What about principal on the natl debt??

[Senator]

Quote:

Originally Posted by ShokWaveRider 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

That one was deleted.

[MichaelB]

Quote:

Originally Posted by Senator That one was deleted.

ER Forum rarely deletes threads. The one in reference is offline and under discussion by the moderator team.

A reminder to members to read the ground rules for discussions in the Public Policy forum, make sure to stay on topic and directly related to early retirement.,

[Senator]

USD can be printed, in any amount, at any time to pay off the debt. The US will never default on the debt as long as we can print USD.

The Treasury auctions off the bonds, Goldman buys them, and the Fed buys them back at a premium. They are bought and sold on the open market, as required, and then repurchased. There will ALWAYS be someone to buy the bonds, as there is a premium associated with it. It may be China, it may be Goldman. It doesn't matter.

When the US dilutes the money by printing, the entire world pays. Many use the USD as their currency, many use the USD as a payment to other countries. That will not stop anytime soon. Other countries want the USD to be strong. No country wants to have the strongest currency. If the Chinese Yuan became the currency of choice, it would decimate their manufacturing.

Most all other countries print money faster than the US. The theory of relativity is more important than actual nominal amounts.

The World is subsidized by the USD being strong. A strong USD makes foreign goods cheap to people in the USA. Other countries can sell to the USA much easier than the US can sell to other countries. Hence the large Trade (not budget) Deficit.

The USA could simply discard most of the debt/principal without issue. We owe it to ourselves. Even the SS IOUs can be discarded. The money for future obligations comes from the same place that paying the SS Trust fund back comes from.

Inflation is not a worry. Inflation is caused by too much money chasing too few goods. Not printing money. A $15 an hour minimum wage will cause more inflation than printing an extra trillion.

Don't worry, be happy.

[Cichon_007]

1) The United States cannot be forced to default on the debt. We are the sole issuer of our currency, borrow and spend in that currency. Therefore, we cannot "run out" of money. We cannot go bankrupt because there is no bank. Having a monopoly on our currency is why we're different than countries that DO go bankrupt, like Greece, for example.

2) The national debt is an account of all the money spent in to the private sector but not taken out of it via taxes. We can no more "pay off" the debt than you can go back and get the $ you spent on a candy bar when you were 12.

3) The Fed controls interest rates, not the market. If interest payments became too burdensome, guess what? We finance the whole thing in to rolling 6 month Treasuries instead of 30 years, and drop the interest rate to zero.

Wait, WHAT? So if what I'm saying is true then deficits don't matter?

Well, they do and they don't. What matters is the glue that holds the whole thing together. That glue is the productive capacity of the US, the ability to tax that production, and the FAITH in the currency. The US has a lot going for it in those categories.

To the extent that we spend so much that we have a crisis of faith, that's bad. To the extent that we spend on unproductive or mismanaged programs, that's bad. In other words, it's much better to borrow for investment than borrow to fund current consumption.

[Cichon_007]

Quote:

Originally Posted by RunningBum 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.

Government spending DOES help the economy. For example, if US Govt kept tax rates the same and then borrowed an extra $1 Trillion and spent it all on fighter jets from Boeing, what happens to GDP?

It increases by $1T.

Not to get too political but that's why Trump's tax cuts and his focus on GDP are silly to me. OF COURSE his policies increased GDP. He took LESS money out of the private sector (cut taxes) while increasing government deficit spending. That shifts the money from the public sector (govt) over to the private sector (GDP).

The problem with doing that is 'some day' the debt-to-GDP ratio gets so high that people lose confidence in the currency. And therefore, deficit spending should go towards things that will raise GDP in the future (ie good investments) rather than only raising it immediately. That's the eventuality that needs to be addressed rather than "paying off" debt.

[RunningBum]

Quote:

Originally Posted by Cichon_007 2) The national debt is an account of all the money spent in to the private sector but not taken out of it via taxes. We can no more "pay off" the debt than you can go back and get the $ you spent on a candy bar when you were 12.

I don't get that at all. Paying off the national debt isn't getting money back you've spent. It's paying off the credit card you used to buy that candy bar.

Quote:

3) The Fed controls interest rates, not the market. If interest payments became too burdensome, guess what? We finance the whole thing in to rolling 6 month Treasuries instead of 30 years, and drop the interest rate to zero.

Oh yeah? Who's going to buy that debt? The fed controls interest rights, but only until they lose touch with reality, at which point the market is going to reject that rate and you have to adjust. I guess that's the trust point in the rest of your post. I think most of us understand how things work today, pretty much anyway, but this topic is about what happens if things get too out of control.

[imoldernu]

The realities are here, and spending the time to look at the historical comparisons will explain what is happening. Need to spend more than a few minutes to get the whole picture.

https://www.usdebtclock.org/index.html

An aside... look to see that taxpayers owe much more than citizens.

[Senator]

Quote:

Originally Posted by RunningBum Oh yeah? Who's going to buy that debt? The fed controls interest rights, but only until they lose touch with reality, at which point the market is going to reject that rate and you have to adjust. I guess that's the trust point in the rest of your post. I think most of us understand how things work today, pretty much anyway, but this topic is about what happens if things get too out of control.

Goldman Sachs buys the debt. Then, the Fed buys it right back (with money from the debt limit increase), with a small premium. It becomes an asset on the Fed's balance sheet.

There will never be a shortage of debt buyers, when one of them is the Fed.

[ShokWaveRider]

Quote:

Originally Posted by Senator Inflation is not a worry. Inflation is caused by too much money chasing too few goods. Not printing money. A $15 an hour minimum wage will cause more inflation than printing an extra trillion.

How do we know this for sure, is it just speculation? They will also spend more and not have to rely "so much" on the taxpayers to help them out. A lot of workers get paid a lot more than that. It is cost a buck more for a hamburger or doughnut, who the heck cares.

[Spock]

Quote:

Originally Posted by Cichon_007 Government spending DOES help the economy. For example, if US Govt kept tax rates the same and then borrowed an extra $1 Trillion and spent it all on fighter jets from Boeing, what happens to GDP? ... The problem with doing that is 'some day' the debt-to-GDP ratio gets so high that people lose confidence in the currency. And therefore, deficit spending should go towards things that will raise GDP in the future (ie good investments) rather than only raising it immediately. That's the eventuality that needs to be addressed rather than "paying off" debt.

I read some math yesterday that showed it now takes $3.5x (I don't remember the x) of debt to increase GDP by $1...
Another showed $1 debt = $0.44 in GDP.
Either way, debt is growing faster than GDP... and its not because of a lag in GDP, the $ aren't being "invested", just spent.

[Spock]

Quote:

Originally Posted by ShokWaveRider How do we know this for sure, is it just speculation? They will also spend more and not have to rely "so much" on the taxpayers to help them out. A lot of workers get paid a lot more than that. It is cost a buck more for a hamburger or doughnut, who the heck cares.

I do. I'll quit buying the hamburgers and doughnuts.

[marko]

Quote:

Originally Posted by Senator A $15 an hour minimum wage will cause more inflation than printing an extra trillion.

Quote:

Originally Posted by ShokWaveRider It is cost a buck more for a hamburger or doughnut, who the heck cares.

Apparently places like McDonald's cares. They're automating more and more including trying (and failing to date IMO) to replace the order taker with an electronic kiosk and/or encouraging you to order using an app.

IMO a $15 minimum wage will only mean that the lower end workers will be taking home the same amount of money by working fewer hours.

[Senator]

Quote:

Originally Posted by ShokWaveRider How do we know this for sure, is it just speculation? They will also spend more and not have to rely "so much" on the taxpayers to help them out. A lot of workers get paid a lot more than that. It is cost a buck more for a hamburger or doughnut, who the heck cares.

The thing we know is that printing money does not cause inflation. And we know (Econ 101) that the definition of inflation is too much money chasing too few goods.

As long as the money is out of the hands of the people that spend, inflation is non-existent. Over the past 20+ years, inflation has been minimal, and a fair amount of money has been printed.

So I think it can be proven that the definition of inflation is correct.

Quote:

Originally Posted by marko Apparently places like McDonald's cares. They're automating more and more including trying (and failing to date IMO) to replace the order taker with an electronic kiosk and/or encouraging you to order using an app.

All I ever use at McDonalds is the App. No lines, just sit and wait.

[RobbieB]

Soon fast food will be all apps and robots. I'm sure burger cooking and assembly can be automated. Scan receipt code at conveyor to open door.

And nobody will ask if you want fries with that either.

[Senator]

Quote:

Originally Posted by RobbieB I'm sure burger cooking and assembly can be automated.

Already done.

https://sf.eater.com/2018/6/21/17489...-san-francisco

[RAchip]

I mostly agree with Senator.

40% or so of the "debt" is owed to the government (its like inter-company debt) so it really doesn't count; it isn't technically "debt."

[RunningBum]

Quote:

Originally Posted by RAchip I mostly agree with Senator. 40% or so of the "debt" is owed to the government (its like inter-company debt) so it really doesn't count; it isn't technically "debt."

So it's "only" $13 trillion, instead of $21T. That still seems a tad high.

[jimandthom]

[QUOTE=Senator;2274324]The thing we know is that printing money does not cause inflation. And we know (Econ 101) that the definition of inflation is too much money chasing too few goods.

As long as the money is out of the hands of the people that spend, inflation is non-existent. Over the past 20+ years, inflation has been minimal, and a fair amount of money has been printed.

So I think it can be proven that the definition of inflation is correct.

============================

While not of the great financial brains that inhabit this locale--- my statement/question

We are told, correctly or not, that the poorer people spend their money--don't save and invest.

The wealthy save and or invest.

Yes they do buy Birkin Handbags and have their own style of spending that is more of a want rather than a need and quite often that Birkin Handbag even used can increase in value making it almost an investment than an expense.

MY question----- shall we limit inflation by limiting the amount of $$ availbable to the spendors and provide the greatest gains from tax policy to the investing and saving class? We could then keep the circle going of low inflation/rates to sustain the debt paying interest at low rates etc.

[joeea]

Quote:

Originally Posted by marko IMO a $15 minimum wage will only mean that the lower end workers will be taking home the same amount of money by working fewer hours.

If their employers could have gotten by with fewer hours, they already would have done so.

[Masquernom]

Forget the principle for now. Better worry about the interest. in 2015 the interest payments on the debt were 6% of the federal budget. In 2019 it's 9% of the federal budget. It's also the fastest growing item in the federal budget.

As the interest payments grow, they will start to put the squeeze on other budget categories.