Why isn’t the US bankrupt?
Discussion
In advance: I know governments are not like individuals and I know this doesn’t only apply to the US. I still find it difficult to get my head around it.
About 15 years ago I was working for a US MNC and attending our annual policy meeting in Washington. We had a guest speaker (can’t remember who), giving a talk on the US government debt. I think it was about to breech $10 trillion, which was psychologically significant. Today it is around $35 trillion!
US government income is around $5 trillion a year, so if they cut government spending to zero (and that didn’t impact government receipts) it would take around 10 years to pay it back (taking into account interest on the debt). Of course they always spend more than they receive (whoever is in power) so the debt grows constantly and realistically it will never be repaid.
I don’t know what assets the US government has that could be sold to cover the debt (does anyone have $35 trillion in spare cash to buy what might be on offer)?
Issuing new debt to “repay” currently expiring debt seems a bit like pulling yourself up by your own shoes laces but no one seems to question it. Just seems a bit odd to me.
About 15 years ago I was working for a US MNC and attending our annual policy meeting in Washington. We had a guest speaker (can’t remember who), giving a talk on the US government debt. I think it was about to breech $10 trillion, which was psychologically significant. Today it is around $35 trillion!
US government income is around $5 trillion a year, so if they cut government spending to zero (and that didn’t impact government receipts) it would take around 10 years to pay it back (taking into account interest on the debt). Of course they always spend more than they receive (whoever is in power) so the debt grows constantly and realistically it will never be repaid.
I don’t know what assets the US government has that could be sold to cover the debt (does anyone have $35 trillion in spare cash to buy what might be on offer)?
Issuing new debt to “repay” currently expiring debt seems a bit like pulling yourself up by your own shoes laces but no one seems to question it. Just seems a bit odd to me.
A son-in-law was a trader in the City pre 2008. He explained his job to me, but in a language that sounded English, but it conveyed no information. He told me there was nothing to stop the government printing money. I used the analogy of household budgeting and he gave me a patronising smile.
"It's got nothing to do with money as you understand it," he reckoned. "Most of what I deal with doesn't exist. It's just debt."
It seems that deregulation is nothing more than allowing banks to print money. The concept of a bank having money, your money (my money in particular) went out the window with deregulation. These figures are fantasy. Ignore them.
I once overpaid my credit card, moving a decimal point as I knew my wife had bought something near the cutoff date. I was admonished by my credit card company, which had bank in its title. The email told me they were not a bank. Money, particularly being in credit, it seems, put them into a panic.
My son-in-law in now an electrician. Happier, spends more time at home with my daughter and grandkids, and he doesn't have to explain what he does.
"It's got nothing to do with money as you understand it," he reckoned. "Most of what I deal with doesn't exist. It's just debt."
It seems that deregulation is nothing more than allowing banks to print money. The concept of a bank having money, your money (my money in particular) went out the window with deregulation. These figures are fantasy. Ignore them.
I once overpaid my credit card, moving a decimal point as I knew my wife had bought something near the cutoff date. I was admonished by my credit card company, which had bank in its title. The email told me they were not a bank. Money, particularly being in credit, it seems, put them into a panic.
My son-in-law in now an electrician. Happier, spends more time at home with my daughter and grandkids, and he doesn't have to explain what he does.
Assuming this is a serious question.
The fact is there is a lot of money out there, from CB, Sovereign wealth funds, to pension funds, etc. They want to invest in some thing safe and stable. Government bonds offer such an investment. Government use this to issue debt which funds the policies. It's stable unless the market believes you will not be able to refinance the debt. The US is one of the strongest and largest economies in the world so it's attracts lot of investors. When it has been short of investors it can also create money.
Obviously, it can do to wrong, Argentina, Greece, etc.
Just to put it in perspective US debt to GDP is 130%, Japan is 260%.
The fact is there is a lot of money out there, from CB, Sovereign wealth funds, to pension funds, etc. They want to invest in some thing safe and stable. Government bonds offer such an investment. Government use this to issue debt which funds the policies. It's stable unless the market believes you will not be able to refinance the debt. The US is one of the strongest and largest economies in the world so it's attracts lot of investors. When it has been short of investors it can also create money.
Obviously, it can do to wrong, Argentina, Greece, etc.
Just to put it in perspective US debt to GDP is 130%, Japan is 260%.
Ever since they got rid of Gold standard, (and all the banking deregulation of the late 90s) they have all... lots of countries.... pushed the envelope signficantly.
I guess if they are all in the same boat, whos going to call it in?
And who would try and make the US Gov default? You and whos army?
I guess if they are all in the same boat, whos going to call it in?
And who would try and make the US Gov default? You and whos army?
Gerradi said:
Carl_VivaEspana said:
The short version : Saudi Arabia and USD denominated oil contracts.
Hmm no wonder says its imperative that the Brics countries are not allowed to debunk the $$ for their own currency...isn't Saudi a Brics member ?OutInTheShed said:
They are not bankrupt, because people are still willing to lend them money.
^this, they retain the confidence of lenders , therefore will always be allowed to borrow, I suspect large amounts of US Treasury bonds are also redeemed daily/weekly, so a lot of new borrowing is in effect ‘rollover ‘ debt replacing these redemptions (probably over simplified on my part).Skeptisk said:
In advance: I know governments are not like individuals and I know this doesn’t only apply to the US. I still find it difficult to get my head around it.
About 15 years ago I was working for a US MNC and attending our annual policy meeting in Washington. We had a guest speaker (can’t remember who), giving a talk on the US government debt. I think it was about to breech $10 trillion, which was psychologically significant. Today it is around $35 trillion!
US government income is around $5 trillion a year, so if they cut government spending to zero (and that didn’t impact government receipts) it would take around 10 years to pay it back (taking into account interest on the debt). Of course they always spend more than they receive (whoever is in power) so the debt grows constantly and realistically it will never be repaid.
I don’t know what assets the US government has that could be sold to cover the debt (does anyone have $35 trillion in spare cash to buy what might be on offer)?
Issuing new debt to “repay” currently expiring debt seems a bit like pulling yourself up by your own shoes laces but no one seems to question it. Just seems a bit odd to me.
It's like any individual or Company. It doesn't matter how much debt you have as long as people are happy to continue lending you money. As long as you have cash in the bank to repay the debts (as and when they become due) and as long as people think you're good for the money then it's all fine.About 15 years ago I was working for a US MNC and attending our annual policy meeting in Washington. We had a guest speaker (can’t remember who), giving a talk on the US government debt. I think it was about to breech $10 trillion, which was psychologically significant. Today it is around $35 trillion!
US government income is around $5 trillion a year, so if they cut government spending to zero (and that didn’t impact government receipts) it would take around 10 years to pay it back (taking into account interest on the debt). Of course they always spend more than they receive (whoever is in power) so the debt grows constantly and realistically it will never be repaid.
I don’t know what assets the US government has that could be sold to cover the debt (does anyone have $35 trillion in spare cash to buy what might be on offer)?
Issuing new debt to “repay” currently expiring debt seems a bit like pulling yourself up by your own shoes laces but no one seems to question it. Just seems a bit odd to me.
They currently hold more gold than anyone else, 8133.46 tonnes, more than twice as much as Germany, who are 2nd.
One tonne of gold = 32,150.7 oz. Gold currents sits at $2665.70/oz
So the US gold reserves are worth $2665.7 x 32,150.7 x 8133.46. Which I think is nearly $700 billion. Which sounds a lot, but not even 1 trillion, let alone 35 trillion.
If I've got that right.
One tonne of gold = 32,150.7 oz. Gold currents sits at $2665.70/oz
So the US gold reserves are worth $2665.7 x 32,150.7 x 8133.46. Which I think is nearly $700 billion. Which sounds a lot, but not even 1 trillion, let alone 35 trillion.
If I've got that right.
Is there an economic advantage (or disadvantage) to running a near constant deficit, and hence ever increasing debt (nominal, not as %age of GDP)?
There’s political advantages/disadvantages and short term economic factors, such as Keynsian approach to recession recovery - but what about long term?
There’s political advantages/disadvantages and short term economic factors, such as Keynsian approach to recession recovery - but what about long term?
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