The National Dept

[JimG]

The U.S. government spends about $10 billion per day, of which about $4 billion per day is borrowed money.

demonocracy.info/infographics/usa/us_deficit/us_deficit.html

 

[didymus]

Part of the problem with the US$ being the world’s reserve currency (a good thing) is that it leads to trade deficits (which is bad). Unfortunately, other countries aren’t using their extra dollars to buy our products but to buy our debt.

I was surprised at the low rates on T-bills, basically enough to keep up with inflation. Do they sell for less than face value?

As for Social Security I think soon the cap on FICA taxes will be raised or done away with.

 

[zz912]

It is sinful to keep piling up debt like this. We are stealing money from future generations to spend on our own lavish wishes.

And politicians are fighting to promise even more spending. The promises in the DNC debate recently were in the hundreds of billions in new spending.

 

[Joie_de_Vivre]

SS was never meant to be an investment per se, but to be self funding through interest. It was meant to be “untouchable.” That didn’t stop Congress from dipping into the funds with sticky fingers. Congress can make or brake this country.

It wasn’t set up to be self funding through interest, it was designed to have it so that more people would pay into it than collect it. It wasn’t designed as a retirement plan, it was a system to reduce the widespread and deep poverty old people faced when they were no longer able to work.

 

[Trader]

It is sinful to keep piling up debt like this. We are stealing money from future generations to spend on our own lavish wishes.

And politicians are fighting to promise even more spending. The promises in the DNC debate recently were in the hundreds of billions in new spending.

What is the difference between Christmas and Social Security?

At Christmas kids ask for stuff and their parents pay for it.
In Social Security adults ask for stuff and their children pay for it.

In the proud tradition of politicians everywhere, this joke was stolen.

 

[mikekle]

I just wonder what they are going to do in 10 yrs, 20 yrs…50 yrs even, obviously they cannot just keep increasing the debt ceiling, eventually it will have to stop, and we will have to go thru many decades of very very low spending.

Unless they dont really care and far as they are concerned the debt ceiling could go to 50trillion!!!

 

[Trader]

Part of the problem with the US$ being the world’s reserve currency (a good thing) is that it leads to trade deficits (which is bad). Unfortunately, other countries aren’t using their extra dollars to buy our products but to buy our debt.

I was surprised at the low rates on T-bills, basically enough to keep up with inflation. Do they sell for less than face value?

As for Social Security I think soon the cap on FICA taxes will be raised or done away with.

T-bills sell at a discount. For a simple example, you might pay $9950 for a $10000 face value on a 6 month bill. You are paid the face value at maturity, so your interest payment is $50/9950, or about a 1.01% annual yield. T-bonds have longer maturities and pay interest semi-annually, like other bonds. Because both bills and bonds trade in secondary markets, you may have to sell for less than face value if rates go up. Because rates will certainly go up from where they are now, the holder of a long term bond will lose some principal if he sells the bond before maturity.

You can buy T-Bills direct from the US Treasury, but if you go through a broker, the commission will reduce your effective yield. Your effective yield could even be less than zero with these rates. Federal Reserve policy is to keep rates so low that they force people into riskier investments that will stimulate the economy. That policy does not seem to be working very well, and it has not worked after 20 years in Japan.

 

[zz912]

I just wonder what they are going to do in 10 yrs, 20 yrs…50 yrs even, obviously they cannot just keep increasing the debt ceiling, eventually it will have to stop, and we will have to go thru many decades of very very low spending.

Unless they dont really care and far as they are concerned the debt ceiling could go to 50trillion!!!

At some point, people will stop believing that the US can meet its obligations, and will stop buying T-bills and bonds. It will happen quickly, because panics set in and the rampant spending will come to a screeching halt. It will lead to severe market shock and rampant economic catastrophe and depression.

Massive inflation and currency manipulation will be next, and it will resemble Germany before the Nazis took over, when people would cart wheelbarrows of currency to buy a loaf of bread (and they had to buy it in the morning, because the bread would cost two wheelbarrows full by the afternoon).

This will get very ugly. It is only a matter of time. Mathematics and laws of economics can’t be legislated away or wished away. The only reason we haven’t seen more effects yet is because the rest of the world currencies are in worse shape. Eventually one of them will stabilize and get some sanity in their fiscal policy, and people will FLOCK to that currency.

 

[zz912]

You can buy T-Bills direct from the US Treasury, but if you go through a broker, the commission will reduce your effective yield. Your effective yield could even be less than zero with these rates. Federal Reserve policy is to keep rates so low that they force people into riskier investments that will stimulate the economy. That policy does not seem to be working very well, and it has not worked after 20 years in Japan.

It’s really amazing. The Japanese have been trying the same playbook since the early 90’s to turn around their economy, with zero success. You’d think just for novelty they’d try something else.

They are also hampered because they are experiencing the first effects of demographic winter. Their population is aging rapidly, and old people don’t consume as much as middle age people, and Japan doesn’t have enough young people and kids to take their place.