gdog

U.S. Dealing with a Boatload of Debt - Moody's

Well said Sir!

The coming period will require the testicular fortitude and foresight demonstrated by the likes of Chris, and Warren Buffet.

Join us! In 30 years we shall be known as the greatest generation.


On Feb 05 03:56 PM Chris B wrote:

> I hate the national debt and I hate paying 9.5% of my taxes to cover
> the INTEREST ONLY on debt that we built up in previous years just
> because we didn't want to pay higher taxes or cut spending at the
> time. We're get absolutely nothing in return for those billions
> in interest spending. Not more infrastructure, not better security,
> not better schools - nothing. The ROI on the Iraq war is negative.
> It's the price we pay for being selfish and irresponsible in previous
> years.
>
> However, if the beginning of the great depression is any guide, now
> is NOT the time to rediscover fiscal conservativism. The good times
> were when we should have been running balanced budgets so we could
> be better prepared for times like this.
>
> 9 out of 10 economists will tell you that cutting government spending
> in the middle of what was then a severe recession was a contributing
> factor in making it the great depression. It was only when the US
> took on unprecedented amounts of debt and put people to work building
> roads, bridges, tanks, and ships that the depression ended. The
> boatload of WWII debt was paid off after several years of subsequent
> economic growth boosted tax revenues (at the higher tax hikes that
> had been justified by WW2).
>
> The world has given us a once-in-a-lifetime gift; offering to loan
> the US government trillions of dollars at interest rates of less
> than 2%. If I could borrow money at those rates, I'd be in business
> because I could surely find a way to earn yields greater than that.
> Similarly, the US should be able to put this money to use to generate
> long term economic gains (infrastructure, technology, education,
> etc.) that will generate revenue above and beyond the cost of the
> loans - just as was done in the late 40's through the 60's.
>
> First, get us out of the depressionary spiral by investing in the
> future, then balance the budget when things get better, then reap
> the rewards.

Treasuries Struggle Alongside Stocks

If the foreign banks go to gold, the effect will be the same. Euro currencies are in the same trouble as the dollar, and if the chinese don't want treasuries, than what? US equities? Gold? Guess whose got the gold market cornered, and the US gov't usually does everyone a favor by keeping the price in check.

But if us creditors stop believing in us credit worthiness, this implies extreme US asset appreciation. It's just paper after all.

Basically us asset to debt ratio increases as the dollar devalues if treasuries are rejected, it will just happen immediately as the world falls apart, instead of over a controlled period of time. Not a situation that anyone wants.




On Jan 25 04:45 AM dakyne wrote:

> There are other reasons why sovereigns find US Treasuries at these
> yields distasteful:
>
> 1) future threat of inflation over the next 30 years (risk profile
> at these levels are potentially catastrophic)
> 2) they already have too much exposure in the dollar in their reserves,
> which is being debased by monetary easing.
> 3) Because of deteriorating fundamentals of the dollar, the Chinese
> and the Saudis are diversifying their reserves into gold, which is
> a hedge against debased currencies (worldwide).
>
> Basically, there is growing distrust in the US government, and by
> extension, its monetary policies and the dollar. At some point,
> US Treasuries will no longer be viewed as havens in a flight to safety
> and quality.
>
> That's when the game will be over, as rising rates will render servicing
> of the national debt untenable. In other words, these trillion dollar
> bailouts won't be free lunches, and the burden will be placed on
> tax payers to fund, even though the American consumer is already
> tapped out. God help us all if the US Government loses its AAA rating--the
> UK is on the brink due to its teetering banking industry.
>
> On Jan 25 04:33 AM dakyne wrote: