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US deficit

egslim said:
Because if a foreign party owns a significant share of US bonds that gives them power over the US government. They can threaten to sell them off, lowering the demand and thus making life of the Treasury more difficult. If the demand becomes low enough, potentially interested parties will make additional demands on US internal and foreign policy.
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No, it doesn't.

Because if money is created without an accompanying increase in productivity, inflation will automatically result.
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Budget deficits do not print money...

Most likely true. What's your point? The average US consumer is living beyond his means, as the -0.7% average savings indicate. In a healty, self-sufficient economy consumers provide both consumption for the industry's produce and capital (savings) for its investments. US consumers don't save.
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As you've noted, property values are rising. thus, your savings can decline even as your net worth increases.

Is the population rising 15% annually? And an increase in productivity should work to decrease the price. 15% annual increase is way too high - this is because of speculation.
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Who says there's a direct 1 to 1 relationship? The market sets the price, if you think it's too high don't buy real estate.

I bet you would, they're Euro's. ;)
But seriously, take a look at German hyperinflation in 1923:
http://www.usagold.com/GermanNightmare.html
From the price index table:
July 1923 194,000.0
Nov 1923 726,000,000,000.0
That's because money has only value because we believe it does. If for any reason that belief is lost, you end up with postagestamps only millionairs can buy. At that point of course, everyone is a milionair. ;)
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Germany was simply printing money, that's not what the US does.
 
RandFan said:
Could you justify the relationship. I don't think one has anything to do with the other. Are you suggesting the US government is holding a fire sale to pay of debt?
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The capital and current accounts have to stay in balance. The capital account is boosted by the sale of US assets for foreign capital, be they public or pivate. Or by debt, which DanishDynamite referred to as US bonds. Those bonds can be public - Treasury Bonds, for instance - or private. In the end it doesn't matter; debt has to be paid for. If incurred for productive reasons, it can pay for itself. If incurred for consumption, ruin awaits.
 
WildCat said:
As you've noted, property values are rising. thus, your savings can decline even as your net worth increases.
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A house is worth a house. Property values simply reflect the amount of money - mostly credit - active in the housing market. My house is worth twice what I paid for it, but if I sold it where would I live? I could raise money against it, spend it on drink, drugs and fast women and fritter the rest away, but not yet. Savings ratios are declining partly because younger people are extending their credit just to get into the property market, with the expectation of eternal growth, and lenders are falling over each other to lend to them. The property boom will end in tears.
 
CapelDodger said:
The capital and current accounts have to stay in balance. The capital account is boosted by the sale of US assets for foreign capital, be they public or private. Or by debt, which DanishDynamite referred to as US bonds. Those bonds can be public - Treasury Bonds, for instance - or private. In the end it doesn't matter; debt has to be paid for. If incurred for productive reasons, it can pay for itself. If incurred for consumption, ruin awaits.
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I don't see your point. Yes, debt has to be paid for, so what?

Even assuming all debt is foreign held it doesn't prove your point.

Foreign country loans America 1,000,000

America
-1,000,000 Liabilities
+1,000,000 Assets


Foreign country
+1,000,000 Liabilities
-1,000,000 Assets

Books are balanced.

So I'll say again, huh?

ETA: Capel, I'm a bit rusty with my T-Accounts but I do have a background in accounting. I'm not sure if that helps but I do understand a bit about accounting. I'm currently an auditor. You are going to have to make a better argument.

As long as America is making payments to offset interest then the books will remain in balance. ONLY if the loan comes due or America sales assets in an attempt to pay down debt would the claim have any merit. We are not currently doing that.
 
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WildCat said:
Budget deficits do not print money...
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Germany was simply printing money, that's not what the US does.
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Quite.

US Treasury debt is sold for real capital - specie, other government paper, hard currency. It isn't sold for credit. It can subsequently support credit, but it doesn't create credit in itself. Printing money equates to creating as much credit as you want, and more credit on the back of it.

Hyper-inflation is rare, and not the problem the US faces. Steady decline of the dollar is the inflationary threat there.
 
WildCat said:
No, it doesn't.
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Yes, it does. As debt increases, additional borrowing slowly becomes more and more difficult. Either you raise interest - making the problem only worse in the future - or submit to foreign demands on policy.

Budget deficits do not print money...
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Yes, they do. If the government spends more than it receives through taxes and bonds sold to its own citizens, it increases the moneysupply in the country.

As you've noted, property values are rising. thus, your savings can decline even as your net worth increases.
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Net worth isn't very important, though. Specifically in this case the issue is that US citizens don't save enough to provide their government and industry with capital.

Who says there's a direct 1 to 1 relationship? The market sets the price, if you think it's too high don't buy real estate.
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1 to 1 is an understatement, it looks more like a 10 to 1!
The problem is that the real estate market has turned from a living-space driven market into one based on speculation. The price isn't based on the demand for living space, but on the expectation prices will continue to soar.

If you look back at the twenties, people were using stocks as collatoral for borrowing. But as the value of those stocks declined things went pear shaped. Though real estate has some intrinsic value, a significant part of its value is as ficticious as that of those stocks during the twenties. With exactly the same risks.

Germany was simply printing money, that's not what the US does.
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I was merely illustrating how money doesn't have any intrinsic value. However: "The most recent wave of inflation, which got underway in 1965, was triggered by enormous expansion in spending for the Vietnam war. The government ran deficits as big as $25 billion, and much of this debt was monetized by a process similar to that by which the Reichsbank monetized the German government's debt. The main difference is that the newly generated money shows up mainly as bank deposits instead of printed currency. Since bank demand deposits are in fact money, convertible into currency and usable for any type of purchase, the net result is the same."
 
RandFan said:
As long as America is making payments to offset interest then the books will remain in balance.
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The demands of the US's existing creditors will be assuaged. If the US runs up more debt at the same time, how is that balanced? Your finances aren't balanced because you can make the minimum payment each month while the principal goes up.
 
CapelDodger said:
US Treasury debt is sold for real capital - specie, other government paper, hard currency. It isn't sold for credit. It can subsequently support credit, but it doesn't create credit in itself. Printing money equates to creating as much credit as you want, and more credit on the back of it.
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I found this: http://www.usagold.com/GermanNightmare.html
The Federal Reserve (our central bank) "buys" as many bonds as necessary to stabilize the market. It prints money on the security of these bonds. Despite the facade of the government supposedly "borrowing," the net result is the creation of printing press money.
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So I'm a bit confused, did the Reserve stop doing this?
 
egslim said:
Are you assuming the domestic capital market finances this debt? Because that's not true for the US government.
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Read my previous post.

Even assuming all debt is foreign held it doesn't prove your point.
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It doesn't matter who finances the debt. And BTW, bondholders include domestic and foriegn investors.
 
CapelDodger said:
The demands of the US's existing creditors will be assuaged. If the US runs up more debt at the same time, how is that balanced? Your finances aren't balanced because you can make the minimum payment each month while the principal goes up.
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Capel, with all due respect I don't think you know what the term (balanced books) means.

Let me simplify.

You and I are in a locked room. You give me $100 at 1% a month simple intrest.

Are the books balanced? Yes.

Next month You loan me another $100 and I pay you $2. $1 in principle and $1 in interest

I now have $198 but I owe you $199 and you now have a profit of $1.

Me
Liabilities $199
Assets (cash) $198
Owner's Equity -$1

You
Assets $198
Cash +$1
Owner's Equity +$1

The books are balanced. However I have a deficit. By all means use the above to show how you can purchase any of my assets (like my ports). But keep in mind that this is a closed system.

What if instead I use the money to start a business and make $10.00 in sales? We will

Me
Liabilities $199
Assets $208
Owner's Equity $9


You
Recievables $199
Cash +$2
Owner's Equity +$201

The problem Capel is that the US doesn't borrow money in a closed system. So long as our economy is expanding there is no imbalance but even if it doesn't the "books are still balanced"? You need a different term.
 
RandFan said:
Only if debt out paces growth in GDP.
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http://mwhodges.home.att.net/statistic-wizardry.htm
"If the GDP methodology of 1980 were applied to today's data, the 2004 second quarter's annualized inflation-adjusted GDP growth of 3.0% would be roughly three percent lower (effectively netting to zero percent or below). In like manner, current annual CPI inflation is understated by about 2.7% against the pre-Clinton CPI methodology (would be about 5.7%), and the unemployment rate is understated by about seven percent against its original design and what many people would consider to be actual unemployment (would be about 12.5%)."

With an explanation as to how this is done.
 
Factor in the poterntial plans that OPEC countries are still considering, whether to start chrging for their crude in Euros instead of dollars, if they do, do that the imoact on the dollar won't be good surely?
 
If an economy produces sufficient amounts of things with real value (by turning resources into products, for example) it can live with a massive debt, by using the growth produced by using the borrowed funds to produce more value than the debt itself is worth.

This presumes that continued massive growth is sustainable. If new value stops coming into the system, or even slows beyond a certain point, the whole things collapses. It's a Ponsi scheme with reality.
 
egslim said:
Yes, it does. As debt increases, additional borrowing slowly becomes more and more difficult. Either you raise interest - making the problem only worse in the future - or submit to foreign demands on policy.
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No, that's just paranoia.

Yes, they do. If the government spends more than it receives through taxes and bonds sold to its own citizens, it increases the moneysupply in the country.
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Nonsense! That is not how money is created.

Net worth isn't very important, though. Specifically in this case the issue is that US citizens don't save enough to provide their government and industry with capital.
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And yet, they survive...

1 to 1 is an understatement, it looks more like a 10 to 1!
The problem is that the real estate market has turned from a living-space driven market into one based on speculation. The price isn't based on the demand for living space, but on the expectation prices will continue to soar.
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So, no one is living in all these houses?

If you look back at the twenties, people were using stocks as collatoral for borrowing. But as the value of those stocks declined things went pear shaped. Though real estate has some intrinsic value, a significant part of its value is as ficticious as that of those stocks during the twenties. With exactly the same risks.
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Real Estate values may drop in a given locality (as they did in parts along the east coast ~15 years ago) but overall they're still rising, and aren't going to go down.

I was merely illustrating how money doesn't have any intrinsic value. However: "The most recent wave of inflation, which got underway in 1965, was triggered by enormous expansion in spending for the Vietnam war. The government ran deficits as big as $25 billion, and much of this debt was monetized by a process similar to that by which the Reichsbank monetized the German government's debt. The main difference is that the newly generated money shows up mainly as bank deposits instead of printed currency. Since bank demand deposits are in fact money, convertible into currency and usable for any type of purchase, the net result is the same."
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Things changed in the Paul Volcker era. Economic theory has come a long way since the 60's. Hell, Nixon thought he could control wages and prices - that would be unthinkable today.

You're not one of those kooks who wants to go back to the gold standard, are you?
 
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