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Author | Topic: The Biden Presidency | |||||||||||||||||||||||||||||||||||||||||||||||
Percy Member Posts: 19957 From: New Hampshire Joined: Member Rating: 4.7 |
The average American's mortgage debt is around $215,000. Your calculated equivalency of total US government debt as $100,000 per American is less than half that. Please explain why this is cause for concern. --Percy Edited by Percy, : Add question about why the sudden increase in concern about inflation. Edited by Percy, : Restore original since Phat already replied.
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Phat Member Posts: 14955 From: Denver,Colorado USA Joined: Member Rating: 1.1
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Because unlike our mortgage, the principal on this debt keeps growing...lately to the tune of over a trillion dollars a year. The principal is growing faster than even the possible payments could be.
Soon, every bit of the tax dollars collected will have to go towards paying just the interest. There is no 35 year or 50 year plan to pay the debt off. I am no economist, but to me this means that eventually the government will have to admit default. The US Dollar itself may well be the next bubble. Edited by Phat, : No reason given. "A lie can travel half way around the world while the truth is putting on its shoes." ~Mark Twain " *** “…far from science having buried God, not only do the results of science point towards his existence, but the scientific enterprise itself is validated by his existence.”- Dr.John Lennox “The whole war between the atheist and the theist comes down to this: the atheist believes a 'what' created the universe; the theist believes a 'who' created the universe.” “The most difficult subjects can be explained to the most slow-witted man if he has not formed any idea of them already; but the simplest thing cannot be made clear to the most intelligent man if he is firmly persuaded that he knows already, without a shadow of a doubt, what is laid before him.” — Leo Tolstoy, The Kingdom of God is Within You
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Percy Member Posts: 19957 From: New Hampshire Joined: Member Rating: 4.7
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Let me attempt a different reply to your Message 75:
It's actually less than that, around $82,000, but rendering the national debt as a per person amount isn't meaningful. You should compare it to GDP. The national debt is $27 trillion, GDP is $21 trillion, so the national debt is only 1.3 times national earnings. Given that people can get mortgages that are 2, 3, 4 and sometimes even 5 times their annual earnings, why do you think a national debt of only 1.3 times annual national earnings is off the charts? Also, the national debt is constantly cycled through bonds ranging up the 30 years maturity and is never actually paid off. A bond's rating is a measure of the amount of risk, the likelihood of the bond issuer to make good on the bond. The rating of bonds of the United States is AAA, the highest possible. If your alarm at our national debt were justified, if it were beginning to exceed bond rating agencies estimation of our ability to repay, then US bond ratings would begin dropping below AAA. This is not happening because the bond rating agencies do not agree with your opinion that the national debt is alarmingly high and beyond our ability to repay. Why has inflation suddenly become a cause for concern for you now that Trump has left office and Biden has been on the job only four weeks? You never used the word inflation (or inflationary, etc.) even once in the entire The Trump Presidency thread. Here's a graph of recent deficits. After the 2008 financial crisis wound down, federal deficits decreased every year but one until the Trump presidency when they increased every single year: ![]() The timing of your sudden inflationary concerns coincide with the change in administration, not with any actual change in America's ability to pay its debts. Moving on to your current message:
The principle on the national debt has been growing most years for a long, long time. What matters isn't the absolute magnitude of the debt but the debt as a percent of GDP, since GDP is a measure of our ability to repay. Here's a graph of the national debt (the red portion) since 1900. We're at historically high levels, approaching where we were shortly after WWII, but we grew out of it. What makes you think we won't begin growing out of it again as the economy recovers? ![]()
I refer you back again to the bond rating agencies. If our debt were truly growing beyond our ability to repay, why are our bonds still rated AAA?
Recently only 8.7% of federal outlays were for interest on the national debt, so what makes you say this?
Why do you think it important to pay off the debt?
You don't need to be an economist to discuss this topic, but you know little enough to be easily manipulated by misinformation.
Don't you think default would be preceded over a number of years by gradually declining bond ratings?
Currencies float against one another. The dollar has been up against the Euro, the Canadian dollar and the Japanese yen. Where do you see evidence of this bubble? --Percy
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dwise1 Member Posts: 4427 Joined: Member Rating: 3.3 |
Refer to the rating agency scene in The Big Short (The Big Short (2015) - FrontPoint Partners confronts Morgan Stanley Risk Assessors and S&P) So basically, the rating agencies are in business to make money. And if they don't give their customers the rating that they want, then that customer will just go down the street to another agency to get the desired rating. That is one reason why those CDOs filled with sub-prime "dog sh*t" mortgage bonds could get repackaged and become "diversified" and so be given A, AA, even AAA ratings. So one reason why we keep our AAA rating is because we need to. If our rating were to drop, then that would be disastrous. That came out during the 2013 nonsensical "debate" by the know-less-than-nothing Tea Party Republican idiots over the debt ceiling. The problem was that those idiots had no clue what the debt ceiling even is, so they wanted to vote against it. The problem with that is that the debt ceiling is not for incurring more debt, but rather to enable us to make payments on our existing debt. So that means that voting against raising the debt ceiling is voting for us to default on paying our debt. And that stated refusal to even try to pay on our debt would have lowered the rating on our bonds, making our debt far more expensive and driving the country towards financial ruin. All I'm saying here is that the rating on a bond is not as objective as it's supposed to be, so this is slightly more than a quibble. There can be and often are other factors which could make or keep a bond's rating artificially high. Though even then, they can keep that up for only so long. Of course, it really doesn't help when those demagogues (eg, the Trump Administration, the GOP) also doesn't understand how anything works. Part of redlining fell on the companies selling the mortgages to minorities. Instead of selling them proper mortgages, they would steer their customers to the sub-prime "dog sh*t" loans that ended up in those CDOs behind the 2008 housing market crash.
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dwise1 Member Posts: 4427 Joined: Member Rating: 3.3
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Gee, that's an interesting amount. Sounds so very familiar. Just where did I hear that one before? Hmm? Oh yeah! The Great GOP Tax Scam of 2017! The one that gave massive tax cuts to the very rich, thus blowing a one trillion dollar per year hole in the deficit! And immediately both Mitch McConnell and Paul Ryan went into a big panic over how much the deficit had just grown (while of course avoiding any reference to what was causing that huge increase) and how they would have to make massive cuts to both Social Security and Medicare to fight that deficit. Even though neither program has any effect on the deficit. And trusting Percy's reporting of your posting history, why is it that you are only now complaining about that trillion-dollar deficit and didn't do so when the GOP originally pulled their scam over three years ago? Would that be because it's only now that your right-wing handlers are themselves complaining about it? So that they can blame it on the new Biden Administration instead of on the f*cking Republicans who actually created it? OBTW, the taxes of us working stiffs (even though I'm a retired working stiff) are going to go up this year. Because of the Great GOP Tax Scam of 2017! The rich got massive tax cuts which are permanent, whereas we working stiffs only got some measly table scraps as small tax cuts. But ours were only temporary and deliberately set to expire this year! That way, if Trump had won the election, then he could "save us with another tax cut" which would have blown yet another trillion-dollar hole in the deficit. And if he didn't win (which he didn't), then the GOP could blame their carefully crafted tax increase on the Democrats. That's part of a GOP tactic called "Good Santa, Bad Santa". A Republican administration will spend so freely that it makes drunken sailors look like misers, thus leaving the economy in a shambles. The incoming Democratic administration is then left to clean up the Republicans' massive mess and restore the economy, but in the process they have to practice fiscal responsibility and cannot do the good things for the country that they want to do. Add to that that in a Republican administration they will spend freely without any funding to back it up (eg, Dubya starting two wars without any funding) and drive up the deficit without any mention of that deficit, but then when they're out of power suddenly they are screaming from the rooftops about the deficit. When they are out of power, then the deficit is the most important thing there could possibly be, but then when they are in power then it's suddenly "what's a deficit?". I should warn you that I took a class in accounting half a century ago, hence some of my terminology and concepts. The national debt is not like a mortgage in that it's not a single loan taken out for a single item of capital (eg, equipment, vehicles, real estate). If you try to treat the national debt as a single loan, then that is a false analogy that will only deceive you. Rather, it's a way of conducting business, a very common way. Mind you, we are starting to engage in another common false analogy (ie, that a successful businessman would be ideal to run the government) in that you cannot run the government like a business even though some of the skills would be transferable 1. Having to reach back half a century to do this from memory (so some detailed terminology may be a bit wonky), every accounting entity (eg, a business) has four basic kinds of accounts: assets (what you own; eg, cash, capital, accounts receivable), liabilities (what you owe; eg, loans, accounts payable), revenues (sources of income; eg, pay, interest revenue, sales, appreciation of your capital items), and expenses (non-capital things you have to pay for and sundry losses; food, non-capital purchases, utility bills, rent, taxes, interest expenses, depreciation of your capital items). The interplay of changes to your assets and liabilities are tracked through transactions between them and your revenues and expenses. Using the T account system, those transactions are represented by debiting one or more accounts while crediting one or more other accounts by an equal amount -- that's why your accounts must always balance. There are additional concepts. When you compare assets with liabilities, you come up with a figure called equity (ie, E = A - L). That is your net worth. When you compare revenues with expenses, then you come up with a figure called net revenue (ie, NR = R - E). If your expenses are greater than your revenues (ie, your net revenue is negative), then you are running a deficit. Another important concept is that of liquidity, which is basically how much of your assets are readily available to spend. That's usually seen as cash, though liquid assets can take other forms which I'm not very familiar with. For example, you could have half a million dollars of equity in real estate (if you own a home, minus the principal on the the mortgage you could be in that same situation), but you cannot spend any of that half-mill until you either sell that property or use it as collateral for a loan. Keep that in mind. A business is an on-going concern. That means that it is not only continually in operation, but also that it must remain continually in operation. Thus it's a complex interplay between many factors, principal among which are accounts payable, accounts receivable, expenses, revenues, liquidity, and timing. Of which timing is the most crucial. And the primary reason why so many viable businesses went under in the 2008 crisis because of the big banks who were "too big to fail". OK, picture yourself as the CFO (Chief Financial Officer of a company, the "money man"). Your company manufactures a product. Its salesmen sell that product to customers who place orders, receive shipments, receive bills for those shipments, and eventually pay those bills (hopefully) -- those outstanding bills are called "accounts receivable". Your manufacturing department in the meantime order parts to fill those orders and receives bills from its suppliers which you need to pay -- those outstanding bills that you have not paid yet are called "accounts payable." In addition, you have rent and utilities to pay for, as well as payroll -- the big bragging right of a former CEO running for public office is "making payroll", whereas it was his CFO who actually accomplished that. That is a helluva lot of juggling the CFO has to do, all of it time-critical -- eg, as a junior enlisted all our bills were due at the end of the month which is when I got paid, so not only was almost all of my pay allocated to bills, but I also had to time the mailing of those payments just right, so I literally lived through that kind of experience. One of the topics in my accounting class was short-term business loans. Making payroll requires total liquidity (AKA "cash"). Accounts receivable are not liquid. You literally could have millions of dollars in accounts receivable and still come not be able to make $10,000 in payroll. For that you need short-term business loans which most banks give out fairly freely provided you have the proper collateral. So, you have a lot of assets tied up in accounts receivable but you need cash right now to be able to pay more immediate expenses including making payroll. You take your books to the bank to demonstrate to them your assets and negotiate a short-term loan for a couple months or so. And even though you pay that one off, you're back in there in another month or two to make the same deal. Even though you have a successful business going there, you still need to use a series of short-term loans to continue to operate, basically keeping you continually in debt. Now think of this regarding the need to minimize liquidity. I made Chief Petty Officer in a Navy Reserve warehousing unit and attended a Navy warehousing class with a fellow Chief and our unit's XO, a Supply Officer (AKA "SUPPO", AKA "Pork Chop"). Our XO worked for Toyota and we had many discussions of Toyota's "just in time" manufacturing and inventory strategy -- this also has a bearing on why there was such a toilet paper shortage at the outbreak of this COVID outbreak a year ago 2. Creating and maintaining an inventory costs money. Building a car requires a lot of parts. The longer you have to store those parts as inventory, the more it costs you. Therefore, ideally you would store those parts for as short a time as possible. Hence, "just in time" inventory control, such that you would schedule the arrival of the parts for a car to be just before they were needed to be installed. A running joke among us when we would go out to dinner would be to pre-stage the sugars for his coffee so that they would arrive "just in time" for consumption. The point for liquidity is that while you need a certain amount of liquidity to meet your immediate business needs, maintaining that kind of liquidity can be very expensive. Such that the interest that you would need to pay for a short-term loan to give you that kind of liquidity would end up being less expensive than maintaining that degree of liquidity all on your own. Therefore, keeping yourself in a perpetual state of indebtedness could be the best business decision. And if you have bought into the false analogy that the best way to run a business is the best way to run a government, then just what are you complaining about? But a business needs to use indebtedness and assets, etc, as an instrument for engaging in business. Liquidity is a liability (in the non-accountant sense). If too much of your assets are liquid, then you are dead in the water as a business. Therefore when you require liquidity, then you best acquire that liquidity through business loans, based on the collateral you have in your non-liquid assets, including your accounts receivable.
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