USA Debt Repayable

[caveden]

Countries which are in control of their own printing press never face a default risk. 
[..] repay bondholders in increasingly worthless pieces of paper.

For all practical matters that is a partial default. Actually, it's economically worse than a default.

Watch this for about 2 minutes and you tell me.

http://www.usdebtclock.org/

Awesome site.

[Hawker]

Countries which are in control of their own printing press never face a default risk.  
[..] repay bondholders in increasingly worthless pieces of paper.

For all practical matters that is a partial default. Actually, it's economically worse than a default.

...snip...

If I offer you the chance to lend me money for inflation less 1% interest, and you take that offer, that's you and me freely entering an agreement.

So it is with the major Western governments.  They offer bonds at less than the inflation rate; the rich buy those bonds.  To say that this is "a partial default" or "economically worse than a default" is to inject yourself in other people's business.

Right now, the rich are queuing up to lend more money at rates lower than inflation.  Doesn't that tell you that government debt is not a problem?  The real issue is lack of decent places to invest your money.

[caveden]

To say that this is "a partial default" or "economically worse than a default" is to inject yourself in other people's business.

Inflation is worse than default, that's not just a matter of opinion.

Inflation draws purchasing power from money owners, which is the equivalent of taxing them to pay government debt, with the difference that inflation is the worst tax possible, as it affects proportionally more strongly the poorer and the more ignorant, and worse still, as it's practiced today, it causes economic cycles that destroy capital.

If I offer you the chance to lend me money for inflation less 1% interest, and you take that offer, that's you and me freely entering an agreement.

So it is with the major Western governments.

No. Government debt is not a voluntary contract as you claim, because those who are left with the burden to pay did not consent with it. The equivalent analogy is I lend you money and then you force others to repay the debt for you.

Forcing innocent taxvictims to pay government debt is not only unethical, but economically unwise too, as with every non-voluntary trade/agreement. As government itself cannot repay its debt out of its own resources since it does not produce anything, there's no better solution than a default, in spite of all the chaos it would cause in the short term.

[Hawker]

To say that this is "a partial default" or "economically worse than a default" is to inject yourself in other people's business.

Inflation is worse than default, that's not just a matter of opinion.

Inflation draws purchasing power from money owners, which is the equivalent of taxing them to pay government debt, with the difference that inflation is the worst tax possible, as it affects proportionally more strongly the poorer and the more ignorant, and worse still, as it's practiced today, it causes economic cycles that destroy capital.

If I offer you the chance to lend me money for inflation less 1% interest, and you take that offer, that's you and me freely entering an agreement.

So it is with the major Western governments.

No. Government debt is not a voluntary contract as you claim, because those who are left with the burden to pay did not consent with it. The equivalent analogy is I lend you money and then you force others to repay the debt for you.

Forcing innocent taxvictims to pay government debt is not only unethical, but economically unwise too, as with every non-voluntary trade/agreement. As government itself cannot repay its debt out of its own resources since it does not produce anything, there's no better solution than a default, in spite of all the chaos it would cause in the short term.

You've confused yourself.  The question is not whether its moral for the government to borrow on behalf of "innocent tax victims" but whether the government can repay its debts in full.  And the fact is that government is offering its debt at ridiculously low returns and the rich are lining up to lend to it. 

So the answer to the question is that USA debt is repayable. 

On the morality of debt question, feel free to vent your grievance at https://bitcointalk.org/index.php?board=34.0 where you will find many kindred spirits.

[Hawker]

http://www.ft.com/cms/s/0/440b78b6-bcb8-11e2-9519-00144feab7de.html#axzz2THSnFrpA

Deficit falling like a stone.  Talk of debt repayments in 2015.  This is a country that has no debt repayment problems.

[redemptor]

Trying to lower the outstanding debt by increasing taxes,would be deflationary,those dollars would be removed from circulation.
 
Printing money is inflationary.

Possibly/probably the two could be combined in such a way that they could "zero-out" each of their negative effects,while effectively lowering the total debt.

Past beltway behavior indicates it would be hard to attempt, let alone accomplish in the U.S.

 

[No 1]

not repayable. end of discussion

[Kazu]

Of course its repayable, they just borrow some more from themselves and spend it and force people to deposit it back to themselves so they can borrow it again. They can't repay ALL of it at the same time (well, even then they could, by printing more) but they can repay the part that they must.

Also what is this nonsense of debt being wiped. If it was, there would first be massive deflation as everybody realized they don't have the money that they thought they had, then they'd all try to withdraw at the same time on the offchance they might lose more, then there'd be massive INFLATION as everybody realized that they are being paid in paper that just got printed causing a huge increase in money supply, and yea that'd be bad.

[caveden]

And the fact is that government is offering its debt at ridiculously low returns and the rich are lining up to lend to it. 

I wouldn't be so sure about "riches lining up to lend it".

According to business insider, US households + private pension funds together barely sum up 10% of the total amount. And even if you add mutual funds and commercial banks, that's still less than what the social security alone lends to US federal gov. That article is of 2011 btw. I wonder if the Fed share hasn't increased since then.
Also, remember that many of these funds are contractually obliged to invest their clients money in "officially safe" investments. Lots of people put money in these funds without even knowing where it's going.

[Hawker]

And the fact is that government is offering its debt at ridiculously low returns and the rich are lining up to lend to it. 

I wouldn't be so sure about "riches lining up to lend it".

According to business insider, US households + private pension funds together barely sum up 10% of the total amount. And even if you add mutual funds and commercial banks, that's still less than what the social security alone lends to US federal gov. That article is of 2011 btw. I wonder if the Fed share hasn't increased since then.
Also, remember that many of these funds are contractually obliged to invest their clients money in "officially safe" investments. Lots of people put money in these funds without even knowing where it's going.

You don't need to be guessing or theorycrafting.  The bond market is public and the rates are available here: http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield

Notice the 10 year ones are all below the inflation rate.  And they are the big sellers.  They buyers are happy to lend that money at a loss and they are happy to assume that inflation is not going to be a problem in the next 10 years.

How much clearer can this be?  The USA has no problems at all repaying its debt. 

[caveden]

Who are most of these buyers?
The Social Security? The Fed? Foreign governments/central banks?

None of these use their own money to buy these bonds.

[Hawker]

Who are most of these buyers?
The Social Security? The Fed? Foreign governments/central banks?

None of these use their own money to buy these bonds.

The question asked was whether USA debt was repayable.  Changing the subject to "are these really people we want to lend money to?" is fine provided we agree that the question itself is settled and there is no reason to worry about US debt repayment.

Are we in agreement on that?

[caveden]

If you note my quote above, I was answering to your comment of "riches lining up to lend it".

[Kluge]

Countries which are in control of their own printing press never face a default risk. 
Why would the US default?  Nothing in the bonds guarantees the PURCHASING POWER just the nominal amount.

US owes $15T which is a lot today?  Well ramp up 5% inflation a year for 30 years and that $15T nominal is more like $4T in todays dollars.  See $4T on a $20T economy is nothing. 

That doesn't mean buying t-bonds is a good idea as while you may get every penny the price of everything will have quadrupled by the time your 30yr bond was repaid (putting you behind in real terms).

I mean why default, when you can "honor" the letter of the contract, break the spriting of it and repay bondholders in increasingly worthless pieces of paper.

It happened, it's happening, it will happen. -But maybe it's not enough. Can the Fed prevent hyperinflation without compromising the US credit rating until the USG's paying an unsustainable amount in interest?

USG Debt:GDP in WW2 was ~110%. At peak of crisis in Greece, their government had a debt:GDP ratio of ~1.25 - 125%. In 2010, USG was @ ~95%.  Currently, USG debt:GDP is ~1.07, or ~107%. So, right now, the USG's economic situation is about what it was at during WW2.... except there's nothing even remotely like WWII occurring, and debt:GDP is getting increasingly worse. When the interest rates start to climb due to downgrades, is there anywhere to go less hyperinflation?

[Hawker]

Countries which are in control of their own printing press never face a default risk. 
Why would the US default?  Nothing in the bonds guarantees the PURCHASING POWER just the nominal amount.

US owes $15T which is a lot today?  Well ramp up 5% inflation a year for 30 years and that $15T nominal is more like $4T in todays dollars.  See $4T on a $20T economy is nothing. 

That doesn't mean buying t-bonds is a good idea as while you may get every penny the price of everything will have quadrupled by the time your 30yr bond was repaid (putting you behind in real terms).

I mean why default, when you can "honor" the letter of the contract, break the spriting of it and repay bondholders in increasingly worthless pieces of paper.

It happened, it's happening, it will happen. -But maybe it's not enough. Can the Fed prevent hyperinflation without compromising the US credit rating until the USG's paying an unsustainable amount in interest?

USG Debt:GDP in WW2 was ~110%. At peak of crisis in Greece, their government had a debt:GDP ratio of ~1.25 - 125%. In 2010, USG was @ ~95%.  Currently, USG debt:GDP is ~1.07, or ~107%. So, right now, the USG's economic situation is about what it was at during WW2.... except there's nothing even remotely like WWII occurring, and debt:GDP is getting increasingly worse. When the interest rates start to climb due to downgrades, is there anywhere to go less hyperinflation?

Sigh.

OK I dealt with all that earlier in the thread.

The interesting question is this - why do so many people want to believe that the US is facing a debt crisis?  Is good news really so hard to take?

[Kluge]

Countries which are in control of their own printing press never face a default risk. 
Why would the US default?  Nothing in the bonds guarantees the PURCHASING POWER just the nominal amount.

US owes $15T which is a lot today?  Well ramp up 5% inflation a year for 30 years and that $15T nominal is more like $4T in todays dollars.  See $4T on a $20T economy is nothing. 

That doesn't mean buying t-bonds is a good idea as while you may get every penny the price of everything will have quadrupled by the time your 30yr bond was repaid (putting you behind in real terms).

I mean why default, when you can "honor" the letter of the contract, break the spriting of it and repay bondholders in increasingly worthless pieces of paper.

It happened, it's happening, it will happen. -But maybe it's not enough. Can the Fed prevent hyperinflation without compromising the US credit rating until the USG's paying an unsustainable amount in interest?

USG Debt:GDP in WW2 was ~110%. At peak of crisis in Greece, their government had a debt:GDP ratio of ~1.25 - 125%. In 2010, USG was @ ~95%.  Currently, USG debt:GDP is ~1.07, or ~107%. So, right now, the USG's economic situation is about what it was at during WW2.... except there's nothing even remotely like WWII occurring, and debt:GDP is getting increasingly worse. When the interest rates start to climb due to downgrades, is there anywhere to go less hyperinflation?

Sigh.

OK I dealt with all that earlier in the thread.

The interesting question is this - why do so many people want to believe that the US is facing a debt crisis?  Is good news really so hard to take?

Actually, before I went back and edited, I was just going to post "It happened, it's happening, it will happen." with some charts showing the USG isn't in a particularly bad spot. -And then I looked at the data and didn't want to look like a fool. (seriously - true story)

[Hawker]

Countries which are in control of their own printing press never face a default risk. 
Why would the US default?  Nothing in the bonds guarantees the PURCHASING POWER just the nominal amount.

US owes $15T which is a lot today?  Well ramp up 5% inflation a year for 30 years and that $15T nominal is more like $4T in todays dollars.  See $4T on a $20T economy is nothing. 

That doesn't mean buying t-bonds is a good idea as while you may get every penny the price of everything will have quadrupled by the time your 30yr bond was repaid (putting you behind in real terms).

I mean why default, when you can "honor" the letter of the contract, break the spriting of it and repay bondholders in increasingly worthless pieces of paper.

It happened, it's happening, it will happen. -But maybe it's not enough. Can the Fed prevent hyperinflation without compromising the US credit rating until the USG's paying an unsustainable amount in interest?

USG Debt:GDP in WW2 was ~110%. At peak of crisis in Greece, their government had a debt:GDP ratio of ~1.25 - 125%. In 2010, USG was @ ~95%.  Currently, USG debt:GDP is ~1.07, or ~107%. So, right now, the USG's economic situation is about what it was at during WW2.... except there's nothing even remotely like WWII occurring, and debt:GDP is getting increasingly worse. When the interest rates start to climb due to downgrades, is there anywhere to go less hyperinflation?

Sigh.

OK I dealt with all that earlier in the thread.

The interesting question is this - why do so many people want to believe that the US is facing a debt crisis?  Is good news really so hard to take?

Actually, before I went back and edited, I was just going to post "It happened, it's happening, it will happen." with some charts showing the USG isn't in a particularly bad spot. -And then I looked at the data and didn't want to look like a fool. (seriously - true story)

I know - I've always liked your posts.

US debt is a market.  Bonds are auctioned off and the interest rate reflects the risk that they debt won't be paid back in full.  Right now, the debt is selling so cheaply that inflation will eat into the principal.  People are paying the US government to accept loans.

Even if you assume that these people are all idiots, US debt is better than almost all other countries debt.  Long before the US defaults, you would see China, France, India and the like going bust. 

[Schrankwand]

US debt is a market.  Bonds are auctioned off and the interest rate reflects the risk that they debt won't be paid back in full.  Right now, the debt is selling so cheaply that inflation will eat into the principal.  People are paying the US government to accept loans.

Actually, THAT is exactly how a government reduces its debt


It will also eat into every single savings account of other, smaller people. Because that is what inflation is there for if it is directly forced upon us: Reducing the worth of money in an attempt to reduce the amount of money spent and change the worth of debt.

[Operatr]

Money  =  Debt

It is mathematically impossible for the debt to ever be repaid with a fractional reserve system, as the debt is always more than the current money in circulation. An odd fact this was built right into the system.

Essentially when the debt supernovas known as bank derivatives go down in flames after the first quiver of our bullish can-do-no-wrong stock market, the debt of the world effectively goes to infinity. These risky derivatives clock in to the tune of something around $1 Quadrillion...the GDP of the entire world is about $70 Trillion. Literally not enough available money on Earth to bail out the banking system when it happens. Lehman Brothers failure was just a single bank, and look what that did. What happens when it is all banks crumbling all at once. We can't put off the inevitable forever, though Bernake is sure trying his hardest.

[Hawker]

Money  =  Debt

It is mathematically impossible for the debt to ever be repaid with a fractional reserve system, as the debt is always more than the current money in circulation. An odd fact this was built right into the system.

Essentially when the debt supernovas known as bank derivatives go down in flames after the first quiver of our bullish can-do-no-wrong stock market, the debt of the world effectively goes to infinity. These risky derivatives clock in to the tune of something around $1 Quadrillion...the GDP of the entire world is about $70 Trillion. Literally not enough available money on Earth to bail out the banking system when it happens. Lehman Brothers failure was just a single bank, and look what that did. What happens when it is all banks crumbling all at once. We can't put off the inevitable forever, though Bernake is sure trying his hardest.

You are confusing repayment of all debt at the same time, which is of course impossible, with repayments of loans as they fall due, which is what happens.  If you buy a 10 year bond, you get repaid in 10 years.  Its not a default if you ask to be repaid early and the borrower refuses.  If you really want that money, you should sell the bond.

Meanwhile: http://www.washingtonpost.com/blogs/wonkblog/wp/2013/05/14/cbo-says-deficit-problem-is-solved-for-the-next-10-years/

This is all good news - the world is not coming to an end - be happy