The Debt of US.

Discussion in 'Economy' started by Norman, Oct 31, 2010.

  1. Norman
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    Norman Gold Member

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    Ok so as we all know the debt of US is quiet high BUT.

    Necessarily the debt to gdp is not a problem, as in inflationary environment the debt to GDP always grows as the printed money is government's liability to FED.

    So the *real* debt of US is only around 5 trillion as far as I know.

    What I am trying to say is that the government gets most of the surplus of the debt to the Fed bank. Also the inflation is never going to be reversed so you don't ever need to pay that portion of the debt back, sure the banks take SOME 6%? dividend but that is all, the government gets the rest AFAIK.

    So why is the government's debt to fed counted as debt? If the FED takes around 6% of the profits in dividend (And BTW it buys for cheap anyway), then only 6% of the debt needs to be paid back.

    In other words the debt that people have to pay back is much smaller than the total debt... right?
     
  2. Picaro
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    Picaro Gold Member

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    The last time I checked, the percentage of annual GDP going toward debt service is still only about 3%, about the same as it has been for over 30 years or so, so yes, it is a bit of a red herring, and especially laughable when 'conservatives' are whining about it, since it was their party and their president that ran up military spending to WW II levels and then cut taxes in the first place.

    The elephant in the room is private and corporate debt, running at around $300 trillion to $500 trillion, and the hobby of Private Equity firms and their partners the hedge fund managers that like to invest in leveraged buyouts of perfectly sound companies and 're-organize' them into bankruptcy by stripping their assets and saddling them with huge debts. Anybody remember Mervyn's? Mitt Romney's friends and business partners bankrupted it, with some 20,000 people losing their jobs.

    Of course, as long as people can be made to believe 'The Government' is the Boogey Man, there is no need to let reality intrude on Tea Bagging Fun and what not. It's important to remember all those shiney office towers in D.C. are built and the occupants of all those, luxury hotels, limousines, and luxury cars tooling around town are filled with food stamp recipients and poor people, right?
     
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    Last edited: Nov 2, 2010
  3. antagon
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    antagon The Man

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    the line between debt and investment is blurred when it is a matter of public finance. campaign rhetoric pulls it into focus for its negative connotation, seizing the sort of political capital which scare tactics regularly afford. this is one such political cycle, arguably internationally.
     
  4. Norman
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    Norman Gold Member

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    I don't think the public debt and spending (that is running at 44% GDP) is red herring at all.

    Nor is 5 trillion a small amount especially if you include the 102 trillion unfunded medicare and SS.

    GDP of US is only 15 trillion and monetary base at 2 trillion, so those are hefty sums. I am not defending the government at all.

    I just want to know why exactly they consider the debt to FED reserve bank as real debt? I mean they used fancy accounting tricks on the SS to make the budget look better, why consider the FED buying as debt, when it is just inflation? I can't think of a reason.

    Also 300-500 trillion private institution debt? Sorry this isn't possible as US is not even CLOSE to that much in debt. And GDP of US is 15 trillion, so with that GDP if every penny went for the debt you do need 20 years to get to that amount of debt. And there has been constant inflation so it would take much more than 20 years. In other words, I do not buy that at all. Those numbers are simply impossible, no one would even buy into such ponzi schemes anyway.

    I am pretty much one of those guys that think government is causing the problems; I am not anti government though, but right now they are just doing stupid stuff IMO and seem to be a bit corrupt as well.

    Anyway I just want an answer for the debt question. Why does US consider debt basically owned by itself to be debt? Why is inflation considered debt?

    Thanks.
     
  5. antagon
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    antagon The Man

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    the fed is not the government. does that help?
     
  6. loosecannon
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    loosecannon Senior Member

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    The Fed is a privately owned cartel:

    FactCheck.org: Who owns the Federal Reserve Bank?
    about 3000 privately owned banks own the Federal Reserve, but they don't have full control over it. Just like stockholders don't have full control over corporations in which they own the majority of stocks.
     
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  7. Norman
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    Norman Gold Member

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    Yes, but it kind of is. The excess profits are going right back to government.

    Government pays like 6% losses on the debt (anyway much less than 100%). So in other words the amount of debt government has to pay of the "real" debt to FED is 6?%.

    Anyway I think the FED debt kind of distorts the real debt... It is already paid for by the inflation tax anyway and never has to be paid back so..... No reason to care about it?

    To loosecannon; I realize the FED is privately owned, but it also has to give the profits after the dividend and running costs back to government, so it doesn't matter how much in debt the government is to it.
     
    Last edited: Nov 2, 2010
  8. antagon
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    antagon The Man

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    caring about it is personal preference. the debt constitutes an asset for the fed's purposes, as it does for other holders of treasury debt instruments. for that reason, it cant be considered a wash just because it is supporting today's liquidity. i think that they are different species, dollars and treasuries. in fact, because they dont seem to trickle down to mainstreet, i'm starting to see fedbux as a different specie than dollars, too.
     
  9. Norman
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    Norman Gold Member

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    Yeah yea... I see.

    But at least it would be good to see a separation between the two kinds of debt, because obviously owing to FED is not even close as problematic as owing to china. More problematic is the initial inflation than the debt itself in the FED balance sheet.

    I would have thought that some politicians would WANT to do this, as it makes things look a lot brighter if not anything else. I mean the CPI, Unemployment etc. data are all taken from the brightest of the spectrum so to speak. But the debt.... Not so much.

    Perhaps the system is just too impossible to change. But I find it funny that now that the debt is speaked about a lot, no one points this out. So is there something I am not seeing here? You do think that at least the PRO-debt guys would occasionally point this out in debate when someone says US debt is 100% of GDP etcetc.
     
  10. antagon
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    antagon The Man

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    i dont think there's that much difference between fed-owned debt and china-owned debt. am i missing something?
     

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