Old and wise said:Let's just hope that the Chinese don't call all their notes or this country will be going the same route as the airlines.
Old and wise said:Let's just hope that the Chinese don't call all their notes or this country will be going the same route as the airlines.
Iriemon said:I am not familiar enough with world credit markets to estimate the effect that would have. Basic law of supply and demand says that if there is less supply (of credit) the demand goes up -- in the form of higher interest rates. Unless there are other major players out there that would step in and feed our Government's horrible appetite for borrowing, you would see that interest expense balloon rapidly, and other costs of credit would probably follow suit.
SouthernDemocrat said:Currently there is plenty of capital on the world market to float our debts. The real issue is in the costs of servicing it. The more we borrow, the more we spend servicing debt. Its like in a household when it continues to run up credit card debt. There are plenty of card companies to lend to you, but eventually even the minimum payments place a huge burden on you.
The other problem this causes is that big debts like this discourage foreign investment in our economy.
the crux of the matter is that you are now 6 trillion over what al greenspan
the guru said was the limit to borrowing
Let's just hope that the Chinese don't call all their notes or this country will be going the same route as the airlines.
oldreliable67 said:The US debt that the Chinese (and other entities around the world) is almost all in the form of U S Treasury Notes, Bonds, and Bills (which are simply U S Treasury debt instruments of varying maturities at the time of their original issuance). These securities are not callable by either the holder or the US Treasury (the US did issue callable bonds at one time, but that was a while back). Which means that a holder cannot simply take his Treasury bond to the Treasury or the nearest bank and demand redemption or exchange it for another. Nor can the Treasury arbitrarily redeem bonds from holders whenever the Treasury so chooses -- unless the holder has purchased a bond that specifically confers that privilege on the Treasury.
US Treasury securities are however, highly marketable. And the market for US Treasury securities is one of, if not the, largest single securities market in the world. That means that anywhere in the world, a buyer/seller can call up a dealer, either by phone or more often these days, electronically, and buy/sell billions of US Treasury securities with one call or mouse click. The market handles billions of $s in transactions daily.
So, instead of saying 'call all their notes', a more technically correct phrasing would be simply 'sell all their Treasury securities at one time'. Despite being a huge and very liquid market that typically trades billions every day, there is of course a limit as to how much any market, even this one, can take without becoming disorderly. Should the market become disorderly from massive selling, the Fed would step in (in its mandated role as lender of last resort) and restore order.
Thats brief and there is lots more to it than that, but maybe that will help some understand the process.
oldreliable67 said:Canuck seems to think that there is something erroneous in my post, but as yet hasn't responded to my request for specifically what that might be. In the meantime, I'll add a couple of stats and a chart to illustrate what I said about the liquidity and trading volumes in the U.S. Treasury market.
There are currently 22 dealers in U.S. Treasury securities that are recognized as 'primary dealers' by the Fed. Being designated a primary dealer means that the Federal Reserve, in its conduct of monetary policy, will enter into transactions in U.S. govt securities with you. As such, these 22 dealers account for the lion's share of transactions is U.S. govt securities. Smaller amounts are traded by other, non-primary dealers, and treasuries are traded on the NYSE.
The stats: according to the Fed, primary dealer transactions in U.S. Treasury securities have averaged almost $560 billion per week thus far in 2005. On 9/7/2005, they traded $765 billion. Averaging over 1/2 trillion per week. Peak week, almost 3/4 of a trillion on 9/7. Staggering amounts, aren't they? The only market in the world that can do this volume.
Data is available at www.fed.gov.
Canuck said:the crux of the matter is that you are now 6 trillion over what al greenspan
the guru said was the limit to borrowing
bush makes the dem. look like saints
he's down right embarassing the NEO~COn~ARTISTS
what is making the neocons even more upset is
Iran has stated it would start to selling it's resources on its own STk MRKT
and in EUROS
its making bush shake in his cowboy boots
you seem to discount the risk associated with continued fiscal irresponsibility
But most of that is simply rolled over existing debt, isn't it?
oldreliable67 said:Iriemon,
That being said, our fiscal situation as of this moment is quite sustainable and not a particular problem. We have much, much more capacity for additional debt should it be needed.
oldreliable67 said:'Rolled over' is not quite correct terminology, but I think I take your meaning. 'Rolled over' is terminology typically applied to the replacement of maturing debt with new debt. As noted above, the market of U.S. Treasury securities trades billions every day. The securities that are traded are predominately outstanding debt, that is, debt that has been previously issued, not debt newly issued to replace maturing debt. Debt instruments change ownership every day, just like stocks. A principal difference though, is that the majority of debt instruments change hands in the 'over-the-counter' market. That is, not on any organized exchange, but through the network of primary dealers.
Now, to be sure, the Treasury periodically auctions new debt, both to 'roll over' maturing debt and to raise new funds when the need arises (all too often lately). These auctions occur weekly for Treasury Bills (less than a year to maturity), monthly for Notes (ten years or less to maturity, currently mainly 2,3, or 5 years to maturity), and quarterly (for combinations of Notes and long-term Bonds).
While the total amount of U.S. debt currently outstanding is almost $8 trillion, only about $4 1/2 trillion is held by the public. The balance is held by government and other official agencies.
Hope this helps.
We may have a capacity for more debt. But debt comes at a price -- last year our interest expense on the debt was about $350 billion. How does it help the country to pile on more debt and have a greater interest burden?
galenrox said:Damn straight, well said there brother.
But let's be fair, since the creation of social security there've definately been a lot of democrats who love defecit spending too, but I'm quite certain Bush is one of the worst, and the only democrat in my lifetime was one of the best! Oh ho ho, party of fiscal responsibility my ass!
oldreliable67 said:Iriemon,
Repeating bits and pieces that I have previously posted...
The single best measure of US debt, IMO -- and the measure that I see most often quoted by analysts (and has the Alan Greenspan seal of approval -- see the note, below), is the amount of annual surplus or deficit relative to annual GDP.
In other words, it is a measure of our capacity to service our debt, not the absolute size of the debt.
As you can see from the chart below, the current percentage is well within the zones of historical experience (figures for 2005 and beyond are CBO estimates).
As you can see from the chart, we are still well above the levels seen in the mid-1980s. In fact, much better than expected tax revenues have helped stabilize the situation of late. So while I conclude that we presently still have adequate capacity for additional debt, it is not inexhaustible.
And you are absolutely right to be concerned, IMO, about the future impact of entitlements (SS and medical care). I give Bush credit for having the political nerve to bring SS up and put forth something that was sure to be controversial. I hate it that he has been so silent on the subject of late. It doesn't have to be done tomorrow, but it has got to be addressed, and sooner better than later. It will take someone with political skill and courage to do so. I don't see anyone like that around just now.
Note: according to Greenspan:
"In general, fiscal systems are presumed stable if the ratio of debt in the hands of the public to nominal GDP (a proxy for the revenue base) is itself stable. A rapidly rising ratio of debt to GDP, for example, implies an ever-increasing and possibly accelerating ratio of interest payments to the revenue base. Conversely, once debt has fallen to zero, budget surpluses generally require the accumulation of private assets, an undesirable policy in the judgment of many. "
http://www.federalreserve.gov/boardd.../testimony.htm
BTW, I re-read some of your previous posts on this topic on a couple of other threads. Good stuff.
But big deficits year after year result in a lot of debt -- that is where you get the problem.
Aside from the economic aspects, IMO there is a moral aspects of expecting future taxpayers to pay for what the current Govt expends.
What do you conclude of your data in light of the fact that we have untold trillions in unfunded liabilities right around the corners as the boomers start to retire?
oldreliable67 said:Thanks to a 15% increase in revenues from continued relatively brisk economic activity and a lesser 8% increase in spending, the 2005 budget deficit was 2.6% of GDP, according to figures released by the Treasury today...
"WASHINGTON (Reuters) - The budget deficit narrowed to $318.62 billion in the 2005 fiscal year, marking the third biggest gap on record, the Treasury Department said Friday.
But the deficit could rise again in the current fiscal year due to emergency spending after Hurricane Katrina, economists have said.
The 2005 budget deficit was 2.6 percent of gross domestic product (GDP), the department said. The government's fiscal year ended on Sept. 30.
The deficit was the third biggest on record in dollar terms, smaller than the record $412.8 billion shortfall in fiscal 2004 and the $377.6 billion gap in fiscal 2003.
September's budget surplus rose roughly in line with expectations to $35.76 billion after a surplus of $24.61 billion in September 2004."
http://money.cnn.com/2005/10/14/news/economy/budget.reut/index.htm
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