US National Debt / Deficit - How does it end?

[cbeast]

The external US debt to gdp ratio is currently 100%, the internal is 77%.
source: http://www.usdebtclock.org/world-debt-clock.html#

[FattyMcButterpants]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

US government bonds are purchased because they are essentially risk free. For all intensive purposes there is zero chance the US government will default on it's debt so investors can be certain they will receive principle + interest as agreed. The same cannot be said with any other investment.

[Grand_Voyageur]

The external US debt to gdp ratio is currently 100%, the internal is 77%.
source: http://www.usdebtclock.org/world-debt-clock.html#

Scores of countries are screwed more than the US and the United States also are able to benefit from the USD being a world reserve currency. No foreign government will screw the US till the moment he can reap a bigger gain by doing so.

[mmortal03]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

US government bonds are purchased because they are essentially risk free. For all intensive purposes there is zero chance the US government will default on it's debt so investors can be certain they will receive principle + interest as agreed. The same cannot be said with any other investment.

http://en.wiktionary.org/wiki/for_all_intents_and_purposes

[pattu1]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

US government bonds are purchased because they are essentially risk free. For all intensive purposes there is zero chance the US government will default on it's debt so investors can be certain they will receive principle + interest as agreed. The same cannot be said with any other investment.

The US is no longer AAA rated, at least by S&P.

[Cortex7]

The external US debt to gdp ratio is currently 100%, the internal is 77%.
source: http://www.usdebtclock.org/world-debt-clock.html#

Scores of countries are screwed more than the US and the United States also are able to benefit from the USD being a world reserve currency. No foreign government will screw the US till the moment he can reap a bigger gain by doing so.

World reserve currencies come and go, things change.

This thread title is "Re:  US National Debt / Deficit - How does it end?", here's one possible scenario, I think it makes for better reading/conversation than "It never ends".

I believe the wars never finished, we are still in the cold war era, the game will continue until a winner is found.

For a competing nation to trash the USD; it would cost that nation for sure, all the labor/resources they expended to collect those USD and bonds would vanish into nothingness in the blink of an eye.

If America enters a hot war against a large nation then they KNOW that nation would dump all US securities, obviously they would do that as a person fighting with you has no intention of repaying their debts to you. A global polarization would occur involving both currencies of the nations involved, the USA would soon be in a bad way on the economic global stage, they'd still be in fairly good shape with regard to resources and labor force though.

America cannot harm the Russian RUB, but Russia (certainly with the help of China) can kill the USD, this is simply the math of the situation because America has far more external debt as a percentage of GDP than Russia or China (the have written more IOUs).

I think we can all agree that US/Russia relations are quite tense at the moment, what with the recent trade sanctions imposed upon Russia etc. I find Americas recent move of disconnecting Russia from the SWIFT system as a worrying sign for the USD, it seems as if America is not afraid of conflict and thus not afraid of the USD crashing.

If america pre-empts hot war (they are acting like the are) then they will crash their own USD, strategically it is correct to do that before the war goes hot, otherwise you'd have two shitstorms to contend with.

[santaClause]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

US government bonds are purchased because they are essentially risk free. For all intensive purposes there is zero chance the US government will default on it's debt so investors can be certain they will receive principle + interest as agreed. The same cannot be said with any other investment.

The US is no longer AAA rated, at least by S&P.

No country has ever defaulted after 30 years of being downgraded from a AAA rating by any of the major credit ratings agencies.

[eizh]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

Any portfolio has a risk target, not just a return target. Allocating a proportion to U.S. bonds are a way to bring down risk (and also return), so it's perfectly rational.

[polynesia]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

Any portfolio has a risk target, not just a return target. Allocating a proportion to U.S. bonds are a way to bring down risk (and also return), so it's perfectly rational.

There are no other alternatives (similar risk-higher return profile) to US bonds.Even though the return is negative in real terms, it is tough to find another low risk asset which has higher returns.

[Window2Wall]

I don't understand people that keep buying US bonds... In the best scenario they get a very small return, negative in real terms.

Any portfolio has a risk target, not just a return target. Allocating a proportion to U.S. bonds are a way to bring down risk (and also return), so it's perfectly rational.

There are no other alternatives (similar risk-higher return profile) to US bonds.Even though the return is negative in real terms, it is tough to find another low risk asset which has higher returns.

Exactly. On a NPV basis US government bonds offer some of the best returns as there is essentially zero risk of not being repaid verses a positive chance that other bonds investors could buy would suffer some kind of impairment.