US National Debt / Deficit - How does it end?

[CMMPro]

The US has defaulted on their debts several times in the past.
http://mises.org/daily/5463


The only way to wipe out the debt is to break up the union and declare that the USA doesn't exist any more....this leaves all US bond holders as the primary bag holders.

Ask yourselves what pre-confederate dollars are worth...other than as a novelty item.

[RoadTrain]

The US has defaulted on their debts several times in the past.
http://mises.org/daily/5463

The only way to wipe out the debt is to break up the union and declare that the USA doesn't exist any more....this leaves all US bond holders as the primary bag holders.

And again: why do you think the debt needs to be 'wiped out'?

What a manthra!

[farfiman]

   
"US National Debt / Deficit - How does it end?"

Badly, very badly.

[spazzdla]

The BRICs will sink the western nations when they sell off the houses they have bought and announce their new currency is backed by gold.  All of the worthless petrodollars will be worth 1/10000000 of their value...  We have started a war of finances but are so arrogent have done nothing to actually make our paper worth anything.

The BRICs will easily give up their positions on american debt and housing once their bank is ready to print their new money.  I would not be suprised if they also had a crypto holding.

Russia has been distracting us while China is prepping... we are so blind and arrogent it's sad. 

[NeedsMoreBTC]

It needs with an insane, slow devaluation of currency. The good news is BTC will be very valuable by then.

[btcbug]

No one is saying it is impossible to balance the budget; we are saying it is impossible congress will actually act before it gets so bad that we implode.

That is exactly it!


The political system is simply a popularity contest. No politician, and I mean NO politician, is going to commit career suicide and make the necessary cuts. Their choices are limited. Cut spending, raise taxes, inflate. There is zero chance of cutting spending and the other two result in catastrophe.

Who said cuts are necessary?

Cutting is not gonna help the economy, but budget tweaking might be.

Budget cuts are necessary. Our spending levels are well above the 40 year average as a percentage of the GDP. Entitlement growth is projected to grow at rates well above even the best case GDP growth scenarios. The only way to prevent the US from spiraling into too much debt we need to make cuts.

You're wrong if you think government spending and debt are somehow "yours".
In fact, you both are in much different positions, you are financially constrained in your spending and debt. Government is not. That's because government issues dollars, and you don't.

They may not be "constrained" in the same sense, but the government debasement of the currency can't go on forever. What do you see as the potential outcomes of continuing to run up the debt?

The gov. takes money from people, flushes some down the toilet and gives the rest back in other forms. They also print their own money, which they do use for some necessary functions of government, but the inflation effectively robs us of our own production as well. With increasing debt, which could be defined as increasing wastefulness, how can it not end badly?  The only way I can see it not ending badly is if our productive capacity increased substantially (which might be possible with tech.), but if that happened I think they'd just waste more and more by continuing to spend. Bad habits need to change, but the political system doesn't allow for that. Even Bitcoin isn't gonna prevent major pain, but it could force a change in those nasty spending habits.

[leannemckim46]

No one is saying it is impossible to balance the budget; we are saying it is impossible congress will actually act before it gets so bad that we implode.

That is exactly it!


The political system is simply a popularity contest. No politician, and I mean NO politician, is going to commit career suicide and make the necessary cuts. Their choices are limited. Cut spending, raise taxes, inflate. There is zero chance of cutting spending and the other two result in catastrophe.

Who said cuts are necessary?

Cutting is not gonna help the economy, but budget tweaking might be.

Budget cuts are necessary. Our spending levels are well above the 40 year average as a percentage of the GDP. Entitlement growth is projected to grow at rates well above even the best case GDP growth scenarios. The only way to prevent the US from spiraling into too much debt we need to make cuts.

You're wrong if you think government spending and debt are somehow "yours".
In fact, you both are in much different positions, you are financially constrained in your spending and debt. Government is not. That's because government issues dollars, and you don't.

There is a limit as to how much debt the government can issue. If they issue too much debt then investors will no longer wish (or be able to) buy additional government debt. The same is true for a person; they can borrow from banks and other various sources of credit, but at a point no one will be willing to lend additional money because of overall debt levels.

Any debt incurred by the government is ultimately an obligation of the citizens of the country as debt is repaid via taxes. 

[twiifm]

No one is saying it is impossible to balance the budget; we are saying it is impossible congress will actually act before it gets so bad that we implode.

That is exactly it!


The political system is simply a popularity contest. No politician, and I mean NO politician, is going to commit career suicide and make the necessary cuts. Their choices are limited. Cut spending, raise taxes, inflate. There is zero chance of cutting spending and the other two result in catastrophe.

Who said cuts are necessary?

Cutting is not gonna help the economy, but budget tweaking might be.

Budget cuts are necessary. Our spending levels are well above the 40 year average as a percentage of the GDP. Entitlement growth is projected to grow at rates well above even the best case GDP growth scenarios. The only way to prevent the US from spiraling into too much debt we need to make cuts.

You're wrong if you think government spending and debt are somehow "yours".
In fact, you both are in much different positions, you are financially constrained in your spending and debt. Government is not. That's because government issues dollars, and you don't.

There is a limit as to how much debt the government can issue. If they issue too much debt then investors will no longer wish (or be able to) buy additional government debt. The same is true for a person; they can borrow from banks and other various sources of credit, but at a point no one will be willing to lend additional money because of overall debt levels.

Any debt incurred by the government is ultimately an obligation of the citizens of the country as debt is repaid via taxes. 

The debt ceiling is political.  Problem is not size of debt.  Problem is lack of economic activity.

If the citizens were making a lot of money in boom times then they wouldnt care about taxes

[Bonam]

The US debt would actually be fairly easy to pay off over a reasonable time span if there was the political will to do so.

[RoadTrain]

No one is saying it is impossible to balance the budget; we are saying it is impossible congress will actually act before it gets so bad that we implode.

That is exactly it!


The political system is simply a popularity contest. No politician, and I mean NO politician, is going to commit career suicide and make the necessary cuts. Their choices are limited. Cut spending, raise taxes, inflate. There is zero chance of cutting spending and the other two result in catastrophe.

Who said cuts are necessary?

Cutting is not gonna help the economy, but budget tweaking might be.

Budget cuts are necessary. Our spending levels are well above the 40 year average as a percentage of the GDP. Entitlement growth is projected to grow at rates well above even the best case GDP growth scenarios. The only way to prevent the US from spiraling into too much debt we need to make cuts.

You're wrong if you think government spending and debt are somehow "yours".
In fact, you both are in much different positions, you are financially constrained in your spending and debt. Government is not. That's because government issues dollars, and you don't.

They may not be "constrained" in the same sense, but the government debasement of the currency can't go on forever. What do you see as the potential outcomes of continuing to run up the debt?

The gov. takes money from people, flushes some down the toilet and gives the rest back in other forms. They also print their own money, which they do use for some necessary functions of government, but the inflation effectively robs us of our own production as well. With increasing debt, which could be defined as increasing wastefulness, how can it not end badly?  The only way I can see it not ending badly is if our productive capacity increased substantially (which might be possible with tech.), but if that happened I think they'd just waste more and more by continuing to spend. Bad habits need to change, but the political system doesn't allow for that. Even Bitcoin isn't gonna prevent major pain, but it could force a change in those nasty spending habits.

You're mixing things. The government borrows because there's a deficit caused by cyclical or structural sectoral disbalances. It doesn't have anything to do with private sector's spending habits, which are more of a mentality thing.

And how does gov't flush some money down the toilet? What do you mean by this?

[RoadTrain]

No one is saying it is impossible to balance the budget; we are saying it is impossible congress will actually act before it gets so bad that we implode.

That is exactly it!


The political system is simply a popularity contest. No politician, and I mean NO politician, is going to commit career suicide and make the necessary cuts. Their choices are limited. Cut spending, raise taxes, inflate. There is zero chance of cutting spending and the other two result in catastrophe.

Who said cuts are necessary?

Cutting is not gonna help the economy, but budget tweaking might be.

Budget cuts are necessary. Our spending levels are well above the 40 year average as a percentage of the GDP. Entitlement growth is projected to grow at rates well above even the best case GDP growth scenarios. The only way to prevent the US from spiraling into too much debt we need to make cuts.

You're wrong if you think government spending and debt are somehow "yours".
In fact, you both are in much different positions, you are financially constrained in your spending and debt. Government is not. That's because government issues dollars, and you don't.

There is a limit as to how much debt the government can issue. If they issue too much debt then investors will no longer wish (or be able to) buy additional government debt. The same is true for a person; they can borrow from banks and other various sources of credit, but at a point no one will be willing to lend additional money because of overall debt levels.

The gov't can't issue 'too much' debt, unless it just burns the money it raises. Because it usually issues just enough to satisfy the domestic private sector's and foreign sector's propensity to net save.

When economy deteriorates, the private sector's propensity to save increases, as does the budget deficit. Budget deficit actually adds to private sector's net financial assets.

There are two counterparties that the domestic private sector can have net financial savings with: foreign sector and government sector. If a country runs current account deficit (the foreign sector surplus), the only situation in which private sector can net save is when the government runs budget deficit.

http://mmtwiki.org/wiki/National_accounting_identities_and_the_sectoral_balance_approach
http://neweconomicperspectives.org/2011/06/mmt-sectoral-balances-and-behavior.html

[MygodBTC]

The debt will never be able to be paid in a legit way, so it ends pretty bad lol.

[spazzdla]

The debt will never be able to be paid in a legit way, so it ends pretty bad lol.

The system will keep going unless the BRICs decide to stop it.

[Schinder75]

"We are completely dependent on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money, we are prosperous; if not, we starve. We are absolutely without a permanent money system. When one gets a complete grasp of the picture, the tragic absurdity of our hopeless position is almost incredible, but there it is. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied soon."

Robert H. Hemphill, Credit Manager of the Federal Reserve Bank, Atlanta, GA

[btcbug]

No one is saying it is impossible to balance the budget; we are saying it is impossible congress will actually act before it gets so bad that we implode.

That is exactly it!


The political system is simply a popularity contest. No politician, and I mean NO politician, is going to commit career suicide and make the necessary cuts. Their choices are limited. Cut spending, raise taxes, inflate. There is zero chance of cutting spending and the other two result in catastrophe.

Who said cuts are necessary?

Cutting is not gonna help the economy, but budget tweaking might be.

Budget cuts are necessary. Our spending levels are well above the 40 year average as a percentage of the GDP. Entitlement growth is projected to grow at rates well above even the best case GDP growth scenarios. The only way to prevent the US from spiraling into too much debt we need to make cuts.

You're wrong if you think government spending and debt are somehow "yours".
In fact, you both are in much different positions, you are financially constrained in your spending and debt. Government is not. That's because government issues dollars, and you don't.

They may not be "constrained" in the same sense, but the government debasement of the currency can't go on forever. What do you see as the potential outcomes of continuing to run up the debt?

The gov. takes money from people, flushes some down the toilet and gives the rest back in other forms. They also print their own money, which they do use for some necessary functions of government, but the inflation effectively robs us of our own production as well. With increasing debt, which could be defined as increasing wastefulness, how can it not end badly?  The only way I can see it not ending badly is if our productive capacity increased substantially (which might be possible with tech.), but if that happened I think they'd just waste more and more by continuing to spend. Bad habits need to change, but the political system doesn't allow for that. Even Bitcoin isn't gonna prevent major pain, but it could force a change in those nasty spending habits.

You're mixing things. The government borrows because there's a deficit caused by cyclical or structural sectoral disbalances. It doesn't have anything to do with private sector's spending habits, which are more of a mentality thing.

And how does gov't flush some money down the toilet? What do you mean by this?

Well what I mean is analogous to the following:

If the private sector produces assorted crops for example, consumes some, then saves the rest. The excess production is wealth. I'm going to assume that you agree that the market is very efficient in general. If we introduce a government who says, "we'll handle the basic needs like roads, military, health, etc." and that government takes a large percentage of our production and inefficiently allocates to certain things, then we might as well be burning those crops, or as I put it, "flushing them down the toilet".

Massive inefficiency, war, etc. is why they continuously run budget deficits, not because they are providing essentials that  they aren't taxing us enough for. Let's imagine if they couldn't print money and nobody would lend them money voluntarily (bonds). They'd have to raise taxes and the game would have probably ended at this point because people would feel the consequences of government wastefulness directly. It's the hidden tax of inflation that allows this to continue, but I don't believe mathematically it can go on forever.

[btcbug]

The gov't can't issue 'too much' debt, unless it just burns the money it raises. Because it usually issues just enough to satisfy the domestic private sector's and foreign sector's propensity to net save.

When economy deteriorates, the private sector's propensity to save increases, as does the budget deficit. Budget deficit actually adds to private sector's net financial assets.

War is an example of destruction of wealth. They are literally burning those dollars. Now don't get me wrong here, of course those dollars are soldiers wages etc., but most of those thousands of soldiers could be doing something of actual VALUE, like running a business that produces more wealth. Nevermind the bombs, tanks, ships, etc. that are depleting the worlds net wealth by destroying and polluting.

How does budget deficit add to private net financial assets? Are you just talking strictly on paper or what? They're borrowing money from the FED who just creates it from nothing. That's currency debasement, that's inflation, which is just another tax on private sectors savings! They're stealing purchasing power from anyone who saves, which is definitely not adding to net financial assets!

[Cortex7]

   
"US National Debt / Deficit - How does it end?"

Badly, very badly.

Badly if you aren't already sat down when the music stops.

But if you get a chair early (buy btc and/or gold) then after a few months of maybe supplementing your food intake with insects and dodging bullets you would be sitting pretty.

[RoadTrain]

The gov't can't issue 'too much' debt, unless it just burns the money it raises. Because it usually issues just enough to satisfy the domestic private sector's and foreign sector's propensity to net save.

When economy deteriorates, the private sector's propensity to save increases, as does the budget deficit. Budget deficit actually adds to private sector's net financial assets.

War is an example of destruction of wealth. They are literally burning those dollars. Now don't get me wrong here, of course those dollars are soldiers wages etc., but most of those thousands of soldiers could be doing something of actual VALUE, like running a business that produces more wealth. Nevermind the bombs, tanks, ships, etc. that are depleting the worlds net wealth by destroying and polluting.

How does budget deficit add to private net financial assets? Are you just talking strictly on paper or what? They're borrowing money from the FED who just creates it from nothing. That's currency debasement, that's inflation, which is just another tax on private sectors savings! They're stealing purchasing power from anyone who saves, which is definitely not adding to net financial assets!

You're talking about funds allocation, but it doesn't change the nature of budget deficits - sectoral imbalances.

No matter how government spends the money - it adds to the financial assets of domestic private or foreign sectors. It's called double-entry accounting principle.
And Treasury doesn't borrow from Fed, because it doesn't make much sense. Fed can't change sectoral balances by buying treasuries, it can only change the assets composition.

Well what I mean is analogous to the following:

If the private sector produces assorted crops for example, consumes some, then saves the rest. The excess production is wealth. I'm going to assume that you agree that the market is very efficient in general. If we introduce a government who says, "we'll handle the basic needs like roads, military, health, etc." and that government takes a large percentage of our production and inefficiently allocates to certain things, then we might as well be burning those crops, or as I put it, "flushing them down the toilet".

Well, you can't compare modern monetary system to primitive barter systems. It's not much more complicated, it's just different.

Fiat money is not a limited or scarce resource, it doesn't need to be grown or extracted. It's just numbers in the database. They can be created or destroyed instantly.
And when the Treasury spends, these "numbers" just migrate from its account at Fed to some account in the private sector (a simplified explanation). It can't be just "flushed down the toilet".

[btcbug]

The gov't can't issue 'too much' debt, unless it just burns the money it raises. Because it usually issues just enough to satisfy the domestic private sector's and foreign sector's propensity to net save.

When economy deteriorates, the private sector's propensity to save increases, as does the budget deficit. Budget deficit actually adds to private sector's net financial assets.

War is an example of destruction of wealth. They are literally burning those dollars. Now don't get me wrong here, of course those dollars are soldiers wages etc., but most of those thousands of soldiers could be doing something of actual VALUE, like running a business that produces more wealth. Nevermind the bombs, tanks, ships, etc. that are depleting the worlds net wealth by destroying and polluting.

How does budget deficit add to private net financial assets? Are you just talking strictly on paper or what? They're borrowing money from the FED who just creates it from nothing. That's currency debasement, that's inflation, which is just another tax on private sectors savings! They're stealing purchasing power from anyone who saves, which is definitely not adding to net financial assets!

You're talking about funds allocation, but it doesn't change the nature of budget deficits - sectoral imbalances.

No matter how government spends the money - it adds to the financial assets of domestic private or foreign sectors. It's called double-entry accounting principle.
And Treasury doesn't borrow from Fed, because it doesn't make much sense. Fed can't change sectoral balances by buying treasuries, it can only change the assets composition.

I'm not actually sure what your main point is anymore, other than trying to point out accounting details. Are you asserting that fiat currency and unlimited growth in money supply is a sustainable system? Please clarify your position.

I get what you're saying on double-entry and I agree that technically speaking that is correct. What I think you're saying is that no money is ever destroyed, it only changes hands and therefore it's all accounting games. I agree to a point, but what I tried to point out was that War is destruction of REAL wealth. Have you read about the broken window fallacy? What if the government paid people to dig ditches all day and then fill them back in every night? You're missing the point that some work is productive (produces net savings) and some work is of little to no value.

It's my understanding that the FED buys treasury bonds, effectively lending the gov. money. Let me add that it wouldn't matter even if the gov. issued it's own interest free currency and spent it, it would still be inflation. Where does the FED get money? Answer: it creates new currency. Inflation = counterfeiting = taking peoples purchasing power.

Well what I mean is analogous to the following:

If the private sector produces assorted crops for example, consumes some, then saves the rest. The excess production is wealth. I'm going to assume that you agree that the market is very efficient in general. If we introduce a government who says, "we'll handle the basic needs like roads, military, health, etc." and that government takes a large percentage of our production and inefficiently allocates to certain things, then we might as well be burning those crops, or as I put it, "flushing them down the toilet".

Well, you can't compare modern monetary system to primitive barter systems. It's not much more complicated, it's just different.

Fiat money is not a limited or scarce resource, it doesn't need to be grown or extracted. It's just numbers in the database. They can be created or destroyed instantly.
And when the Treasury spends, these "numbers" just migrate from its account at Fed to some account in the private sector (a simplified explanation). It can't be just "flushed down the toilet".

Yes you can compare the two, but Keynesians and quacks would rather have us believe otherwise! Don't try and say that we're living in a magical world where phony fiat money can substitute for real world production.

[dankkk]

The gov't can't issue 'too much' debt, unless it just burns the money it raises. Because it usually issues just enough to satisfy the domestic private sector's and foreign sector's propensity to net save.

When economy deteriorates, the private sector's propensity to save increases, as does the budget deficit. Budget deficit actually adds to private sector's net financial assets.

War is an example of destruction of wealth. They are literally burning those dollars. Now don't get me wrong here, of course those dollars are soldiers wages etc., but most of those thousands of soldiers could be doing something of actual VALUE, like running a business that produces more wealth. Nevermind the bombs, tanks, ships, etc. that are depleting the worlds net wealth by destroying and polluting.

How does budget deficit add to private net financial assets? Are you just talking strictly on paper or what? They're borrowing money from the FED who just creates it from nothing. That's currency debasement, that's inflation, which is just another tax on private sectors savings! They're stealing purchasing power from anyone who saves, which is definitely not adding to net financial assets!

War is something that actually generally will actually stimulate the economy which will generally increase wealth. The businesses that build bullets, and bombs and other "tools" of war will need to hire more workers, as will their suppliers.