Serious Questions about the deficit...

[adoniijahsooner]

How does a Nation go into debt? Who do we owe? Can't we just print more money? can another country try to come and get their money from us? I never understood the country is a trillion dollars in debt, but we keep spending big bucks on stuff that has no value. Oh, we were in debt before Barack, so I need a general answer.

[yermom]

well, i don't quite understand what happens when we are in "too much" debt or what happens when you default, but if we inflate our currency too fast China, who buys a lof of our debt, would get angry

i'm still not sure what that really means though

[adoniijahsooner]

well, i don't quite understand what happens when we are in "too much" debt or what happens when you default, but if we inflate our currency too fast China, who buys a lof of our debt, would get angry

i'm still not sure what that really means though

I hear China is struggling too, so how are they buying debt?

[yermom]

i don't know, i guess i have heard they are starting to slow down on buying more but they have a lot and are worried we are going to just print money

[StoopTroup]

The Treasury Dept frowns on you printing money Yermom.

[SanJoaquinSooner]

The U.S. sells bonds. They are held by individuals, organizations, companies, and other countries.

When Mexico had corrupt PRI presidents, they printed money without selling debt. It caused 1000% inflation. The value of the peso fell from 8 cents to three thousandths of a penny. It's generally not a good idea just to print money. As much as folks liked to bash Pres. Fox, at least he held the value of the peso fairly steady during his 6 years in office. Putting money in a bank is a lost cause when there is hyperinflation.

China does hold a lot of our bonds. If they purposely tried to hurt our economy they would simultaneously be undermining their own large investment. As weak as it might be, the U.S. dollar is still the currency of choice.

[Boomer.....]

All I know is the more debt we have the weaker the dollar is.

[yermom]

we still have that whole oil thing propping it up. as long as people will buy our debt i guess we are ok, but if they won't it looks like we start getting screwed

[adoniijahsooner]

we still have that whole oil thing propping it up. as long as people will buy our debt i guess we are ok, but if they won't it looks like we start getting screwed

or start taking what we wanna

[OUAlumni1990]

Eh, the whole deficit thing is just another smoke and mirror show, we'll be ok..

Some of the richest people I know also cry and whine about how broke they are...thats how they get rich...

[StoopTroup]

You know....even if the dollar gets weak....

Name one Country that has created as many products or markets that change the way people live.

You might even try to argue that there are a few but everyone of them needed America to make it either work or to sell it.

When other Countries start to make products like we do in America...then we can start to worry. The worst that could happen is some Country could come up with exclusive raw materials for a product that changes the World.

I'm not going to believe American ingenuity is in danger...so the economy might weaken...but it will never collapse unless something World changing is developed by another Country.

[Bourbon St Sooner]

Dude, there's thousand page text books on this stuff.

[picasso]

simply printing more money cheapens the dollar.

[OklahomaTuba]

Which makes complex engineered to order durables made right here in the great state of Oklahoma much cheaper.

And in the oil field around the world, the Made in USA stamp still gets A LOT of respect.

[ndpruitt03]

China has bought off most of our debt. We owe them most of our money.

[tommieharris91]

How does a Nation go into debt? Who do we owe? Can't we just print more money? can another country try to come and get their money from us? I never understood the country is a trillion dollars in debt, but we keep spending big bucks on stuff that has no value. Oh, we were in debt before Barack, so I need a general answer.

How does a Nation go into debt?
A nation goes into debt by selling bonds or other debt instruments to other countries. It can also go into debt by delaying payments in international trade.

Who do we owe?
http://www.treas.gov/tic/mfh.txt

Can't we just print more money?
Absolutely not. Doing so would cause an overnight (at least) 100% increase in prices of goods in the US, and very likely cause more inflation than that over given periods of time. That kind of hyperinflation would easily cause all kinds of other problems.

Can another country come and try to get their money from us?
Only if they don't want the interest on their bonds, or if they want to start a war.

[Chuck Bao]

simply printing more money cheapens the dollar.

Simply put, it does. But, the current situation isn't so simple.

The first part - just basic economics 101:

1) It is not really printing money. If you are thinking about the Federal Reserve going crazy with the printing presses, that is not the case.
2) It is essentially the government selling debt in the open market to pay for government fiscal deficits, bailout and stimulus schemes. It is exactly like the economic growth created by someone buying a new truck and paying for it by a loan (whether they can actually afford it or not).
3) The standard before was to look at the money supply - the amount of money in circulation - to determine if increased government spending and resulting debt issues are contributing to inflation - the chief bugaboo of any decent central bank (US Federal Reserve included). However in a recessionary economy, money supply is either not growing or contracting and that is not a useful gage.
4) There are useful gages in government debt as a percentage of GDP, just like the dude who bought the pickup truck and couldn't actually afford it. But, that is not a perfect example. Debt/GDP is a relative measurement both historic and relative to other countries that are currently going through similar circumstances.
5) The stock market is looking way ahead and trying to factor in future intangibles. The bond and interest rate market is far more efficient and actually reflecting the current demand and supply of money.

The second part and my predictions:

6) We are likely looking at a "W" shaped recovery curve instead of a "V" shaped curve as restocking of inventories play out over the next few months and US consumer spending growth will not likely recover this year.
7) There will undoubtedly be more problems ahead for the financial sector and more needed government bailouts. Talk of setting up a bad bank to take over the bad mortgage assets of Freddy Mac and Fannie Mae are highly likely.
8) I would go with the opinion that it isn't so much the dollar weakening against other currencies, but more of the dollar weakening against commodity prices. That is INFLATION! This should be very obvious in the US government's move against the commodity traders.
9) There is HUGE excess money in the global financial system. I highly doubt that with the dollar remaining the major reserve currency that the dollar will weaken that much, despite China's perchant to rattle the system and try to call the shots.
10) In conclusion, don't worry so much. There is no way that we will see hyper-inflation. There is no way that we will see a Fed auction unsuccessful. Just prepare for higher interest rates and higher commodity prices.

[StoopTroup]

Dude, there's thousand page text books on this stuff.

Mostly written by Americans? :D :pop:

[Chuck Bao]

Mostly written by Americans? :D :pop:

So, one the best job opportunities are for people who write just how miserable our future economic prospects are?

Just great!

[SanJoaquinSooner]

The second part and my predictions:

6) We are likely looking at a "W" shaped recovery curve instead of a "V" shaped curve as restocking of inventories play out over the next few months

what is it called when the shape is between a W and a V? I predict a second dip sometime in 2010, i.e., one quarter of negative GDP growth, but not as severe as the first dip was.

Likewise, the stockmarket will anticipate this (maybe during the traditional Sept/Oct fear months) and take a dip, but nowhere near as low as the first dip when the dow fell below 7000. I think there's lots of money on the sidelines itching to get back in on a dip. The first dip was as severe as it was, because it was building in a possibility of a depression. Convention wisdom now says no depression, but a severe recession will a long-lasting hangover.



In conclusion, don't worry so much. There is no way that we will see hyper-inflation. There is no way that we will see a Fed auction unsuccessful. Just prepare for higher interest rates and higher commodity prices.

I agree, it is inevitable with all the stimulus money and increased gov't debt, that higher interest rates and some inflation are coming. We just don't know when - 1, 2, 5, or 10 years?

[SanJoaquinSooner]

...and I might add, I agree with conventional wisdom on the "no depression" with one caveat: it assumes congress doesn't go nuts and turn ultra-protectionist. I don't think it will, as Americans love their imported toys and goodies.