US National Debt hit $19 trillions/Your thoughts on how it is going to affect USD

[VFK57]

On Monday the U.S. national debt hit a new record: $19,012,827,698,418.
What do you think about our economy and USD future?

 

[Ronstar]

Our economy is solid and that debt could easily be paid off with the proceeds from selling unused federal government properties/assets.


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[REWahoo]

How is the national debt going to impact the US$? Way beyond me. Heck, I'm still trying to figure out where your lap goes when you stand up...

 

[Senator]

We can print the money and pay off the debt over night. As long as the US prints less than other countries, it will not make any difference.

You buy a TV set from China, in 5 years you throw it away. They buy a US Bond, in 5 years they throw it away. Even Steven.

 

[34rlsa]

We can print the money and pay off the debt over night. As long as the US prints less than other countries, it will not make any difference.

You buy a TV set from China, in 5 years you throw it away. They buy a US Bond, in 5 years they throw it away. Even Steven.

This is one of the best analogies I have seen to describe the current world economy and why we have little to no inflation.

 

[ejman]

My thout is that compared to other industrialized countries -look at Japan- and relative to the size of our economy we are in relatively good shape. I think I loose more sleep over Rewahoo's asteroid than over this one...

 

[Gumby]

If you owe someone $19,000 and can't pay, you have a problem. If you owe someone $19 trillion and can't pay, they have a problem.

I don't much worry about it.

 

[LOL!]

I recall a similar discussion back in 1985. Not much problem in the past 30 years dealing with the debt except for some showboating by certain members of Congress.

I laughed about the question in 1985 and so thank you for making me laugh again.

 

[VFK57]

We can print the money and pay off the debt over night. As long as the US prints less than other countries, it will not make any difference.

You buy a TV set from China, in 5 years you throw it away. They buy a US Bond, in 5 years they throw it away. Even Steven.

You mean that every other major world economy could print their currencies following our lead? Would it trigger huge inflation at some point?

 

[34rlsa]

You mean that every other major world economy could print their currencies following our lead? Would it trigger huge inflation at some point?

The FED, the ECB, and Japan have been doing exactly this for the past several years.

 

[M Paquette]

You mean that every other major world economy could print their currencies following our lead? Would it trigger huge inflation at some point?

It depends. If, over the long run, the increase in circulating money (both physical currency and the stuff on ledgers) matches the growth in economic activity, then no inflation occurs.

On the other hand, if there is a significant mismatch between creation of new money in circulation and economic growth, then, well, "Hello, Zimbabwe!"


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[Clone]

I am certainly not well versed in world monetary valuations. If I have this wrong, please help me understand better.

When our dollar is strong against the other monies in the world, it takes more of their money to purchase goods that we sell. Thus, it is easier for the US to buy things made in other countries, and harder for us to sell our products. All because of the exchange rates.

The inverse is also true. If the dollar weakens, it is easy for us to sell, and harder for us to buy.

Bad fiscal policy and can cause your currency to be devalued. To become weaker.

Yet, as bad as our fiscal policy seems to be, our currency continues to remain strong. Essentially, it may not be pretty, but it is the prettiest one at the party.

At some point, I believe we need to start manufacturing things of value, and selling to other parts of the world. We can not continue to buy things on credit from the rest of the world. When we no longer produce anything of value, who will spend the money to support our 'service economy'? I think that the dollar will weaken at some point, and we will restart manufacturing.

 

[audreyh1]

It's all relative. No country economy operates in a vacuum. Countries with stronger economies and/or higher productivity tend to have stronger currencies, especially if interest rate increases are anticipated.

 

[Whisper66]

Looks like I'm contrary to most folks here. National debt concerns me more than any other national topic; including terrorism, our wars overseas, pollution and certainly climate change. I see no logical basis to support that unfettered spending, grossly rising debt and copious printing of money to support it all can remotely be considered acceptable, sustainable fiscal policy. My guess is that the economy will eventually take a far-worse-than-2008 nose dive, most likely when one of the other large economies (Eurozone, China...who knows) takes off and the world decides it is a better place to invest than the U.S.

 

[scrinch]

Good question. I would think that the US national debt can't keep increasing as a percentage of GDP while the US dollar maintains its value relative to everything. If the trend continues, then we either default on the debt or print lots more money, inflating away the value of the debt. Either one hurts the value of the dollar. If other governments behave similarly, then their currencies should lose value also. In this case currencies may maintain value relative to each other, but should not relative to hard assets which aren't in arbitrarily large supply.

So with the growth of the debt over the past 30 years, why hasn't this inflation occurred yet? So far investors have retained faith in the solvency of the US government...in its ability to tax and raise the funds it needs to service the debt. But the government hasn't been increasing taxation to service the growing debt. It has been increasingly borrowing to service the debt. As long as that faith in the US govt's ability and willingness to repay debt remains, the system works. But at what debt level (multiple of GDP) does that faith start to crumble, when the debt is so high and the govt's backbone so weak that British and Japanese and Chinese investors start unloading US debt? That's the point when the sh!t hits the fan and the value of the dollar crumbles.

Who knows when that happens? Maybe the US dollar keeps looking like the most stable instrument in which to store capital for a long time to come. After all, investors are looking for the most stable place, and that means relative to other available currencies. Still, if every country follows suit and builds up debt that they are unable to repay, and thus the US continues to look the most stable, whoever holds all that debt is eventually going to take a haircut, either by inflation or by default.

So I guess the OP's question is really about what happens to the US economy when the faith of US Treasury investors falters. Are we almost there? Is it still far, far off? Or will it never falter, and the US will be able to continue overspending forever with no consequences (like Rome)?

 

[donheff]

We can print the money and pay off the debt over night. As long as the US prints less than other countries, it will not make any difference.

You buy a TV set from China, in 5 years you throw it away. They buy a US Bond, in 5 years they throw it away. Even Steven.

This is one of the best analogies I have seen to describe the current world economy and why we have little to no inflation.

+1 The Fed has done it to a degree. Many believe they could have more aggressively done it. The Fed worry that at some point it could backfire and, of course, it could.

National economies are mysterious things which is why ideas like printing a trillion dollar coin (platinum coin seigniorage) to negate debt ceiling limits are no more woo than is refusing to raise them.

 

[Senator]

When our dollar is strong against the other monies in the world, it takes more of their money to purchase goods that we sell. Thus, it is easier for the US to buy things made in other countries, and harder for us to sell our products. All because of the exchange rates.

The inverse is also true. If the dollar weakens, it is easy for us to sell, and harder for us to buy.

Bad fiscal policy and can cause your currency to be devalued. To become weaker.

If the dollar weaken, it becomes harder for the US to buy, and other countries will have to lower their price. They NEED to sell to the US as they do not have an economy otherwise.

Think about all the widgets being manufactured in China. They HAVE to sell them to keep their workers busy. They HAVE to lower their price.

The same with US Hotels and airlines. If they cannot sell their space, they lower the price.

When the other currencies get too strong, they print money too. The only people/countries that are in a bind are ones that use the USD but cannot print it...

 

[Gone4Good]

The absolute value of debt outstanding is less important than it's size relative to our economy. On that note, debt is currently 76% of GDP, which is high by our historical standards, but not the highest the U.S. has ever endured. It's much lower than Japan's current burden or Great Britain's after the Napoleonic Wars.

So the good news is that the U.S. fiscal balance is not outside any kind of reasonable bounds.

The bad news is: things are expected to continue to get worse.

The most recent projections by the CBO have US debt / GDP raising to 86% in 10 years and to 155% in 30.

So the US is on an unsustainable path. And because whatever can't continue, won't, the U.S. will have to make changes to curtail some of that future borrowing. That likely means higher taxes, and not just at the very top.

Large Federal debt balances will probably also crowd out some private investment, meaning slower economic and productivity growth than we'd otherwise enjoy.

In summary, just another headwind for investors in the 21st century.

 

[gauss]

We can print the money and pay off the debt over night. As long as the US prints less than other countries, it will not make any difference.

There is a hidden assumption in this statement that needs to be flushed out.

This is only true if/when you can borrow in your own currency. Once lenders will no longer lend to you in your currency your power to do this evaporates -- often overnight.

I believe that Niall Ferguson in his Peterson Institute talk from 2010 gets into this.
Event: Fiscal Crises and Imperial Collapses: Historical Perspective on Current Predicaments

-gauss

 

[Senator]

There is a hidden assumption in this statement that needs to be flushed out.

This is only true if/when you can borrow in your own currency. Once lenders will no longer lend to you in your currency your power to do this evaporates -- often overnight.

Very true. Here in the USA, we borrow(i.e. sell bonds) from the Fed. They have to use USD. They can easily be cancelled.

If other countries do not take our money, they will not be able to keep their people working.

Once you are dependent on other countries to buy your stuff, you are committed to using their currency. It all depends on who needs who.

We do not need to keep people working in the USA, we have stronger social systems to keep them from starving. Other countries are not so fortunate.

Countries like China have a surplus of USD. They have to do something with the excess dollars. In the past, they bought US Bonds.

 

[DrRoy]

The debt is a concern. Look what happened to Greece. We are not that bad off yet but could get there. What we need is to control the growth of overall entitlement spending, and then the debt would be manageable as a % of GDP. The politicians so not have the stomach for that since people will not vote for someone who rains on their parade, even if it is to prevent a hurricane.

 

[Gone4Good]

The debt is a concern. Look what happened to Greece. We are not that bad off yet but could get there.

No, our situation is radically different from that of Greece. As others have mentioned, we have our own money and control our own monetary policy. Greece does not. And that makes all the difference in the world.

We're also are efficient at collecting taxes, have much smaller social spending obligations, have stronger institutions, less corruption, etc. etc.

Greece is Greece. And we are not they.

 

[mrfeh]

On Monday the U.S. national debt hit a new record: $19,012,827,698,418.
What do you think about our economy and USD future?

Is there some difference between a debt of $18.99T and $19T?

Nope.

 

[Senator]

No, our situation is radically different from that of Greece. As others have mentioned, we have our own money and control our own monetary policy. Greece does not. And that makes all the difference in the world.

We're also are efficient at collecting taxes, have much smaller social spending obligations, have stronger institutions, less corruption, etc. etc.

Greece is Greece. And we are not they.

+1. Greece has a huge tax avoidance/evasion issue too. Their tax compliance is no where near where the USA is.

You may be able to compare Argentina in the early 1900s to us though.

 

[Gone4Good]

You may be able to compare Argentina in the early 1900s to us though.

Are you referring to the Baring Crisis of 1890? I'm not super familiar with the specifics but I think Argentina was on a gold standard at the time. It's not like Argentina could print up more gold and inflate there way out of their debt burden to London.

So even with Argentina circa 1890, the analogy might still be more appropriate for Spain or Greece than the U.S.

Perhaps a better historic parallel for the U.S. might be Great Britain after the Napoleonic Wars where debt to GDP exceeded 200%. Or Japan today where debt has exceeded 100% of GDP for over a decade and exceeded 200% for 6 years. Neither instance resulted in a federal debt crisis.