How does the N trillion dollar US really matter?

[Arindam Banerjee]

Is it right to say, it does not matter at all, for it will never be
repaid? Also, why cannot it increase indefinitely, if it will never
be paid at all? Who wins, and who loses under this complacency?
Cheers,
Arindam Banerjee

[ZisntZ]

Let's begin with the total amount of physical US currency: about $925
billion give or take a few million. Since it is physical it is really
matter so it stand to reason it matters.

However most of this is being held outside the US money system.

"Abstract:
Despite financial innovations that have created important new substitutes
for cash usage, per capita holdings of U.S. currency amount to $2950. Yet
American households and businesses admit to holding only 15 percent of
the currency stock, leaving the whereabouts of 85 percent unknown."
http://mpra.ub.uni-muenchen.de/30353/

So US law abiding citizens obviously do not have much that really is
matter but what they do have should matter a lot even though $2950 is not
enough to even pay for hospital birth but you can get good seats for one
(US) football season with this with even a little left over to buy milk.

[Arindam Banerjee]

So who gave the US Govt their debt of N = 15? trillion dollars? Who
is that rich?

[Arindam Banerjee]

On Oct 8, 9:24 pm, Arindam Banerjee <banerjeeadda1...@gmail.com>
wrote:

Getting no reply, I conclude that the creditors of the US are either
unknown or they are imaginary. Effectively, they amount to
nothing. For unknowns do not have nukes, nor do the imaginary.

So if effectively nobody is the creditor of the US Govt then why all
this fuss about the debt?

Cheers,
Arindam Banerjee

[Doug Freyburger]

Arindam Banerjee wrote:
>
> Is it right to say, it does not matter at all, for it will never be
> repaid? Also, why cannot it increase indefinitely, if it will never
> be paid at all? Who wins, and who loses under this complacency?

Notice this this issue applies to *every* country with fiat currency and
in the world today that's all or nearly all of them.

The one and only base of value of a fiat currency is the faith and
credit of the country issuing it. In well over 200 years the US has
never missed a payment on its debts. Similar is true of many but not
all countries with fiat currency.

The problem with the debt is seen now in Greece and Spain. At some
point investors realise it can never be paid back but they continue
buying bonds anyways because the interest payments continue to come in
and the investors have no plans to stop buying new bonds as the old ones
expire. The investors range some individuals holding individual bonds
or shares in bond mutual funds through large financial companies who use
the interest to fund their activities.

Here's the problem with fiat currencies. When the country spends less
than it takes in from taxes the currency is stable and its debt
gradually decreases. No country in history with a fiat curreny has ever
done this for longer than 50 years. When a country spends the same
amount as it takes in from taxes the currency is stable and its debt
stays a fixed fraction of its budget. No country in history with a fiat
currency has ever done this for longer than 50 years. When a country
spends more than it takes in from taxes the currency is inflationary and
not stable. Read history for currency collaspes from Rome and the
Weimar Republic through Argentina and Mexico.

With debt expanding, the interest payments expand as a percentage of the
budget. Inflation is inevitable.

It can't go on indefinitely because investors will only invest in
securites that beat inflation. The interest rates the country needs to
pay on its bonds goes up and that further drives inflation up. The
process follows an exponential curve that grows slowly at first but it
grows every year. The difference between slowly growing debt and debt
in crisis can take decades. The difference between debt in crisis and a
collapse takes years.

It matters because it's an inherently unstable system. It's driven by
the willingness of investors to fund the debt and they will only do that
when the interest rate beats inflation. Yet the growth of the debt
drives the interest to an increasing percentage of the total budget and
that fact drives inflation.

[Arindam Banerjee]

On Oct 10, 1:19 am, Doug Freyburger <dfrey...@yahoo.com> wrote:
> Arindam Banerjee wrote:

Crossposting to rab, maybe Marko will also notice.

>
> > Is it right to say, it does not matter at all, for it will never be
> > repaid?  Also, why cannot it increase indefinitely, if it will never
> > be paid at all?  Who wins, and who loses under this complacency?
>
> Notice this this issue applies to *every* country with fiat currency and
> in the world today that's all or nearly all of them.
>
> The one and only base of value of a fiat currency is the faith and
> credit of the country issuing it.  In well over 200 years the US has
> never missed a payment on its debts.  Similar is true of many but not
> all countries with fiat currency.

Since the international currency is the petro-dollar, it is impossible
for the US to miss a payment, as all they will have to do is print
the dollars. When payment for debt is demanded not in paper but gold,
a different matter.

> The problem with the debt is seen now in Greece and Spain.  At some
> point investors realise it can never be paid back but they continue
> buying bonds anyways because the interest payments continue to come in
> and the investors have no plans to stop buying new bonds as the old ones
> expire.  The investors range some individuals holding individual bonds
> or shares in bond mutual funds through large financial companies who use
> the interest to fund their activities.

I see. So are you saying that the N trillion dollar debt is to
individual bond holders and financial companies? How did they manage
to get that rich? How are these few people important politically? I
mean, suppose the US Govt or any govt. says they won't pay their
creditors,
what can they do? Individuals and companies have no power over the
military.

> Here's the problem with fiat currencies.  When the country spends less
> than it takes in from taxes the currency is stable and its debt
> gradually decreases.  No country in history with a fiat curreny has ever
> done this for longer than 50 years.  When a country spends the same
> amount as it takes in from taxes the currency is stable and its debt
> stays a fixed fraction of its budget.  No country in history with a fiat
> currency has ever done this for longer than 50 years.  When a country
> spends more than it takes in from taxes the currency is inflationary and
> not stable.  Read history for currency collaspes from Rome and the
> Weimar Republic through Argentina and Mexico.

Then why has not the huge financial stimuli to US via QE1-3 not
increased inflation? Surely other factors are at work, other than
revenues and spendings?

Rampant vandalism of the environment, is good for the economy - as
more of nature can thus be exploited and
thus bring in more economic returns. Thus, cutting down trees as part
of spending, will bring in more money in the longer term in
terms of timber sales, construction, transport, etc. As I understand,
under Reagan the US decided to wipe out the environment comprehensi
vely and that
contributed a large measure to US economic strength. Thus when money
is given to buy sawmills, there may not be an immediate return,
nor inflation, but in the long run a bigger economy.

Also, not having babies and not spending time upon them thus,
contributes hugely to economic growth.

Wars also help, by unifying the people, making them work thus as
opposed to laziness and internal strife.

Then technology reduces item costs, and outsourcing/importing also
reduces costs.

> With debt expanding, the interest payments expand as a percentage of the
> budget.  Inflation is inevitable.

They should have had inflation with so much money distributed to the
top fatcats, but they have not had inflation.

> It can't go on indefinitely because investors will only invest in
> securites that beat inflation.  The interest rates the country needs to
> pay on its bonds goes up and that further drives inflation up.  The
> process follows an exponential curve that grows slowly at first but it
> grows every year.  The difference between slowly growing debt and debt
> in crisis can take decades.  The difference between debt in crisis and a
> collapse takes years.

How can US economy collapse, so long as they can always repay their
debts? If people do not buy US bonds any more as the interests
are not good enough, there will be less debt naturally. If they
reduce the interest, they will sell the bonds and then there will be
still less interest to pay as there are lesser bonds. Isn't there a
natural check, thus? True, those who bought US bonds at high
prices will lose but who cares about individuals and companies! They
are just like punters, stock players, aren't they?

> It matters because it's an inherently unstable system.  It's driven by
> the willingness of investors to fund the debt and they will only do that
> when the interest rate beats inflation.  Yet the growth of the debt
> drives the interest to an increasing percentage of the total budget and
> that fact drives inflation.

As I said, if they don't buy any more as the interest is not good
enough, or rather sell instead the Govt bonds, then there will be
less bonds, less interest, so ain't that good?

Just asking, I am a child in the matters of high finance!

Cheers,
Arindam Banerjee
>

[Doug Freyburger]

Arindam Banerjee wrote:
> Doug Freyburger <dfrey...@yahoo.com> wrote:
>> Arindam Banerjee wrote:
>
>> The problem with the debt is seen now in Greece and Spain.  At some
>> point investors realise it can never be paid back but they continue
>> buying bonds anyways because the interest payments continue to come in
>> and the investors have no plans to stop buying new bonds as the old ones
>> expire.  The investors range some individuals holding individual bonds
>> or shares in bond mutual funds through large financial companies who use
>> the interest to fund their activities.
>
> I see. So are you saying that the N trillion dollar debt is to
> individual bond holders and financial companies? How did they manage
> to get that rich? How are these few people important politically? I
> mean, suppose the US Govt or any govt. says they won't pay their
> creditors,
> what can they do? Individuals and companies have no power over the
> military.

The bond holders are a list much longer than that. In the list are both
foreign owned corporations and foreign governments. That's the result
of the trade deficit. More is spent on imported goods than on exported
goods so net dollars go to foreigners. The balance of payments remains
much closer to zero so the profits remain in dollars. The net result of
those two facts is dollars in the hands others. When those dollars in
the form of bonds are owned by foreign governments they do have their
own military to back them up. When those dollars are owned by
individuals and corporations the result is buying land and building
factories in the US. Vast amounts of American business is owned by
foreigners. It always has been but the trade deficit combined with the
near zero balance of payments has caused the amount to skyrocket.

>> Here's the problem with fiat currencies.  When the country spends less
>> than it takes in from taxes the currency is stable and its debt
>> gradually decreases.  No country in history with a fiat curreny has ever
>> done this for longer than 50 years.  When a country spends the same
>> amount as it takes in from taxes the currency is stable and its debt
>> stays a fixed fraction of its budget.  No country in history with a fiat
>> currency has ever done this for longer than 50 years.  When a country
>> spends more than it takes in from taxes the currency is inflationary and
>> not stable.  Read history for currency collaspes from Rome and the
>> Weimar Republic through Argentina and Mexico.
>
> Then why has not the huge financial stimuli to US via QE1-3 not
> increased inflation? Surely other factors are at work, other than
> revenues and spendings?

Government published inflation numbers are nonsense. Actual inflation
has doubled the prices of many products recently.

> Then technology reduces item costs, and outsourcing/importing also
> reduces costs.

That's called deflation. It happens with some products not others.
That too is used to mask the fact that inflation is rampant. The place
that can not be masked is the price of silver and gold in dollars.

>> It can't go on indefinitely because investors will only invest in
>> securites that beat inflation.  The interest rates the country needs to
>> pay on its bonds goes up and that further drives inflation up.  The
>> process follows an exponential curve that grows slowly at first but it
>> grows every year.  The difference between slowly growing debt and debt
>> in crisis can take decades.  The difference between debt in crisis and a
>> collapse takes years.
>
> How can US economy collapse, so long as they can always repay their
> debts?

The US has been unable to repay its debt since about 1948. So far the
US has been able to pay the interest on its debt but the percentage of
interest payments has grown steadily over the years. Now it's happening
with Greece and Spain that they can no longer afford the interest
payments. The trend is clear with most other countries.

> If people do not buy US bonds any more as the interests
> are not good enough, there will be less debt naturally.

I take it you flunked out of elementary school because you could never
do simple arithmetic. Debt does not go away because people will not buy
it. If people do not buy bonds to pay the interest on the debt then the
principle has to be repaid. The only ways that can happen are by
increasing the interest rate on the bonds until people and organizations
do buy them, with worthless inflationary money, or with real tax
revenues that exceed the spending. It's been a long time since the tax
revenues in the US could be used to pay the debt. We'd need to drop our
entire social welfare system to do that. All government pensions and
medical care have been paid for with debt for decades. That's true in
almost all other countries as well and it's why Spain and Greece are in
trouble today.

> If they
> reduce the interest, they will sell the bonds and then there will be
> still less interest to pay as there are lesser bonds. Isn't there a
> natural check, thus?

No. That's not how the arithmetic works. It works the opposite
direction. The only reasons investors buy bonds is the interest. The
higher the interest the more bonds get sold. The US government has
worked to drive interest rates down but that only works for a while. I
already know people who are pulling their retirement funds out of
dollars and putting them in apartment buildings. Companies have been
doing that for a long time. And that leaves foreign countries who hold
dollar bonds for ideological reasons. Very bad dynamic.

> Just asking, I am a child in the matters of high finance!

Or even low finance. It's clear you are unable to balance your own
check book based on your statements here.

[Arindam Banerjee]

- snip -

> > Just asking, I am a child in the matters of high finance!
>
> Or even low finance.  It's clear you are unable to balance your own
> check book based on your statements here.

No, I am comfortable, financially. Not least because I sold out all my
stocks to cash before the financial crisis, back in 2008. I
came to Australia in 1989 with -$2000 in debt and $200 in cash and no
job, three dependants to come, and just the phone number of an old
colleague. Today I do not need to work, as I can live tolerably well
enough with my savings and NO govt. assistance. I have never been
accused let alone convicted of any
crime, the worst thing I got from the powers that be was a parking
ticket and some dicey speeding tickets. I dare say, if all
corporations and govts did as I well as I have done, in a strange new
country, then the world would run very well indeed.

Cheers, but you need not be so unnecessarily rude; it shows such
smallness of mind. Small people cannot do great things!
Unfortunately,
in modern democracies small people with their mean populist ways can
slime into positions of power and influence, where they do not belong.
Misfortune to all happens as the inevitable result.

Arindam (bin Einstein ban Gandi) Banerjee

[Arindam Banerjee]

On Oct 11, 1:40 am, Doug Freyburger <dfrey...@yahoo.com> wrote:
> Arindam Banerjee wrote:
> > Doug Freyburger <dfrey...@yahoo.com> wrote:
> >> Arindam Banerjee wrote:
>
> >> The problem with the debt is seen now in Greece and Spain. At some
> >> point investors realise it can never be paid back but they continue
> >> buying bonds anyways because the interest payments continue to come in
> >> and the investors have no plans to stop buying new bonds as the old ones
> >> expire. The investors range some individuals holding individual bonds
> >> or shares in bond mutual funds through large financial companies who use
> >> the interest to fund their activities.
>
> > I see. So are you saying that the N trillion dollar debt is to
> > individual bond holders and financial companies?  How did they manage
> > to get that rich?  How are these few people important politically?  I
> > mean, suppose the US Govt or any govt. says they won't pay their
> > creditors,
> > what can they do?  Individuals and companies have no power over the
> > military.
>
> The bond holders are a list much longer than that.  In the list are both
> foreign owned corporations and foreign governments.  That's the result
> of the trade deficit.  More is spent on imported goods than on exported
> goods so net dollars go to foreigners.

So what. If they want to use them, they have to spend them on US
products and services.

 The balance of payments remains
> much closer to zero so the profits remain in dollars.  The net result of
> those two facts is dollars in the hands others.  When those dollars in
> the form of bonds are owned by foreign governments they do have their
> own military to back them up.

China is hardly in any position to break the US Govt.'s leg
militarily, as mafias do.

 When those dollars are owned by
> individuals and corporations the result is buying land and building
> factories in the US.

So what, they will provide local employment, pay taxes, be subject to
the US laws and at worst can be just kicked out.

 Vast amounts of American business is owned by
> foreigners.  It always has been but the trade deficit combined with the
> near zero balance of payments has caused the amount to skyrocket.

Good for the US. They have had and are having a fantastic time,
living in a fabulous golden age of milk, honey and iPads. While chaps
are dying and starving elsewhere, and about them, who cares?

> >> Here's the problem with fiat currencies. When the country spends less
> >> than it takes in from taxes the currency is stable and its debt
> >> gradually decreases. No country in history with a fiat curreny has ever
> >> done this for longer than 50 years. When a country spends the same
> >> amount as it takes in from taxes the currency is stable and its debt
> >> stays a fixed fraction of its budget. No country in history with a fiat
> >> currency has ever done this for longer than 50 years. When a country
> >> spends more than it takes in from taxes the currency is inflationary and
> >> not stable. Read history for currency collaspes from Rome and the
> >> Weimar Republic through Argentina and Mexico.
>
> > Then why has not the huge financial stimuli to US via QE1-3 not
> > increased inflation?  Surely other factors are at work, other than
> > revenues and spendings?
>
> Government published inflation numbers are nonsense.

So who should I believe? You? Why? The Govt figures are the only
ones that matter to the outsider. Right or wrong, they are the
only reference.

> Actual inflation
> has doubled the prices of many products recently.

Does not look like that, seeing Walmartians sporting away as in their
inimitable styles!! We thirdworlders do get the hilarious pictures
of
such sport.

> > Then technology reduces item costs, and outsourcing/importing also
> > reduces costs.
>
> That's called deflation.  It happens with some products not others.

Certainly a free market, consumer driven, greed-based economy will
provide a flattening out of benefits all around. So getting cheapos
from China will pull down prices for the consumers. That jobs are
lost, is another matter. The losers better sell what they got,
and live off their savings - as I do. They do not have to work, and
that is good, for then they have leisure while the poor Chinese
etc. work their butts off.

> That too is used to mask the fact that inflation is rampant.  The place
> that can not be masked is the price of silver and gold in dollars.

Gold and silver are for the thirdwolders. Their women want them.
Firstworld women go for much more expensive junk.

> >> It can't go on indefinitely because investors will only invest in
> >> securites that beat inflation. The interest rates the country needs to
> >> pay on its bonds goes up and that further drives inflation up. The
> >> process follows an exponential curve that grows slowly at first but it
> >> grows every year. The difference between slowly growing debt and debt
> >> in crisis can take decades. The difference between debt in crisis and a
> >> collapse takes years.
>
> > How can US economy collapse, so long as they can always repay their
> > debts?
>
> The US has been unable to repay its debt since about 1948.

Why worry about what you need never repay?

 So far the
> US has been able to pay the interest on its debt but the percentage of
> interest payments has grown steadily over the years.

So what, just do not pay, or devalue the dollar if you have to. Who
can force the US to do anything it does not want to?

 Now it's happening
> with Greece and Spain that they can no longer afford the interest
> payments.  The trend is clear with most other countries.

Okay, so they won't pay, they will go bankrupt. So what? A new
system will have to take the place of the old one, and that will be
good. They will simply go through a trying phase, and then come out
okay.

> > If people do not buy US bonds any more as the interests
> > are not good enough, there will be less debt naturally.
>
> I take it you flunked out of elementary school because you could never
> do simple arithmetic.

No, you are wrong. I have made my living out of maths including
highly complex arithmetic, and am comfortably retired for the moment.

> Debt does not go away because people will not buy
> it.

No the debt won't go away but it won't increase either if people will
not buy debt, which is what I said. So if interest rates are
low, buying debt is unattractive and there will be no further sales.
So there will be less debt than would have been had people been
buying debt.

The general question is, why should we pay the biggest mafia we can
never get money back from? One borrows from the mafia at the risk of
breaking the leg for non-payment. Why is it ever wise to lend to the
huge big fat mafia, that need never repay, but gives the loaned money
away for all bad causes?

> If people do not buy bonds to pay the interest on the debt then the
> principle has to be repaid.

So the bond business is a corrupt Ponzi scheme? Like all Ponzi
schemes it has got to burst some time. It won't be the
end of the earth. I mean, people and govts do recover from
bankruptcies when they try hard enough. It is just a lesson.

 The only ways that can happen are by
> increasing the interest rate on the bonds until people and organizations
> do buy them, with worthless inflationary money, or with real tax
> revenues that exceed the spending.  It's been a long time since the tax
> revenues in the US could be used to pay the debt.  We'd need to drop our
> entire social welfare system to do that.  All government pensions and
> medical care have been paid for with debt for decades.  That's true in
> almost all other countries as well and it's why Spain and Greece are in
> trouble today.

Well, well, debt is the price of development I suppose. I think it
was Reagan who started it, by saying why bother about what
political problems later politicians will face, let us have a great
time with debt binging. I don't think that capitalists care
about paying Govt. pensions and medicare, so if the Ponzi bond scheme
really bursts they will be laughing till their guts burst.

Plain fact is, when the Govt does not pay its debt nor its interest on
the debt, and pays pensions with taxes, then it will be a
stable economy. Public has a choice between anarchy or temporary
austerity.

> > If they
> > reduce the interest, they will sell the bonds and then there will be
> > still less interest to pay as there are lesser bonds.  Isn't there a
> > natural check, thus?
>
> No.  That's not how the arithmetic works.

But it does. I do not buy Indian bonds as the interests are low and
the rupee is not appreciating. So the Indian Govt need not give me
back anything, it is not in my debt. I prefer to invest my moneys
elsewhere, depending upon a variety of complex taxation and financial
situations.

 It works the opposite
> direction.  The only reasons investors buy bonds is the interest.

No, there is also the security; and for the external buyer, the degree
of appreciation of the currency.

 The
> higher the interest the more bonds get sold.

Not necessarily. One does not buy junk bonds with high interest. Nor
for the external buyer, a bond whose currency will be expected to
plunge.

 The US government has
> worked to drive interest rates down but that only works for a while.

They should make it negative, to force people to buy back the bonds
and that will help the US economy a lot as a lot more money will
be poured into the US works - shares will rise, activities will
happen, jobs and wealth created. Now, this is the most brilliant
economic advise ever given, free. Not that I expect anything other
than abuse for giving this fantastic advice, gratis. But then, this is
a most vile and
mediocre world, run by liars and thugs galore, free from conscience
and principles and morality. I mean, how low it is for all
peoples and govts to take loans pretty sure that they will not repay
it? And pass this immorality as the height of economic wisdom?

Cheers,
Arindam (bin Einstein ban Gandi) Banerjee, greatest genius of all
time, sole god among lotsa devils.

 I
> already know people who are pulling their retirement funds out of
> dollars and putting them in apartment buildings.  Companies have been
> doing that for a long time.

Good. This creates shelter, jobs, etc. and good returns.

>And that leaves foreign countries who hold
> dollar bonds for ideological reasons.  Very bad dynamic.

Tell those fools they won't get their money back, as they should not
have bought the bonds, they should have invested the moneys in
their own lands to raise the standards of living there, as opposed to
fattening the US population so unhealthily with cheap stuff.

Cheers once again,
Arindam Banerjee