Is the US national "debt" an illusion?

[Erdogan]

In fact, there is no debt burden if you can always borrow new money to pay out the old debt. The result of this game will be forever increasing debt, and forever increasing ability to payback the debt

Since those who borrow money will borrow more and consume more, and those who don't borrow money will work more and earn more, the borrowers become the driven power of economy

But still, this feels very strange, where is the fatal flaw of such a scheme?

The limit is when the lenders don't want to lend more.


Here is the cycle, you can see it in fast forward in Argentina.

Starting with a defaulted government, no debt:

1 The state has problems borrowing, after a while lenders will lend small amounts for a high interest.
2 The interest is good, so more are tempted to lend, the debt increases slowly.
3 Lenders feeling safe, interest slowly decreases, bond prices going up, the first lenders are happy.
4 The first bonds mature, see! the country is prudent, pays back its debt.
5 More lenders available, interest creeps downwards, state starts spending.
6 The economy, with borrowed money and state expenses, social programs, apparently grows.
7 State looks successful, spending takes off, borrowing takes off.
8 But the economy that is built, is full of distortions and bad public investments, and it can not produce the expected wealth.
9 State income diminishes, a last death cramp of debt is taken, the fiat is busted by printing, a new default.
Go to 1

[Kprawn]

The assets you mentioned, can only be defined as a asset, when it can be sold. { I cannot see how the American government can sell those assets, for the debt they have inccurred through bad financial management and poor decision making, and having the people pay for those mistakes }

There needs to be accountability for those bad mistakes and the general citizens should not foot the bill, by selling off the National assets.  

When banks give out credit cards to every tom / dick n harry.... and they know they cannot pay it back... their has to be accountability.

[Agestorzrxx]

The only thing that gives anything value is whether people view it as valuable. The fiat is a product of the government. When the government shows an inability to govern responsibly, everything its involved in suffers, fiat included.

[AtheistAKASaneBrain]

No, ask China, it's very much real.

The debt may be real, but it's made off printed magic money, and the illusion that they will ever pay it back. That's not even illusion, it's just plain delusion.

[Dick Trump]

I just found this slideshow online. It has a bunch of pictures, including some activism work I did with Rev. Jesse Jackson Sr., Texas Governor Rick Perry, NAACP president Ben Jealous, Newt Gingrich, Occupy Wall Street, and Ron Paul. And a picture of the Libman family.

There are also shots of my old house - a Chicago NATO summit protest site - before and after (boarded up by police). Feel free to take a look:

http://flickeflu.com/mobile/photos/94809731@N02/interesting

[deisik]

The official plan is a forever increasing debt with a forever increasing consumption/income

Since there is no physical upper limit for the debt, does it really matter if you have one Quadrillion or Centillion dollars in debt? Especially when that debt have zero or negative interest like today

Central bank is like god, you can borrow whatever amount of money from them, and you can borrow new money to pay back the old debt, those borrowed money will create job and income, thus boom ...

It seems the whole scheme is flawless, but where is the achilles' heel of such a great plan?

In dollar we trust. If people outside the US stop using the US dollar in their trade with other countries (i.e. the dollar is no longer a reserve currency in the international trade), this will start the process of economic collapse in the USA...

The US national debt is a money supply of the US dollars into the world

[johnyj]

In fact, there is no debt burden if you can always borrow new money to pay out the old debt. The result of this game will be forever increasing debt, and forever increasing ability to payback the debt

Since those who borrow money will borrow more and consume more, and those who don't borrow money will work more and earn more, the borrowers become the driven power of economy

But still, this feels very strange, where is the fatal flaw of such a scheme?

The limit is when the lenders don't want to lend more.


Here is the cycle, you can see it in fast forward in Argentina.

Starting with a defaulted government, no debt:

1 The state has problems borrowing, after a while lenders will lend small amounts for a high interest.
2 The interest is good, so more are tempted to lend, the debt increases slowly.
3 Lenders feeling safe, interest slowly decreases, bond prices going up, the first lenders are happy.
4 The first bonds mature, see! the country is prudent, pays back its debt.
5 More lenders available, interest creeps downwards, state starts spending.
6 The economy, with borrowed money and state expenses, social programs, apparently grows.
7 State looks successful, spending takes off, borrowing takes off.
8 But the economy that is built, is full of distortions and bad public investments, and it can not produce the expected wealth.
9 State income diminishes, a last death cramp of debt is taken, the fiat is busted by printing, a new default.
Go to 1

Because central banks create money out of nothing, they will always lend, government have endless borrowing capacity

The only reason that central banks stop lending is because of hyper inflation, e.g. there are too much money out there, but it seems the hyperinflation would never happen in today's system, due to more and more people are pushed to poverty, and their purchasing power go down continuously. In fact you can have an economy with lots of rich people holding trillions of money while majority of people barely make their ends meet, in such a society inflation is not possible

[Dick Trump]

If anyone is interested, here are a few snippets from my activism during 2012:

Me (Matthew Libman) with Newt and Callista Gingrich: https://www.flickr.com/photos/94809731@N02/8724111149/in/set-72157634144456567

Me (Matthew Libman) with Jesse Jackson: https://www.flickr.com/photos/94809731@N02/8724111743/in/set-72157634144456567

Lobbying for the Volcker Rule with NAACP President Ben Jealous and Rev. Jesse Jackson Sr.: https://m.youtube.com/watch?v=A3wDjAugaRg

Calling for a boycott of the Los Angeles Times and Chicago Tribune to prevent Rupert Murdoch's hostile takeover of the newspapers: https://m.youtube.com/watch?v=CIbj5CXJqwM

A 30 minute collection of clips of my activism including Mitt Romney, Newt Gingrich, Ron Paul, Occupy Wall Street, NATO, and more: https://vimeo.com/68334998

Thanks for your support.

[johnyj]

The official plan is a forever increasing debt with a forever increasing consumption/income

Since there is no physical upper limit for the debt, does it really matter if you have one Quadrillion or Centillion dollars in debt? Especially when that debt have zero or negative interest like today

Central bank is like god, you can borrow whatever amount of money from them, and you can borrow new money to pay back the old debt, those borrowed money will create job and income, thus boom ...

It seems the whole scheme is flawless, but where is the achilles' heel of such a great plan?

In dollar we trust. If people outside the US stop using the US dollar in their trade with other countries (i.e. the dollar is no longer a reserve currency in the international trade), this will start the process of economic collapse in the USA...

The US national debt is a money supply of the US dollars into the world

That will send lots of dollar back into US in exchange for US products. For enterprise, they will suddenly get lots of orders, why is that a problem? Maybe short term wise there will be inflation due to not enough product to deliver, but long term wise it will create more jobs and make everyone richer

In a world that everyone desperately want to make something to sell to others to make money, those who spend money will drive the economy

The only thing that could crash this system is US people start to lose the confidence of USD and refuse to accept them, and I don't see how is that possible. In people's mind, USD is money, no reason to refuse money. Even if they read that "the biggest scam in the history of mankind" and know the truth, they would still not change their opinion that USD is money, since their income is dependent on it

[deisik]

The only thing that could crash this system is US people start to lose the confidence of USD and refuse to accept them, and I don't see how is that possible. In people's mind, USD is money, no reason to refuse money. Even if they read that "the biggest scam in the history of mankind"https://www.youtube.com/watch?v=iFDe5kUUyT0 and know the truth, they would still not change their opinion that USD is money, since their income is dependent on it

That's what I meant by dropping the US dollar from the international trade between countries (other than the US) and switching to regional currencies instead. China and Russia are already going that route, so you, in a way, are a bit late with your fears...

[manwithat]

Look at this funny situation.

http://www.investing.com/rates-bonds/u.s.-10-year-bond-yield
http://www.investing.com/rates-bonds/spain-10-year-bond-yield

Like spaniard I am happy, but it doesn't have any sense.

[manwithat]

Look at this funny situation.

http://www.investing.com/rates-bonds/u.s.-10-year-bond-yield
http://www.investing.com/rates-bonds/spain-10-year-bond-yield

Like spaniard I am happy, but it doesn't have any sense.

And I forgot about this, which is funnier.

http://www.investing.com/rates-bonds/switzerland-10-year-bond-yield

[Bit_Happy]

This is serious business.
OP wrote a long text, but what does he really know about the history of paper money?
In the USA, Freedom is an illusion and the debt is real.

[johnyj]

The only thing that could crash this system is US people start to lose the confidence of USD and refuse to accept them, and I don't see how is that possible. In people's mind, USD is money, no reason to refuse money. Even if they read that "the biggest scam in the history of mankind"https://www.youtube.com/watch?v=iFDe5kUUyT0 and know the truth, they would still not change their opinion that USD is money, since their income is dependent on it

That's what I meant by dropping the US dollar from the international trade between countries (other than the US) and switching to regional currencies instead. China and Russia are already going that route, so you, in a way, are a bit late with your fears...

I mean US people, other countries hold a lots of USD reserve, if they abandon it, they lost many years of work, not a wise idea

[deisik]

The only thing that could crash this system is US people start to lose the confidence of USD and refuse to accept them, and I don't see how is that possible. In people's mind, USD is money, no reason to refuse money. Even if they read that "the biggest scam in the history of mankind"https://www.youtube.com/watch?v=iFDe5kUUyT0 and know the truth, they would still not change their opinion that USD is money, since their income is dependent on it

That's what I meant by dropping the US dollar from the international trade between countries (other than the US) and switching to regional currencies instead. China and Russia are already going that route, so you, in a way, are a bit late with your fears...

I mean US people, other countries hold a lots of USD reserve, if they abandon it, they lost many years of work, not a wise idea

Why would they necessarily abandon it? They would ultimately send their dollars to where they originated from, that is, back to the USA, trying to buy few goods which the latter sells (I mean the last holders of dollars when you won't be able to buy with them anything internationally in the end). But since the US has a large trade deficit (which is covered by debt), this would inevitably cause a panic sell of the US dollars leading to the devaluation of the US dollar...

And chickens finally came home to roost

[johnyj]

The only thing that could crash this system is US people start to lose the confidence of USD and refuse to accept them, and I don't see how is that possible. In people's mind, USD is money, no reason to refuse money. Even if they read that "the biggest scam in the history of mankind"https://www.youtube.com/watch?v=iFDe5kUUyT0 and know the truth, they would still not change their opinion that USD is money, since their income is dependent on it

That's what I meant by dropping the US dollar from the international trade between countries (other than the US) and switching to regional currencies instead. China and Russia are already going that route, so you, in a way, are a bit late with your fears...

I mean US people, other countries hold a lots of USD reserve, if they abandon it, they lost many years of work, not a wise idea

Why would they necessarily abandon it? They would ultimately send their dollars to where they originated from, that is, back to the USA, trying to buy few goods which the latter sells (I mean the last holders of dollars when you won't be able to buy with them anything internationally in the end). But since the US has a large trade deficit (which is covered by debt), this would inevitably cause a panic sell of the US dollars leading to the devaluation of the US dollar...

And chickens finally came home to roost

Indeed, if they all decided to abandon USD, there will be a large amount of excessive USD out there, but even USD is mass inflated, it still holds better trust than many other countries' currency

[deisik]

The only thing that could crash this system is US people start to lose the confidence of USD and refuse to accept them, and I don't see how is that possible. In people's mind, USD is money, no reason to refuse money. Even if they read that "the biggest scam in the history of mankind"https://www.youtube.com/watch?v=iFDe5kUUyT0 and know the truth, they would still not change their opinion that USD is money, since their income is dependent on it

That's what I meant by dropping the US dollar from the international trade between countries (other than the US) and switching to regional currencies instead. China and Russia are already going that route, so you, in a way, are a bit late with your fears...

I mean US people, other countries hold a lots of USD reserve, if they abandon it, they lost many years of work, not a wise idea

Why would they necessarily abandon it? They would ultimately send their dollars to where they originated from, that is, back to the USA, trying to buy few goods which the latter sells (I mean the last holders of dollars when you won't be able to buy with them anything internationally in the end). But since the US has a large trade deficit (which is covered by debt), this would inevitably cause a panic sell of the US dollars leading to the devaluation of the US dollar...

And chickens finally came home to roost

Indeed, if they all decided to abandon USD, there will be a large amount of excessive USD out there, but even USD is mass inflated, it still holds better trust than many other countries' currency

Naturally, people won't abandon the dollar just for the fun of it. They would if they somehow lost trust in the US, if the US economic world domination the USA got as a result of the two world wars would be disrupted or tainted in some way. Whether this should happen and whether it is bound to happen (and how soon) remains to be seen, though...

[Dick Trump]

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?

[manwithat]

This is serious business.
OP wrote a long text, but what does he really know about the history of paper money?
In the USA, Freedom is an illusion and the debt is real.

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

[Dick Trump]

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