Debt Financing: The Government Is Shaking Things Up!

Summary

• The United States is entering into another period of sustained government debt financing and the question is, who is going to finance it.
• Indications are that foreign money is perhaps not as available as it once was, even just a year or so ago.
• Furthermore, questions are surfacing about how much additional economic growth might be generated in the near term in order to help generate revenues to pay taxes.
• Even some at the Federal Reserve are starting to wonder about how much of the new debt being generated will have to be monetized by the central bank.

Some investors just don't have much fear of debt financing. Debt financing is just something to use and the more of it the better. Well, if it doesn't work out - so what!

Real estate moguls are known for their use of debt - for better or for worse.

Our current president is known for his use of debt. And, he promised that, if elected, he would come to Washington, D. C., and "shake things up!"

He has done as he promised - he has shaken things up - and we are all on the way to experiencing the consequences.

Over the previous eight years or so, since the end of the Great Recession, the economy and financial markets have been relatively calm, the economy has grown, stock prices have reached more and more historical highs, and volatility has been minimal. In such an environment, investment money has flowed into passive investment vehicles and economic growth has been slow, but sustainable.

The future? It seems as if things are turning around. Volatility is back in play. Active investment has become fashionable again. And, business leaders are preparing for more shocks.

Lots and lots of debt, greater financial leverage can mean higher returns - but also bigger swings in markets - higher volatility.

Economist John Cogan has summarized the foundation of this situation very well in his opinion piece in the Wall Street Journal titled "Why America Is Going Broke."

Mr. Cogan writes:

"The federal deficit is big and getting bigger. President Trump's budget estimates a deficit of nearly $900 billion for 2018 and nearly $1 trillion for 2019. Its balance sheet reveals that the public debt will reach $15.7 trillion by October."

And:

"What about the future? If left unchecked, these programs will push government spending to levels never seen during peacetime."

'Financing this spending will require either record levels of taxation or debt."

Taxation, at this time, does not seem to be an option. So, debt it is.

But, this raises another point. Where is the money to fund the debt going to come from? How are we going to finance all the debt that appears to be in our future?

That seemingly presents another problem. In recent decades, a lot of the funds used to finance the debt of the US government has come from offshore - from China and Europe and other places.

Well, these foreign monies might not be so plentiful in the future. For one, tariffs and trade restrictions on China may not create the right atmosphere for that country to oversee so much money going into US debt in the future.

As for Europe? Well, considerations on trade agreements, on climate change, and so on, as proposed by the president as a candidate and after election may be impacting the flows of funds coming from the European continent.

It seems as if European investors, among others, may have lost confidence in the US government is withdrawing funds that are already in the United States. And, the European money seems to have started leaving the country in November 2016, right around the time of the presidential election. And, the data point to the fact that this outflow has only increased since in 2017 and 2018.

But, what else is the debt creation, creating? Well, it is supposed to create faster economic growth, higher levels of employment, and greater wealth for the middle classes. Faster growth and higher employment levels will produce more income and this will all contribute to greater tax revenues to help pay for the debt. At least, that is what we are being told.

However, there appears to be growing skepticism about what kind of an impact the tax cuts and spending hikes will have on the economy. More and more, we are getting articles like these: "Spreadsheets At Dawn: The New Tax Battle Is All About Data" and "Experts Doubt Trump's Infrastructure Plan will Fuel Growth."

And, speaking of spreadsheets one must remember how important financial engineering is to the corporate world. And, the corporate world is happy as can be for the opportunities it has been given.

A recent lead editorial in the New York Times presents the following information:

"Morgan Stanley analysts estimated that 43 percent of corporate tax savings would go to buybacks and dividends and nearly 19 percent would help pay for mergers and acquisitions. Just 17 percent would be used for capital investment, and even a smaller share, 13 percent, would go toward bonuses and raises. Other Wall Street analysts have issued similar reports. If more evidence was needed, Axios reported that just nine pharmaceutical companies have announced $50 billion in buybacks since the tax law was passed."

Furthermore, the Wall Street Journal proclaimed on Thursday that large U.S. companies have announced over $200 billion in stock repurchases in the last three months.

And, people wonder why income inequality has become so skewed in the United States since the Kennedy administration introduced Keynesian-type fiscal policies into the US government's bag of tricks.

Of course, another way to finance the deficits is to have the Federal Reserve purchase the government's debt, and thereby, monetize the expanding obligation.

While this option has not been gotten much attention yet, Randal Quarles, the Fed's Vice-Chairman for Supervision, who took his seat at the Fed this past October as a Trump nominee, has alluded to this possibility in a recent speech. Mr. Quarles stated that "while stimulative in the near run, deficit spending - and the associated large and growing federal government debt - can have negative effects on the economy over the longer term, in part by claiming a larger share of the nation's savings, driving up long-term interest rates, and crowding out productive private investment. These effects will require attention and difficult decisions at some point."

As real estate people realize debt "mortgages" the future. The funding may produce positive results, but in the case of fiscal deficits on the part of the government, the positive results come from using the proceeds of the mortgage in productive ways and not just in more and more financial engineering.

There is no question that things have been "shaken up." Now, we must learn to live with the new environment and see how we can best "take advantage" of the volatility. And, we must figure out how we are going to ultimately pay off the mortgage. It will not be paid off soon.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Comments

[EK1949]

"Energy returned on energy invested. Renewable's EROEI is too low. We need a consistent 10 to 1 ratio to run modern society. How long will that EROEI remain too low?"

I'm not disagreeing with you about the significance of energy in>energy out. I'm saying that like all of the other problems the solution won't be reversed engineered in advance, so I have no magic trick to offer on how it will happen. So I can't answer how one cost component comes down slow now, faster later, only that it will.

The price pressure from old energy will bring efficiency all over the map as relative costs pay a bigger bill so we might as well invest in greater efficiency. Do you know the EROEI of a fusion reactor today?

[MonteQuest]

@EK1949
"So I can't answer how one cost component comes down slow now, faster later, only that it will."

But that's just my point, it isn't a "cost component" that is too low, it is an energy "return" component that is limited by the shining of the sun and a blowing of the wind, plus the storage issue. This is a limit imposed by the law of physics---not cost, particularly, 2nd law. You can't get more out of a system than you put into it.

"The price pressure from old energy will bring efficiency all over the map as relative costs pay a bigger bill so we might as well invest in greater efficiency."

Most of the large gains in efficiency have already been realized. We are now on the downward slope of diminishing returns. If efficiency gains result in lower costs to the consumer, you run head first into the 150 years of empirical data that shows gains in efficiency ultimately leads to greater use, known as Jevons' Paradox.

"Do you know the EROEI of a fusion reactor today?"

Yes. It is < 1. It is an energy consumer. Even if they can get it positive and sustained, it will be decades before it can be mature and distributed worldwide. It has to be as easy and readily available as gasoline in a one gallon can.

[EK1949]

"The EROEI of renewables is too low to support the complex industrial society necessary to produce them."

How long is that supposed to last? :-)

1) Rich societies afford expensive things. Costs are relative.

2) Money is for the costs of what can be produced in large amounts. The costs will be measures, not limits (true for money generally).

3) The mix of alternatives will be determined by how they fit into a new pattern whose actual outline will differ from what exists now. The costs of each component will fall at different rates and rates will change as tech doesn't arrive smoothly. As it happens we'll see how it had to. But remember that an advancing society is never in the position of "not affording" the new economy it's building. Building it is what makes it affordable. :-)

[MonteQuest]

@EK1949

"How long is that supposed to last? :-)
1) Rich societies afford expensive things. Costs are relative."

It's not about cost of ROI. It's about EROEI. Energy returned on energy invested. Renewable's EROEI is too low. We need a consistent 10 to 1 ratio to run modern society. How long will that EROEI remain too low? Until the sun shines 24/7 and the wind blows all day. Then there is the storage issue. The energy density of oil and it's utility may never be replaced--not at this level of use.

[EK1949]

"The United States is entering into another period of sustained government debt financing and the question is, who is going to finance it."

The author just said the government is doing the financing. Is this "who's on first?"

A money circuit has a faucet and a drain. The drain is not connected to the faucet. It doesn't "finance" the faucet. The faucet finances, the drain removes. Savers in the tub exchange what comes from the faucet for something different from the faucet while what they exchanged goes down the drain. Or the savers exchange with someone else in the tub that wants to spend instead of save. Either way the tub stays pretty much the same.

Oh, wait, I thought there was a debt monster in the tub, a leak or something for debt to disappear into!

Alas, to the disappointment of multitudes, there is no such. Debts are assets too. The faucet has a meter on it and the drain has one and together they can measure the stock and measure and regulate the flow, but for debt in the ordinary meaning of tub dwellers, that's just between us. :-) :-)

This is just a crude metaphor for the stark difference between household and systemic money operations. I can run out of money, money can't run out. System money limits are set by the real economy and nothing else. Attempts to force a money run out proves the point that it can't happen otherwise or why force it?

If money could really run out it just would. As soon as you try to depict a run out in your mind you see the problem, yes? The changes in the value of the unit are so tied to the dynamics of the real economy there's no room for a separate "run out" term and no rational way of introducing it. Everything in the interface between money and the real economy relates to everything else we can see.

Money run outs are a kind of superstition. Like Quetzalcoatl in the movie "Q", they are "prayed into existence". :-)

[Saltcreep]

The trick is to stop thinking of things in terms of money, as it is a really just a conceptual construct in our non reality based economic models. Or think of energy as money instead.

We actually exist in a reality ruled by thermodynamics. The economy is not a perpetual motion machine, it is a constantly decaying entity that needs a sustained energy input flow just to maintain itself, and as it becomes larger and more complex it needs exponentially increasing net energy inflows just in order not to collapse.

The productivity of our energy supply determines how large and complex our societies can become, and that productivity is now relentlessly declining, since nothing we have can come close to near surface conventional oil in terms of either productivity or versatility. Nothing is limitless, and all the alternative sources we access are subject to diminishing returns and increasing energy and resource costs (as well as a lack of versatility).

Our completely lacking in vision or purpose growth ideology means we need exponentially increasing amounts of highly productive energy in order to keep up, and since we don't have that we've instead engaged in exponential debt growth as an ersatz in order to simulate profitability as energy productivity has tailed off. But the real decay going on in our societies is becoming impossible to hide, as both social and physical infrastructure decays (in some places before others), and societal tensions and dissatisfaction spreads. And at the same time we're creating streams of false information about the real state of affairs by generating economic figures in "money" terms that obfuscate the ongoing real decline.

In the end, for us to survive in the long run we need reliable access to energy, nutrient rich soil, fresh water, rich natural habitats and biodiversity. All else is of no importance by comparison. Now our energy supplies are on the verge of collapse, we are losing soils, fresh water and ecosystems at a frankly terrifying rate. And in the end nature doesn't care one iota if we've overextended ourselves or not. When the debt bubble bursts we will be in for a massive shock to our energy supplies, and hence our ability to sustain our societies and our communication, extraction and distribution networks...

[MonteQuest]

@Saltcreep

"The productivity of our energy supply determines how large and complex our societies can become, and that productivity is now relentlessly declining, since nothing we have can come close to near surface conventional oil in terms of either productivity or versatility."

Yes, there are alternatives to fossil fuels but no replacements, especially for oil. The EROEI of renewables is too low to support the complex industrial society necessary to produce them.

[MonteQuest]

"Exactly so, other prices rise, renewables fall and it's happening slowly because of the energy glut. "

No, it's happening slowly because of the energy "demand." Renewables are growing at massive record growth rates. They have been subsidized and have had record low interest rates for a decade. I provided a link that shows this, I guess you didn't go there. And no matter how high the price of oil goes (and it can only go so high before imploding the economy) it doesn't change the EROEI. You can't run a complex industrial world that requires 10 to 1 energy return with an energy source that produces 2.4 to 1 as solar PV does. The intermittency and storage issues abound. The EROEI of renewables is too low to support the complex industrial society necessary to produce them. That takes fossil fuels.

[EK1949]

Subsidies would have to be accompanied by a negative subsidy for the poison stuff. Make it a felony to take that crap out of the ground or tax it into oblivion. Future generation will thank us if we do. The future is always better when you start early on building it.

" Renewables are growing at massive record growth rates."

Is this part of the argument that they won't continue to grow and get cheaper? :-)

[MonteQuest]

@EK1949

"Is this part of the argument that they won't continue to grow and get cheaper? :-)"

Never implied either to be the case. From 2004 to 2018, they grew from .5% to 1.6%. In 2017, they grew just .1%. Most of new capacity this year will be renewables to the grid, but they still won't gain much new share of the energy pie. Renewables share of electricity production rose only .8%, from 23.7% to 24.5%. Wind rose .3% from 3.7% to 4%, while solar PV rose .3% from 1.2% to 1.5%. New demand for energy and electricity outstrips nearly all gains. And now the subsidies are going away as well as low interest rates. Investments in renewables are also declining.

It really doesn't matter how cheap they get if they cannot produce a high EROEI approaching 10 to 1 and resolve dispatchability issues due to intermittency.

[MonteQuest]

@EK1949

As to renewables continuing to grow--many studies are showing that many aspects of renewable production won't be able to sustain the past massive growth rates due to the Law of Diminishing Returns. Others say the only way renewables will suddenly garner a larger share of the energy pie is that if we have demand destruction in the OECD countries like we saw in the 2008 GFC.

[EK1949]

"But that is just the point. Renewables maybe new tech, but their EROEI is too low. "

Exactly so, other prices rise, renewables fall and it's happening slowly because of the energy glut. That, not the other that, is the point.

Look, I don't want to run an experiment in quadruple priced oil to see how much faster the change would happen. We could tax our way into such an experiment (just as we have subsidized our way into energy poisoning), But That Would Be Wrong. :-)

[EK1949]

" NG has displaced coal plants."

Yup, that slows the transition for sure. When I said low energy prices delay adoption of the most advanced systems I meant it. Thanks for the illustration. :-)

I expect what I assume everyone else does, that economy of scale and tech advances will do what they do. The situation is familiar, you need cars for gas stations, you need gas stations for cars, you need more new energy for a new grid, you need a new grid to make new energy more universally adoptable The availability of so much cheap energy now is hardly the kind of push that would cut these knots quickly. When we look back from a distance it will look obvious how it had to go.

[MonteQuest]

"When I said low energy prices delay adoption of the most advanced systems I meant it."

But that is just the point. Renewables maybe new tech, but their EROEI is too low. And modern renewables aren't being delayed. They have been growing at massive rates for years and adding record new capacity every year. Solar photovoltaics (PV) leads with growth in global capacity averaging 42% annually over the past five years. It's just not enough.

Modern renewables like wind, solar, biomass, and geothermal power cumulatively made up 1.6% of global energy consumption. For perspective, the number was 1.2% in 2012. http://bit.ly/2tgxvRQ

[EK1949]

Replacement is slow because energy is cheap. A smart thing to do is impose a gas tax to help. Not for "revenue", tax isn't for that, but to alter the market in a favorable way. We could pretend we need the dollars for infrastructure and not other dollars (wow, I typed that and didn't fall over!), but the point is to get the pricing in ball rolling. Energy will still be reasonably priced as we're operating in a superabundance mode, why the transition is so slow.

[MonteQuest]

@EK1949

"Replacement is slow because energy is cheap."

No, renewable energy is not gaining a bigger share of the energy pie because new energy demand is outstripping nearly all gains. The demand for energy is projected to double by 2035. Wind and solar have seen massive growth rates for years, with huge subsidies and cheap investment money for a decade. No fossil fuel power plants have yet to be displaced. NG has displaced coal plants. The EROEI of renewables is too low to support the complex industrial society necessary to produce them. A recent study showed that Spain's massive PV solar array has an EROEI of just 2.4 to 1. We need 10 to 1 minimum.

[MonteQuest]

"As oil is priced out, its replacements are priced in,"

There are alternatives to oil, but no replacements. Not at the level we demand them. Modern renewables only provide 1.6% of our energy and only grew .1% last year.New demand nearly outstrips all gains. And the bottleneck may not be avoided by a rise in prices. Capex has been too low for too many years. New discoveries are minimal. China just peaked in oil production. Venezuela's oil production just fell off a cliff. US shale production faces huge service constraints and investor demands for a profit. Too high an oil price will implode the economy. Oil spikes have preceded 10 out of the last 11 recessions.

[EK1949]

"Yet, there are warnings of a oil supply bottleneck as soon as 2022."

That's a good thing. Old energy gets more expensive, new energy gets cheaper. I approve. :-)

The point is not only a richer economy will always afford the costs for the benefits of energy it uses, but that we can act to bring the future forward the good old fashioned way, by investing in it. As oil is priced out, its replacements are priced in, and since we intend that, it doesn't make much sense to complain about it. Furthermore our efforts to retard the future by disinvestment in it just makes the transition more painful. And one last thing, energy can and sometimes will be more expensive nominally while declining as a share of GDP.

[EK1949]

"The developed world population growth slowed due to Demographic Transition that lowered the total fertility rate fueled by access to cheap, readily available fossil fuels."

The world is continuing to get richer with either high or low energy costs. The thing about getting richer is that even relatively expensive energy consumes a smaller proportion of GDP.

We have more energy available than we can use, and I judge this will be true for centuries, probably more true. This will also be true of other resources. Though most people think of wealth as money, the real story is what you buy with it. Further, a high price is an opportunity presenting itself. If something gets expensive enough that's a signal something is going to change. The solution is going to be priced in.

[MonteQuest]

"We have more energy available than we can use, and I judge this will be true for centuries, probably more true. "

Yet, there are warnings of a oil supply bottleneck as soon as 2022. The EROEI is declining. We need an EROEI of 10 to 1 to maintain our complex systems. Nothing on the horizon is even coming close. Money cannot overcome EROEI. Money is energy.

[EK1949]

"You seem to think there are no Limits to Growth."

There are no a priori limits, I don't put anything extra in the path of growth, like there will be no new discoveries or inventions.

There are a number of estimates of world population growth over the last 10,000 years. All show growth, slow by current standards. The fastest growth came around 1600-1900. I suspect that agricultural improvements had to do with it. I don't know why growth has slowed since but it seems to be the case.

Population growth may slow further as the world gets richer. It would fit the pattern.

[MonteQuest]

"I don't know why growth has slowed since but it seems to be the case.
Population growth may slow further as the world gets richer. It would fit the pattern."

The developed world population growth slowed due to Demographic Transition that lowered the total fertility rate fueled by access to cheap, readily available fossil fuels. There is ever-increasing evidence that DT won't take place in the developing world to restraint growth there, as access to cheap, readily available energy is becoming problematic.

[EK1949]

"Large and highly complex structures need very high levels of energy infusions simply in order to keep entropy at bay. We no longer have sufficient energy efficiency."

Energy efficiency is growing, which is why prices are low and we don't even need to poison ourselves with coal, which is a much worse barbaric relic than gold. As for entropy, it don't signify. That's what the sun is for. :-)

[Saltcreep]

Nothing we have can get close to easy, near surface conventional oil in terms of energy productivity. And only oil provides us with huge amounts of highly energy intense liquid fuel to power the tens of thousands of massive bulk carriers, container ships, tankers, LNG carriers etc., or the millions of aircraft and hundreds of millions of heavy work vehicles and road haulage vehicles that extract and move resources and goods around.

Also, renewables, in order even just to replace a significant fraction of today's energy consumption, would require a gigantic consumption of scarce and already largely depleted mineral resources to build the incredibly large network of generators, storage units, grid infrastructure and access and maintenance infrastructure that would be needed. And all this (due to entropy...) needs to be replaced every few decades from an ever dwindling resource base. And, as with all things, we get diminishing returns as we access the easiest sources first, and move on to more and more marginal sources.

Don't want to be a party pooper on a Friday night, but, hey, we can't actually in the end get around the limits our environment places on us!

[MonteQuest]

"Energy efficiency is growing, which is why prices are low."

Increases in efficiency ultimately lead to greater consumption, known as Jevons' Paradox.

[MonteQuest]

"Also, renewables, in order even just to replace a significant fraction of today's energy consumption, would require a gigantic consumption of scarce and already largely depleted mineral resources to build the incredibly large network of generators, storage units, grid infrastructure and access and maintenance infrastructure that would be needed."

Saltcreep, reminds me of a quote:

”In this time of energy abundance, and the complacency it engenders, the vast majority of the general public assumes that what the future holds is “more of the same”. They argue, if pushed, that the expertise inherited by post-fossil-fuel scientists and engineers will allow a smooth transition into a new kind of energy-rich world in which renewable generators will produce as much energy as fossil fuels do now. Such a view is untenable because it ignores the fact that almost all materials essential to modern civilization will be orders of magnitude more costly, and scarce, when they have to be produced using renewable energy instead of fossil fuels.--William Stanton

[EK1949]

"Who cares if the oceans are dead, the natural habitats and biodiversity are destroyed, the soils and aquifers and fuel and mineral resources are depleted, and the climate is irreversably destabilised"

There's more money to be made by fixing problems than by running out of dollars for them. A $5T infrastructure deficit isn't a growth policy, and the same can be said for environmental degradation, which is just as much a disinvestment policy as not building things we need. This is what an unimaginable wealth of currency units is for. :-)

[Saltcreep]

We already have far too much infrastructure and far too complex societal structures. We don't have the energy efficiency to maintain what we built during the height of the oil age, and what was built was built at the cost of depleting the only habitat we can live in.

Large and highly complex structures need very high levels of energy infusions simply in order to keep entropy at bay. We no longer have sufficient energy efficiency. Today we can clearly see across different economies and policy regimes across the globe that entropy is setting in and degrading both infrastructure and complex societal structures. We need to live with reality and try to adapt, not try to fight it.

[Saltcreep]

I have a strong suspicion that a Golgafrinchan ark ship C also landed here on Earth, containing all their economists, central bankers and politicians. They won't run out of currency, like the more lacking in vision ark ship B colonists, who could run out of leaves on the trees when they adopted them as currency.

Who cares if the oceans are dead, the natural habitats and biodiversity are destroyed, the soils and aquifers and fuel and mineral resources are depleted, and the climate is irreversably destabilised. We'll have an unimaginable 'wealth' of currency units.

[EK1949]

"Who is going to pay for all this? I see an untenable situation in the making."

I can see how one might think that money, that is means of payment, must come from somewhere. My money must come from somewhere. No one would accept my EK1949s as payment. All the users of money must get it from somewhere. But where will they get money from? Since all the savings and debt must as a matter of logic and arithmetic net to zero, how is it possible that the dollar economy appears to have many trillions in net savings? Is it magic, or a dirty trick, what?

This is what. Money users can run out of dollars but a money system can't. When a government spends it adds money, and can only take back what it spends in. Immediately as you comprehend this you see that the notion that the government needs to get money from the money users is exactly backwards. Money users have to get dollars from the system provider, and only then can they be taxed on what has been spent into their pockets.

[HyeGeen]

Thank you for your article. These are my thoughts precisely. President Trump bankrupted his casinos with debt and now he will bankrupt our country with debt. It's very short term thinking in both instances.

Inflation historically has increased during periods full employment. The biggest tool the Federal Reserve has to counter-act inflation is raising interest rates. As we know, the FED was just embarking on more restrictive measures to counteract emerging inflation.

However, President Trump, needing to pass any sort of legislation during his first year in office, passed massive tax cuts within a 1.5 week time frame without measuring the consequences. Now our deficit is on tract to explode over the next few years. And just like a corporation, a country will high debt puts itself in an increasingly precarious position. It lessens its capacity to take on more debt when needed. Higher deficits by definition mandate more borrowing. To attract buyers, it will have to pay higher rates.

The US budget has benefitted in the past 10 years by saving money from historically low rate borrowing. That will no longer be the case. Higher interest rates will cost our Treasury more money. The deficit will consume more of the budget. Our deficit will get larger.

Who is going to pay for all this? I see an untenable situation in the making.

[MonteQuest]

“In recent decades, a lot of the funds used to finance the debt of the US government has come from offshore - from China and Europe and other places.”

John, Thanks for this post. Those “other places” were the US Govt Trust Funds that funded 45% of it. We have $5.7 trillion in bonds sitting in those IG accounts, from Social Security to govt and military pensions. Their surplus contributions are waning, and we will soon need to liquidate them to pay benefits. However, to redeem them, we will have to borrow from the public and further increase the deficit.

[Ted Waller]

So, Monte, to pay future SS benefits the government will have to borrow from the people receiving them. it would be funny if it wasn't so tragic.

[MonteQuest]

Ted, yes, from some of them who are still buying govt bonds, while taxpayers pay the interest on their own contributions/investments to the fund. The SS Trust fund will cover the shortfall between payroll receipts and benefits starting in 2022 but will run out in 2034. Then it's up to payroll alone, which will cover only 75% of benefit payout.

Not sure where the surplus could have been better invested. Almost all private pension funds are showing huge underfunding. $6 trillion.

[j. hughes]

We do not own our worlds but rent them from our children. We will be remembered by the legacies we leave them. I do not foresee a statue problem for our generations (presuming we remain a democracy).

[EK1949]

"We will be remembered by the legacies we leave them."

That's why we should create as many dollars as we need to give them the richest economy we can. Our grandparents left us the debt and everything they did with it. They might have left us with less debt and less everything but they were smart enough not to do that. Will we be smart enough to overcome our phobias and be as function minded as previous generations were? The evidence of comments and articles here at SA is less than encouraging.

[j. hughes]

Thank you for proving my point.

[EK1949]

"The United States is entering into another period of sustained government debt financing and the question is, who is going to finance it."

Government finance is net new dollar issuance. Why are you asking a question you already answered? And why is this "entering a period"?

The debt serves the savings needs of the whole dollar zone. It is the net savings in dollars, OK? No national debt, no net dollar savings. It's the same damn thing.

Go ahead and try to tax back all the dollar savings. Do it in your head so no one gets hurt. What would happen?

[Robert P. Balan]

EK1949,

It is difficult for some to visualize that much of the US government debt represents the US private sector's savings (except for the portion that was bought by foreign entities -- which does not leave the US as you pointed out). It is really money we owe to ourselves (the portion bought by domestic investors).

[MonteQuest]

$6.6 trillion last time I looked. About 32%.

[EK1949]

I don't get the reference to "foreign money". Foreign securities holders bank with us. It never leaves the U.S. Securities accounts are savings accounts. It's just as much our money in a Chinese account as it is in mine.