The Debt of US.

[Norman]

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?

 

[Picaro]

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?

 

[antagon]

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.

 

[Norman]

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?

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.

 

[antagon]

the fed is not the government. does that help?

 

[loosecannon]

The Fed is a privately owned cartel:

FactCheck.org: Who owns the Federal Reserve Bank?

The stockholders in the 12 regional Federal Reserve Banks are the privately owned banks that fall under the Federal Reserve System. These include all national banks (chartered by the federal government) and those state-chartered banks that wish to join and meet certain requirements. About 38 percent of the nation's more than 8,000 banks are members of the system, and thus own the Fed banks.

The concept of "ownership" needs some explaining here, however. The member banks must by law invest 3 percent of their capital as stock in the Reserve Banks, and they cannot sell or trade their stock or even use that stock as collateral to borrow money. They do receive dividends of 6 percent per year from the Reserve Banks and get to elect each Reserve Bank's board of directors.

The private banks also have a voice in regulating the nation's money supply and setting targets for short-term interest rates, but it's a minority voice. Those decisions are made by the Federal Open Market Committee, which has a dozen voting members, only five of whom come from the banks. The remaining seven, a voting majority, are the Fed's Board of Governors who, as mentioned, are appointed by the president.

The Fed is a little defensive about the question of ownership. In its Frequently Asked Questions section, the Federal Reserve Board says: "The Federal Reserve System is not 'owned' by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects."

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.

 

[Norman]

the fed is not the government. does that help?

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.

 

[antagon]

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.

 

[Norman]

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.

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.

 

[antagon]

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

 

[loosecannon]

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

No.

 

[loosecannon]

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.

6%/anum is a LOT of money! Esp when inflation averages about 3%/anum. It is highway robbery!

Esp today when bond yields are only barely breaking even.

Hell if you gave me a guaranteed investment offering 6% annual return I could invest less than 5% of my income into it over 60 years and realize a million dollar retirement income free and clear of what I put into it.

A $1 investment that realized a 6% return over 60 years would yield $33 at maturity. While losing only 489% due to inflation, for a net gain of 560%. Sign me up, and give me the divine right of bankers to expand money by 880% at the same time!

I could easily become a billionaire in one lifespan given those privileges. Without ever working!

 

[eagleseven]

Tell Greece that Debt/GDP ratios don't matter.

 

[Picaro]

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.

See such topics as 'leverage' and 'asset inflation'; I can't post links for some reason.

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.

There are accounting principles to be followed, and in any case it is real debt for all practical purposes; somebody is buying the bonds, discounted or not, and somebody is cashing the interest and the dividend checks.

Also 300-500 trillion private institution debt? Sorry this isn't possible as US is not even CLOSE to that much in debt.

It's very possible, and going on as we speak; Google 'Asset Classes', read up on 'Leverage', and then visit the Thomson Financial League tables for a real shocker, and while reading the supposedly 'asset backed' debt load, remember such things as 'junk bonds' and unsecured debts floating around to boot. Housing real estate, for instance is a $20 trillion asset in the U.S. alone, not counting commercial real estate, manufacturing properties, mineral properties, etc., etc.

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.

Ah, but 401K plans are stuffed with such Ponzi scheme 'investments'. The whole point of bailouts was to let the Big Players ease out before the suckers do.

the Wiki page titled 'Debt Levels and Flows' has a list of the rate of borrowing for just two years, along with a list of debts in various asset based securities, for your FYI, and those are just for the U.S., and don't include Europe and Asia, all areas the U.S. banking and financial system also plays. If you don't 'buy those numbers at all', then you don't really know what has gone on the last few years and what the crisis really is. You are going to be totally shocked in 2012-2014, a period when the other shoe is going to drop, with massive balloon payments on a whole lot of leveraged buy outs start coming due.

There is a reason Soros and Friends are buying gold, even at $1,100 an ounce price ranges.

 

[Norman]

Tell Greece that Debt/GDP ratios don't matter.

I am not saying that at all!

I am just saying that big part of US debt is owned by the FED. And as it is inflation it never really needs to be paid back, and also US gov gets the profits from it... I am also not saying US should pay the debt down by printing, as the act of printing money is the problem, but US has already paid that inflation tax on bigger parts of their FED debt.

Also why does the US gov let bankers take such big profits on their printer money debt?

Anyway as inflation always needs to be increased the result of this kind of policy is obviously a ponzi scheme, where the government has to pay more and more to the FED in dividend. Sure as result of inflation there is always more tax income and banks take hits but still.

Anyway to loosecannon again; There is IMO a slight difference in FED debt and other parts of debt, because GOV gets most of the income from the FED debt, and because the FED debt is never meant to be paid back anyway, just recycled, as money supply never needs to be decreased. So as bonds mature they just buy new ones.

 

[Picaro]

I am just saying that big part of US debt is owned by the FED. And as it is inflation it never really needs to be paid back, and also US gov gets the profits from it... I am also not saying US should pay the debt down by printing, as the act of printing money is the problem, but US has already paid that inflation tax on bigger parts of their FED debt.

The Fed prints far less money than private corporations and banks do. Every single loan made, bond sold, and stock issued is 'printing money', not just Federal and state borrowing.

Also why does the US gov let bankers take such big profits on their printer money debt?

It's called 'socializing the costs while privatizing the profits', and corporations like Goldman Sachs make heavy campaign contributions to keep it that way, hence the bailouts, special tax breaks for hedge fund profits, etc. Taxpayers ultimately pay the interest and principal on Federal and state debt.

One tactic used is to have the Fed lie about real inflation, in order to kill cost of living increases for employees and Social Security pensions, to name one; another reason is to let inflation lower the value of long term debt.

The problem with the latter is sooner or later you out of assets to inflate, and since wages are falling far behind inflation and thus the ability to pay for inflated assets, the problem crops up sooner than later.

Anyway as inflation always needs to be increased the result of this kind of policy is obviously a ponzi scheme, where the government has to pay more and more to the FED in dividend. Sure as result of inflation there is always more tax income and banks take hits but still.

Yes, financial capitalism as practiced in the U.S. is indeed a Ponzi scheme; that's why it fails regularly and spectacularly, since the founding of the country, and has to be bailed out by the government and taxpayers.

 

[Norman]

The Fed prints far less money than private corporations and banks do. Every single loan made, bond sold, and stock issued is 'printing money', not just Federal and state borrowing.

Yeah, but private printing has limits. FED printing doesn't. Also private printing can implode, FED printing won't.

So the money supply without FED is fairly stable, even though the fractional reserve system is IMO simply un-needed.

 

[antagon]

that's actually an age-old dichotomy of perspectives on central and peripheral banking. does the fed push money into banks which they lend, or do the banks pull money in when they lend. the facts are the same, the perspective informs policy. obviously the fed can be proactive, but i'd imagine an entrenched circuitist would call that rational reaction. i am walking away from buying the fed-push model and considering characterizing pushed money as a different specie than mainstreet 'pulled' greenbacks.

 

[eagleseven]

Also private printing can implode, FED printing won't.

Correction:

If a private bank gives too many loans, it collapses.

If the Fed prints too much money, the nation collapses.

---

Bernanke is playing with fire...God help us if he burns the house down.

 

[Norman]

Also private printing can implode, FED printing won't.

Correction:

If a private bank gives too many loans, it collapses.

If the Fed prints too much money, the nation collapses.

---

Bernanke is playing with fire...God help us if he burns the house down.

1) Except if gov bails it out , And in any case only if it gives out bad loans.

2) The nation doesn't collapse, just the value of money. Though is there really that much difference

Anyway I again can only conclude that the system is that of stupidity. If there is nothing more to this.

Bernanke has already played with fire, and the house is already on fire. Problem is now he tries to extinguish it with gasoline. Not that great of a plan.