Did you know we owed Mexico over $40 billion dollars ?

[kentuck]

At one time during the 1980's, we were the largest creditor nation in the world. Now we are the largest debtor nation in the world. Does it matter? You had better believe it!

We now owe the Japanese almost $700 billion. We owe the Chinese over $300 billion. We owe Mexico over $40 billion. And we now owe almost two-thirds of all the world's debt. From every President from Washington thru Clinton, we owed all these nations about $1.1 trillion dollars. Since the "conservative", George W Bush, has been President, he has out-borrowed all the other presidents combined. He alone has now borrowed about $1.5 trillion from these nations. This is a catastrophe.

[nancyr]

1. Quite the conservative!

[A HERETIC I AM]

2. To suggest this debt load is like a bank loan is inaccurate

We don't "Owe" any of these countries. It isn't like a representative of the US government went to Mexico or China or anywhere else and asked for a loan of XX billion dollars.

The national debt is financed through the SALE OF BONDS and other debt securities. These securities are essentially backed by the (virtually) unlimited taxing power of the United States Congress. US Government securities are considered virtually without risk in the world finance markets precisely because the government could raise taxes to satisfy the bonds.

A purchaser of a bond, be it government, municipal or corporate receives interest (most of the time) during the life of the bond and receives back the entire principal amount at maturity.

Suggesting the debt of the US is like a bank loan that we "Borrowed" from another country is inaccurate. They are not "Demand Notes" Meaning that the holder of a government bond can NOT just show up at the Treasury building tomorrow and demand they be paid. It doesn't work that way.

[Rosemary2205]

3. You beat me to it

and put it much simpler. Thanks.

[A HERETIC I AM]

5. My Pleasure.

I am currently studying just this sort of material.

:hi:

[rockymountaindem]

6. Thank you for pointing that out

Who knows... once we end all our spending in Iraq and get things back on track at home, we could have all this squared away someday.

[kentuck]

7. What exactly is the impact of such huge borrowing?

Are there no consequences? There will come a time when these bonds will be cashed in, is that right? Do deficits not matter either, like Cheney said?

[A HERETIC I AM]

9. I am no economist but here is how i understand it;

Yes there are consequences. Basically, if we get overextended, that is to say if the debt grows so large that investors become concerned we might default (which is a risk inherent with EVERY debt security) then those investors will be less inclined to buy Treasury Bonds. This would (if i am not mistaken - perhaps a DU economist will correct me here if i am wrong) tighten the money supply and cause inflation to shoot up.

Having such large debt loads is not a good thing, to be sure. It makes money more expensive to borrow causing everything else in the chain to be more expensive. But the Fed Chairman said just the other day that the current US debt load is not out of control and is something well within the bounds of manageability.

As far as your question about them being cashed in, the US Treasury has several auctions a month. A bond auction twice a year (30 year bonds auctioned in February and August) and Bill auctions several times a week. (4 week bills on Tuesdays, 13 week every monday, 26 week every monday) As such, all these debt securities mature in a constant series so there is not any one particular day, month or year when they will mature or "come due".

One must keep in mind that these securities are not like a mortgage. They can NOT be foreclosed on. Like i said above, no holder of a treasury Security can come to the Treasury Building any time he feels like it and demand payment.

The main risk is that we "default" that is to say basically admit "Hey, we don't have the funds to pay you. Sorry". That will never happen because the US government could raise taxes to pay off the obligations.

One final note: 30 year Treasury Bond auctions were suspended in August of 2001 because we had begun to have BUDGET SURPLUSES that were more effective in relieving long term debt than the sale of those bonds. They began to auction 30 year bonds again just this past February because...? anyone? Bueller?


GEORGE BUSH AND HIS IRRESPONSIBLE POLICIES!!! and the massive deficits adding to the overall debt.

[AngryAmish]

10. Some potential consequences

1. There could be a crowding-out effect. The gov't uses all the people willing to buy bonds/loan money and everyone has to pay higher interest rates because of the additional competition for loaned money. There is little evidence of this (the Fed keeps raising rates to cool off the economy and lower inflation).

2. Taxes are raised to pay the debt - hurting the economy.

3. Future debt service means less the government can do in the future. This is openly discussed in GOP circles.

debt % of GNP is what to watch not the gross number. If the economy keeps growing then the debt should not be a big problem. Clinton saved Reagan's ass.

[A HERETIC I AM]

13. Good points. Well put.

Thanks for the clarifications.

[rock]

8. I'm sorry, you're distinction is too subtle for me

Do we owe Mexico $40 billion or not? Kentuck didn't say anything about a bank loan. If I buy a bond from the government, doesn't it owe me money (when the bond matures)?

[A HERETIC I AM]

11. Yes. If you buy a bond they owe you the principal.

BUT.

You don't get regular payments on that principal (like your bank does on your car loan or home mortgage) and YOU CANT FORECLOSE (Like your bank CAN on your house and car )

Admittedly a subtle difference perhaps, but a tremendously significant one.

[rock]

12. OK I get your point now

Simply put, one shouldn't draw too strong an analogy between loans and bonds.

[kentuck]

18. Don't they owe you the "principal" plus the "interest"?

So just like a credit card, you lose more than just the amount you borrow...

[A HERETIC I AM]

19. Yes. You receive periodic interest payments on Gov't bonds

Treasury Bonds pay interest twice a year.

[abluelady]

4. Mexico just entered into the top 10

or our lenders.

[tjwash]

14. Yes. Nasty huh?

We have screwed ourselves by getting involved in a gigantic Ponzi scheme on a global scale. Since the end of WWII, We have continued to get ourselves in a huge amount of debt while invading other nations, and taking the money and resources to pay off that debt incurred from their previous invasion, in the meantime, more debt is accumulated paying off the previous debt, and on and on and on. That's problem with empires that use their military to expand; they must keep expanding to keep paying off their previously incurred debts from expansion. Once that ball starts rolling it never stops, and the empire in question always gets too large and inevitably collapses under its own weight. Ancient Rome was a shining example of this.

The thing with Ponzi schemes as well, is that they look great for a little while, in our case, from the fifties to the eighties, then the act of robbing(invading) Peter to pay(steal wealth and resources) Paul inevitably always catches up to the con artist, and they end up broke and in massive debt.

This was the whole basis behind Eisenhower's farewell address, where he warned us of the dangers of the Military-Industrial complex. None the less, between the 60s and the 00s, the defense budget has continued, year after year, to skyrocket. One-third of the national budget is annually awarded to the Pentagon, and they in turn funnel billions of these dollars right back into the coffers of corporations such as Bechtel and GE. Hell, during the Vietnam War, the top Ten American Corporations netted $11.6 TRILLION (that's with a capitol T).

[AngryAmish]

15. 90s was on the whole good economic times

Economy grew very much under Clinton.

[tjwash]

16. Yeah, he taxed the upper 5% that controlled 90% of the wealth.

He made these bloated multinationals that Reagan / Bush1 fixed so that they never really had to pay any real taxes to begin with, start paying their fair share.

He also decreased the size of the military, and refused to get us involved in 6 year long quagmires and pre-emptive invasions that fed billions per year to hungry defense contractors.

Look behind all the "blowjob-gate" this, and "whitewater-gate" that, and all the other bullshit smoke and mirrors tricks that the neo-cons attempted to get him out of office, and you will find that at the bottom of all of it.

[kentuck]

17. Why do they call it "debt"?

We cannot simply "raise" taxes. We cannot raise taxes right now while we're fighting a war that according to the right-wingers is on the equivalent of WWII. The GDP does not belong to the government to tax anytime they feel the necessity. Do you think the people would cotton to a tax increase today? So the GDP is an irrelevant point. Because it is not a "pool" that the government can dig into any time they feel they want to - the people have to agree to it.

The most likely scenario is that all the things we have grown accustomed to, such as highways, pensions, food stamps, Social Security Disability, etc would be cut to pay the bond holders when they cash them in - just like they are talking about the bonds to pay the baby boomers when they retire. Where is that money going to come from? There is no free lunch. We will become like a third world country as these countries that cash in on our debt will become the new capitalist powers of the world. In my opinion, it would be foolish to think we could continue on the present path without serious consequences.