Topic: USA Debt Repayable - page 4. (Read 7599 times)

China (or any other nation with enough of our debt) dumps the dollar en masse, the economy tanks, and we're all boiling shoes - or each other - to eat.

US national debt is something i don't understand no matter how i think about it.
First, while it's debt, i can't see it in the same sense as i see *my* debt.  If i default on my mortgage, my house will be taken away.  Bad thing.  If US defaults on its loans,  What happens?  China isn't going to repossess Texas, unless it wants war, and it doesn't want war [yadda yadda yadda].  The mere act of trying to call in the loan would likely negatively impact both Chinese & US economies, in other words benefit neither China or US.  So the debt of a behemoth like US is nothing like my debt, it can't be modeled on debt people like me understand.  ("China" here is just a standin for "foreign creditor," not as provocation to Chinese people on this forum.)
If i look at it from a (probably very broken or at least skewed) perspective, it seems that US national debt is a good thing.  If China wishes to continue commerce with US and expects to be repaid without needless drama like full-on war, it's in China's best interest to see US economy thrive, amirite?  More, if US was indebted to a potential aggressor (I think i'll have to reach back to USSR to not sound foolish), that aggressor would be *less* likely to attack if US was in its debt.  (if you were a thief, would you steal from the a man who's in your debt, thereby assuring that he won't repay you, or from a man who has no financial obligations to you?  Assuming you are a thief & all other things are equal.)  I know my logic's flawed, but where  And if someone explains this to me, there are layers upon layers of things i don't get.  Turtles all the way down.

not always safe as you think:

http://www.dailymail.co.uk/news/article-1362561/Bank-gangsters-Police-open-7k-safety-deposit-boxes-discover-50m.html

There are.  Its called a safety deposit box.

I never undestood why there can't be just banks that take a fee to hold your currency. No lending, just store it as bits or cash...

Ofc this kind of bank would be at risk with goverments, but so are bonds...

Yes, the real value of investments in t-bonds generally goes down but the nominal value always goes up, at least in the US.

No.  If you want the security that lending to Germany, the UK, US or any of the big economies with their own currency, you have to accept that part of the principal will be lost to inflation.

Yeah this is pretty accurate, and it doesn't just apply to Taiwan or other countries. It also applies to 65 year olds with lots of savings entering retirement, trust funds or endowments with lots of cash, etc... If you have a lot of USD that you want to spend later, it's safest/easiest and pays some interest to put it in treasury bonds.

Of course, I think holding fiat is pretty crappy in general, whether they're in cash or treasury bonds, and I think bitcoin is the answer to that. I can understand why other countries with shakier currencies would rather hold USD than their local currency - the lesser of two crappy situations - but bitcoin would make more sense as the global reserve currency.


Are those inflation-adjusted bonds perhaps? I know that inflation-adjusted treasury bonds in the USA often have negative returns, although they're still always nominally positive.

I don't really have an article on hand (although the link I posted above is a great read) but there's demand for treasury bonds the same reason there's demand for USD. Treasury bonds are basically as good as cash, they rarely ever lose much (nominal) value, you can easily convert them to cash by selling them, and when they mature you're guaranteed to get face value. It's the safest thing you can do with cash (safer than savings accounts which are subject to bank failures for deposits beyond FDIC limits) and it pays some interest. It's also worth noting that plenty of treasury bonds are held domestically.

Perhaps the real question should be, why do so many people want USD? All treasury bonds are is USD that pays a little bit of interest...

It's interesting that you ask why foreign countries often demand USD treasury bonds instead of commodities or real goods/services. The USA runs a trade deficit with countries like China year after year. China sends us tons of clothes, electronics, appliances, etc... and in exchange we send back a lot of USD which our federal govt has an infinite supply of. If China turns around and buys treasury bonds with their USD, the only "debt" that we owe them is more USD - there's still no obligation to deliver any real goods.

It sounds like a great deal for the USA, we shell out credits for USD (the same way an airline hands out miles for its frequent flyer program) and in return we get real goods and services. However, the Chinese go out of their way to keep the trade deficit going while Americans bitch and moan that the trade deficit is "stealing" our jobs. Where's the logic in that?

Good explanaton as well although I would change the bolded. I have heard  somewhere that  German bonds have even 0 interest ( or minus) and still they are bought.

If you are another country, say Taiwan, and you have huge amounts of dollars from your export industries, you can't just stuff them under the mattress, you have to invest them.  And once you go over a billion dollars per month, its hard to find places to invest them.  The big countries are among the few places you can put the money and be sure of getting it back in 10 or 30 years.

As such, countries like the US, UK and Japan are guaranteed that they will have massive amounts of credit available provided they don't do anything stupid.  Thats why they are all able to borrow money for less than their inflation rates.  Investors who want zero risk are paying the countries to take the loans because there really is nowhere else to put the money.

My educated guess would be that they know that  if they don't the whole thing collapses. Something like throwing good money after bad. Maybe there is some expectation they EVENTUALLY something will be worked out.

Or maybe they are all in on it and will have the last laugh went it collapses and the "elites" have all the wealth.

This is the part I do not understand. If I am another country, why would I ever purchase US bonds? Obviously economists throughout the world involved in the sales/purchasing of bonds know that US bonds are worthless to a point. Why aren't they demanding that the US pay in the form of a commodity? Food, gold silver, fresh water, BTC???

If someone can give me an article to help understand this I would appreciate it. I am new to the subject of economics.

The federal govt could just stop issuing treasury bonds, then there would be no "debt" in the sense you're using it. There's something illogical about an entity borrowing something that it has an unlimited supply of. Or it can just keep this debt around since there's clearly a demand for USD and US treasury bonds.

I highly recommend this book, which is very relevant to this discussion, particularly part 1 starting on page 13:

http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf

Outstanding treasury bonds have already had their inflationary effect, converting them to dollars would mostly just affect interest rates. We'd see greater inflation with excessive deficit spending.

I thought this would be interesting and maybe could place the USA national debt into perspective.

USA National Debt / USA population

$17 trillion / 314 million = $54140.12

Meaning each American would have to pay $54140.12 to pay off the national debt. Obviously, impossible.

Inflation or default are the only ways to repay it.

Yup. "Fundamentals" of the dollar: The most powerful military in the world (and the will to use it).

Reminds me how someone wanted to change the valuation of oil from Dollar to Euro and got executed by his own people after an invasion

The dollar will be a world reserve currency until something better, that is acceptable to central bankers, comes along.  Same for sterling and the yen and perhaps the euro.  And there really isn't any fiat currency around with better fundamentals than the dollar.