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U.S.’s $13 Trillion Debt Poised to Overtake GDP: Chart of Day

The Giant Noodle

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By Garfield Reynolds and Wes Goodman


June 4 (Bloomberg) -- President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”
The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.
“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”
Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”
Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.
“The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury,” Boston-based Fuss said. “Do you really want to buy the debt of the biggest issuer?”
(To save a copy of the chart, click here.)
To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

U.S.
 

American

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I'm not surprise that a Democrat is overseeing this? We always knew their stripes.
 

PeteEU

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Considering a huge portion of the debt happened under Republican watch, then well.. the right should not be touting their horn too much either.
 

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In the wake of collapsed housing bubbles, a nation's debt often soars. Costs associated with bailouts to prevent the collapse of the banking system, countercyclical measures (e.g., unemployment payments), stimulus measures to shore up aggregate demand, and a steep drop in tax revenue push debt higher. Real debt burdens have typically grown more than 80% in the wake of such crises.

The U.S. has additional issues. First, it made explicit its guarantee of Fannie Mae and Freddie Mac. Even as the government has continued to keep the GSEs' guaranteed debt off-budget, it has for all intents and purposes assumed responsibility for those contingent liabilities. In fact, if the U.S. were simply to disavow those liabilities now, the U.S. could well alter perceptions of its credibility on debt (the precedent would indicate that sovereign debt default in the future is not off the table). The U.S. should work to wind down those entities and replace them with a larger number of smaller entities with strong capital requirements, significantly smaller conforming loan requirements (to eliminate incentives for overleverage), and avoid imposing political or social requirements on them when it comes to mortgage activity. That way, the problems that impact Fannie/Freddie can be addressed.

At the same time, it faces substantial structural budget deficits that have little to do with the recent cyclical explosion of debt. Unless tax revenues are increased to sufficient levels and the mandatory spending programs are reformed, those structural deficits will persist and grow worse over time. The structural deficits are the result of bipartisan choices made over many decades. It is the structural fiscal situation that needs to be addressed if the U.S. is to avoid a debt crisis in the medium-term or beyond. Right now, it is not on a fiscally sustainable path. Moreover, it cannot grow its way out of its deficits.
 
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washunut

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In the wake of collapsed housing bubbles, a nation's debt often soars. Costs associated with bailouts to prevent the collapse of the banking system, countercyclical measures (e.g., unemployment payments), stimulus measures to shore up aggregate demand, and a steep drop in tax revenue push debt higher. Real debt burdens have typically grown more than 80% in the wake of such crises.

I am not sure where the 80% comes from. However growing debt 80% on 2 trillion versus 8 trillion when the economy has not grown that fast would be a problem regardless.


The U.S. has additional issues. First, it made explicit its guarantee of Fannie Mae and Freddie Mac. Even as the government has continued to keep the GSEs' guaranteed debt off-budget, it has for all intents and purposes assumed responsibility for those contingent liabilities. In fact, if the U.S. were simply to disavow those liabilities now, the U.S. could well alter perceptions of its credibility on debt (the precedent would indicate that sovereign debt default in the future is not off the table). The U.S. should work to wind down those entities and replace them with a larger number of smaller entities with strong capital requirements, significantly smaller conforming loan requirements (to eliminate incentives for overleverage), and avoid imposing political or social requirements on them when it comes to mortgage activity. That way, the problems that impact Fannie/Freddie can be addressed.

I agree on this point, however the dems refused to insert this in the upcoming fin reg bill.

At the same time, it faces substantial structural budget deficits that have little to do with the recent cyclical explosion of debt. Unless tax revenues are increased to sufficient levels and the mandatory spending programs are reformed, those structural deficits will persist and grow worse over time. The structural deficits are the result of bipartisan choices made over many decades. It is the structural fiscal situation that needs to be addressed if the U.S. is to avoid a debt crisis in the medium-term or beyond. Right now, it is not on a fiscally sustainable path. Moreover, it cannot grow its way out of its deficits.
People keep talking about structural budget deficits. I would agree that social security and medicare fit in that category. Are you also including the increasing cost of paying for the debt, a cost that few seem to think about but which will be the largest budget item in the not to distant future.

While we can point fingers and agree that this problem is non partisan ( both parties are guilty) that does not in my view address the point that we are continuing to add to our woes not working to fix them.
 
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oldreliable67

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Considering a huge portion of the debt happened under Republican watch, then well.. the right should not be touting their horn too much either.
Indeed. Bush was a huge disappointment in many ways, with one of the biggest his attitude towards spending.

While congress takes its lead from the president, it nonetheless remains the single most influential source of spending. In recent decades, congress has almost completely abandoned any semblance of prudence with regard to spending. Which, I think, is a chief reason that congressional approval ratings have consistently fallen for such a long time, and are now at historically low levels. Importantly, this decline has occured regardless of the party in the WH or in the majority. A basic and very telling measure of the low regard in which congress' actions are viewed by the electorate, and a possible harbinger the coming November elections.
 

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People keep talking about structural budget deficits. I would agree that social security and medicare fit in that category. Are you also including the increasing cost of paying for the debt, a cost that few seem to think about but which will be the largest budget item in the not to distant future.
Yes. Debt service is a non-cyclical fiscal component. It is a function of the amount of debt and interest rates.

While we can point fingers and agree that this problem is non partisan ( both parties are guilty) that does not in my view address the point that we are continuing to add to our woes not working to fix them.
I strongly agree. I believe the federal government should already be developing a credible fiscal consolidation strategy. The first pieces should be implemented next year barring the onset of a double-dip recession this year (probably a less likely outcome than continued moderate growth).
 

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Considering a huge portion of the debt happened under Republican watch, then well.. the right should not be touting their horn too much either.
they way i've always thought of it is like this: As a taxpayer, you have to haul the country behind you. You throw the strap over your shoulder, and dig in and begin to pull. Then, Republicans come up and shoot you in the foot. So you put Democrats in charge of the effort instead. Then, the Democrat comes and shoots you in the face.
 

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In his testimony before the House Budget Committee, Federal Reserve Chairman Ben Bernanke mentioned that the U.S. is on an unsustainable fiscal path and that it needs to develop a plan to deal with its long-term fiscal imbalances. Relevant excerpts:

Even after economic and financial conditions have returned to normal, however, in the absence of further policy actions, the federal budget appears to be on an unsustainable path. A variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy show a structural budget gap that is both large relative to the size of the economy and increasing over time.

Among the primary forces putting upward pressure on the deficit is the aging of the U.S. population, as the number of persons expected to be working and paying taxes into various programs is rising more slowly than the number of persons projected to receive benefits. Notably, this year about 5 individuals are between the ages of 20 and 64 for each person aged 65 or older. By the time most of the baby boomers have retired in 2030, this ratio is projected to have declined to around 3. In addition, government expenditures on health care for both retirees and non-retirees have continued to rise rapidly as increases in the costs of care have exceeded increases in incomes. To avoid sharp, disruptive shifts in spending programs and tax policies in the future, and to retain the confidence of the public and the markets, we should be planning now how we will meet these looming budgetary challenges.

Achieving long-term fiscal sustainability will be difficult. But unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth.
 

washunut

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In his testimony before the House Budget Committee, Federal Reserve Chairman Ben Bernanke mentioned that the U.S. is on an unsustainable fiscal path and that it needs to develop a plan to deal with its long-term fiscal imbalances. Relevant excerpts:

Even after economic and financial conditions have returned to normal, however, in the absence of further policy actions, the federal budget appears to be on an unsustainable path. A variety of projections that extrapolate current policies and make plausible assumptions about the future evolution of the economy show a structural budget gap that is both large relative to the size of the economy and increasing over time.

Among the primary forces putting upward pressure on the deficit is the aging of the U.S. population, as the number of persons expected to be working and paying taxes into various programs is rising more slowly than the number of persons projected to receive benefits. Notably, this year about 5 individuals are between the ages of 20 and 64 for each person aged 65 or older. By the time most of the baby boomers have retired in 2030, this ratio is projected to have declined to around 3. In addition, government expenditures on health care for both retirees and non-retirees have continued to rise rapidly as increases in the costs of care have exceeded increases in incomes. To avoid sharp, disruptive shifts in spending programs and tax policies in the future, and to retain the confidence of the public and the markets, we should be planning now how we will meet these looming budgetary challenges.

Achieving long-term fiscal sustainability will be difficult. But unless we as a nation make a strong commitment to fiscal responsibility, in the longer run, we will have neither financial stability nor healthy economic growth.
And yet we do not even have a 2011 budget yet and won't get one until after the election. If our politicians do not even have the backbone to issue a budget which will probably have a trillion dollar deficit, even with tax hukes what chance to we have getting to where Bernanke thinks we need to be.

Further in the testimony he defined what he calls sustainable. That is no deficit before interest expense.
In my view there is little chance that we will get there by 2020.
 

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By Garfield Reynolds and Wes Goodman


June 4 (Bloomberg) -- President Barack Obama is poised to increase the U.S. debt to a level that exceeds the value of the nation’s annual economic output, a step toward what Bill Gross called a “debt super cycle.”
The CHART OF THE DAY tracks U.S. gross domestic product and the government’s total debt, which rose past $13 trillion for the first time this month. The amount owed will surpass GDP in 2012, based on forecasts by the International Monetary Fund. The lower panel shows U.S. annual GDP growth as tracked by the IMF, which projects the world’s largest economy to expand at a slower pace than the 3.2 percent average during the past five decades.
“Over the long term, interest rates on government debt will likely have to rise to attract investors,” said Hiroki Shimazu, a market economist in Tokyo at Nikko Cordial Securities Inc., a unit of Japan’s third-largest publicly traded bank. “That will be a big burden on the government and the people.”
Gross, who runs the world’s largest mutual fund at Pacific Investment Management Co. in Newport Beach, California, said in his June outlook report that “the debt super cycle trend” suggests U.S. economic growth won’t be enough to support the borrowings “if real interest rates were ever to go up instead of down.”
Dan Fuss, who manages the Loomis Sayles Bond Fund, which beat 94 percent of competitors the past year, said last week that he sold all of his Treasury bonds because of prospects interest rates will rise as the U.S. borrows unprecedented amounts. Obama is borrowing record amounts to fund spending programs to help the economy recover from its longest recession since the 1930s.
“The incremental borrower of funds in the U.S. capital markets is rapidly becoming the U.S. Treasury,” Boston-based Fuss said. “Do you really want to buy the debt of the biggest issuer?”
(To save a copy of the chart, click here.)
To contact the reporters on this story: Garfield Reynolds in Sydney at greynolds1@bloomberg.net; Wes Goodman in Singapore at wgoodman@bloomberg.net.

U.S.
Yes, the federal government is issuing more debt, but some folks are putting aside a few more nickels for a rainy day. For example, Mr. Fuss should pay more attention to what American banks are doing:

"Banks are stealing money from the public, giving consumers zero percent interest on deposits, and instead of turning over risk to the over-indebted consumers, they're loaning money to the government," Michael Pento, chief economist at Delta Global Advisors, told CNBC.

Banks Buying Treasuries Instead of Lending
I can't really say I blame the banks. They suffer from a sort of reverse Midas touch: everything they touch--residential mortgages, commercial real estate loans, installment and revolving loans, foreign sovereign bonds--turns to s***. At least a U.S. Treasury note or bond pays a steady if not spectacular rate of return, and if interest rates decline on the long end (going from 4.14% on the 30-year bond to, say, 3 or 3.5%, which seems increasingly likely), they can actually make significant money. Also, Treasuries make banks look good to regulators, because they don't expect the federal government to turn into a deadbeat like everyone else.
 
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ZGM

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So the president is purposely increasing the debt to make us pay higher taxes???

There has to be a limit for politicians to raise taxes on us, like up to $20,000,000,000,000!!
 
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imagep

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So the president is purposely increasing the debt to make us pay higher taxes???
Glen Beck and those who follow him seem to think so.

There has to be a limit for politicians to raise taxes on us, like up to $20,000,000,000,000!!
I agree that there should be limits on taxation, but not nessasarally in terms of absolute dollars. Maybe in terms of percentages.
 

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I am not suggesting that the federal debt is not a huge problem, but we do need to keep in mind that about a third of the debt is from where the government essentially borrowed money from itself. Something like $5 trillion of our treasury debt was borrowed from the fed. The fed just fictionally created the money out of nothing. They didn't even actually print up any additional money, they just wrote a fictional check, which somehow actually cleared the feds banking system because the fed, with all its Godlike power just said "let there be an extra $5,000,000,000,000 in our account" (much the way that God said "let their be light" and there just was light). In theory, the fed could simply forgive the treasury of the debt.

Of course there is no direct benefit to doing so, and there is the possibility that if we were to come out of this recession, with double digit inflation, that the gov could use this debt to the fed as a way of reducing our money supply to curb inflation. The way that this would happen is that the treasury would start paying the fed back this fictional money (retreving the money from the banks that the government lent it to), the fed would then simply distroy this fictional money, and thus we would in theory have reduced our money supply to the point that there is not "too much money chasing too few goods".

It all sounds crazy, and it is, but I believe that to be the plan.

Another way we could repay the debt would be to tax the top 1% of income earners by an additional 10% or so. Over and over I keep hearing people saying that their are not enough rich people to tax to cover the debt, but I don't believe that they have done the math. The average person in the top 1% makes about $1.6 million bucks a year. If they were to pay an additional 10% of their total income in taxes, it would on average raise $160,000 per top 1 percenter. We have approximately 1,000,000 who qualify as a top 1 percenter, so the total annual revenue generated from this would be 1,000,000 * 160,000 = $160 billion. At that rate, it would take 63 years to repay the portion of the debt that is not owed to the fed, ignoring interest, ignoring the unfunded liability of medicare, social security, and federal worker retirement. That sounds like a long time, and it is, but when you consider the fact that it typically takes 30 years to pay off a house, 63 years to pay off the federal debt is really not that long. Since interest is already factored into the budget, and if we immediately started paying down the debt, each year we would pay a little less in interest, so assuming that we applied that interest savings to the debt, it might not take the full 63 years. If we started just printing up money to force our inflation rate to 6% or so, and if we then repaid the debt in deflated dollars but if we repaid the debt with inflation adjusted dollars (so each year we would pay 6% more than the previous year), we could likely cut the time that it takes to repay the debt in half. But if we use the extra dollars that we printed up to force inflation to repay the debt, we could likely cut that time in half again - to around 15 years.

Of course most TV economist (who tend to be politically motivated) would argue that the tax increase would drive capital out of our economy, but I am not so sure about that. They ain't looking at the big picture. If we taxed the wealthy more and then used that money to eleminate our foreign debt, sure whatever we taxed away would be sucked out of our capital market. But those who we repaid would then have all the money that we repaid, so they would likely place that money back into our capital market - no net positive or negative effect on our capital funds. And with a higher inflation rate, our wealthy individuals would have more incentive (inflation is a big incentive to look for higher yields on investments) to take the money out of the "safe" low yield investments (such as government securities that the government is paying off anyway), and look for more lucrative investments (such as investments in private industry and new entrapanurial endevors).

The fed debt is a huge problem, but not by any means overcomable. The bigger problem is balancing the budget without raising taxes for that purpose, and the looming unfunded liabilities. Those also very easy to solve in theory, but getting the solutions through our political system is going to be exceptionally difficult.

OK, now I have solved all our debt problems, NEXT...!
 

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Something like $5 trillion of our treasury debt was borrowed from the fed.
Where do you get that figure from? At the end of 2009, the Fed had toal assets of $2.2 trillion. Most of that was in the form of Treasuries and Agency securities, but that's nowhere close to the figure you cite. (http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2009.pdf) If long interest rates go up the value of much of this paper drops and then the member banks get to ante up some "fictional money" to make up the loss. That's tough to do when they have rotten loans up the wazoo and are writing down capital. And, personally, I'm not holding my breath for the IRS to let me slide on sending in my imaginary check next April.
 
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they way i've always thought of it is like this: As a taxpayer, you have to haul the country behind you. You throw the strap over your shoulder, and dig in and begin to pull. Then, Republicans come up and shoot you in the foot. So you put Democrats in charge of the effort instead. Then, the Democrat comes and shoots you in the face.
I agree somewhat, but in Obama's case he did not have much choice. Like it or not, the US is in a recession or just coming out, and you do not cut government spending during a recession.. it is the most stupid thing you can do. One would have thought that people could read history books and think just a tad logically.

Now Bush had a choice, but choose to ignore the fact that you should "save up" during the good years so you can use that during the bad years.. he just used used and grew his deficit year after year despite the US economy was booming.

So on the epic scale of stupidity Obama comes very low and Bush at the top. But lets not forget that Since Carter we have had 3 Republican Presidents and 2 Democratic Presidents (Clinton and Obama) and Clinton was the only one who actually started to have a surplus, where as Reagan and Bush Sr and Jr spent like drunken sailors even during the boom years. Reagan was the worst, by almost trippling the US debt during his term.

There is no doubt that the debt of the US is a problem, but it is not the biggest problem yet.
 

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well - since Obama is a mighty Democrat he can just pull a Clinton: take the surplus from SSA and pay down the public debt.
Sadly this would spike the Intra-Govermental debt and create a future problem . . . but hey! Who gives a ****, right, it's just debt :shrug:
 

washunut

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I agree somewhat, but in Obama's case he did not have much choice. Like it or not, the US is in a recession or just coming out, and you do not cut government spending during a recession.. it is the most stupid thing you can do. One would have thought that people could read history books and think just a tad logically.

Now Bush had a choice, but choose to ignore the fact that you should "save up" during the good years so you can use that during the bad years.. he just used used and grew his deficit year after year despite the US economy was booming.

So on the epic scale of stupidity Obama comes very low and Bush at the top. But lets not forget that Since Carter we have had 3 Republican Presidents and 2 Democratic Presidents (Clinton and Obama) and Clinton was the only one who actually started to have a surplus, where as Reagan and Bush Sr and Jr spent like drunken sailors even during the boom years. Reagan was the worst, by almost trippling the US debt during his term.

There is no doubt that the debt of the US is a problem, but it is not the biggest problem yet.
There is a difference between not cuting expenses during a recession and dramatically increasing and wasting money. For example we increased spending by nearly $100 billion a year to have more troops in Afghanistan, how does that help fight our recession. Increasing entitlements big time which won't show up quickly is a disaster. Bush Sr raised taxes and got thrown out of iffice for it.

Lastly the rest of the world is starting to understand you can't keep spending money you do not have in the name of fighting a recession today and causing a tremendous problem for the people who follow us. It seems people like you do not care about future generations. Throwing money that is wasted to try and fix a credit problem today without any thought of what the consequences are for others to me seems ammoral.
 

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Where do you get that figure from? At the end of 2009, the Fed had toal assets of $2.2 trillion. Most of that was in the form of Treasuries and Agency securities, but that's nowhere close to the figure you cite. (http://www.federalreserve.gov/monetarypolicy/files/BSTcombinedfinstmt2009.pdf) If long interest rates go up the value of much of this paper drops and then the member banks get to ante up some "fictional money" to make up the loss. That's tough to do when they have rotten loans up the wazoo and are writing down capital. And, personally, I'm not holding my breath for the IRS to let me slide on sending in my imaginary check next April.
I don't remember offhand, the 5 trillion I quoted was an approximate figure off the top of my head. Let me try to find some references...

The first one I found on Google is from July 2007 and indicates that the Treasury owed the Fed $3.851 billion: http://www.marketoracle.co.uk/Article1571.html
The next one I just found is from Feb 2008 which indicates that 40% of the debt at that time was owed to the Fed and other gov. agencies: U.S. National Debt Clock FAQ
This I found this more reason one indicating that we owe the fed $4.4 trillion out of a total $13 trillion owed (which would be approximately 1/3rd of the debt): Defeat The Debt -  How Much Do We Owe?
Those probably aint the best reference sources, but I assume them to be accurate. None of those references are the origional source of my info, I am not sure where I found that, maybe I saw it on the news. but I have seen it several times.

I really dont know why that report you cited showed assets that low. Maybe it is not including the fictional money it loaned to the Treasury during the past two years? Government accounting practices frequently includes "off the books" accounting. Once again, the reason that they may have decided to not show those recent loans to the Treasury on the books is so that if we start getting runaway inflation they can call in those loans and "distroy" the money that the magically appeared to begin with.

Regardless of the exact figures, my points still stand. I wasn't trying to present exact financial info to the dollar, I was trying to present the fact that despite what some people claim, the fed debt is still managable and our economy does not have to go to H&!! because of it.
 

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Regardless of the exact figures, my points still stand. I wasn't trying to present exact financial info to the dollar, I was trying to present the fact that despite what some people claim, the fed debt is still managable and our economy does not have to go to H&!! because of it.
On your first point, that "We owe it to ourselves": I clicked your first link and read this:

The Intergovernmental Holdings section refers primarily to governmental borrowing from the Federal Reserve. This is sometimes referred to incorrectly as "the government borrowing from itself".

To begin with, the twelve regional Federal Reserve Banks are private institutions operating collectively in a quasi-governmental capacity....

But "We Owe it to Ourselves"?

Does the debt matter, after all, don't we owe it to ourselves? Only if you acknowledge that "we" and "ourselves" are in fact very different entities. The Federal Reserve's Z.1 Release gives insight as to who exactly owes the money, and to whom.

Clearly this is a one-way street. Households, government and non-financial businesses are becoming more and more indebted to foreigners, banking and financial institutions. Debt is not wealth. It is a claim on future production.

"The budget should be balanced; the treasury should be refilled; public debt should be reduced; and the arrogance of public officials should be controlled." - Cicero. 106-43 B.C.

http://www.marketoracle.co.uk/Article1571.html
If you think you're going to make the economy prosper by eliminating debt then you need to focus on all debt, not just the National Debt. Last time I checked total credit market debt in the United States was more than $53 trillion. If credit expansion is inflationary, then the deleveraging taking place in the private sector is deflationary. Banks writing off mortgages and credit card accounts won't be in much of a lending mood, and households in hock up the their eyeballs and struggling to maintain incomes will not be in much of a spending mood.

The Regional Economist : Economic Hangover: Recovery Is Likely To Be Prolonged, Painful

2010 Credit Markets Symposium: Will Deleveraging Derail the Recovery?
 
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There is a difference between not cuting expenses during a recession and dramatically increasing and wasting money. For example we increased spending by nearly $100 billion a year to have more troops in Afghanistan, how does that help fight our recession.
Arms production and fixing busted material. Like it or not, it pumps money into the economy. In fact to be brutally honest war generates a lot of income and stimulus in an economy. And there has been theorised that certain countries have pushed for war because of this including the US. If the US had not been in Iraq and Afghanistan, not only would the unemployment rate be much higher, but the money used on those wars would not be pumped into the economy.. and yes most of the money is given to US firms.

Increasing entitlements big time which won't show up quickly is a disaster.
Rather increase them during an economic crisis to put more money in the economy. Like it or not, the US relies on consumer spending (something like 70%+), and cutting out entitlements would cut out a huge chunk.

Bush Sr raised taxes and got thrown out of iffice for it.
Well that is America for you. Like it or not you need to raise taxes and cut spending and Bush Sr knew that. 8 years of Reagan had put a huge hole in the budget after all.

Lastly the rest of the world is starting to understand you can't keep spending money you do not have in the name of fighting a recession today and causing a tremendous problem for the people who follow us. It seems people like you do not care about future generations. Throwing money that is wasted to try and fix a credit problem today without any thought of what the consequences are for others to me seems ammoral.
Oh I care very much about the next generation, and that is why I am saying you have to cut short any recession with stimulus as quickly as possible. And the only way you can do that is to spend money while the private sector gets over its issues but when the private sector does get back in the game, then it is the job of the government to draw down in the spending and save up.

As for throwing away money, that is not the money's fault or the idea of pumping money into the system via stimulus and government spending that´s the problem. It is simple economic theory that has been proven to be successful over and over again.

The problem is the political system. It is the political system that is throwing money away at record amounts and the lack of political will to change the system.... even from the Tea Party or other "revolutionary" groups in the US. They are all in it for the money and that wont change over night. No one is willing to discuss what is needed as we have seen on these boards. The right targets the entitlements, and demands more tax cuts for the rich and companies and less regulation and more free markets (which lead us to the hole we are in now.. /grin), where as the left defends entitlements and demands tax risises for the rich and companies (generally speaking). And everyone avoids the big elephant in the room.. military spending and the little mouse.. pork.

And that is where we are today. The US has one of the lowest tax burdens in the industrialized world, one of the lowest defacto company tax burdens (since most avoid paying tax), some of the most lax regulation in many areas of the world, and some of the most protected markets in the industrialized world. On top of that it has a huge budget. This leaves a huge gap and there is no real willingness to reduce it in a pragmatic way.

To be brutally honest, the US needs to redefine its military. Dump the Marines, so that there are only 3 main branches. Remove troops from Europe and Japan and close the bases and cut its nuclear arsenal to 1/10th of what it is today .. still plenty of nukes to obliterate the planet. Close tons of bases and to be frank, you do not need a million plus troops for god sake. No bid contracts for the military.. wth. An over reliance on private contractors in the military and zero accountability for said private contractors is also mind boggling. They dont make the military cheaper.. they make it far more expensive. No transparency in the spending.. 40k dollar toilet seats?

On top of that there needs far more transparency in your political system. The amount of conflict of interest in pork projects and government procurement that has been exposed the last decade is... mind boggling. The bridge to no where, a library run by a congress members family and so on and so on. On the entitlement front there needs reforms too. Medicaid and Medicare need overhauls, but that cant be done without tackling the huge whale in the room.. healthcare costs and that aint happening with the present system.. simply too much money involved in screwing people and increasing costs... the more costs increases the more profit and the more people you can keep out of the healthcare system the more profit... it is an evil cycle. Social Security needs to be fully financed and a new system for the future be put in place.. you cant just cut everything over night. But there is no political will to do anything because of the money involved. And then there is tax reform.. the fact that a huge minority dont pay any taxes, even symbolic.. is mind boggling. People need to learn that you are a nation and you are all in it together.. does not matter if you only pay 10 dollars a year in taxes or 10 million.. American's need to not only show the solidarity but share the pain of taxes. I have paid taxes since I was 15.. not much at the start, because deductible, but I got a tax return that showed that I did pay to that and that, which was not included in the tax deductible. We live in a modern world.. it can all be done pretty much automatically.

And then there is tax rises ... like it or not, they WILL be needed. You cant cut the amount needed out of the budget to get anywhere near budget parity, because a huge portion is a structural problem.

Now if you tackle all this then maybe you can get things done and get back to a more sustainable budget. As of now, the US is a colossus standing on toothpicks and the rest of the world is propping up the toothpicks hoping that their sugar daddy in consumer spending can keep going.
 
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On your first point, that "We owe it to ourselves": I clicked your first link and read this:



If you think you're going to make the economy prosper by eliminating debt then you need to focus on all debt, not just the National Debt.
I will take a look at your links. I dont think that I suggested that eleminating debt is going to make the economy prosper though. Currently I owe about $600,000. If I was somehow able to immedately repay that debt, I really don't think that it would effect the economy one way or another. If I withdrew $600,000 out of my bank account to pay my debt, then essentially I would be reducing the capital available for other businesses/people to borrow. But if I then used that money to pay back my creditors, I would essentially be providing $600,000 to lenders who would then replinish their stock of money to lend. So there would be no net positive or negative effect.

I am pretty much suggesting the same senerio for our government debt. If the government withdrew money from our population (by taxation, particularly by taxation on people who are capital providers) then we would have less money available for borrowing and consumption, but if the gov then used that money to pay back it's debts, the stock of money available for borrowing and consumption would be replinished by the same amount that was withdrawn. So there is no net positive or negative effect. In the grand scheme of things (macro-economically speaking), debt really doesn't matter.

My intended point is that the federal debt is not quite as big of an issue as certain political commentators are making it out to be, and that a plan can be devised which would eleminate the federal debt without harming our economy. We've probably all seen Beck claiming that the sky is falling because of so much debt, but that is pretty much bullcrap. It gets people to watch his show and buy his books. He is however correct with is concern about unfunded liabilities and budget deficits, but the current federal debt is not really that much of an issue. What the real issue is the ever growing budget deficit and promises to certain people that we will take care of them for the rest of their lives - when the general population can not afford to the cost of honoring such a promise.
 

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Arms production and fixing busted material. Like it or not, it pumps money into the economy. In fact to be brutally honest war generates a lot of income and stimulus in an economy. And there has been theorised that certain countries have pushed for war because of this including the US. If the US had not been in Iraq and Afghanistan, not only would the unemployment rate be much higher, but the money used on those wars would not be pumped into the economy.. and yes most of the money is given to US firms.



Rather increase them during an economic crisis to put more money in the economy. Like it or not, the US relies on consumer spending (something like 70%+), and cutting out entitlements would cut out a huge chunk.



Well that is America for you. Like it or not you need to raise taxes and cut spending and Bush Sr knew that. 8 years of Reagan had put a huge hole in the budget after all.



Oh I care very much about the next generation, and that is why I am saying you have to cut short any recession with stimulus as quickly as possible. And the only way you can do that is to spend money while the private sector gets over its issues but when the private sector does get back in the game, then it is the job of the government to draw down in the spending and save up.

As for throwing away money, that is not the money's fault or the idea of pumping money into the system via stimulus and government spending that´s the problem. It is simple economic theory that has been proven to be successful over and over again.

The problem is the political system. It is the political system that is throwing money away at record amounts and the lack of political will to change the system.... even from the Tea Party or other "revolutionary" groups in the US. They are all in it for the money and that wont change over night. No one is willing to discuss what is needed as we have seen on these boards. The right targets the entitlements, and demands more tax cuts for the rich and companies and less regulation and more free markets (which lead us to the hole we are in now.. /grin), where as the left defends entitlements and demands tax risises for the rich and companies (generally speaking). And everyone avoids the big elephant in the room.. military spending and the little mouse.. pork.

And that is where we are today. The US has one of the lowest tax burdens in the industrialized world, one of the lowest defacto company tax burdens (since most avoid paying tax), some of the most lax regulation in many areas of the world, and some of the most protected markets in the industrialized world. On top of that it has a huge budget. This leaves a huge gap and there is no real willingness to reduce it in a pragmatic way.

To be brutally honest, the US needs to redefine its military. Dump the Marines, so that there are only 3 main branches. Remove troops from Europe and Japan and close the bases and cut its nuclear arsenal to 1/10th of what it is today .. still plenty of nukes to obliterate the planet. Close tons of bases and to be frank, you do not need a million plus troops for god sake. No bid contracts for the military.. wth. An over reliance on private contractors in the military and zero accountability for said private contractors is also mind boggling. They dont make the military cheaper.. they make it far more expensive. No transparency in the spending.. 40k dollar toilet seats?

On top of that there needs far more transparency in your political system. The amount of conflict of interest in pork projects and government procurement that has been exposed the last decade is... mind boggling. The bridge to no where, a library run by a congress members family and so on and so on. On the entitlement front there needs reforms too. Medicaid and Medicare need overhauls, but that cant be done without tackling the huge whale in the room.. healthcare costs and that aint happening with the present system.. simply too much money involved in screwing people and increasing costs... the more costs increases the more profit and the more people you can keep out of the healthcare system the more profit... it is an evil cycle. Social Security needs to be fully financed and a new system for the future be put in place.. you cant just cut everything over night. But there is no political will to do anything because of the money involved. And then there is tax reform.. the fact that a huge minority dont pay any taxes, even symbolic.. is mind boggling. People need to learn that you are a nation and you are all in it together.. does not matter if you only pay 10 dollars a year in taxes or 10 million.. American's need to not only show the solidarity but share the pain of taxes. I have paid taxes since I was 15.. not much at the start, because deductible, but I got a tax return that showed that I did pay to that and that, which was not included in the tax deductible. We live in a modern world.. it can all be done pretty much automatically.

And then there is tax rises ... like it or not, they WILL be needed. You cant cut the amount needed out of the budget to get anywhere near budget parity, because a huge portion is a structural problem.

Now if you tackle all this then maybe you can get things done and get back to a more sustainable budget. As of now, the US is a colossus standing on toothpicks and the rest of the world is propping up the toothpicks hoping that their sugar daddy in consumer spending can keep going.
Hmm, that makes a lot of sense to me, and for the most part, I agree. You sound like the "man with the plan".

I don't agree that gov spending or taxation creates wealth, it only shifts wealth around - but then again, you never said that gov spending or taxation creates wealth, you only suggested that it can provide a certain stimulous to our economy allowing our private sector to generate more wealth due to the stimulated economic activity. So "right on".
 

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I will take a look at your links. I dont think that I suggested that eleminating debt is going to make the economy prosper though.
Sorry. I assumed you were inferring that our national debt is a "huge problem" precisely because it negatively impacts economic activity. If that's not the case, then why is it a huge problem? Or is it not a huge problem and Glenn Beck is full of crap? Which is it? :confused:

If I withdrew $600,000 out of my bank account to pay my debt, then essentially I would be reducing the capital available for other businesses/people to borrow. But if I then used that money to pay back my creditors, I would essentially be providing $600,000 to lenders who would then replinish their stock of money to lend. So there would be no net positive or negative effect.
As your link pointed out, debt is a claim on future production. If the bank takes the money you pay it and lends it again, then the borrower, presumably a company or household, will have to take a portion of its revenue stream and use that to service the debt. If the bank instead uses that money to shore up its capital position or places it on deposit with the Fed, or the money goes to pay off a foreign creditor who then uses it to buy, say, Special Drawing Rights or gold certificates, then that means no loans, hence no money-multiplier effect in our fractional banking system.

If the government withdrew money from our population (by taxation, particularly by taxation on people who are capital providers) then we would have less money available for borrowing and consumption, but if the gov then used that money to pay back it's debts, the stock of money available for borrowing and consumption would be replinished by the same amount that was withdrawn. So there is no net positive or negative effect.
If you tax the people who would be inclined to invest in productive capital so that the government can pay down debt, how is it that there is no net positive of negative effect unless one assumes that government is equally efficient to private enterprise? Is all debt created equal? :confused: I mean, unless Ben Bernake is just going to hand the "capital providers" Federal Reserve banknotes dropped from his helicopter, where are they going to get the money from to, well, "provide capital" after they send in their tax payments? :confused:

In the grand scheme of things (macro-economically speaking), debt really doesn't matter.
I disagree completely with that statement. It matters when a massive amount of money is borrowed to support inefficient enterprises and people use their homes as piggy banks to fund trips to Cancun. It really becomes a problem when the asset used to secure that debt is declining in value, because when the borrower then walks away from his obligation the bank gets to write that loan off and either has to raise more capital or reduce its lending.

My intended point is that the federal debt is not quite as big of an issue as certain political commentators are making it out to be, and that a plan can be devised which would eleminate the federal debt without harming our economy.
Honestly, I think that we've reached "Zero Hour" and we're in for an extended period of deflation or, at least, disinflation, with extremely sluggish economic activity. The standard reflationary prescriptions--lax monetary policy and fiscal stimulus--won't work because we've essentially spent the last fifty years or so supporting inefficient, unproductive enterprise. Government can't raise taxes to pay off the debt in the current environment, because that's deflationary. If the government lowers taxes, the money will be used in the private sector to either delever or stash it in bonds or the bank (the one that's writing off loans and not extending credit except to people who don't need it). Deflation yet again. One thing that would solve the problem is time--time for households and businesses to rebuild their balance sheets and liquidate the debt horse collar hanging around their necks. A rebalancing of international capital flows would help as well. (We need to buy less Chinese-made crap and they need to buy more of ours.)
 
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Ahlevah

My theory is that capital never actually goes away. Now this is nothing that I have read, maybe other people have this theory maybe they dont, maybe I am just plain wrong. It is something that I am not totally clear-in-the- head on because I have never specifically thought about it before and sometimes it takes me a while to figure things out. This makes it really difficult to verbalize the concept, but I do believe that it has merit.


This is an example that I read on another forum:

It’s a slow day in a little East Texas town.. The sun is beating down, and the streets are deserted. Times are tough, everybody is in debt, and everybody lives on credit.. On this particular day a rich tourist from back east is driving through town.
He stops at the motel and lays a $100 bill on the desk saying he wants to inspect the rooms upstairs in order to pick one to spend the night.
As soon as the man walks upstairs, the owner grabs the bill and runs next door to pay his debt to the butcher.
The butcher takes the $100 and runs down the street to retire his debt to the pig farmer.
The pig farmer takes the $100 and heads off to pay his bill at the supplier of feed and fuel.
The guy at the Farmer's Co-op takes the $100 and runs to pay his debt to the local prostitute, who has also been facing hard times and has had to offer her "services" on credit.
The hooker rushes to the hotel and pays off her room bill with the hotel owner.
The hotel proprietor then places the $100 back on the counter so the rich traveler will not suspect anything.
At that moment the traveler comes down the stairs, picks up the $100 bill, states that the rooms are not satisfactory, pockets the money, and leaves town ...
No one produced anything ... No one earned anything.
However, the whole town is now out of debt.

So would that not lead one to the conclusion that debt or it's repayment does not nessesaarally lead to economic activity activity? Debt is just a temporary financial state and the existance or the repayment of debt does not create money (although if used properly it can certainly create wealth). If the government was to tax people who provide capital and then repay it's debts to people who provided the capital, the government and the capital provider may have both simplified their financial situation, but the money is ultimately exactly where it was to begin with.

Am I just all wrong about this?

If you tax the people who would be inclined to take money and invest it in productive capital and, instead, give it to the government so it can pay down debt, how is it that there is no net positive of negative effect unless one assumes that government is equally efficient to private enterprise?
That money didn't disapear just because the government taxed it, nor does it disappear when the government repays it's debts. All that happened is the accounting books were simplified. The government would actually be replenishing the money supply when it repays capital providers. The money is very much still available for use to lend to consumers and businesses.

As your link pointed out, debt is a claim on future production. If the bank takes the money you pay it and lends it again, then the borrower, presumably a company or household, will have to take a portion of its revenue stream and use that to service the debt. If the bank instead uses that money to shore up its capital position or places it on deposit with the Fed, or the money goes to pay off a foreign creditor who then uses it to buy, say, Special Drawing Rights or gold certificates, then that means no loans, hence no money-multiplier effect in our fractional banking system.
Is debt really a "claim on future production" or is it simply a claim on who gets to hold the money bag at a particular point in time? If our gov owes China, we owe China X US Dollars not X units of production. When China wants us to pay up, we will pay up in US Dollars, we have no obligation to pay in units of production or anything other than US Dollars. Maybe China can buy more or less of a particular item with those dollars at the time that we repay them, thats China's risk. Even after we repay China, that does not make the money dissapear from our economy. China does not want to hold US Dollars, that's why they loan our gov US dollars. China has no use for a vault full of $100 bills (other than a desire to hold a little of every type of currency as a reserve). So if our gov repays China, China will likely turn around and lend that money back to US businesses or consumers, or alternatively purchase US products.
 
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