What If We Paid Off The Debt? The Secret Government Report

[Synthaholic]

What If We Paid Off The Debt? The Secret Government Report


*snip*



This was seen in many ways as good thing. But it also posed risks. If the U.S. paid off its debt here would be no more U.S. Treasury bonds in the world.


"It was a huge issue.. for not just the U.S. economy, but the global economy," says Diane Lim Rogers, an economist in the Clinton administration.
The U.S. borrows money by selling bonds. So the end of debt would mean the end of Treasury bonds.


But the U.S. has been issuing bonds for so long, and the bonds are seen as so safe, that much of the world has come to depend on them. The U.S. Treasury bond is a pillar of the global economy.


Banks buy hundreds of billions of dollars' worth, because they're a safe place to park money.


Mortgage rates are tied to the interest rate on U.S. treasury bonds.
The Federal Reserve — our central bank — buys and sells Treasury bonds all the time, in an effort to keep the economy on track.


If Treasury bonds disappeared, would the world unravel? Would it adjust somehow?



*snip*

 

[CrusaderFrank]

I'm confused. Are we talking about not issuing new debt or prepaying the $14T we owe? I don't believe that the bonds are callable but i could be wrong.

If we get a surplus, all that happens is that we don't issue new debt as the old matures.

Yields on treasuries wil increase, the economy will boom

 

[Wiseacre]

First of all, it ain't happening. Not in my lifetime or yours, the US Gov't is going to be in debt by 16 trillion by the end of 2012 and most likely will be double that by 2022, or near to it. For God's sake, we're running 1.4 trillion in yearly deficits, we can't even balance our budget let alone pay down any of the debt.

But say we did, somehow someway pay off the debt. Interest rates around the country and around would have to key off something else, the prime bank rate or something.

 

[Synthaholic]

I'm confused. Are we talking about not issuing new debt or prepaying the $14T we owe? I don't believe that the bonds are callable but i could be wrong.

If we get a surplus, all that happens is that we don't issue new debt as the old matures.

Yields on treasuries wil increase, the economy will boom

This was a secret report from the end of the Clinton administration, when he left us with a surplus - remember? - never released at the time because...well, it's all there in the link. You just have to bother clicking and reading.

 

[waltky]

China playin' it cool...

Amid Europe debt crisis, EU goes hat in hand to China
October 28, 2011 - Although China, the world's largest creditor, has bought European bonds in the past, experts doubts that it will invest in a new investment vehicle meant to alleviate the Europe debt crisis.

China is unlikely to play the role of white knight, riding to the rescue of debt-ridden European nations, Chinese and foreign analysts here are warning, as a visiting European official seeks Beijing’s financial help. “China will be polite, but they are not likely to put up any serious money,” predicts Andy Xie, former chief Asia-Pacific economist for Morgan Stanley. Klaus Regling, head of the Europe’s bailout fund, the European Financial Stability Facility, met Chinese officials here on Friday to explore how ready they are to contribute to a new fund designed to relieve troubled European nations’ debt burdens. Mr. Regling cautioned against high expectations. His visit, he said “does not mean that I expect any precise outcome of our talks. There are no negotiations… and there will be no conclusion during my visit.”

China's vice finance minister was equally cautious, saying his country would wait for more details before committing to the fund. "We need to wait for the technicalities to be clear and also to carry out serious studies before we can decide on investment," Zhu Guangyao told reporters. China is the world’s biggest creditor, with foreign exchange reserves of around $3.2 trillion. Europe would like Beijing to use some of that money to buy European bonds. This week’s European summit proposed a new “special purpose investment vehicle” to buy distressed countries’ bonds, though the details of how it might work have yet to be decided. “Politically it would be very difficult for China” to buy in heavily to such an investment vehicle, says Michael Pettis, who teaches finance at Peking University. “After all, this is a country that is many times poorer than the countries it is being asked to help.”

At the same time, he points out, China’s sovereign wealth fund has come in for heavy criticism at home for earlier investments abroad that have performed badly. “China is not keen to repeat that experience,” Mr. Pettis adds. Nor is the government here likely to offer large sums of money to bail out countries over whose future economic policy it has no influence, suggests Mr. Xie. “If you bail someone out, you need to be sure that it is sustainable,” he argues. “China has no influence over Europe and no control over how its money would be used.” China has bought EFSF bonds in the past, Regling pointed out, and has proved “a good and loyal customer.” Those bonds are AAA rated, he reminded reporters, and “China must invest every month because its foreign exchange reserves go up every month. They are interested in solid, attractive, safe investment opportunities and I am happy that our bonds have been in this category in the past.”

Chinese premier Wen Jiabao said last month China was willing to offer “a helping hand” to Europe, but said pointedly that a reciprocal friendly gesture, such as offering China market economy status, and thus easing Chinese exports, would be appreciated. “The Chinese government is waiting for a response,” says Ye Tan, a well known independent economic commentator. “If Europe wants large-scale Chinese help, giving market economy status will be one of the requirements.” That is not something Regling is talking about. “I am not here to discuss any concessions,” he told reporters. “The Chinese authorities are regular buyers of EFSF bonds, they are good commercial products not linked to any other ideas.” This time, though, Beijing is likely to be cautious about getting involved in the special investment fund, says Ms. Ye, because “China has to decide whether this fund can solve the crisis or not. If it looks as though it will need a lot more money again sometime in the future, that is risky.”

Source

 

[waltky]

Greeks gonna muck it all up?...

Will the Greek referendum snatch economic defeat from the jaws of victory?
November 1, 2011 - After months of having their pride savaged by the rest of the continent, the Greeks have astounded Europe by announcing a referendum on the debt crisis plan.

Greeks may not be trying to teach a lesson or give pushback to Europe. But the referendum announced Monday by Prime Minister Andreas Papandreou may partly act this way. For 19 months the Greeks have had their considerable pride – and their economy – trashed by the rest of Europe. There’s a reason for that: The incoming Papandreou government revealed in December 2009 that the Balkan nation had cooked its books and was under mountains of state debt. Teams of accountants came to Athens and began to expose a corrupt system of uncollected taxes and crony deals in a state widely described as “dysfunctional.”

But for a Greek nation forced to accept austerity, a series of bailouts never seemed to staunch the crisis. The slow-moving remedies of May 2010, of March and July 2011, and of last week, brought considerable national humiliation. “We don’t see light at the end of the tunnel,” said a Greek academic on the phone last week in the midst of huge strikes, “and now we don’t even see a tunnel.” But with a referendum that Mr. Papandreou apparently didn’t inform his finance minister about – the shoe is on the other foot. Today, it is the European Union and its leaders that are scrambling to figure out what to do about a stark uncertainty created by a sudden Greek demand for more democracy and say-so from its people. Markets have fallen. Only last week, EU leaders settled on yet another “final answer” to a eurozone crisis that could also sweep in Italy and Spain.

The chaos comes just as France hosts the G-20 on the Riviera starting Wednesday. Greece’s status is prolonged, with a referendum scheduled for January, and a no-confidence vote scheduled later this week. As Sony Kapoor, who heads the Brussels economic think tank Re-Define, puts it, “We have a referendum that may be good for democracy, but is very bad for the euro crisis." “I understand that Papandreou faces a squeeze between the devil and the deep blue sea. He has only a three-vote margin [in the Greek parliament], faces massive strikes, and his opposition is promising the moon but can’t deliver.” No one is sure how Greeks will vote on more cuts and austerity. But the view from a Europe that has watched Greek protests and strikes is not favorable. Given the efforts of Brussels, the IMF, the EU finance ministers, and others to deal with Greece, an up or down referendum is of enormous import and risk, analysts say, since it will certainly act as a vote to leave or stay in Europe.

MORE

 

[Baruch Menachem]

No rational person is calling for the pay down of the US debt. It is the money supply. We even have a balanced budget it causes a recession, like what happened in 2001.

There is also the fact it is part of the international money supply. Business and governments the world over use the dollar to settle transactions, and more are needed every year. The deficit has to grow a bunch just to maintain enough cash every year. That is part of the reason the Bush people were so lazzis fair about the thing. It was growing the money supply both here and abroad, but it was manageable in its increase from year to year. It grew like the economy grew.

It is also worth remembering that a large part of the debt was recycled. The largest holder of US government debt is various entities of the US government, like the Fed or Social Security.


The Obama budget is not quite the same. It is 1.5x the total receipts of the treasury. It is not manageable, sustainable or healthy.

GM, for most of its existence, built ever larger debt as it became an ever larger company. It did this for years. Whenever they wanted to build a new factory or whatever, they issued new bonds.

What killed them off was the debt that was the pension plan. Much the same problem that will face the US soon or late, as the Social Security birth/death rate problem is not going away. We are trying to fix the problem with mexicans, but it is not sustainable.

And guess what, the asset that the Social Security Trust fund holds as its only investment for our old age...? US Treasury bonds. That means that as more folks collect, more of the bonds are redeemed by social security, and the government has to sell those bonds to someone else in order to make the payments.


Anyway, a US government debt is like the nationaldrink after dinner. A little wine after dinner is essential for health. those who live to 100 have been drinking half a bottle a day for 90 years. However, instead of a couple glasses of wine after dinner, you instead go for a full bottle of MD 20-20 instead of dinner, that is not healthy. That will kill you before you are 30. The way Bush and Reagan ran the deficits, we had money supply for an expanding world wide economy. The way Obama is running the deficits, we are on a really horrible binge that will have us feeling very sorry the morning after . Which is where we are now after three years of Obama. Facing the morning after. And Obama's only cure is a hair of the dog that bit you.

 

[Oddball]

What If We Paid Off The Debt? The Secret Government Report

If Synthia got his mitts on it, it can't be that big a secret.

 

[Wiseacre]

No rational person is calling for the pay down of the US debt. It is the money supply. We even have a balanced budget it causes a recession, like what happened in 2001.

There is also the fact it is part of the international money supply. Business and governments the world over use the dollar to settle transactions, and more are needed every year. The deficit has to grow a bunch just to maintain enough cash every year. That is part of the reason the Bush people were so lazzis fair about the thing. It was growing the money supply both here and abroad, but it was manageable in its increase from year to year. It grew like the economy grew.

It is also worth remembering that a large part of the debt was recycled. The largest holder of US government debt is various entities of the US government, like the Fed or Social Security.



The Obama budget is not quite the same. It is 1.5x the total receipts of the treasury. It is not manageable, sustainable or healthy.

GM, for most of its existence, built ever larger debt as it became an ever larger company. It did this for years. Whenever they wanted to build a new factory or whatever, they issued new bonds.

What killed them off was the debt that was the pension plan. Much the same problem that will face the US soon or late, as the Social Security birth/death rate problem is not going away. We are trying to fix the problem with mexicans, but it is not sustainable.

And guess what, the asset that the Social Security Trust fund holds as its only investment for our old age...? US Treasury bonds. That means that as more folks collect, more of the bonds are redeemed by social security, and the government has to sell those bonds to someone else in order to make the payments.


Anyway, a US government debt is like the nationaldrink after dinner. A little wine after dinner is essential for health. those who live to 100 have been drinking half a bottle a day for 90 years. However, instead of a couple glasses of wine after dinner, you instead go for a full bottle of MD 20-20 instead of dinner, that is not healthy. That will kill you before you are 30. The way Bush and Reagan ran the deficits, we had money supply for an expanding world wide economy. The way Obama is running the deficits, we are on a really horrible binge that will have us feeling very sorry the morning after . Which is where we are now after three years of Obama. Facing the morning after. And Obama's only cure is a hair of the dog that bit you.

You might be understating the debt problem a little bit, I think it's a little more serious. And the problem extends to the unfunded debt liabilities in the future, which some have estimated to be well over 100 trillion. I think we're in big trouble if we can't find a way to address the spending and revenue issues in a responsible manner.

 

[Baruch Menachem]

True, we need to make sure the books are honest and all the obligations are clear. Unfortunately, the Obama folks are addicted to Enron accounting.

The essential reality is we can't do a balanced budget, as that would be recessionary. But that does not mean would should go off like sailors home from 13 months at sea either.

 

[Wiseacre]

True, we need to make sure the books are honest and all the obligations are clear. Unfortunately, the Obama folks are addicted to Enron accounting.

The essential reality is we can't do a balanced budget, as that would be recessionary. But that does not mean would should go off like sailors home from 13 months at sea either.

All true, but it's not like the repubs are blameless either. Not showing how to pay for a couple of wars and the drug benefit program doesn't leave them with any moral high ground.

Yeah, a balanced budget should be something to gradually work on, the folks that didn't want to raise the debt ceiling at all a few months back were very narrow-minded IMHO. We need a reasoned approach with both spending cuts and tax increases, both in moderation and spread out over time. I'd hold off on the tax hikes until the economy gets going and UE drops below 8%, but I see no reason why we can't do tax reform right now if we make it revenue neutral.