What are the practical implications of excessive US debt?

[Craig234]

Skoorb, you ask a good question and this post is not a reply to it, but is a comment that the specifics are limited much the way that you would get a different answer if you asked for what the specific risks were to the financian industry practices like credit default swaps, if you asked at the beginning and the end of 2008. It's one thing to talk more generally about the risks, and quite another to identify the actual things that will occur.

 

[soccerballtux]

Originally posted by: BigJelly

Originally posted by: Skoorb
As I see it, substantial US debt generally involves a deficit, meaning that each year further spending vs income vs additional borrowing (in part simply to cover interest payments) sees the total debt figure higher.

The simplest way to see how this debt is growing is based on debt vs GDP. Current government projections have debt at about 96% of GDP by 2010 (best case), and continuing to grow.

As debt grows, this is all I can think of that's a problem:

1) US jeopardizes AAA credit rating, which means borrowing costs more, so for the same amount borrowed, debt grows even quicker than before.

2) Less leeway in times of true need (like economic slow down or war), but really this just ties into 1).

Given that nobody really expects the US to default or its dollar to totally collapse (at least compared to other currencies), it appears to have the unique position of debt actually not having the same kind of meaning as smaller countries.

In clear, practical terms, what does it mean to the US to have a debt:GDP ratio of 80% vs 120?

Our current debt isn't that bad, not good but bad. The true problem lies with the fact that we are growing our debt at an alarming rate--through the deficit.
So although we aren't currently in over our heads, our current rate of deficit spending will put us over our heads.
Once we're over our heads and other contries--mainly China--know it, then they don't loan us money, the federal reserve prints more (instead of getting money from the current supply, they print more) and then we have much, much higher inflation which futher devalues the dollar.

The true concern is: No country can be a super power with its currency having the same value as toilet paper.

So government's only way to solve this is to get more money without printing more...well if they can't borrow from other countries they will get it the only way they know how--steal it by taxing the people more and more.

So when the debt gets higher watch as the taxes increase, which reduces the amount taken in (higher taxes -> weaker economy -> less taxes), so the taxes increase more, etc. until the house of cards falls apart.

Taxes do not necessarily need to increase. The Federal Reserve can buy all the Treasury notes themselves. We're likely going to see a combination of the two; taxing at a higher rate, and any other government expenditures directly financed through the Federal Reserve.

 

[soccerballtux]

Originally posted by: Ozoned

Originally posted by: Zebo
They will never forgive. It's not to their advantage to decouple yet. Have to ruin our dangerous military first.

Subsidizing our military is cheaper than having their own. The house of cards is very carefully and strategically stacked.

Hm, good way of putting it.

 

[soccerballtux]

Originally posted by: Ozoned

Originally posted by: heyheybooboo
Topic: What are the practical implications of excessive US debt?

Over the last 30 years it has meant paying in excess of $8 trillion in interest.

Gross interest paid on Federal debt was $362 billion in FY 2000 and declining.

Gross interest paid on Federal debt will exceed $500 billion this fiscal year and by 2012 will exceed $600 billion per year (that debt that was passed on to him ...) not counting Obama debt

It isn't like that interest evaporates. How much of that do you think goes back into and circulates in our economy?

Mostly all of it, considering how much of our debt China buys. This is why Hillary Clinton thanked China for their continued support of the US in financing this year's Obamanomics.

 

[heyheybooboo]

Originally posted by: Ozoned

Originally posted by: heyheybooboo
Topic: What are the practical implications of excessive US debt?

Over the last 30 years it has meant paying in excess of $8 trillion in interest.

Gross interest paid on Federal debt was $362 billion in FY 2000 and declining.

Gross interest paid on Federal debt will exceed $500 billion this fiscal year and by 2012 will exceed $600 billion per year (that debt that was passed on to him ...) not counting Obama debt

It isn't like that interest evaporates. How much of that do you think goes back into and circulates in our economy?

That's pretty much a loaded question ..... :laugh:

'Technically' the debt held by the public is roughly half of the total Federal debt. So ....

The *net* interest paid out each year is roughly half of the *gross* interest cited above.

The *debt held by the public* can be segregated by Foreign/Domestic. Here is a list of the Major Foreign Holders of Treasury Securities as of December, 2008. That's somewhere around 60% of the debt held by the public.

So, to answer your question I will guess somewhere around $100 billion in interest will be paid this year to domestic holders of US Treasury Securities.

 

[Ozoned]

Originally posted by: heyheybooboo

Originally posted by: Ozoned

Originally posted by: heyheybooboo
Topic: What are the practical implications of excessive US debt?

Over the last 30 years it has meant paying in excess of $8 trillion in interest.

Gross interest paid on Federal debt was $362 billion in FY 2000 and declining.

Gross interest paid on Federal debt will exceed $500 billion this fiscal year and by 2012 will exceed $600 billion per year (that debt that was passed on to him ...) not counting Obama debt

It isn't like that interest evaporates. How much of that do you think goes back into and circulates in our economy?

That's pretty much a loaded question ..... :laugh:

'Technically' the debt held by the public is roughly half of the total Federal debt. So ....

The *net* interest paid out each year is roughly half of the *gross* interest cited above.

The *debt held by the public* can be segregated by Foreign/Domestic. Here is a list of the Major Foreign Holders of Treasury Securities as of December, 2008. That's somewhere around 60% of the debt held by the public.

So, to answer your question I will guess somewhere around $100 billion in interest will be paid this year to domestic holders of US Treasury Securities.

That's it? Where does the other 400 billion go?