If we are 9 trillion dollars in debt, why isn't the wolf at the door?

[Iamme]

Well?

Don't we all deep down, think our debt must be a joke? We can joke that if you lined up 9 trillion dollar bills end to end, we'd be able to go to yoranus and back.

They say that we should be concerned that our children and children's children (and etc.)will be paying this debt. Really? Weren't they saying this back in the days of Nixon?

If we are so much in debt, how come we are supposed to be the richest generation ever? How come we are not paying and living in teepees til we get it paid off?

 

[Solitaire]

They say that we should be concerned that our children and children's children (and etc.)will be paying this debt. Really? Weren't they saying this back in the days of Nixon?

They don't have to. We borrow the money from oversea investors. Then when the loan comes due we borrow the money from them again. All we do is pay interest on the loan which causes the dollar to slowly decrease in value for currency trading purposes.

From this chart, Yahoo Charts, I project that the dollar will fall from 67.5 to 42.5 in 2012. It won't affect us the least bit, so long as we never buy anything like oil from overseas sellers.

See?

 

[roger]

I'm not sure I believe the following, but I will present it as a debate point:

Debt is good. Most businesses carry debt as a way to increase returns. For example, borrowing money to buy cars lets you have more cars on your lots, move more vehicles, and thus make more overall profit than if you bought each car outright with your own money.

So long as our GDP keeps increasing, debt is good. Car dealerships, if run efficiently, will never be debt free. Neither should the country.

That begs the question, how much debt can we handle? Clearly carrying too much debt is catastrophic. Well, we can look at the stock market. Suppose the Goverment is being entirely wasteful with the money, and blows every dime. So what? All of that money is going to end up in the hands of people and corporations who will use it more wisely. So long as the stock market continues to generate good returns, the money is being used well, even if that first usage was a bit irregular.

This is not my argument, it is Kenneth Fisher's. I'm personally undecided on it's merits, but would enjoy reading a discussion debating it.

 

[Tsukasa Buddha]

I don't really like debt, because when **** goes down, you're kinda screwed.

It happens with people all the time. They can manage to keep afloat with their debt and maintaining their lifestyle until a major illness or divorce, then they go bankrupt.

Though I don't know if that really correlates to national debt.

I am also skeptical of the cop out that it is fine as long as the GDP keeps rising fast enough. IMO, that is wishful thinking.

 

[hgc]

The wolf's entire economy depends on the engine of our consumer economy. China is merely making investing in the market that fuels its own economic growth. The wolf not about to knock the door down. It's own billion+ people gotta eat.

 

[Puppycow]

Here's an interesting list, if it's true:
Countries with the highest External National Debt
(US not in top ten; China is)

Here's some more perspective:
List of countries by public debt
Japan's public debt is 176% of GDP, wheras the US is 64.7% of GDP
Also, Japanese baby-boomers are beginning to retire and the population is falling.
However, interest rates are near zero in Japan, so since they basically pay interest on the debt, it's not as bad as it would appear. If they ever have to raise interest rates however, watch out. Is this OK? I'm not sure, but I suspect the government does this on purpose to keep the yen weak and maintain the trade surplus with the US.

 

[Puppycow]

One more thing: Government debt can only increase as long as there are investors out there willing to buy government bonds. The government can issue bonds, but somebody has to buy those bonds. No rational investor would make a loan to somebody if they didn't think it was worth the risk of default. It would seem to make little sense for non-Japanese to invest in Japanese government bonds due to the very low payoff and huge debt. But, banks apparantly buy these, and I suppose they have their reasons (banking seems to be a strange business).

(I should hasten to add that the current subprime loan problem is evidence that lenders do not always accurately assess the borrower's ability (or willingness) to repay the loan).

 

[lionking]

Here's an interesting list, if it's true:
Countries with the highest External National Debt
(US not in top ten; China is)

Here's some more perspective:
List of countries by public debt
Japan's public debt is 176% of GDP, wheras the US is 64.7% of GDP
Also, Japanese baby-boomers are beginning to retire and the population is falling.
However, interest rates are near zero in Japan, so since they basically pay interest on the debt, it's not as bad as it would appear. If they ever have to raise interest rates however, watch out. Is this OK? I'm not sure, but I suspect the government does this on purpose to keep the yen weak and maintain the trade surplus with the US.

I just had a look at your first link. Equatorial Guinea the second highest GDP per capita in the world??????? Is this a reliable list?

 

[Puppycow]

I just had a look at your first link. Equatorial Guinea the second highest GDP per capita in the world??????? Is this a reliable list?

Apparantly, yes (I'm as surprised as you).

The discovery of large oil reserves in 1996 and its subsequent exploitation have contributed to a dramatic increase in government revenue. As of 2004,[12] Equatorial Guinea is the third-largest oil producer in Sub-Saharan Africa. Its oil production has risen to 360,000 barrels/day, up from 220,000 only two years earlier.

Forestry, farming, and fishing are also major components of GDP. Subsistence farming predominates. The deterioration of the rural economy under successive brutal regimes has diminished any potential for agriculture-led growth.

Despite a per capita GDP (PPP) of more than US$30,000[13] (CIA Factbook $50,200[14]) which is as of 2006 the second highest in the world (after Luxembourg), Equatorial Guinea ranks 121st out of 177 countries on the United Nations Human Development Index.

Either that or Wikipedia is also wrong. Both cite the CIA Factbook.

 

[lionking]

Apparantly, yes (I'm as surprised as you).

Either that or Wikipedia is also wrong. Both cite the CIA Factbook.

Well there must be a few very rich oligarchs.

 

[skoob]

Here's an interesting list, if it's true:
Countries with the highest External National Debt
(US not in top ten; China is)

I'm probably missing something, but that list seems to differ remarkably from the horse's mouth.

It's also interesting to look att the external dept per capita.

 

[Matteo Martini]

Here's an interesting list, if it's true:
Countries with the highest External National Debt
(US not in top ten; China is)

Here's some more perspective:
List of countries by public debt
Japan's public debt is 176% of GDP, wheras the US is 64.7% of GDP
Also, Japanese baby-boomers are beginning to retire and the population is falling.
However, interest rates are near zero in Japan, so since they basically pay interest on the debt, it's not as bad as it would appear. If they ever have to raise interest rates however, watch out. Is this OK? I'm not sure, but I suspect the government does this on purpose to keep the yen weak and maintain the trade surplus with the US.

If you have all your money invested in yen, that is kind of a scary list to see

 

[Soapy Sam]

That list seems to derive average personal income by dividing GDP by population.
Which is, like many statistics, both correct and meaningless.

 

[Francesca R]

They say that we should be concerned that our children and children's children (and etc.)will be paying this debt. Really? Weren't they saying this back in the days of Nixon?

Your children and your children's children, and immigrants and anyone who spends money in your economy will be servicing that debt, or paying it back or running up more of it.

If we are so much in debt, how come we are supposed to be the richest generation ever? How come we are not paying and living in teepees til we get it paid off?

Because you can be rich and still have debts.

 

[Francesca R]

All we do is pay interest on the loan which causes the dollar to slowly decrease in value for currency trading purposes.

From this chart, Yahoo Charts, I project that the dollar will fall from 67.5 to 42.5 in 2012. It won't affect us the least bit, so long as we never buy anything like oil from overseas sellers.

I don't think the level of the US dollar has very much to do with the level of government debt, nor does a falling dollar reduce that debt, since it is mostly denominated in USD. If there was any doubt about the ability of the US government to service its debt then long term government bond yields would not be so close to multi-decade lows.

 

[Francesca R]

Here's an interesting list, if it's true:
Countries with the highest External National Debt
(US not in top ten; China is)

Here's some more perspective:
List of countries by public debt

External debt (or assets) and public debt are different things. External debt includes private assets owned by foreigners, which are nothing to do with the government.

Japan's public debt is 176% of GDP, wheras the US is 64.7% of GDP
Also, Japanese baby-boomers are beginning to retire and the population is falling.
However, interest rates are near zero in Japan, so since they basically pay interest on the debt, it's not as bad as it would appear. If they ever have to raise interest rates however, watch out. Is this OK? I'm not sure, but I suspect the government does this on purpose to keep the yen weak and maintain the trade surplus with the US.

Japan's trade surplus doesn't help with Japan's public debt, and nor does a weak yen. It does enable Japan to accumulate external assets, which it has. Japan has more foreign assets than liabilities and is the world's biggest net creditor nation.

Higher Japanese interest rates would increase the government's burden of servicing its public debt, but since interest rates are likely to be raised only as the economy grows (raising niminal GDP and the government's tax revenue) there is a powerful offset.

 

[Francesca R]

It would seem to make little sense for non-Japanese to invest in Japanese government bonds due to the very low payoff and huge debt. But, banks apparantly buy these, and I suppose they have their reasons (banking seems to be a strange business).

The bulk of investors in Japanese government bonds are Japanese domestic savers. But it also makes perfect sense for foreign savers to invest unless they think that the price of those bonds is going to collapse because the government is going to default. It is not the absolute level of the bond yield that matters, but a combination of (i) the yield adjusted for inflation and (ii) the yield minus the short term interest rate. Along both of these lines, the return on a Japanese government bond is higher than that on a US one.

(I should hasten to add that the current subprime loan problem is evidence that lenders do not always accurately assess the borrower's ability (or willingness) to repay the loan).

Correct, but no government debt has suffered due to the sub-prime problem. In fact it has benefitted as the relative confidence in no-default (of governments) has risen. Nobody is writing down government bonds.

 

[Francesca R]

If you have all your money invested in yen, that is kind of a scary list to see

If you are worried about the Japanese government defaulting, or inflating away the value of their debt to you then you would not want to buy JGBs because they would experience capital losses. Since it is perfectly possible to hedge the yen exposure (and actually by doing this, you raise the effective interest rate that you receive from the yen interest rate to your home currency interest rate anyway) then the risk of currency depreciation can be taken out. But if you are not worried about default or monetization (inflation) then the real yield on JGBs is arguably pretty attractive.

 

[Puppycow]

I'm probably missing something, but that list seems to differ remarkably from the horse's mouth.

You're right. That was the top link in the google results. It seems to be a site that's just there to rank high on Google and get people to click on ads with minimal effort (no original research). Sorry for linking to that red herring.

It's also interesting to look att the external dept per capita.

Now that's a better link. Per capita and especially per GDP are more interesting than absolute numbers. Since this is external debt, Japan doesn't look so bad. The wolf should be at Ireland's door, right? And UK at #4 (UK's absolute external debt is almost as large as the US debt). US is down at #51 and Japan at #140. (Most Japanese bonds are held by Japanese).

 

[Francesca R]

Now that's a better link. Per capita and especially per GDP are more interesting than absolute numbers. Since this is external debt, Japan doesn't look so bad. The wolf should be at Ireland's door, right? And UK at #4 (UK's absolute external debt is almost as large as the US debt). US is down at #51 and Japan at #140. (Most Japanese bonds are held by Japanese).

It's gross external debt, so it ignores foreign assets. Japan owns considerably more of the rest of the world than the rest of the world owns of Japan. [link]