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

[Independent]

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

+1

$19 trillion would be manageable if we were running annual budget surpluses today. But, we're not.

And, the outlook is bad. The US gov't has made promises to us old folk that it can't keep without tax increases. There's no political will for either benefit cuts or tax increases. Just listen to the prez candidates these days.

I don't think it's okay to say "We're no worse than some other countries." It's possible that we all go down together.

I'm not comfortable with "We can just print money". That was okay when the debt was smaller. Prior to 2008, our base money supply was about $1 trillion. (The Fed increased it a lot without kicking off inflation, but that was possible due to very unusual economic conditions.) Other things being equal, doubling the money supply doubles prices. How much would we have to increase our $1 trillion to make a dent in a $19 trillion debt?

The issue for this forum is "personal, actionable" information. Are there any practical steps an individuals can take to protect themselves if they believe there is some chance (say 10%) that this ends badly before we die?

 

[Clone]

My largest concern is rampant inflation. If we get to a stretch where the markets do not keep on with inflation, then the net worth takes a real hit. A pension with no COLA is seriously devalued.

The past number of years where we have had negligible inflation and strong equity markets has put many folks in a good position. I try to not become overconfident in my situation. At some point, you still jump into the deep end of the pool. I console my overactive brain with the idea that I (and in general on this board, we) are better prepared than the vast majority of the population.

I think there is much greater risk for the individuals that are 40 years old, have done well at getting a good start on a portfolio, and are looking to extrapolate the last 15 years out for the next 45 years.

 

[kimcdougc]

Before my retirement, I did accounting for over 30 years. If you do the simple math, the USA can not sustain our economy with 19 trillion in debt. You can not spend more than you take in without going into the red as we are now. It will catch up with us sooner than later. The saving grace is that we will all be in it together.

 

[ejman]

+1

-snip-

The issue for this forum is "personal, actionable" information. Are there any practical steps an individuals can take to protect themselves if they believe there is some chance (say 10%) that this ends badly before we die?

I suppose the usual suspects would work. Guns, ammo, gold, a remote place with water and plenty of sunshine for solar so one can be off the grid, narrow canyon access so one can plink off the brigands and so on...

 

[DrRoy]

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.

I did not say that we are Greece. I was using Greece as an example of how runaway debt can matter. We are indeed in a much stronger condition than Greece, for the reasons you cited and more. However, too many people use that as an excuse that we do not need to get control of our debt. It has been extremely helpful that world central banks pushed interest rates to near zero (to fight the great recession), which has greatly reduced the cost of servicing our debt for the last few years. If rates were at historical norms instead of historical lows the interest on the debt would be on its way to becoming the largest expense in the budget. We cannot afford that.

 

[Gone4Good]

I did not say that we are Greece. I was using Greece as an example of how runaway debt can matter.

But even Greece wouldn't be in the condition Greece is in if they were still using the Drachma instead of the Euro. So it isn't a worthwhile comparison for the U.S. situation however one tries to use it.

 

[jkern]

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...

+1 Lol

 

[VFK57]

But even Greece wouldn't be in the condition Greece is in if they were still using the Drachma instead of the Euro. So it isn't a worthwhile comparison for the U.S. situation however one tries to use it.

That is the whole point. If Greece would print drachma as much as they need, nobody would take their currency in trade and they would not be able to purchase US$ or Euro with drachma.
Imagine how inflationary it is going to be to monetize $19 trillion Debt and continue to cover our chronic huge budget deficit with freshly printed US$. Many countries are already trying to establish trade bypassing the dollar just because of all of the above and if unneeded for the international trade dollars some day might start coming back it would trigger hyperinflation here. Is this scenario possible?

 

[Gone4Good]

Imagine how inflationary it is going to be to monetize $19 trillion Debt

Good thing we won't have to do that.

One thing that I think is poorly understood about government finances is that the U.S. never needs to pay down the money it has borrowed. We never repaid the money we borrowed to finance WWII and we'll never repay the $19 trillion we owe today. We'll roll it over until the end of time.

And that's OK. The giant WWII debt balances are positively trivial in size compared to today's economy. So too will $19 trillion be in the not too distant future.

That's not to say we don't have a long-run fiscal imbalance, we do; mostly due to rising health care costs. And we'll have to raise some taxes and cut some spending to address that. But we don't really have a debt problem. And I don't expect we ever will.

 

[VFK57]

Good thing we won't have to do that.

We'll never repay the $19 trillion we owe today. We'll roll it over until the end of time.

It is true that most of this huge Debt is own by the Federal Reserve and they continue to print US$ and purchase the Treasury Notes as long as our Congress allows this scheme.

 

[Gone4Good]

It is true that most of this huge Debt is own by the Federal Reserve and they continue to print US$ and purchase the Treasury Notes as long as our Congress allows this scheme.

No, that is not true. You can find a summary of the Fed balance sheet here:

FRB: Quarterly Report on Federal Reserve Balance Sheet Developments

As of the last report, the Fed held $2.5 trillion of U.S. treasury securities and that amount was basically unchanged from the year prior.

 

[Whisper66]

+1
The issue for this forum is "personal, actionable" information. Are there any practical steps an individuals can take to protect themselves if they believe there is some chance (say 10%) that this ends badly before we die?

Here are the steps I have taken partly as a result of the countries financial situation:

(1) I took my 2015 retirement pension as a lump sum rather than as an annuity. The annuity was not adjusted for cost of living increases which could be a significant issue if inflation takes off. I am more confident that I can invest well enough to keep up with inflation than I am confident in our government's fiscal policy keeping inflation reasonable.

(2) Shifted a chunk of my assets to dividend paying equities (funds and individual stocks) to provide a large portion of our income. In the event of a market dive, I hope to have more leeway on when I may need to sell off equities for income. I'd prefer to give some time for a market rebound rather than being forced into a fire sale situation.

(3) I diversified portfolio more than it was and moved out of anything I personally considered high risk "fun" investing.

(4) We are keeping good track of expenses and have a good idea of where and how much we could cut back immediately if needed.

(5) Have started converting tIRA funds to ROTH (using I-ORP as guidance on how much each year) to hedge against possible rapid rise in taxes.

Don't know if these are applicable to your situation but they feel like common sense things for my situation and helps me sleep at night.

 

[Mulligan]

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

No, that is not true. You can find a summary of the Fed balance sheet here:



FRB: Quarterly Report on Federal Reserve Balance Sheet Developments



As of the last report, the Fed held $2.5 trillion of U.S. treasury securities and that amount was basically unchanged from the year prior.

That is true but also $5 trillion plus of that $19 trillion is owned by intergovernmental holdings such as the SS trust fund, etc... So a good chunk (well over a third) is apparently paper shuffling inside government somewhere.
I would like to make fun of their accounting but I do the same thing. I buy my own debt all the time. Except its not in the trillions and I do eventually pay it all back in time to myself.


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[sengsational]

The issue for this forum is "personal, actionable" information. Are there any practical steps an individuals can take to protect themselves if they believe there is some chance (say 10%) that this ends badly before we die?

I ran into a guy's web page (his goal is to sell instructional videos) that talks about the situation being discussed in this thread. Unfortunately, he only hints at what one should do to defend against getting swept away by it, should things go in a southerly direction. Unless you like very wordy repetitive prose, don't go to the web site in the graphic below.

I suppose the usual suspects would work. Guns, ammo, gold, a remote place with water and plenty of sunshine for solar so one can be off the grid, narrow canyon access so one can plink off the brigands and so on...

Someone usually starts down this path when financial turmoil is discussed. There's a LOT of room between even serious financial turmoil and having to defend yourself with weapons or not having a currency that's trusted enough to earn, buy and sell.

One thing that I think is poorly understood about government finances is that the U.S. never needs to pay down the money it has borrowed. We never repaid the money we borrowed to finance WWII and we'll never repay the $19 trillion we owe today. We'll roll it over until the end of time.

It was kind of paid back, I think.

But "paid back" is not the right term. It was paid off with cheaper dollars than the ones that were borrowed. If I borrow 1 unit of economic production, then later pay you 1/2 a unit to call it even...that's how it's done. You've inflated the fiat currency and so taxed people that saved their money in a way that didn't defend against inflation. One such group are the foreigners that hold the USD. There's supposed to be $580 billion in currency outside the US that's getting happily inflated away. Not all in one year. But year after year after year. The steady drip can be quite effective.

 

[ejman]

It was kind of paid back, I think.

But "paid back" is not the right term. It was paid off with cheaper dollars than the ones that were borrowed. If I borrow 1 unit of economic production, then later pay you 1/2 a unit to call it even...that's how it's done. You've inflated the fiat currency and so taxed people that saved their money in a way that didn't defend against inflation. One such group are the foreigners that hold the USD. There's supposed to be $580 billion in currency outside the US that's getting happily inflated away. Not all in one year. But year after year after year. The steady drip can be quite effective.

It's interesting that the lowest point in modern times for national debt according to the chart is in the late 1970's. That was the point if memory serves when talk was the greatest about national debt being a malaise that would take the country down. And also if memory serves that was the time when the lower tax movement would save us all and spark the economy into mountains never climbed before. I see from the chart what mountain they were talking about...

 

[Gone4Good]

That is true but also $5 trillion plus of that $19 trillion is owned by intergovernmental holdings such as the SS trust fund, etc...

Yeah, you're right. Only ~$14T held by the public. The rest we owe to ourselves.

 

[Gone4Good]

It was kind of paid back, I think.

The denominator went up. The numerator didn't go down.

...that's how it's done. You've inflated the fiat currency and so taxed people that saved their money in a way that didn't defend against inflation.

Over the last 12 months, the all items CPI index increased 0.7 percent before seasonal adjustment.

The interest paid to bondholders includes compensation for expected inflation. For at least the last decade the amount paid to bondholder for inflation has exceeded the actual amount of inflation we've experienced. This is no longer the 1970's.

 

[bclover]

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...

Right now I'm not losing sleep over the exact number. what is more worrisome to me is that our wonderful elective officials seem to play "kick the can", which actually should not surprise me since they have done that a time or two.

So while 19 trillion is worrisome I'd feel much better if someone was at least attempt to rein in the spending.

which always leads to another hot topic question of "who's willing to take a pay cut"?

 

[bclover]

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.

the problem is who determines which "parade" is more important. The pentagon just asked for 7 billion dollars more to supposedly fight isis. ok who takes the cut? As a senior I certainly don't want my "entitlements" cut to fund more military spending.

who makes the call??

 

[travelover]

And of course, any "crisis" is an opportunity to wound your political opponents while pretending to solve the crisis .

I won't provide an specific examples to avoid being kicked off the forum.

 

[Hamlet]

Good thing we won't have to do that.

One thing that I think is poorly understood about government finances is that the U.S. never needs to pay down the money it has borrowed. We never repaid the money we borrowed to finance WWII and we'll never repay the $19 trillion we owe today. We'll roll it over until the end of time.

And that's OK. The giant WWII debt balances are positively trivial in size compared to today's economy. So too will $19 trillion be in the not too distant future.

That's not to say we don't have a long-run fiscal imbalance, we do; mostly due to rising health care costs. And we'll have to raise some taxes and cut some spending to address that. But we don't really have a debt problem. And I don't expect we ever will.

Yes, the situation is concerning, but not dire. We actually don't even need to ever balance the budget, as long as we get the deficit down to less than our growth rate. We are currently running a deficit of less than 3% GDP, so we aren't terribly far from sustainable right now. We just need to trim the deficit down about 1% of GDP to be staying even.

And we need to address the potential growth of the deficit down the road that the CBO estimates we will see. People need to keep in mind that their projections depend on a lot of assumptions that may not come to pass. They see a rising deficit in large part because they expect interest rates to rise. That might be correct, but I think they are also expecting pretty mediocre growth over that time. I suspect that if we really get the interest rate rise that they are forecasting, it will be because the economy has run a little hotter than they expected.

In any case, we don't need dramatic changes, just a general bending of the curve in the right direction.

 

[VFK57]

Right now I'm not losing sleep over the exact number. what is more worrisome to me is that our wonderful elective officials seem to play "kick the can", which actually should not surprise me since they have done that a time or two.

So while 19 trillion is worrisome I'd feel much better if someone was at least attempt to rein in the spending.

which always leads to another hot topic question of "who's willing to take a pay cut"?

Agree. May be it is not that bad as of now but living on borrowed and printed money soon or late will lead to disaster.

 

[sengsational]

The denominator went up. The numerator didn't go down.

I'm going to need some help with this one. Real GDP went up? I did a little graph and can't get the right answer (image). I used this [http://www.usinflationcalculator.co...nd-annual-percent-changes-from-1913-to-2008/] and this []BEA : Page Not Found to come up with that graph.

 

[NYEXPAT]

Good thing we won't have to do that.

One thing that I think is poorly understood about government finances is that the U.S. never needs to pay down the money it has borrowed. We never repaid the money we borrowed to finance WWII and we'll never repay the $19 trillion we owe today. We'll roll it over until the end of time.

And that's OK. The giant WWII debt balances are positively trivial in size compared to today's economy. So too will $19 trillion be in the not too distant future.

That's not to say we don't have a long-run fiscal imbalance, we do; mostly due to rising health care costs. And we'll have to raise some taxes and cut some spending to address that. But we don't really have a debt problem. And I don't expect we ever will.

Hell, we still owe that Philly banker his 800k to finance the American Revolution. I think with interest the debt is now 32 Billion?

 

[dallas27]

Of which 2-3 trillion is on owned by the fed, so a wash.


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