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What about principal on the natl debt??
Old 07-27-2019, 10:33 AM   #1
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What about principal on the natl debt??

Every time I read an article about the national debt, it always implies that interest on the debt is the issue, but as long as interest rates remain low (which would be implied by low levels of inflation) then we're fine. But what about principal on the debt? Every time we add $1 trillion, isn't that an extra tril that needs to get repaid eventually? Isn't THAT a huge issue even if the debt were interest free?
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Old 07-27-2019, 11:00 AM   #2
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This sounds like a policy question so the thread was relocated to the public policy forum.
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Old 07-27-2019, 11:33 AM   #3
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Originally Posted by RenoJay View Post
Every time I read an article about the national debt, it always implies that interest on the debt is the issue, but as long as interest rates remain low (which would be implied by low levels of inflation) then we're fine. But what about principal on the debt? Every time we add $1 trillion, isn't that an extra tril that needs to get repaid eventually? Isn't THAT a huge issue even if the debt were interest free?
Yes, if anyone is planning on ever paying it back... Also remember that the National Debt is not something that is locked in forever at a low interest rate. The debt is a mix of short, medium and longterm bonds that constantly turns over. If we encounter a lengthy high-interest period again, then our massive Principal will crush us. It is bound to happen - only question is "when"?
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Old 07-27-2019, 12:33 PM   #4
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Some light reading to find an answer to the unanswerable questions of a nation:
https://www.fiscal.treasury.gov/repo...ancial-report/

Public discussion and news articles do little to fully educate the masses about debt. Is it the interest or principal that sinks the carrier of debt?

Chart H on this page shows ratio of debt to GDP (Gross Domestic Product):
https://www.fiscal.treasury.gov/repo...html#chartdivh

I suppose the reachable explanation is that we will soon incur more debt than we earn. In our family, if we were on that road, many would advise us to spend less, and work harder. Evidently, we gave the opposite instructions to elected officiaals.
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Old 07-27-2019, 01:22 PM   #5
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Hmmm, so many thoughts on what causes our US Gov debt to be so insane

We all seem to agree the debt is too high but can't agree where to cut. I better stop here before getting in trouble.
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What about principal on the natl debt??
Old 07-27-2019, 02:24 PM   #6
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What about principal on the natl debt??

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Originally Posted by KenZ71 View Post
Hmmm, so many thoughts on what causes our US Gov debt to be so insane

We all seem to agree the debt is too high but can't agree where to cut. I better stop here before getting in trouble.


Cutting spending isnít the only solution. We could raise revenues to offset our consumption of government services and pay down the debt that way. Unfortunately, however, this country doesnít do many big, bold and practical things anymore at the national level, because calls to come together and share in the pain to achieve something worthwhile only bring out the lobbyists, who kill any attempts at progress in the dark.
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Old 07-27-2019, 02:39 PM   #7
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Who receives the interest on this debt? Serious question. Someone/something must be beneficiaries of those payments.

Follow the money.
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Old 07-28-2019, 12:50 PM   #8
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The buyers of US Debt receive the interest
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Old 07-28-2019, 01:02 PM   #9
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From https://www.marketwatch.com/story/he...ebt-2018-08-21

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Old 07-28-2019, 05:31 PM   #10
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So between US and foreign investors, there's people/organizations out there expecting regular interest payments on about 13TT !!
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Old 07-28-2019, 05:47 PM   #11
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So between US and foreign investors, there's people/organizations out there expecting regular interest payments on about 13TT !!
OK, you've followed the money. Now what?
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Old 07-28-2019, 05:56 PM   #12
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OK, you've followed the money. Now what?
Well, for one thing that sort of money contributes to the economy. AND those entities must have a certain amount of influence on the debtor as well as insuring the debtor's success and continuing ability to pay.
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Old 07-28-2019, 06:51 PM   #13
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Well, for one thing that sort of money contributes to the economy. AND those entities must have a certain amount of influence on the debtor as well as insuring the debtor's success and continuing ability to pay.
I'm at a loss at what you are trying to say. How does running up the national debt help ensure the continuing ability for the US to pay it off? And what is this influence these lenders have?

The influence is primarily on the spending side. Military budget with plenty of campaign money coming from defense contractors. Health care and other public services going to voters who will vote out any politician that makes major cuts, not to mention influence from big pharma and the health care industry. And voters will vote out anyone who introduce major taxes raises to try to pay down the deficit.

There's a lot more to it than that, but blaming the national debt on treasury security holders seems far-fetched to me. I'm here to learn, feel free to educate me, but considering you said you were serious about asking who holds the debt, I doubt you have the answers.
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Old 07-28-2019, 07:03 PM   #14
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The standard economic response to the principal was that if we could simply keep up with the interest payments, and not add new debt, the principal will shrink as a percent of GDP.

So the debate today is properly about how to stop adding new debt.
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Old 07-28-2019, 07:08 PM   #15
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I'm at a loss at what you are trying to say. How does running up the national debt help ensure the continuing ability for the US to pay it off? And what is this influence these lenders have?

The influence is primarily on the spending side. Military budget with plenty of campaign money coming from defense contractors. Health care and other public services going to voters who will vote out any politician that makes major cuts, not to mention influence from big pharma and the health care industry. And voters will vote out anyone who introduce major taxes raises to try to pay down the deficit.

There's a lot more to it than that, but blaming the national debt on treasury security holders seems far-fetched to me. I'm here to learn, feel free to educate me, but considering you said you were serious about asking who holds the debt, I doubt you have the answers.
You're right. I'm out of my league on this and I have no clue! My serious question was about wondering who held the debt; I really didn't know.

IF a significant portion of the debt was held by a narrow set of foreign entities (China?) or a specific set of very large investors, one could argue that they might have a particular interest in preventing us from default and perhaps provide a level of influence over our decision making at a very broad, high level.

The source of my thought process is pretty pedestrian: I was in a bar a few years ago and the President at the time was on the TV scolding China on human rights violations. The Chinese ambassador nodded politely. Someone at the bar said (voicing for the Chinese guy) "Thanks for the update. Just remember that we own you, now go back and make your bond payments to us.
And don't be late!"

It just got me thinking about how, for every debt, there's someone/something out there expecting a payment as income. In a very small way, my bonds--someone's debt--pay me money that I get to spend and send back to the economy.

Am I out in the weeds? Likely. Has happened a lot over my past 67 years. Sorry if I took your time needlessly.
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Old 07-28-2019, 07:14 PM   #16
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You will mostly be cutting if you want to balance the budget. Government spending is outpacing GDP growth. Not to say you can't increase taxes, but your overriding objective is not to kill the economy. Continuing to grow it is key.
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Old 07-28-2019, 07:19 PM   #17
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You're right. I'm out of my league on this and I have no clue! My serious question was about wondering who held the debt; I really didn't know.

IF a significant portion of the debt was held by a narrow set of foreign entities (China?) or a specific set of very large investors, one could argue that they might have a particular interest in preventing us from default and perhaps provide a level of influence over our decision making at a very broad, high level.

The source of my thought process is pretty pedestrian: I was in a bar a few years ago and the President at the time was on the TV scolding China on human rights violations. The Chinese ambassador nodded politely. Someone at the bar said (voicing for the Chinese guy) "Thanks for the update. Just remember that we own you, now go back and make your bond payments to us.
And don't be late!"

It just got me thinking about how, for every debt, there's someone/something out there expecting a payment as income.
I'm out of my league too. China holding a lot of my debt has me concerned, but I'm not sure how. What's the quote? Something like, "if you owe a bank $100 thousand, they own you. If you owe a bank $100 million, you own them." Does this deter China from starting a war with us, since we clearly wouldn't keep paying them interest or principal on our debt they hold?

BTW, we are paying off some principal, right? Treasuries mature and get paid off. It's not like we're making interest-only mortgage payments. We just take on new debts at a greater rate.
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Old 07-28-2019, 07:26 PM   #18
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I'm out of my league too. China holding a lot of my debt has me concerned, but I'm not sure how. What's the quote? Something like, "if you owe a bank $100 thousand, they own you. If you owe a bank $100 million, you own them." Does this deter China from starting a war with us, since we clearly wouldn't keep paying them interest or principal on our debt they hold?
Thanks. That's kind of what I was getting at but you did it in a lot fewer words.
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Old 07-29-2019, 05:32 AM   #19
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The source of my thought process is pretty pedestrian: I was in a bar a few years ago and the President at the time was on the TV scolding China on human rights violations. The Chinese ambassador nodded politely. Someone at the bar said (voicing for the Chinese guy) "Thanks for the update. Just remember that we own you, now go back and make your bond payments to us.
And don't be late!"
I also don't think we're making our payments due to pressure from creditors. I think we're making them because if we don't, we'll be downgraded and future credit holders will demand a higher interest rate due to default risk. That's where the death spiral starts, if fewer people are willing to buy our debt or charge more for it.
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Old 07-29-2019, 06:25 AM   #20
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There seem to be 2 threads here talking about the same thing. This one implies worrying about it.

http://www.early-retirement.org/foru...ml#post2273855
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