4 ms·

It's pretty obvious that neither the Republicans nor the Democrats are willing to cut down on spending enough to start chipping away at the national debt. Hopef

It's pretty obvious that neither the Republicans nor the Democrats are willing to cut down on spending enough to start chipping away at the national debt. Hopefully the (partial) weakening of the greenback's status as the world's primary reserve currency will force them to take action.

slurgfest 14y ago
It's obvious that the Republicans and Democrats TOGETHER can't do it. Either party has things they'd be happy to cut (extra healthcare, extra military, extra tax cuts) - it's the combination of both together that are making the deadlock. Also, it is mathematically as much a problem of not raising revenue as it is a problem of cutting spending. Strange that you did not mention this. It isn't at all obvious that the level of the national debt is the only issue influencing the dollar's usage as a reserve currency.
- deleted 14y ago
  [deleted]
- nazgulnarsil 14y ago
  yes, the solution to wild spending is always to cast a critical eye at how to extract yet MORE of the US GDP to spend on garbage.
douglasisshiny 14y ago
Actually, people trust the dollar so much that the yield on a 10 year treasury bond has been below 2% for quite some, historic lows. Bonds that aren't inflation protected actually lose money (i.e., bond bought for $1000, worth $950 10 years later); people are paying us to hold their money. And you'll note that Japan has had a much, much higher debt-to-GDP ratio for quite some time, but has had sluggish growth throughout. The U.S. debt-to-GDP ratio was higher during WWII. The main reason for this reply is that we shouldn't be cutting spending right now. Governments should be running deficits during recessions. For proof of how poorly cutting your way to growth works, take a look at most of the countries in the E.U. (and no, we are not on our way to Greece. It's a horrible analogy. Greece was on the Euro, not their own currency. Their goods, therefore, are not competitive. So rather than external devaluation, a weak currency, high inflation, they're having internal devaluation, people have to accept lower living standards). Interestingly enough, the largest area of long-term debt growth is health care costs (medicare and medicaid). The Bush tax cuts are number 3 or 4. The ACA takes some initial steps in order to slow the growth of Medicare and Medicaid. The Ryan plan does, too, but by moving the cost to the elderly.
- euroclydon 14y ago
  I disagree. Treasury yields are not that low because of trust, but rather because the world is awash with money, and the owners of that money are desperate to park it in a liquid format, of which there are few options on the scale needed.
  - mej10 14y ago
    Citations? I am familiar with the parent's argument, but haven't heard this one before.
    - euroclydon 14y ago
      I think from a simple standpoint, no citations are needed: Fact #1) The U.S. borrows a bunch-o-money, therefore there exists a bunch of money available to lend. Fact #2) Owners of that money would prefer a higher yield, but there does not exist enough alternative assets to put such a hugh amount of money, e.g. look at gold and oil price curves. Real estate is an option for some but it's messy and illiquid. Fact #3) There currently exists no viable plan for the U.S. to reduce their unfunded liabilities, so what exactly are the owners of this money putting their trust in?
    - JumpCrisscross 14y ago
      Safe assets are the most desirable, and in many cases the only permissible, collateral. Given increased collateral demand for financial institutions for reserves, margin, and collateralised borrowing and the potentially shrinking pool of non-Treasury "safe assets" not already on central banks' balance sheets the "price" (yield) of (on) safe assets would be expected to degrade swiftly without regard to concerns about the "safe" asset's quality. http://www.imf.org/external/pubs/ft/wp/2012/wp1295.pdf http://www.imf.org/external/pubs/ft/wp/2012/wp1295.pdf (Money and Collateral) http://www.imf.org/external/pubs/ft/wp/2012/wp12246.pdf http://www.imf.org/external/pubs/ft/wp/2012/wp12246.pdf (Dynamics of Global Liquidity)
  - douglasisshiny 14y ago
    I actually meant to include this in the original comment. I disagree with you in this respect. Investors do have a lot of money, and they do need vehicles in which to invest their money. But when equities are not attractive, they go for safer bets: treasury bonds. So in essence, it is an issue of trust. Investors would rather place their money in equities as opposed to trusts because the yield is so low, but they fear placing money in equities. I'm not sure I understand your argument about the scarcity of liquid instruments. The number of available equities and money market instruments hasn't shrunk. And there are bonds available from other currencies.
willholloway 14y ago
Absent a trade surplus or radical and drastic cuts to US military spending, paying down the debt is impossible. This sort of deleveraging would suck too much money out of the economy. We are barely hanging on borrowing a trillion dollars a year. The most likely scenario: minimal economic growth and near-zero interest rates for the foreseeable future.
- AnthonyMouse 14y ago
  When has a major country ever really paid down its debt? The debt never gets smaller. At best the economy grows faster than the debt so that the debt to GDP ratio improves. The problem right now is that we're spending too much money on the wrong things (military spending and entitlements) and it's crowding the things out of the budget that actually help the economy, like basic research and education. Imagine for one second where we would be if we swapped the budget lines for the DoD and scientific research.
  - meric 14y ago
    If you visit http://www.budget.gov.au/2012-13/content/bp1/html/bp1_bst10-04.htm http://www.budget.gov.au/2012-13/content/bp1/html/bp1_bst10-... and scroll down to Table 3, you will see that in the year 2008-2009, the Australian Federal Government had a net debt amounting to -0.1% of GDP. Net debt being negative means the government had net assets - any debt could have been paid off with cash on hand. Of course, you can try to argue Australia isn't a major country...
    - AnthonyMouse 14y ago
      You're talking about the deficit, not the debt. You can hardly read what I wrote as saying that no major country has ever run a budget surplus for a year or two. Australia continues to have some AU$200+B in outstanding treasury securities. (http://www.aofm.gov.au/content/borrowing/commonwealth/Monthly_Changes_CGS/2012/08_august.asp http://www.aofm.gov.au/content/borrowing/commonwealth/Monthl...)
      - 14y ago

slurgfest 14y ago

It's obvious that the Republicans and Democrats TOGETHER can't do it. Either party has things they'd be happy to cut (extra healthcare, extra military, extra tax cuts) - it's the combination of both together that are making the deadlock. Also, it is mathematically as much a problem of not raising revenue as it is a problem of cutting spending. Strange that you did not mention this. It isn't at all obvious that the level of the national debt is the only issue influencing the dollar's usage as a reserve currency.

deleted 14y ago
[deleted]
nazgulnarsil 14y ago
yes, the solution to wild spending is always to cast a critical eye at how to extract yet MORE of the US GDP to spend on garbage.

douglasisshiny 14y ago

Actually, people trust the dollar so much that the yield on a 10 year treasury bond has been below 2% for quite some, historic lows. Bonds that aren't inflation protected actually lose money (i.e., bond bought for $1000, worth $950 10 years later); people are paying us to hold their money. And you'll note that Japan has had a much, much higher debt-to-GDP ratio for quite some time, but has had sluggish growth throughout. The U.S. debt-to-GDP ratio was higher during WWII. The main reason for this reply is that we shouldn't be cutting spending right now. Governments should be running deficits during recessions. For proof of how poorly cutting your way to growth works, take a look at most of the countries in the E.U. (and no, we are not on our way to Greece. It's a horrible analogy. Greece was on the Euro, not their own currency. Their goods, therefore, are not competitive. So rather than external devaluation, a weak currency, high inflation, they're having internal devaluation, people have to accept lower living standards). Interestingly enough, the largest area of long-term debt growth is health care costs (medicare and medicaid). The Bush tax cuts are number 3 or 4. The ACA takes some initial steps in order to slow the growth of Medicare and Medicaid. The Ryan plan does, too, but by moving the cost to the elderly.

euroclydon 14y ago
I disagree. Treasury yields are not that low because of trust, but rather because the world is awash with money, and the owners of that money are desperate to park it in a liquid format, of which there are few options on the scale needed.
- mej10 14y ago
  Citations? I am familiar with the parent's argument, but haven't heard this one before.
  - euroclydon 14y ago
    I think from a simple standpoint, no citations are needed: Fact #1) The U.S. borrows a bunch-o-money, therefore there exists a bunch of money available to lend. Fact #2) Owners of that money would prefer a higher yield, but there does not exist enough alternative assets to put such a hugh amount of money, e.g. look at gold and oil price curves. Real estate is an option for some but it's messy and illiquid. Fact #3) There currently exists no viable plan for the U.S. to reduce their unfunded liabilities, so what exactly are the owners of this money putting their trust in?
  - JumpCrisscross 14y ago
    Safe assets are the most desirable, and in many cases the only permissible, collateral. Given increased collateral demand for financial institutions for reserves, margin, and collateralised borrowing and the potentially shrinking pool of non-Treasury "safe assets" not already on central banks' balance sheets the "price" (yield) of (on) safe assets would be expected to degrade swiftly without regard to concerns about the "safe" asset's quality. http://www.imf.org/external/pubs/ft/wp/2012/wp1295.pdf http://www.imf.org/external/pubs/ft/wp/2012/wp1295.pdf (Money and Collateral) http://www.imf.org/external/pubs/ft/wp/2012/wp12246.pdf http://www.imf.org/external/pubs/ft/wp/2012/wp12246.pdf (Dynamics of Global Liquidity)
- douglasisshiny 14y ago
  I actually meant to include this in the original comment. I disagree with you in this respect. Investors do have a lot of money, and they do need vehicles in which to invest their money. But when equities are not attractive, they go for safer bets: treasury bonds. So in essence, it is an issue of trust. Investors would rather place their money in equities as opposed to trusts because the yield is so low, but they fear placing money in equities. I'm not sure I understand your argument about the scarcity of liquid instruments. The number of available equities and money market instruments hasn't shrunk. And there are bonds available from other currencies.

willholloway 14y ago

Absent a trade surplus or radical and drastic cuts to US military spending, paying down the debt is impossible. This sort of deleveraging would suck too much money out of the economy. We are barely hanging on borrowing a trillion dollars a year. The most likely scenario: minimal economic growth and near-zero interest rates for the foreseeable future.

AnthonyMouse 14y ago
When has a major country ever really paid down its debt? The debt never gets smaller. At best the economy grows faster than the debt so that the debt to GDP ratio improves. The problem right now is that we're spending too much money on the wrong things (military spending and entitlements) and it's crowding the things out of the budget that actually help the economy, like basic research and education. Imagine for one second where we would be if we swapped the budget lines for the DoD and scientific research.
- meric 14y ago
  If you visit http://www.budget.gov.au/2012-13/content/bp1/html/bp1_bst10-04.htm http://www.budget.gov.au/2012-13/content/bp1/html/bp1_bst10-... and scroll down to Table 3, you will see that in the year 2008-2009, the Australian Federal Government had a net debt amounting to -0.1% of GDP. Net debt being negative means the government had net assets - any debt could have been paid off with cash on hand. Of course, you can try to argue Australia isn't a major country...
  - AnthonyMouse 14y ago
    You're talking about the deficit, not the debt. You can hardly read what I wrote as saying that no major country has ever run a budget surplus for a year or two. Australia continues to have some AU$200+B in outstanding treasury securities. (http://www.aofm.gov.au/content/borrowing/commonwealth/Monthly_Changes_CGS/2012/08_august.asp http://www.aofm.gov.au/content/borrowing/commonwealth/Monthl...)
    - 14y ago