

 

but this luck goes to 1 out of 100 

We can sit around and talk about this for eternity regarding how it affects nations or individuals: plain and simple - worry about yourself and those important to you.

Live within your means, adapt to the changing systems of the world and plan for the worst (hoping for the best).

Take a look at this graph:




If Japan’s debt-to-GDP ratio is more than two times greater than America’s, does this indicate that we are far from the edge of the cliff? In other words, could we support a debt burden of $30 or $40 trillion? Considering the myriad of economic problems Japan has faced since 1990, let’s just say I would hate to test this hypothesis.

it's always been a confidence game, "con game" in short.

Yeah, all businesses work on debt. Your only chances to make it outside the class you are born with is getting into debt to make your business a reality, and have luck that it is a succeed and you can pay it back + make profit.

no country can survive without debts nowadays.

at least part of the debt is owed to itself, in terms of social security, municipal bonds, and some to the fed.  only about 15/16% is owed to china & japan

The debt is in the sense of consequences is real and people will suffer it unfortunately. The problem is not individuals. The problem is irresponsible government spending. The Republicans are just as responsible (maybe more) then the Democrats. As a country life is going to be radically different in ten years or less.

Zero Hedge submits to reality and starts the drumbeat for QE4:

http://www.zerohedge.com/news/2015-03-22/next-move-fed-trial-balloning-qe4

This is because you don't live in other places. Freedom is good in USA.

Is it even possible to discuss US monetary policy without a quantitative understanding of M3? Foreign central banks have resumed reporting their M3 money supplies and the information has been vital to their economic recoveries. The Fed stopped reporting M3 under Bush. Does Obama have what it takes to force the Fed to resume reporting this stastitic, or is that going to be the job of future President Paul?