The US National Debt

GENIERE

I do wish that were true, but if memory serves, my last physics course would have been taken in1961+/-.

Correct if stated “the world is not investing in the US over the last several years at the high historical rates.”

China is continuing to buy US T-notes despite its non-parity (Yuan v. Dollar) policy.

If we use the value of the Euro as a reference, the Dollar has increased in value since Jan. ’05. The value of the Yuan is supposedly maintained at 3% parity with the Dollar but in practice its value has closely tracked the Dollar. China, other nations, and private entities continue to invest in and stabilize the Dollar’s value v. the Euro and Yuan by buying Dollars. Capital flow into the US is still greater than outflow.

http://money.cnn.com/2005/10/18/news.../inflows.reut/
October 18, 2005: 10:42 AM EDT - WASHINGTON (Reuters) – “Net flows of capital into U.S. assets swelled to $91.3 billion in August, well above analyst expectations and the largest inflow since $92.1 billion seen in April 2004, a government report showed on Tuesday…The figure was more than enough to cover the U.S. trade deficit, which was $59 billion in that month, and topped …sending the euro to session lows around $1.1919 from around $1.1938 shortly before the report was released…”

The effect of above on the Chinese internal economy is an inflationary one while tending to stabilize prices in the US.

You have not yet addressed the question in my OP.


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edward

GDP relies heavily on personal consumption, The problem is that the cost of personal consumption is outpacing personal spendable income. We are buying on credit giving the GDP a boost, but consumer debt is not factored in to the equation. In essence we cannot keep up the present rate of personel consumption which has made the the GDP look good in recent years.

http://www.financialsense.com/fsu/ed...2005/0218.html

The Smoking Man

Forget it, edward.

She has not understood yet the effects of a credit economy.

She doesn't understand that the flawed view of economy as generated by the USA is actually selling the USA to the people investing in the USA.

That investment is actually a loan with no way to repay it.

It is said that if the UAE and Saudi haul their cash out of the US banks ... not the economy ... just the banks ... It can start off an economic collapse of the USA.

Additional investment is actually in LAND not manufacturing.

And now ... when companies bid on the Supposed free market for the purchase of even 'trivial' companies the Senate is stepping in to prevent it.

GENIERE

Americans consume at a higher rate than most other countries and save at a lower rate. We consumed our way through Democratic and Republican administrations; before the Clinton Administration, during the Clinton Administration, and after the Clinton Administration. Perhaps we are not storing our Dollars in a mattress or giving it to a bank to grow at a snails pace, but we are investing in private business at an ever increasing rate.

Of course an economy cannot expand without a growth in consumption. The two are haplessly entwined.

Are you offering that as an opinion or as a fact? Why can’t we “keep up the present rate of personel consumption”? What dire consequences await us?

GENIERE

Apparently TSM cannot support his opinion; he resorts to an absurd hypothetical scenario, follows with a factually incorrect statement and finishes by going off topic.

Polly

China is only buying your Treasury Bills because she is swamped by all these green backs she receives from selling you cheap products. The flood of green backs puts RMB under appreciative pressure which is not good, as she needs investment in and expansion of the economy that spawns at least 20 million new jobs per year to absorb all school-leavers. Any GDP growth below 8% will see her fall short of the goal. So what does she do to keep RMB cheap? She recycles those green backs by buying T-bills, earning a dismal interest that is likely to be offset by the depreciation of the dollar of course, but keeping RMB articficial low anyway while buying time so that she can get hold of all the US technology and know-how and the whole industrial base. Needless to say she is also then able to indirectly control the long-term interest rate and therefore the US economy, she sits out one such T Bill aution, Dow Jones will crumble, as Japan has demonstrated herself in the 80's.

As at the end of 2004, the budget deficit situation of America, can be liken to a man who has an annual revenue of USD100,000, but owes third parties a total of USD230,000. He can of course go further into debt to keep the entire debt revolving, but if interest rate shoots up (as a result of China stopping to buy T-Bill aution, for instance), or his income decreases to the extent that he cannot even pay off the interest of the debts, creditors will call loan of course, demanding the debts to be settled. By then the whole world will realise the green back, not backed by gold or anything, is only an empty token of exchange and everybody will dump it like mad. The USD will cease to be the reserve currency of the world and all those trading with the USA will demand to be paid in other currencies, the Americans will have little means to pay for inports, to the extent that they cannot be self-sustaining or cannot resort to barter trade, hyper-inflation will follow and all hell will break loose.

Just my A-level economics talking .

Anttech

And what you call this? Perhaps not OT but yours was the first post, I think the rest is evident within your post

loseyourname

Sure, if the national debt was 230% of GDP. According to the Congressional Budget Office, it was 36.5% in 2004.

Our real problem right now is the budget deficit, which has gone (you can see on the same table) from a $128 billion surplus in 2001 to a $412 billion deficit in 2004. A $540 billion swing in three years is an awful lot. Granted, with an $11.5 trillion GDP, that number looks worse than it really is, but government spending clearly needs to be reigned in.

Psi 5

A friend of mines goal in life is to die as massively in debt as possible, thus living as far beyond his means as possible. Not a good philosophy for america but good for those of us who will be dead when it comes time to pay the national debt and that time may be closer than we think.

GENIERE

Nice start, really bad finish. If your doomsday scenario occurs, will not the economy of other nations be even more negatively affected than that of the US?

What would be the effect on France’s economy, or on the economy of any other nation including China?

http://www.ambafrance-us.org/franceus/trade.asp

“U.S. economic ties with France are extensive and mutually beneficial. On average, over $1 billion in commercial transactions take place between the two countries every day of the year. France is the 9th largest merchandise trading partner for the United States and the sixth largest for trade in services… Sales of U.S.-owned companies operating in France and French-owned companies operating in the United States outweigh trade transactions by a factor of five. France is technically the 5th largest foreign investor in the U.S. ($143 billion, 10,4% of total FDIs), but is virtually tied with Japan, Germany and the Netherlands at the 2nd position.
Foreign direct investments (FDI) are the cornerstone of the strong French-American economic relations…there are at least 2,400 French subsidiaries in the U.S., providing more than 500 000 direct jobs and generating an estimated $160 billion turnover... U.S. subsidiaries in France provide about 580 000 direct jobs, with a $135 billion turnover (2001). “

GENIERE

Any reining in must begin at the federal level else it is a fruitless endeavor.

Anttech

It would adapt, stop thinking everything begins and ends with America

Polly

Oh my god, SmokeyMan did you get banned again? What have you done now? Don't worry alright, our thoughts are with you .

Polly

Oh boy, just when I thought I could bluff my way through without attracting any attention... . 230% is a mental note I had of the situation made earlier on. As I have lost track of the supporting evidence now so I went off digging other sources. According to this even more uncharitable interpretation , the TOTAL US debt stood at 40 TRILLION last year, that's 347% of this year's GDP or annual revenue in my example.

Polly

We will be all affected to varying degree no doubt, depending on whether we have done enough to offset the effect. If I appeared to suggest that the Chinese arranged the scheme by calculating design, it was not my intention and my applogies. The very smart Japanese was the trailblazers, the Chinese merely followed suit.

loseyourname

Oh come on, Polly, you should know that the total debt doesn't mean a whole lot by itself. The number from the CBO is the public debt, money that the government itself owes, whereas your number (I'm sure know, but to clarify for anyone that does not) is the total debt of all businesses, all households, and the government combined. The problem with using this number as a doomsday prediction is that most of this debt is simply going around in circles. Households owe money to businesses, which in turn owe money to individuals (venture capitalists), other businesses (banks), and the government (fed banks and bonds). The government itself owes a lot of its money to individuals (bonds) and to businesses (private banks). If we're simply going to take the total debt, then we need to distinguish between money the US as whole owes to itself, and money it owes to others (minus what those others owe the US) to get an accurate picture of how much of a problem this actually is.

Just with respect to individual debt, consider the inflation of that number due to people owing mortgage payments. My parents, for instance, still owe well over $100K, which is well in excess of the household income, but that is owed over the course of the next fifteen years, and the number is far less than the income for the household projected over those fifteen years.

You'll notice here that, even in the case of the public debt, half of it is simply one government agency being in debt to another.

Unfortunately, I cannot find anything on the total debt of all countries, but I did find this, which indicates Indonesia as being the only country whose external debt was in excess of its GNP, as of 1999. I haven't been able to find a more current version of this.

edward

Personel bankruptsy for one.

A great amount of personel consumption is being done on credit. Those little plastic cards have individuals more in debt than ever before in history.

What people consume on credit makes the GDP look better than it actually is.
Another example is the amount Americans spend on medical care. As of 2002 a whopping 14.6 % of our GDP is accredited to what was spent on medical care.

Comparing our GDP to that of many other countries is oranges and apples due to the fact that we spend more on credit and we spend a lot more on medical care. Even the cost of fighting forest fires is added to the GDP.

We ave a lot of "product" that really isn't product.