National Deficit question

[1stTimeCaller]

Honest question here let's leave politics out of it.

Who do we owe this money to and how did we borrow it?

I understand that Savings Bonds are part of that debt but what about the rest?

TIA

[yermom]

China is a big one, i think

[Rogue]

Thanks for asking that. I'm hoping to learn something here because I've never quite understood this myself.

[GulfCoastBamaFan]

There is the "national debt," which is (I think) what you're referring to, and the federal budget deficit, which adds to the national debt each year that federal expenditures exceed federal revenues. When there is a budget surplus, at least a portion of the national debt is retired or paid down.

The national debt is financed through the sale of US Treasury securities (which include savings bonds). Other securities include Treasury Bonds, Treasury Notes and Treasury Bills. All such securities are backed by the "full faith and credit" of the United States Government. To date, the United States of America has never defaulted on any of its general obligation debt. As a result, they are recognized as the safest credit risk in the world.

The money is borrowed through the sale, or auction, of these securities. Auctions are held on an almost continuous basis throughout the calendar year.

Many foreign governments hold Treasury securities. China is one. Japan is another. The EU and Saudi Arabia also hold large positions in Treasuries.

[Rogue]

And we are benevolent loaners too, correct?
Don't we regularly forgive debts from poor nations?

[royalfan5]

http://en.wikipedia.org/wiki/Exchange_Stabilization_Fund

The United States does things like this when stabilizing a foriegn countries currency is important to U.S. The United States will loan money as part of aid packages when we want something, but the IMF, World Bank, and Private placement accounts for a lot more of the developing worlds debt, than those folk owing Washington, e.g Argentina's 2001 meltdown didn't involve owing the United States gov't anything.

[Okieflyer]

But there is more to it than that. But it probably would have been an all afternoon read. The dollars' value effects this, the import of goods effects this, interests rates, etc.

That's why there is always a fight over Tax cuts (well, one of the reasons) thus the two terms "trickle down economics" and "voodoo economics". One believes that more tax relief, brings the more tax revenue. There other, raise taxes, to bring more revenue. Which in turn retires the debt.

But one of this new fangled college students probably could explain better. ;)

By just remember this the next time you buy something made in China.

[Okieflyer]

Ahhhh, stratch all that crap. GulfCoastBamaFan was better and a lot easier to understand.;)

[Rogue]

The "debt" described here sounds more like a bank that has a bunch of CDs that are earning interest that will have to be paid eventually. I'm sure this is oversimplifying but it sounds as if we didn't "borrow" the money from the other countries as much as sold them some bonds that we'll have to pay interest on. I always get twisted up in the pretzel theories of economics but it sounds as if some good inflation would make it easier to pay on those treasuries in the future.

[royalfan5]

The "debt" described here sounds more like a bank that has a bunch of CDs that are earning interest that will have to be paid eventually. I'm sure this is oversimplifying but it sounds as if we didn't "borrow" the money from the other countries as much as sold them some bonds that we'll have to pay interest on. I always get twisted up in the pretzel theories of economics but it sounds as if some good inflation would make it easier to pay on those treasuries in the future.
bonds are debt. It's just a loan chopped up into a lot of little pieces for easier sale. For that matter CD's are debt too, it's consists of you loaning money to the bank at a fixed rated and time period. Make no doubt about, we have borrowed a ton of money. If Bush really wants to do something fun, he should unilaterally default on all our bonds as he leaves office, and leave his successor a real mess to clean up.

[GulfCoastBamaFan]

The "debt" described here sounds more like a bank that has a bunch of CDs that are earning interest that will have to be paid eventually. I'm sure this is oversimplifying but it sounds as if we didn't "borrow" the money from the other countries as much as sold them some bonds that we'll have to pay interest on. I always get twisted up in the pretzel theories of economics but it sounds as if some good inflation would make it easier to pay on those treasuries in the future.

Absolutely.

If we wanted to put up with the economic chaos that would ensue, the Federal Reserve could open up the spigot on the money supply, which would lead to rampant (maybe even hyper) inflation, and monetize the debt.

In reality, the sheer numbers of dollars are mind boggling. But their true importance lies in the size of the deficit (and the debt) relative to Gross Domestic Product. GDP is an estimate of the economic output of the U.S.

As long as the relationship between GDP and the debt (or GDP and the deficit) don't get badly out of whack, things remain pretty stable and we don't have much to worry about. There have been periods where the relationship did get close to causing concern, and economic instability was the result.

Think of the economy, the money supply, the deficit, the debt, what have you, as a river. As long as the river flows at a rate that falls within a certain range, everything's pretty much Ok. It's when the river flows too fast (inflation) or when it flows too slowly (recession/depression) that we have problems.

Oh, and one more thing: You cannot bankrupt an entity that can create money out of thin air. The money might not be worth much, but if the amount created equals the amount owed, the debt has been settled.

[Rogue]

Many foreign governments hold Treasury securities. China is one. Japan is another. The EU and Saudi Arabia also hold large positions in Treasuries.


This seems strategically smart in several ways. The other richest countries now have some skin in the game of our economic success. I've always heard people lament that we owe these countries and on the surface I guess I don't love the idea. However, having these countries "invested" in our viability should also be a good thing in many ways.

Reminds me of the joke about the difference between being "invested" and "committed" - at breakfast the chicken is "invested" while the pig is "committed."

[Mjcpr]

I say just tell 'em to come get it.

:D

[OklahomaTuba]

I say just tell 'em to come get it.

:D

Actually, that is a very important point that people don't mention in this whole deal.

[1stTimeCaller]

Thanks! I did mean national debt, not deficit.

[GottaHavePride]

Actually, that is a very important point that people don't mention in this whole deal.

Heh. The threat that if they **** us off too much Dubya will up and shout :les: NO MONEY FOR YOU!!!!

[jeremy885]

Isn't some of it owed to the Social Security trust fund?

[Frozen Sooner]

bonds are debt. It's just a loan chopped up into a lot of little pieces for easier sale. For that matter CD's are debt too, it's consists of you loaning money to the bank at a fixed rated and time period. Make no doubt about, we have borrowed a ton of money. If Bush really wants to do something fun, he should unilaterally default on all our bonds as he leaves office, and leave his successor a real mess to clean up.

Nicely explained. That's something that I seem to have a hard time explaining to my staff about certificates of deposit and part of the difference between a CD and a share certificate (which is technically what you buy at your credit union, not a CD).

[royalfan5]

Nicely explained. That's something that I seem to have a hard time explaining to my staff about certificates of deposit and part of the difference between a CD and a share certificate (which is technically what you buy at your credit union, not a CD).
It's all part of my preparation to be Mike Rich Jr. in about 3 months or so.