[HN Gopher] Who Owns the US National Debt?
___________________________________________________________________
Who Owns the US National Debt?
Author : omarfarooq
Score : 60 points
Date : 2021-09-06 20:48 UTC (2 hours ago)
(HTM) web link (www.thebalance.com)
(TXT) w3m dump (www.thebalance.com)
| amin wrote:
| The last paragraph sums it up well:
|
| "The Bottom Line Many people believe that much of U.S. debt is
| owed to foreign countries like China and Japan. The truth is,
| most of it is owed to Social Security and pension funds. This
| means U.S. citizens, through their retirement money, own most of
| the national debt."
| smitty1e wrote:
| That means that I need to pay myself in order to be paid?
|
| At the risk of sounding pejorative, and understanding that
| there are volumes of sophistries in support of the status quo:
| how is this not _effectively_ a Ponzi scheme?
| loeg wrote:
| The essential element of a ponzi scheme is that investors are
| deceived.
|
| > A Ponzi scheme is a form of fraud that lures investors and
| pays profits to earlier investors with funds from more recent
| investors. The scheme leads victims to believe that profits
| are coming from legitimate business activity (e.g., product
| sales or successful investments), and they remain unaware
| that other investors are the source of funds.
|
| In contrast, the Social Security model is pretty
| transparently a wealth transfer from workers to the elderly
| and disabled.
| loeg wrote:
| Yeah, that was also covered in the first (second?) paragraph:
|
| > Most headlines focus on how much the United States owes
| China, one of the largest foreign owners. What many people
| don't know is that the Social Security Trust Fund, also known
| as your retirement money, owns most of the national debt.
|
| Kind of repetitive, but at least it's not clickbait.
| caturopath wrote:
| Calling the Social Security Trust Fund's bonds part of the
| national debt is meaningless to the point of being
| intellectually dishonest. It's an internal IOU, not an actual
| debt owed to some other party. Any time people talk about the
| national debt and include intragovernmental debt, stop
| listening to anything they are saying.
| caturopath wrote:
| > Social Security
|
| Counting Social Security as a holder of the national debt is
| nonsense. Usually the cited debt excludes intragovernmental
| debt, since these internal government-internal IOUs are utterly
| meaningless with respect to the debt the country has
| outstanding. Most honest brokers will never cite the
| meaningless number, but rather the "debt held by the public".
|
| Intragovernmental debt isn't what gets you to "most" or
| anything, but it should not be counted in any situation where
| we're talking about the fiscal or macroeconomic situation,
| rather than a political point.
| nostromo wrote:
| This is worse though, not better.
|
| Uncle Sam could cut payments to China or Japan in a crisis.
| It's much harder to cut payments to your own people. It would
| instantly make any crisis much worse.
| andrekandre wrote:
| > It's much harder to cut payments to your own people.
|
| is it though? wouldn't cutting payments to foreign investors
| going to hurt your credit rating abroad?
|
| also, ive heard its an advantage to japan to have its govt
| debt owned by its own people as well...
|
| curious to hear counter points!
| [deleted]
| bikamonki wrote:
| More importantly: will it ever be paid? Let's say this is a
| household that decides to stop accumulating debt and starts a pay
| off plan. How long will it take?
| rmah wrote:
| Government finance is not like household finances or even
| business finances. Most critically, the government controls the
| issuance of money. In the USA that's done via the Federal
| Reserve. Which while not part of the government per-se, is
| sorta controlled by the government.
|
| If the USA wishes maintain the US Dollar's position as the de-
| facto international currency, then it must maintain a negative
| balance of trade and high debt levels. Simple fact is that
| foreigners cannot use USD if they don't have any USD (in the
| form of cash or US Treasuries). There was once a hope that the
| Euro could rival the USD but that dream is dead in most
| people's eyes.
| toomanydoubts wrote:
| You seem to have moved from "the government controls the
| issuance of money" to "a private organization that controls
| the issuance of money is sorta controlled by the government"
| really fast. This are most definitely not the same thing.
| jl6 wrote:
| First order answer: GDP is about $20tn, debt is about $30tn, so
| if everybody put half their income towards paying down the
| debt, it would be paid off in about 3 years.
| sp332 wrote:
| GDP doesn't measure people's income. It measures capital
| expenditures and consumption. So it would be a 50% sales tax
| and 50% tax on capital spending.
| jl6 wrote:
| That's just another method for estimating the same thing:
|
| https://www.ons.gov.uk/economy/nationalaccounts/uksectoracc
| o...
| sp332 wrote:
| Ok but it still includes corporate income. It's not just
| 50% of people's paychecks.
| rwmj wrote:
| Assuming you could get every American to agree to that (good
| luck!) the economy would be massively transformed while
| everyone stopped spending on every luxury and most
| necessities. I guess this would require enormous government
| intervention to prevent all the out of work shopworkers and
| manufacturers from starving, which might require taking on a
| bit more debt.
|
| (The serious answer to the original poster's question is that
| the US economy is not like a household and the debt does not
| to be paid off, nor will it ever be paid off.)
| jl6 wrote:
| Quite, hence "first order" - although every dollar paid
| back needs to be paid back _to_ someone, and as the article
| points out, the majority of the debt is held by US
| taxpayers, so that money is still likely to be
| participating in the US economy, just flowing through
| different hands.
| JackFr wrote:
| People investing in treasuries do not want your cash.
| Thayer had cash and spent it on treasuries. They want cash
| in the future to match their future liabilities.
|
| There is a real utility to having a vehicle for investing
| free of credit risk.
| annoyingnoob wrote:
| > if everybody put half their income towards paying down the
| debt
|
| You realize how unrealistic that is right?
| pjc50 wrote:
| The US is very much not a household; long duration low interest
| tbills are almost a special form of high denomination currency.
| If the treasury stops selling them into the market and doesn't
| issue new ones, strange things happen, starting with the loss
| of control of interest rates.
|
| You'd probably see a bidding war over the remaining bills,
| resulting in slightly negative effective rates. Especially for
| the 30 year ones, which are currently below 2%.
|
| https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c...
|
| (This is the modern version of "shortage of specie", shortage
| of physical coins, which occasionally paralyzed pre modern
| economies)
| version_five wrote:
| As I understand, these debts will never be repaid, they will be
| inflated away so that they remain inconsequential (for some
| definition of that word) relative to the size of the economy.
| This is true e.g. for corporate bonds as well, they are a
| structural part of financing operations rather than a loan to
| do a specific thing that then gets paid back.
| lottin wrote:
| This might work for long maturity bonds, but debt in the form
| shorter maturity bonds (0.5 to 5 years) can't really be
| "inflated away" without destroying the economy in the
| process.
| verdagon wrote:
| The treasuries I've seen are adjusted for inflation, so this
| won't happen to those.
|
| Not sure if there are also un-adjusted treasuries though.
| Probably?
| loeg wrote:
| Most treasuries are fixed-rate, not inflation-protected
| (TIPS).
| jldugger wrote:
| I mean, Al Gore broke the tie in the senate to balance the
| budget in 1993, after which the Fed and Treasury had to
| seriously consider how to implement their policies without
| being able to buy / sell federal debt, because a lot of US
| debt is short term and as that debt matures without rolling
| over the debt payoff snowballs fast (for a government
| anyways).
| im3w1l wrote:
| For corporate bonds, they are meant to be rolled until
| bankruptcy right? At that point they are repaid, fully or
| partially depending on how things go.
| syncsynchalt wrote:
| That's my understanding too. Another way that I've heard it:
| you don't need to reduce your national debt, rather you need
| to ensure that your tax base is growing more quickly than
| your debt.
| thpint wrote:
| No, it won't be.
|
| Society will collapse, humanity will die out, or we'll
| legislate it away. Two of the three have happened before. No
| national debt has ever been paid off.
|
| Cheney said the quiet part out loud back in the day with
| "deficits don't matter." Debt is circular political chicanery.
|
| Humans participate in economic activity to survive. Not to
| enrich a minority. The idea we have to owe some random person
| to exist is ludicrous on its face. Aristocratic minorities are
| as outdated as monarchy and slavery.
| btilly wrote:
| The flip side of Social Security owning the US national debt is
| that Social Security's solvency is entirely dependent upon the
| USA being able to pay. If you assume that, then Social Security
| is fine for decades to come.
|
| Unfortunately once the Baby Boom retires and their SS payments
| come due, there is no reasonable path to the US government being
| able to actually pay. Doubly not when expenses from Medicare is
| projected to double in the next decade.
|
| And yes, I know it is popular to say that we can just cut the
| military. But that is not enough. In fact if we eliminated all
| government programs except social security, medicare and
| medicaid, by the middle of this century our federal budget still
| can't add up. :-(
| dpweb wrote:
| The is no such thing as Social Security "solvency".
|
| If Social Security cannot pay it's obligations to recipients,
| it is funded by the general treasury. The treasury doesn't have
| the funds either, so is funded by treasuries.
| ojbyrne wrote:
| Massive immigration is one solution.
| drdec wrote:
| You seen to be confusing two different issues.
|
| The current situation with social security is that the
| expenditures for benefits exceed the revenues from taxes. The
| difference is being made up by the social security reserve
| fund.
|
| This fund consists of the US Treasuries referenced in the
| article. There had not been any issue with the government
| paying these debts. They are an expected part of the budget.
|
| The point at which we get into trouble is when the reserve fund
| is exhausted. Then the government will have to spend more money
| to keep social security benefits at their current levels. This
| additional expense is not currently budgeted for.
| throwaway6734 wrote:
| Or cut social security payouts
| throwaway6734 wrote:
| Social security is a pay as you go program. The amount of money
| going out is limited by the amount coming in plus what's in the
| trust
| lotsofpulp wrote:
| Any government with the ability to print its own currency can
| always pay a debt denominated in its own currency.
|
| The only question is whether or not the currency can retain its
| ability to procure labor and materials.
|
| I have no qualms about getting the numbers I am owed from
| social security deposited into my account. I do wonder how much
| I will be able to buy with it though.
| msandford wrote:
| Right exactly. I fully expect to pay in enough purchasing
| power for a house or two and to get out enough purchasing
| power for a car or two.
| roenxi wrote:
| In what world is a currency crisis a better outcome than
| people being honest about what is happening and either
| defaulting or raising taxes? Sovereign countries that go down
| the road of emergency devaluation are routinely found at the
| start of the worst stories. It shows that not only can't a
| country pay its bills, it also doesn't have the political
| fibre to engage with its problems.
| umvi wrote:
| Yeah let's just print trillion dollar bills to pay off the
| debt. Zimbabwe had trillion dollar bills if I remember
| correctly.
| alangibson wrote:
| Google Modern Monetary Theory. The jist is that printing
| money is only inflationary when the nations productive
| capacity is fully utilized.
| blowski wrote:
| MMT does say that, but MMT is far from being widely
| accepted as correct.
| CraigJPerry wrote:
| Of the 5 tennets of MMT, only 1 is disputed by mainstream
| economics i think?
|
| As i understand it, more or less everyone (excluding
| fringe groups) agrees that:
|
| 1. All money is created by the state or other banks
| acting under state licence
|
| 2. Money only has value because the government promises
| to back it
|
| 3. because taxes must be paid in government-issued money
|
| 4. Therefore government spending comes before taxation
|
| The bone of contention as i understand it is the 5th
| tennet:
|
| 5. Government deficits are necessary and good because
| without them the means to make settlement would not exist
| in our economy
|
| As i understand the argument, it boils down to a
| disagreement about whether public investment can crowd
| out private.
|
| EDIT: points from https://www.google.com/amp/s/criticalfi
| nance.org/2019/02/06/...
| alangibson wrote:
| 5 is really only debated by academics. I think the
| actions of policy makers prove they think it's true. Does
| anyone remember the debate during the Clinton years over
| whether or not they should start paying back government
| debt given a surplus?
| alangibson wrote:
| OK. No theory is widely accepted before it is.
| godelski wrote:
| One interesting thing about this is that the effect of
| printing money (how it influences inflation) highly
| depends on perception. Radio Lab talked about this in a
| recent episode[0]. This has been a measured effect too
| and so it is interesting that fearing inflation can be a
| self fulfilling prophesy.
|
| [0] https://www.wnycstudios.org/podcasts/radiolab/article
| s/more-...
| ardit33 wrote:
| MMT is a junk theory created by silver spooned academics
| with no real life experience. It has not been proven in
| practice, or when something close to it is practices it
| does lead to inflation or devaluation of the country's
| currency (Think Argentina, Turkey and today Lebanon).
|
| When communism fell, I remember how the west promoted the
| 'shock therapy' to former communist countries, which was
| devastating to them. Another junk science that lead to a
| 'lost decade' and misery in eastern countries.
|
| It was a 'rip the Bandaid' type of approach, which failed
| as it didn't account that some countries needed time to
| adjust to the new capital system and it led to the
| closure of many lines of production that were actually
| profitable, as it was a 'hard reset'
|
| Be very wary when someone peddles a new 'theory' which is
| unproved, as a magical cure. Communism was one of them as
| well.
| criddell wrote:
| If it isn't shrewd application of MMT, then what explains
| Japans economy?
| alangibson wrote:
| I'm gonna guess you know much about the history of MMT,
| because it was created as a description of how money
| works in the US by a guy that spent his career on a
| trading desk.
| toomanydoubts wrote:
| MMT is just something the ones in control of the printing
| press made up to convince gullible people that they're
| not being outright robbed by quantitative easing.
| alangibson wrote:
| Factually incorrect. Mosler spent most of his career in a
| hedge fund. MMT was a description of how he thought money
| actually worked in the modern age.
| dv_dt wrote:
| Most MMT economists I follow on the topic would say MMT
| is independent of QE as a policy.
|
| But also as an outlay of currency, QE is one of the least
| effective uses to support or generate productive
| capacity.
| alangibson wrote:
| MMT people tend to support major direct spending to
| people on the bottom, not things like QE
| trts wrote:
| Does this mean I don't need to pay taxes until the
| productive capacity is at 100%, because we can print it?
|
| How do we know when we're getting close to full
| utilization
| alangibson wrote:
| MMT says that taxes exist primarily to create demand for
| a currency. The government doesn't need you to give it
| money because it is the source of money.
|
| You'll know the economy is neat 100% because inflation
| will kick in.
| jyounker wrote:
| Zimbabwe's debts were not held in its own currency.
| xcdfgvd wrote:
| https://en.wikipedia.org/wiki/Zero_stroke
| addicted wrote:
| That's not why Zimbabwe's economy and currency collapsed.
|
| Zimbabwe's economy and currency collapsed because the
| government stole productive assets and gave them to people
| who did not know how to do anything with them, basically
| destroying the productive capacity of the nation within a
| few weeks.
| TMWNN wrote:
| >Zimbabwe's economy and currency collapsed because the
| government stole productive assets and gave them to
| people who did not know how to do anything with them,
| basically destroying the productive capacity of the
| nation within a few weeks.
|
| Recent history of Zimbabwe (<http://imgur.com/a/VdQdD>)
| pjc50 wrote:
| The important thing about inflation is to realize you can't
| print _foreign_ money.
|
| So if your trade + investment balance remains favourable,
| it's not a problem. If there's a major flight of investors
| (to where?), capital, or a thing you must import at any
| price (usually oil), then inflation kicks in _even without
| money printing_.
|
| The US need not worry about inflation until a bigger more
| stable economy comes along, which is a long way off.
| OnlineGladiator wrote:
| > The US need not worry about inflation until a bigger
| more stable economy comes along, which is a long way off.
|
| You raised a good point about inflation not necessarily
| being tied to printing money, but you ignored the fact
| that if you print more money (without an obvious
| productive place for it to go) then you simply increase
| supply without increasing demand which causes inflation.
| It's happening right now in the US by just about every
| metric, and there is good reason to believe it is about
| to go up a lot more.
|
| So no, the US not only is currently experiencing
| inflation like it has not seen for decades but there is
| likely to be a lot more in the near future. The Fed is
| printing money like crazy (I believe we've printed
| approximately 30% of our total money supply in the past
| ~2 years, so in ~2 years we've printed approximately half
| as much money as we did in the previous ~200 years) which
| deflates the value of our currency. I actually rounded
| all the numbers down to make it seem less problematic
| than it is - I encourage you to check the data for
| yourself.
| alangibson wrote:
| The Fed has been printing money like crazy for over a
| decade. Prices are rising due to supply chain breakdowns.
| ubercow13 wrote:
| >I believe we've printed approximately 30% of our total
| money supply in the past ~2 years
|
| Doesn't that money start disappearing as soon as the QE
| stops?
| gitfan86 wrote:
| This is exactly what has happened during the pandemic. In
| 2015 if you paid $15/hour for entry level physical work you
| would get a lot of applications with some high quality
| applicants.
|
| In 2021 you need to remove the weed drug testing provision
| and then hope that you will get applicants.
|
| Printing 3T dollars and handing out 3k/month to everyone has
| caused the cost of labor to double or triple in some areas.
| In other words the way out of the social security insolvency
| is to reduce the quality of labor a dollar buys.
|
| In 2040 you should expect to get 4k/month from social
| security and for that to cover your food and housing, but
| hiring a person to replace your gutters will cost $90/hour
| jimbob45 wrote:
| Do you have data to back up mass drug test failing? The
| general consensus is that you have to be both outstandingly
| stupid and an actual addict to fail the well-telegraphed
| drug tests at most minimum wage places.
| nostromo wrote:
| Amazon dropped drug testing for delivery drivers.
|
| Maybe they're just feeling kind. More likely: they're
| having trouble finding people to become delivery drivers.
|
| https://www.aboutamazon.com/news/operations/update-on-
| our-vi...
| lotsofpulp wrote:
| Amazon does not employ delivery drivers. They recently
| suggested to the delivery companies they pay to deliver
| packages to homes not drug test in order to find drivers.
|
| I assume the drivers Amazon employs are actual truck
| drivers under the purview of the Department of
| Transportion, and are probably still drug tested to
| satisfy whatever federal requirements they have to
| satisfy.
|
| > We will no longer include marijuana in our
| comprehensive drug screening program for any positions
| not regulated by the Department of Transportation, and
| will instead treat it the same as alcohol use.
| nostromo wrote:
| The policy applies to employees and contractors.
|
| Most of their drivers are not long-haul, but last mile
| delivery.
| lotsofpulp wrote:
| According to this article, the last mile deliveries are
| made by drivers employed by what they Amazon calls
| Delivery Service Partners:
|
| https://www.bloomberg.com/news/articles/2021-05-05/amazon
| -wo...
|
| According to this article, Amazon is suggesting the
| companies they pay to make the home deliveries to skip
| marijuana testing in order to find more drivers:
|
| https://www.latimes.com/business/technology/story/2021-09
| -01...
|
| The distinction is important because Amazon seems to be
| wanting the companies they pay to make the home
| deliveries to pick up possible liabilities from not
| testing drivers for marijuana use, but it is not clear if
| Amazon has chosen to accept that liability as well.
| a3n wrote:
| I kind of don't think local van delivery drivers are DOT
| regulated.
|
| https://duckduckgo.com/?q=do+you+need+a+cdl+to+drive+for+
| Ama...
|
| The people under Amazon's purview that _are_ DOT
| regulated would be CDL holders driving semi trucks and
| similar. Those are strictly drug and alcohol regulated,
| with fed mandated preemployment and ongoing random tests.
| lotsofpulp wrote:
| That is what I wrote, but I specified that the local van
| delivery drivers are not employed by Amazon, so Amazon
| not testing them for marijuana is a moot point.
| a3n wrote:
| Yep, I misread.
| a3n wrote:
| This has been a news theme for some years. A few years
| ago the problem got some attention, as problems
| periodically do. I remember Home Depot and a lumber mill
| featuring. They had enough candidates for the jobs they
| had, but rejected many for weed. There was much
| believable hand wringing.
|
| Of course now Amazon is in the news for asking their
| contracted local delivery "partners" to not reject driver
| applicants for weed. Although this time around it's not
| because of weed directly, it's the general lack of
| applicants; Amazon's already expressed concern that, due
| to turnover, they may have already cycled through most of
| their potential workers.
| [deleted]
| davidgay wrote:
| > The flip side of Social Security owning the US national debt
| is that Social Security's solvency is entirely dependent upon
| the USA being able to pay.
|
| The obvious counterpart here is: assuming social security was
| invested in non-govermnent US-based assets, and the USA was no
| long able to pay its debts, how much would those assets
| actually be worth (i.e., the economy/country is likely in a
| very bad shape)?
|
| [My personal conclusion is that really, at the end of the day,
| the currently-retired people are intrinsically supported by the
| currently-working people, and all the money-tracking is about
| keeping this exchange reasonably fair. But if the currently-
| working people are unable to support the retired ones, no
| financial magic is going to fix that.]
| fuoqi wrote:
| >But if the currently-working people are unable to support
| the retired ones, no financial magic is going to fix that.
|
| Well, there is a way to work around this: to invest into
| foreign assets. In other words, domestic retirees will be
| supported by people working abroad. This approach certainly
| has its risks, but even before that the modern US is the
| biggest world debtor, not creditor.
| lugged wrote:
| Cutting the military isn't really an option like that. They're
| the largest employer of people in the country.
|
| You'd create mass unemployment of young people to pay out the
| unemployment of old people.
| cheriot wrote:
| > In fact if we eliminated all government programs except
| social security, medicare and medicaid, by the middle of this
| century our federal budget still can't add up. :-(
|
| Citation Needed
|
| From what I've seen SS can be fixed by either
|
| - raising the retirement age (originally, life expectancy was
| barely older than retirement)
|
| - applying SS tax to all income and even capital gains
|
| The social security time bomb is a political invention.
| zz865 wrote:
| If you define baby boomers as born 1946 to 1964, that matches
| ages 57 to 75 so I'd imagine over half are retired already and
| we're already in the dying out stage.
|
| The biggest problem isn't boomers but the life expectancy of
| gens X, Z. Luckily(?) they look less healthy than their
| parents.
|
| SS can be boosted by charging SS on unearned income and income
| over the limit.
| RobRivera wrote:
| please define unearned income. afaik - other types of income
| ARE taxed ie. capital gains, etc.
|
| EDIT: Asking a question to be more specific is being
| downvoted leads me to believe there is a party that hates
| these particular questions being asked, and is antithetical
| to the idea of community dialogue and shared ideas.
|
| I really think the whole internet forum thing has much to be
| desired.
| zz865 wrote:
| Yes they are income taxed but dont pay social security or
| medicare taxes. If you earn $100 wages you pay 6.2 percent
| SS taxes and 1.45% medicare (employer pays more than this
| too). If you earn $100 dividends you dont pay either.
| valleyer wrote:
| No, Social Security and Medicare (collectively, FICA) taxes
| are not levied on capital gains.
| quickthrower2 wrote:
| Does this debt ever get paid back? Most likely it is sold onto
| someone else or a bank.
| lotsofpulp wrote:
| A debt being sold from the original lender to another entity
| has nothing to do with whether or not the debt will be paid
| back.
| quickthrower2 wrote:
| That's my point. You can 'get your money out' without
| 'getting your money back'.
| lotsofpulp wrote:
| The US government (hence the people of the US) repay
| their debts all the time, and issue new debts all the
| time. Just like a home mortgage gets sold from the
| original lender to subsequent lenders, the borrower still
| usually pays back the mortgage.
|
| If the debts were not paid back, then why would anyone
| want to buy the debts from the original lender?
| quickthrower2 wrote:
| I didn't mean the debts were not paid back. I used
| clumbsy language before. What I mean is as an owner of
| bonds you are not expecting to get your money back from
| the lendee necessary. Most likely your timelines wont
| match.
|
| Say I lend you $1000 and you agree by contract to pay be
| back $1000 in 2030. I want my $1000 now. You have no
| obligation to give it back to me now. If you decide you
| wont, I will consider selling the debt it on.
|
| If you are a government there is a market for me to sell
| it on easily.
| lotsofpulp wrote:
| >What I mean is as an owner of bonds you are not
| expecting to get your money back from the lendee
| necessary.
|
| Yes, because purchasing a bond is just purchasing cash
| flow at various points in time. It does not matter who
| makes that cash flow happen, as long as you receive the
| cash.
|
| > If you are a government there is a market for me to
| sell it on easily.
|
| There only exists a market for you to sell on easily
| because similar debts have been previously paid back.
| nicoffeine wrote:
| Social Security is solvent if you remove the income cap. Right
| now, if you make $140k annually, you pay into social security
| as much as Jeff Bezos does.
|
| You'd also have to figure out how to eliminate other tax
| loopholes at the same time, like taxing unearned income from
| investment at a far lower rate than earned income from actual
| work.
| rmah wrote:
| More than half of the "baby boom" generation has already
| retired. The "baby boom" was born between 1946 and 1964. They
| are now 57 to 75 years old.
| addicted wrote:
| If the US is in a situation where it's defaulting on its debts
| then social security would have been dead long before that ever
| happened.
|
| Besides, the choice to default on dollar denominated debt is
| completely the US government's.
| Spooky23 wrote:
| Sure there is, the government will print money, as always.
| anthony_r wrote:
| There's a lot of misunderstanding about what is currency and what
| is debt.
|
| All modern currency is debt. All of it. The amount of debt
| created and the amount of new money created is equal, because x=x
| for all x. It's just that simple - there isn't a difference.
|
| There are the printed bills (that everyone has access to),
| there's the digital base money printed by the Fed that you keep
| hearing about, it's the liabilities side of their balance sheet
| (that only select large financial institutions have access to),
| then there are govt bonds and govt-guaranteed bonds (Mortgage-
| backed securities) (which again everyone has access to, but
| they're impractical for day-to-day conduct of business; they're
| extremely liquid though, you can convert them by the hundreds of
| millions to bills/base money by a single phone call). But all of
| this is money, just different types / quality of money.
|
| Operations such as QE are just a means of conversion between the
| types of money. For example since 2008 we have continuous
| conversion of high quality bonds (govt and govt-guaranteed) into
| base money (the top quality money). All of it is still a
| government liability, since the Fed is a part of the government.
|
| Similarly, the Social Security buying Treasury bonds is just an
| internal government operation. Pension liabilities are just like
| government bonds (it's a promise to deliver money at a later
| point in time), if you fund a pension liability with tbonds
| you're just doing some internal reshuffling within the federal
| government books. No actual funding takes place, i.e. no one is
| delaying their personal (or corporate or nonprofit) consumption
| in exchange for a future payoff.
|
| If you don't believe me then please try to explain why hasn't
| Japan experienced a double or triple digit inflation. They are so
| much more advanced in the "central bank money magic".
|
| PS. I'm using "quality" to refer to types money to simplify a
| bit, the more accurate first order approximation term would be
| "duration". Then there are further technicalities such as coupon
| structures, whether or not the coupons depend on the CPI (TIPS),
| whether or not they exist at all and maybe you just get a lump
| base money sum at the end, etc.
|
| PS2. I've skipped the (actually larger) private credit. Yes, bank
| credit and the bond market also create money, though definitely
| lower quality than anything discussed above. Private credit is
| allowed to disappear at any given point in time. The Fed is
| currently not allowed to touch private credit whatsoever (this
| might change if the Congress decides so), they very briefly
| violated their own rules in March of 2020 by doing a weird type
| of deal with the Treasury (which is allowed to deal in the
| private credit, as the Treasury is allowed to spend; buying a
| bond that later defaults is effectively spending). And by the
| way: their announcement of an intervention in the non-govt
| guaranteed credit markets was the exact bottom of the covid
| market panic.
| fuoqi wrote:
| >If you don't believe me then please try to explain why hasn't
| Japan experienced a double or triple digit inflation.
|
| It's important to note that Japan should not be viewed as a
| template for the US. Both countries are quite different in many
| regards. The former is one of biggest creditor nations with
| private sector deleveraging for almost 2 decades thus
| compensating for significant part of the government leveraging,
| meanwhile the latter is the world's biggest debtor nation with
| both private and government sectors becoming more and more
| leveraged (see [0] for a more thorough comparison). The
| ultimate question is: for how long the US will be able to
| maintain USD as the main reserve currency. We already can see
| that foreign governments and investors do not wish to buy more
| T-bonds and even tend to sell them.
|
| [0]: https://www.lynalden.com/economic-japanification/
| jollybean wrote:
| I see what you are trying to say ... but it's a bit misleading
| and actually technically wrong.
|
| "x=x for all x" - this is true if you mean to say everything on
| the Fed's balance sheet is 'Debt' ... but that's wrong - it's
| referred to as 'Assets'. The currency itself is the
| 'Liability'.
|
| A Central Bank issues currencies for assets, in which case the
| 'currency' is 'backed by' those assets. Ostensibly, one could
| trade the currency back for those assets.
|
| That's not generally what we think of as 'debt'.
|
| Now, much of the 'Assets' are actually US TBills, which is
| 'debt' - but - not all of the Fed's Balance sheet is TBills.
|
| So 'x' does not equal 'x'.
|
| The US Fed Balance sheet [1]
|
| ECB Balance Sheet [2]
|
| Historically the asset would be gold - and that still makes up
| part of the Fed's balance sheet. Since 2008, the US Fed has
| issued currency based on mortgage securities, essentially, it
| owns homes.
|
| Otherwise, the Fed owns TBills, i.e. US Government debt, as
| assets, which is part of the basis of this article: The US Fed
| is one of the 'major owners' of TBills.
|
| Yes, it's legit to point out that 'Internal Operations' are
| relevant and partly why Japan is not having major inflation,
| but your denotation of 'Internal' as being 'Government
| Agencies' is not quite right: by 'Internal' what we really
| would mean is 'internal to the Japanese economy'.
|
| So Japanese debt is held by Japanese individuals and
| institutions of all kinds, public, private etc.. So 'Internal'
| means anything in their entire economy.
|
| For a breakdown of a Central Banks Balance Sheet have a look
| here [3] which breaks down ECB balance sheet growth over the
| last while.
|
| [1]
| https://www.investopedia.com/articles/economics/10/understan...
|
| [2]
| https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystembalanc...
|
| [3] https://gaeeuk.org/blog/jcc77k9fbhfymchj94edzbahjd5zbe
| xhrpost wrote:
| > The truth is, most of it is owed to Social Security and pension
| funds
|
| After all that data, how did they come to this conclusion? Based
| on numbers in the article, SS and pensions account for only 13%.
| The clear largest holder is the federal reserve + government at
| 35%. Whether or not this means US citizens effectively own most
| of the debt is another discussion.
| [deleted]
| runawaybottle wrote:
| I am somewhat confused by all of this. If mostly pension/mutual
| funds, social security, military, Medicaid, is buying our debt
| (as in Americans are buying its own debt? Very confused), aren't
| we basically saying the economy can never have a serious
| prolonged correction? We'd all have to default on the debt we
| bought to give ourselves?
|
| Really confused and scared here.
| keewee7 wrote:
| From across the Atlantic it sounds like US national debt is often
| brought up by Internet libertarians as to why the US can't afford
| basic healthcare and welfare for its citizens.
|
| It's manipulative strategy that takes advantage of people wrongly
| thinking that national debt is like personal debt.
|
| There are plenty of countries with higer national "debt" as % of
| GDP and with a higher quality of life than the US:
|
| https://en.wikipedia.org/wiki/List_of_countries_by_external_...
|
| https://en.wikipedia.org/wiki/List_of_countries_by_public_de...
| mindvirus wrote:
| The weirdest part of all of this: all of the debt is in a
| currency it can print, and the USA is mostly in debt to itself.
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