[mekrob]

As far as the foreign debt is concerned, I believe only 2 trillion of our debt is to foreigners. 1 trillion was accumulated by the first 42 presidents and the second by Bush in 5 years. I'm probably wrong on this because I got it from a Congressman on CSPAN. He probably just fudged the numbers to make his point, but still, a good portion of our debt is to foreigners.

[DantesPeak]

While the US debt directly held by official foreign institutions is around $2 trillion, that doesn't count private foreign investment of trillions $ more.

So the US could not in any way manage to sell so much debt without foreigners. Which leads us back, like in many other debates here, to the US dollar world trade regime and what lengths the US will go to keep that going.

pup55 - great post, but it's frequently overlooked that the 'liberal' Clinton made the most progress on reducing the deficit compared to 'conservative' administrations.

At this point, since the US is running a huge deficit at the peak of an economic (if not also energy) cycle, we must expect that the situation will be only worse in the future when recession arrives.

[TommyJefferson]

$this->bbcode_second_pass_quote('pup55', 'S')orry for the diatribe and history lesson. Others may wish to comment.

[LadyRuby]

They don't matter. Until they do.

Getting Serious about the Twin Deficits

$this->bbcode_second_pass_quote('', 'O')verview:

Twenty years ago, the United States was the world’s largest creditor nation, unsurpassed in its ownership of assets outside of its borders, even after deducting what foreigners owned inside its borders. Yet over the past two decades, America has been transformed into the world’s largest debtor nation.

The focus of Getting Serious About the Twin Deficits by Menzie D. Chinn, a professor of public affairs and economics at the Universityof Wisconsinat Madison, who served as a senior economist for international financial issues on the president’s Council of Economic Advisers during the Clinton and George W. Bush administrations, is on the economic consequences of inaction with respect to the fiscal and current account deficits. “The longer we wait,” the report explains, “the greater the likelihood of a global financial and economic disruption. Even absent a discrete crisis, hewing to the current course raises the chances of stagnant economic growth, if not recession, in the future.” The report also shows that there may well be other ramifications.

“A striking cautionary note regarding America ’s current path is provided by Britain ’s loss of military and political primacy in the twentieth century; that development followed a shift from creditor to debtor status. Similarly, a prolonged decline in the dollar’s value and increasing indebtedness will erode America ’s dominance in political and security spheres. These trends threaten the dollar’s role as the global currency that facilitates international trade and finance, something the United States has gained immeasurably from over the years. A weaker dollar also reduces American leverage in international financial institutions such as the World Bank and International Monetary Fund (IMF). Finally, a diminished U.S. currency means that each dollar’s worth of military and development assistance has less impact at precisely the time when the nation faces the greatest challenges. Those threats we ignore at our own peril.”

[aldente]

Texas_T, also never forget the 'psychology of debt' and the way debt makes the ultimate tool to steer and control the masses. It is the perfect way to keep em' quiet - nobody brags about debt.

I don't blame those who utilize this tool since there is probably no other way to keep it all together.

[dhfenton]

The greatest untruth about deficit spending is the old " we're only borrowing from ourselves" line. If the debt of the individual is not the same as the debt for the national government. The debt of the national government will eventually come due, and up to this point all we've done is borrowed again when it comes due. But, what are we going to do when the money "borrowed" from social security comes due? The money congress has been stealing for generations will no longer be there, and there will be people waiting for checks each month. The government will have to borrow more to repay this. This debt is held by countries and individuals all over the world. We are not borrowing from ourselves, we are borrowing from many other people who have a real expectation of getting paid when the debt comes due. The concept that endless borrowing somehow puts a nation in a position of strength is crazy. The dollar must suffer, and at some point it will lose in relation to other currencies. The theory is that at that point the U.S. will be able to substantially increase exports because our goods will be cheaper internationally. Then all the debt will be cheaper and easier to repay. The problem is that the dollar has been artificially held above its real value for years; because , in part, it is the most widely recognized international currency, and the banking system depends on it so much. At what point does it collapse? That's anyones guess; but , and oil crisis is definitely one scenario where the system could break down, and the dollar could be toast.

[pup55]

$this->bbcode_second_pass_quote('', 'T')he debt of the national government will eventually come due

[seahorse2]

Deficits don't matter now, bc they don't matter to the people financing them - the foriegners. So, borrow borrow borrow - why not? Its the American way. When the foriegners finally decide they do matter, then, it doesn't matter to the US Government, it will simply hyperinflate its way out of the debts and everyone starts all over again -including those foriegners that were stupid enough to loan the US all the money. After everyone goes broke, the US will still have the biggest machineguns on the block and lots of firepower in the Middle East - so, that brings us all back to, deficits don't matter to the U.S.

In fact, I will go further here and say that everytime the US raises its debt limit, we should all follow suit.

[JonathanR]

$this->bbcode_second_pass_quote('seahorse2', 'D')eficits don't matter now, bc they don't matter to the people financing them - the foriegners. So, borrow borrow borrow - why not? Its the American way. When the foriegners finally decide they do matter, then, it doesn't matter to the US Government, it will simply hyperinflate its way out of the debts and everyone starts all over again -including those foriegners that were stupid enough to loan the US all the money. After everyone goes broke, the US will still have the biggest machineguns on the block and lots of firepower in the Middle East - so, that brings us all back to, deficits don't matter to the U.S.

In fact, I will go further here and say that everytime the US raises its debt limit, we should all follow suit.

[Doly]

$this->bbcode_second_pass_quote('seahorse2', 'W')hen the foriegners finally decide they do matter, then, it doesn't matter to the US Government, it will simply hyperinflate its way out of the debts and everyone starts all over again -including those foriegners that were stupid enough to loan the US all the money.

[seahorse2]

No matter what the US does, it seems like its going to be a mess. But it seems ultimately there are two choices, deflation or hyperinflation. Deflation seems to bring upon a bond default (bc US wouldn't have tax revenues to cover its bonds). So, what will the US do?

Keep in mind that Cheney once said deficits don't matter. Since he's in office, we have to take him at his word. I assume this means they will keep spending like crazy. And, why not? If the US tries to make the serious serious cutbacks necessary, it would bring the economy down - deflation. It would tank the US economy and the world economy which depends on massive US spending. So, why not just keep printing money?

Further, why would the US ever allow a default on its bonds? Might as well print your way out of the debt like has happened in history before. That's what I would do. That's why I say they don't matter, because I think hyperinflation is the route that will be taken, and what little I understand about Bernanke and now that the US won't publish M3 suggest deficits don't matter and it will print its way out of its obligations.

[Odin]

Isn't our debt only ~8% of our GDP? there are Western European budgets that are much worse that that, IIRC. What should realy be scaring us is the trade deficit. Tha obsession with the debt is a relic od pre-Keyensian thinking.

[grillzilla]

$this->bbcode_second_pass_quote('', '
')Isn't our debt only ~8% of our GDP?

[jupiters_release]

$this->bbcode_second_pass_quote('seahorse2', 'M')ight as well print your way out of the debt like has happened in history before. That's what I would do. That's why I say they don't matter, because I think hyperinflation is the route that will be taken, and what little I understand about Bernanke and now that the US won't publish M3 suggest deficits don't matter and it will print its way out of its obligations.