Is the Ballooning US Debt a Threat to Our Future Economic Situation?

[Monique]

The US keeps printing extra dollars, but what are the actions being taken to reduce the nation's debts? Alan Greenspan warns that the ballooning debt levels could lead to another crisis at the bond market. Together with the simmering race to weaken national currencies makes me very worried about the future economic situation.

He said the deficit, which hit $1.3 trillion this year, may begin to frighten the bond market, which could undermine the recovery and push the economy back into recession.

"The big, serious problem is whether or not the outlook for the longer-term deficit spooks the bond market to a point where long-term interest and mortgage rates move up very sharply," said Greenspan. "If that happens, that will cause the double dip."

http://abcnews.go.com/Business/wireStory?id=12144826

 

[Astronuc]

I think the financial markets are already skittish based on what I've read recently, and a recent phone call I received.

 

[mheslep]

The US keeps printing extra dollars, but what are the actions being taken to reduce the nation's debts? Alan Greenspan warns that the ballooning debt levels could lead to another crisis at the bond market. Together with the simmering race to weaken national currencies makes me very worried about the future economic situation.

http://abcnews.go.com/Business/wireStory?id=12144826

Noting that you led with the US printing money angle on the debt which will hurt European exports to the US, versus excessive US government spending which won't (not directly anyway), I'm curious if you, as a European (?), feel you have a particularly European concern about this issue?

 

[mugaliens]

The US keeps printing extra dollars, but what are the actions being taken to reduce the nation's debts? Alan Greenspan warns that the ballooning debt levels could lead to another crisis at the bond market. Together with the simmering race to weaken national currencies makes me very worried about the future economic situation.

Apparently, many sentient beings on our planet realize that excessive debt is growing anchor which, when it grows large enough, will pull the entire ship to her watery grave.

Unfortunately, those who were elected continue to believe that spending more and printing more is healthy for the economy, long-term.

Economic Grade: F-

Either that or they know it won't work, but are simply doing it to garner the votes of those who errantly believe it'll work but don't know better.

Either way, if it's not only stopped, but reversed, and I mean like right now, we're economically doomed.

 

[Vanadium 50]

Printing money will have the following consequences:

1. It's inflationary. Inflation transfers wealth from creditors to debtors, and as the US government is in debt, one can see the appeal.

2. Inflation provides additional tax income (in units of constant value). Because the US tax code is progressive, if the dollar is devalued and if people's income remains constant in buying power, the number of dollars goes up, and the marginal tax rate goes up.

3. A devalued dollar provides an advantage to the US in foreign trade, as exports become cheaper and imports more expensive. This, of course, assumes other currencies remain constant in value. Today this is not a very good assumption.

Some numbers (in billions):

US net worth: $60,000
US GDP: $14,600
US public debt: $13,700
US budget deficit for 2010: $1,171
Size of "Quantitative Easing 2": $600

 

[CRGreathouse]

2. Inflation provides additional tax income (in units of constant value). Because the US tax code is progressive, if the dollar is devalued and if people's income remains constant in buying power, the number of dollars goes up, and the marginal tax rate goes up.

Not usually, since brackets are inflation-adjusted each year.

 

[Monique]

Noting that you led with the US printing money angle on the debt which will hurt European exports to the US, versus excessive US government spending which won't (not directly anyway), I'm curious if you, as a European (?), feel you have a particularly European concern about this issue?

Well this is not about Europe, but about the scenario that Alan Greenspan sketches: that this is a big and serious problem and the effect that the deficit is going to have on the bond market. Mugaliens appears to agree, is this a large cloud hanging overhead that could bring some really bad weather?

Since you ask, I think many people frown over the fact that the money seems to be printed so easily. This is however not the main issue at hand, the problem is: how much extra money can you print and for how long can you sustain an economy on that before it backfires?

It is clear that in Europe the governments (are trying to) work hard to limit the deficits. Much to the dismay of many people, I'm sure you are aware of the many strikes and up-rises of people who disagree with the proposed budget cuts. It is not clear to me how the US government is planning to overcome the economic crisis and deficits, besides pouring more money into the system, hence the question.

3. A devalued dollar provides an advantage to the US in foreign trade, as exports become cheaper and imports more expensive. This, of course, assumes other currencies remain constant in value. Today this is not a very good assumption.

And a devalued dollar would make the debts smaller. Can you trust governments who say they'd never deliberately weaken its currency? I mean no one would admit to it, but apparently it's something that governments are now suspecting each other of.

 

[lisab]

Well this is not about Europe, but about the scenario that Alan Greenspan sketches: that this is a big and serious problem and the effect that the deficit is going to have on the bond market. Mugaliens appears to agree, is this a large cloud hanging overhead that could bring some really bad weather?

Since you ask, I think many people frown over the fact that the money seems to be printed so easily. This is however not the main issue at hand, the problem is: how much extra money can you print and for how long can you sustain an economy on that before it backfires?

It is clear that in Europe the governments (are trying to) work hard to limit the deficits. Much to the dismay of many people, I'm sure you are aware of the many strikes and up-rises of people who disagree with the proposed budget cuts. It is not clear to me how the US government is planning to overcome the economic crisis and deficits, besides pouring more money into the system, hence the question.

And a devalued dollar would make the debts smaller. Can you trust governments who say they'd never deliberately weaken its currency? I mean no one would admit to it, but apparently it's something that governments are now suspecting each other of.

It wouldn't surprise me at all to learn that countries do some amount of currency manipulation to serve their own needs.

But with regard to your question, it's timely that you should ask now. Last week, a bi-partisan commission released a list of recommendations (well just a draft at this point) to reduce the deficit.

http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf

I know that's a long report but there are good ideas in there. Cutting spending a bit here and there, raising taxes a bit here and there. Pretty common sense stuff, really. It's not rocket science.

Both the left and the right reacted with heart-felt "Hell no!" So...here we are. Everyone knows we're heading off a cliff and our "leaders" are locked in a dog fight.

Someone get a hose.

 

[Gokul43201]

Well this is not about Europe, but about the scenario that Alan Greenspan sketches: that this is a big and serious problem and the effect that the deficit is going to have on the bond market. Mugaliens appears to agree, is this a large cloud hanging overhead that could bring some really bad weather?

We've had hundreds, maybe thousands, of posts here in the last few months, discussing the debt problem. Most of the discussion, however, has been purely from the American point of view, without very much discussion about more widespread effects. A new thread on this subject is therefore worthwhile, in that the wider global aspects may be debated.

 

[Monique]

We've had hundreds, maybe thousands, of posts here in the last few months, discussing the debt problem. Most of the discussion, however, has been purely from the American point of view, without very much discussion about more widespread effects. A new thread on this subject is therefore worthwhile, in that the wider global aspects may be debated.

Yes, I noticed some of the discussion but didn't want to derail them. I think it would be interesting to go into the widespread effects, especially from a wide point of view.

 

[mheslep]

Printing money will have the following consequences:

1. It's inflationary. Inflation transfers wealth from creditors to debtors, and as the US government is in debt, one can see the appeal.

2. Inflation provides additional tax income (in units of constant value). Because the US tax code is progressive, if the dollar is devalued and if people's income remains constant in buying power, the number of dollars goes up, and the marginal tax rate goes up.

3. A devalued dollar provides an advantage to the US in foreign trade, as exports become cheaper and imports more expensive. This, of course, assumes other currencies remain constant in value. Today this is not a very good assumption.

Some numbers (in billions):

US net worth: $60,000
US GDP: $14,600
US public debt: $13,700
US budget deficit for 2010: $1,171
Size of "Quantitative Easing 2": $600

Nice post V. Also needed in Some numbers (millions): Unemployed 14.6 - the main reason, ostensibly, for the QE2.

 

[mheslep]

Well this is not about Europe,

I'd agree that Europe doesn't get a say in the matter, but of course it is in part about Europe because of Vanadiums aptly put https://www.physicsforums.com/showpost.php?p=2985537&postcount=5":

"With all due respect, U.S. policy is clueless," [German Finance Minister Wolfgang] Schaeuble said [in response to QE2]. "(The problem) is not a shortage of liquidity. It's not that the Americans haven't pumped enough liquidity into the market."

http://www.sodahead.com/united-states/china-russia-attack-fed-move-on-qe2-personally-i-think-they-are-right-and-the-fed-is-out-of-ide/question-1323087/"

"Russia's president will insist ... that such actions are taken with preliminary consultations with other members of the global economy," said Arkady Dvorkovich, a Russian official who is preparing the country's position in Seoul.

The latter is a remarkable comment, given the US central bank doesn't consult with its own government, much less the Russians.

... It is not clear to me how the US government is planning to overcome the economic crisis and deficits, besides pouring more money into the system, hence the question.

The recent election indicates some hope for substantial cuts in spending.

 

[FlexGunship]

Printing money will have the following consequences:

1. It's inflationary. Inflation transfers wealth from creditors to debtors, and as the US government is in debt, one can see the appeal.

This is what leads, and has led, to hyperinflation. Where currency gets cyclicly devauled in each transaction and is usually only solved when a new currency is established.

All currencies are ultimately on this road the moment they are decoupled from a standard. Maybe us Americans will get to use the Euro eventually. :(

 

[lisab]

The latter is a remarkable comment, given the US central bank doesn't consult with its own government, much less the Russians.

That gave me a chuckle...both what the Russians asked for, and your response.

 

[Monique]

This is what leads, and has led, to hyperinflation. Where currency gets cyclicly devauled in each transaction and is usually only solved when a new currency is established.

I think Germany learned a strong lesson about hyperinflation during WOI, they are very strongly opposed to printing money.
An interesting slideshow from TIME: http://www.time.com/time/photogallery/0,29307,1879735,00.html"

 

[loseyourname]

The bond markets are very far from driving US yields through the roof. The US Treasury just issued negative interest TIPS two weeks ago. Investors are literally paying the Treasury nominal dollars to store their money. Yields are at the lowest they've ever been. Our debt load has risen, but we're still at 94.3% external debt-to-GDP, compared to the average of the world's 70 largest economies of 90.8%. The UK is at 408%. Ireland is at 1,267%. With a GDP that is still close to three times larger than any other, and a tax burden as a percentage of GDP that is second-lowest among OECD nations, we're very, very far from reaching any kind of theoretical limit on borrowing capacity.

We certainly need to solve the remaining structural deficit, but short of tripling our existing debt, we're not going to see a bond market crisis. What other country's securities are investors going to start flocking to? US Treasury debt is still far, far safer than anything else out there.

 

[NobodySpecial]

This is what leads, and has led, to hyperinflation. Where currency gets cyclicly devauled in each transaction and is usually only solved when a new currency is established.

This is always quoted as the reason any inflation is bad.
The central banks (at least in europe) were prepared to do anything, any level of unemployment or any cut in spending was justified by a need to keep inflation below 2% or 2.5% or whatever the level of the day was.
Why is moderate inflation, say 5% or 10% so bad? Even 10% means that prices double over a decade - do we need a new currency if a car costs twice as much as it did 10years ago?

Saying it leads to Weimar levels of hyperinflation is as silly as claiming that violent computer games lead to genocide.

 

[FlexGunship]

Why is moderate inflation, say 5% or 10% so bad? Even 10% means that prices double over a decade - do we need a new currency if a car costs twice as much as it did 10years ago?

Well, actually, 10% means that currency is devalued by a factor of 2.6 times (1.10^10) in a decade. The problem is with people who save money. Please don't take this as an insult, but judging by your inexperience with the issue, it seems that you've never lived through an highly inflationary period.

10% inflation means that 401Ks and other retirement plans have no value (or are at least much less secure). That there is no point in saving money since it is devalued so quickly (which creates a run on the banks so that people can spend the money on more stable investments like gold and old vinyl records). That no one will lend money (since inflation shifts debt back to the creditor as the value of the lent money goes down).

You're absolutely correct that inflation on it's own doesn't create hyperinflation. But the public reaction to inflation DOES cause hyperinflation.

Once the value of any fiat currency has been compromised, you cannot restore it.

 

[NobodySpecial]

10% inflation means that 401Ks and other retirement plans have no value (or are at least much less secure). That there is no point in saving money since it is devalued so quickly

Assuming you keep the money under the mattress, stockmarkets and interest rates do tend to track inflation - at least they did in the 70s.
Inflation also destroys debt - as the previous poster pointed out. Which means that things like your mortgage become negligble.
A cynic would suggest that this is why the rich and powerful fight inflation at whatever the cost to the poor.

Once the value of any fiat currency has been compromised, you cannot restore it.

Do you need to?
100 years ago the weekly wage in the UK was less than 1pound, this meant there wasn't enough resolution in the currency to price things - every daily item cost 1 pence. You couldn't introduce a better loaf of bread or pint of beer because it doubled the cost.
Shops, like the coop, had to introduce trading stamps and credit schemes just to give some flexibility.

Is it really so bad to have a currency like the Yen where 1 Yen = smallest amount.

 

[Jimmy Snyder]

I'm not worried that the inflation numbers are not adjusted for inflation. What worries me is the image of a ballooning level.

 

[FlexGunship]

Assuming you keep the money under the mattress, stockmarkets and interest rates do tend to track inflation - at least they did in the 70s.
Inflation also destroys debt - as the previous poster pointed out. Which means that things like your mortgage become negligble.
A cynic would suggest that this is why the rich and powerful fight inflation at whatever the cost to the poor.

I also mentioned that inflation destroys debt. Remember what happened last time someone destroyed debt? Credit markets froze and the Great Recession of 2008 started.

Prior to 2008, you could've made an argument that removing debt from debtors was a good thing, and only punished wealthy creditors. Well, as it turns out, everyone in an economy relies on wealthy creditors because they're the only ones with enough money to to generate upward capital growth trends.

Every time the "poor" try to overrun the "rich" a nation's economy falls apart.

100 years ago the weekly wage in the UK was less than 1pound, this meant there wasn't enough resolution in the currency to price things - every daily item cost 1 pence. You couldn't introduce a better loaf of bread or pint of beer because it doubled the cost.
Shops, like the coop, had to introduce trading stamps and credit schemes just to give some flexibility.

Is it really so bad to have a currency like the Yen where 1 Yen = smallest amount.

Resolution in currency is a real problem; you're right. However, you're quoting a time when currency was only loosely established and was still on a gold standard (in fact that's where "pound" comes from). Actual exchanges rarely used currency like we think of it now; instead, most establishments would build tabs and send out monthly bills. Even then, it was common to cut up currency (pence) and pay in fractions.

Furthermore, the effective inflation rate since 1900 in the UK is 9348% (http://www.thisismoney.co.uk/historic-inflation-calculator) which is a yearly average less than 5% which is a relatively normal rate. (x¹⁰⁰ = 94.38, solve for x. x~1.0465) Obviously two world wars severely effected it for short amounts of time. Ignoring those, the average is about 2.4%.

As John Maynard Keynes outlined in 1920, inflation is the best tool by which a government can recoup it's money from the governed.

By a continuous process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and while the process impoverishes many, it actually enriches some" (http://en.wikipedia.org/wiki/Gold_standard#British_hesitate_to_return_to_gold_standard)

Anyway, my point is that currency resolution is not a very good reason to devalue everyone's money.

 

[FlexGunship]

I'm not worried that the inflation numbers are not adjusted for inflation. What worries me is the image of a ballooning level.

Inflation, by it's nature, is exponential. Like compounding interest. I would say anything that exceeds x¹⁰=2 is probably far too high to be sustainable by a working population.

 

[mheslep]

The bond markets are very far from driving US yields through the roof. The US Treasury just issued negative interest TIPS two weeks ago. Investors are literally paying the Treasury nominal dollars to store their money. Yields are at the lowest they've ever been. Our debt load has risen, but we're still at 94.3% external debt-to-GDP, compared to the average of the world's 70 largest economies of 90.8%. The UK is at 408%. Ireland is at 1,267%.

Yes, true for external debt. Given the internal wealth of the US it is no surprise that the much of the debt is held internally as compared to other nations. I don't know that the internal/external distribution has much to do with the total risk of default of a government, the implied topic of this thread. For that risk, I look to the public debt of governments vs GDP. http://en.wikipedia.org/wiki/United_States_public_debt#Statistics_and_comparables" for 2011 should be US: 100%, UK: 79%, Ireland: 93% (up from 28% in 3-4 yrs, the rate of increase is much of their problem). Moodies has suggested they'll downgrade US debt in the next decade should the trend continue.

 

[loseyourname]

Yes, true for external debt. Given the internal wealth of the US it is no surprise that the much of the debt is held internally as compared to other nations. I don't know that the internal/external distribution has much to do with the total risk of default of a government, the implied topic of this thread. For that risk, I look to the public debt of governments vs GDP. http://en.wikipedia.org/wiki/United_States_public_debt#Statistics_and_comparables" for 2011 should be US: 100%, UK: 79%, Ireland: 93% (up from 28% in 3-4 yrs, the rate of increase is much of their problem). Moodies has suggested they'll downgrade US debt in the next decade should the trend continue.

Interest charges right now are 7% of the federal budget and have actually declined since last year thanks to all of the low-rate refinancing since the Fed trashed interest rates. There is zero chance of a US default in the next 30 years (which covers the maturity of every T-bond in circulation). Bond agencies don't rate US debt. It's implied default-free. Ireland's interest rate is pushing toward 8% for the 10-year note right now. Ours is just above 1%. If we paid their rate, nearly 60% of our budget would be eaten up by interest charges. That's a huge and important difference. Their government is crippled by an inability to spend on anything else.

There is, however, a good chance we'll need to raise taxes if we keep up all of the deficit spending. I'm not saying it's a good thing. But it's not armageddon. We're not going to default at a 17% of GDP tax burden and 0.5% of GDP interest charge. Not even close.

And the reason the distinction between internal and external debt matters is that external debt is money leaking out of an economy. Internal debt is shifting income from taxpayers to bondholders, but they're all Americans in the same economy. Ireland is sending half of its taxes overseas. We're not.

 

[mheslep]

Interest charges right now are 7% of the federal budget and have actually declined since last year thanks to all of the low-rate refinancing since the Fed trashed interest rates. There is zero chance of a US default in the next 30 years (which covers the maturity of every T-bond in circulation). Bond agencies don't rate US debt. It's implied default-free.

<shrug> http://www.nytimes.com/2010/03/16/business/global/16rating.html?_r=1":

That sobering assessment, issued Monday by Moody’s Investors Service, provided a reminder that even Aaa-rated United States Treasury bonds, supposedly the safest of safe investments, could be downgraded one day if Washington failed to manage the federal debt.

Moody’s said the United States and other major Western nations, particularly Britain, have moved “substantially” closer to losing their gilt-edged ratings. The ratings are “stable,” but “their ‘distance-to-downgrade’ has in all cases substantially diminished,” the credit ratings agency said

http://www.businessinsider.com/us-debt-downgrade-moodys-2010-5"

For the U.S., debt service of 18%-20% of federal revenue is the outer limit of AAA-territory,

And BTW, the US is going to effectively default on the service it owes for Medicare. That's inevitable now.

Ireland's interest rate is pushing toward 8% for the 10-year note right now. Ours is just above 1%.

Well http://www.bloomberg.com/markets/rates-bonds/government-bonds/us/" but ok.

If we paid their rate, nearly 60% of our budget would be eaten up by interest charges. That's a huge and important difference. Their government is crippled by an inability to spend on anything else.

I agree the US is not Ireland. But the difference comes only from the confidence in the US ability pay off.

There is, however, a good chance we'll need to raise taxes if we keep up all of the deficit spending. I'm not saying it's a good thing. But it's not armageddon. We're not going to default at a 17% of GDP tax burden and 0.5% of GDP interest charge. Not even close.

That's the federal tax burden alone, the balance (state/local) also matters to the individual tax payer. It is not an absolute given that just raising taxes will decrease deficits. Nodody knows for sure where the http://upload.wikimedia.org/wikipedia/commons/thumb/3/36/Laffer-Curve.svg/250px-Laffer-Curve.svg.png" lies, but I grant it is likely a bit farther up.

And the reason the distinction between internal and external debt matters is that external debt is money leaking out of an economy. Internal debt is shifting income from taxpayers to bondholders, but they're all Americans in the same economy. Ireland is sending half of its taxes overseas. We're not.

Agreed, but I suppose that goes to the overall economic health of the country, and not so much directly the tax revenue stream. After all, gov. bond income is tax deductible.

There's another lesson here from Ireland. There's not unreasonable talk about the Ireland's and Greece's wrecking the EU as a whole. The US may suffer similarly from some of its more irresponsible states. Ireland's GDP is ~$285B. California's is $1850B.

 

[rhody]

Consider this:

For the first time I can remember in my over 50+ plus years, a number of young engineers I work with (24 - 28) are buying silver, 250$ bars a piece. They asked me if I wanted in on some as well. I know, images of burying them in your back yard or woods at dusk come to mind.

They are doing this in a group buy, to have, and I quote: "A bartering tool in case everything goes to ...". This is pretty telling, and gives me pause. For young, healthy, smart, conscientious people to do this says a lot.

Rhody...

 

[mheslep]

Consider this:

For the first time I can remember in my over 50+ plus years, a number of young engineers I work with (24 - 28) are buying silver, 250$ bars a piece. They asked me if I wanted in on some as well. I know, images of burying them in your back yard or woods at dusk come to mind.

They are doing this in a group buy, to have, and I quote: "A bartering tool in case everything goes to ...". This is pretty telling, and gives me pause. For young, healthy, smart, conscientious people to do this says a lot.

Well maybe it says something, but not 'a lot', at least not to me. Smart conscientious people bought houses in the last ten years thinking they had a guaranteed flip even though the houses were appreciating $1000/day by just sitting in the sun. Same with stock market, etc, etc.

 

[Astronuc]

Consider this:

For the first time I can remember in my over 50+ plus years, a number of young engineers I work with (24 - 28) are buying silver, 250$ bars a piece. They asked me if I wanted in on some as well. I know, images of burying them in your back yard or woods at dusk come to mind.

They are doing this in a group buy, to have, and I quote: "A bartering tool in case everything goes to ...". This is pretty telling, and gives me pause. For young, healthy, smart, conscientious people to do this says a lot.

Rhody...

I remember around 1980 when gold was going up. Some guy invested a bunch of money in gold, and I think he borrowed money to invest in it. Then the price of gold collapsed. He lost a bunch of money, and apparently he started stealing from the company where he worked. He was caught, and fired.

http://buying-gold.goldprice.org/2008/01/what-happened-to-gold-price-in-1980.html
http://goldprice.org/buying-gold/uploaded_images/gold-chart-757127.gif

I see that happening again to some people.

 

[turbo]

I remember around 1980 when gold was going up. Some guy invested a bunch of money in gold, and I think he borrowed money to invest in it. Then the price of gold collapsed. He lost a bunch of money, and apparently he started stealing from the company where he worked. He was caught, and fired.

I know antique pickers and dealers, and they are always buying and selling gold - chasing the differential between what they have to pay and what they can get on the spot market. The only gold that I know of that any of them have put aside are pieces with real craftsmanship, like the antique pierced floral wedding band that I bought for my wife many years ago. Very heavy with three colors of gold, likely made in Germany. Neither of us could have afforded to splurge on rings when we were married, so when gold prices spiked and people were dumping old jewelry, I asked my picker friend to keep an eye open for a really unique band.

The point is, none of the antique guys I know hoard gold as a commodity. It's not a good idea. If our economy collapses and the dollar tanks, who can buy your gold? Can you barter a gold bracelet for your groceries, assuming retail grocery stores and food-distribution systems still exist in a viable form? As often as gold spikes, it also tanks, losing lots of money for people who fall into the "precious metal" hedge against inflation.

 

[rhody]

Well maybe it says something, but not 'a lot', at least not to me. Smart conscientious people bought houses in the last ten years thinking they had a guaranteed flip even though the houses were appreciating $1000/day. Same with stock market, etc, etc.

I remember around 1980 when gold was going up. Some guy invested a bunch of money in gold, and I think he borrowed money to invest in it. Then the price of gold collapsed. He lost a bunch of money, and apparently he started stealing from the company where he worked. He was caught, and fired.

http://buying-gold.goldprice.org/2008/01/what-happened-to-gold-price-in-1980.html
http://goldprice.org/buying-gold/uploaded_images/gold-chart-757127.gif

I see that happening again to some people.

mheslep, Astronuc,

These people are just making a small investment, a few bars each. Maybe it is something of a fad or to be cool, I am not sure, but the fact that they are justifiably concerned about the future was my point. They are a well rounded, fun bunch to be around and interact with. Thoughts like this never entered my mind at that age, having fun and exploring was my focus.

Rhody...

 

[Astronuc]

mheslep, Astronuc,

These people are just making a small investment, a few bars each. Maybe it is something of a fad or to be cool, I am not sure, but the fact that they are justifiably concerned about the future was my point. They are a well rounded, fun bunch to be around and interact with. Thoughts like this never entered my mind at that age, having fun and exploring was my focus.

Rhody...

As mheslep indicated, they are speculating that the price of silver will continue to increase, just as people expected housing prices to continue to appreciate, or stocks to continue to appreciate - until they didn't - and then the prices fell significantly.

I had a friend telling me in 2006/2007 that housing prices would continue going up. I disagreed and pointed out that was unsustainable and prices were likely to go down. I also said the same about the stock market.

Speculative bubbles often burst.

 

[turbo]

I had a friend telling me in 2006/2007 that housing prices would continue going up. I disagreed and pointed out that was unsustainable and prices were likely to go down. I also said the same about the stock market.

Speculative bubbles often burst.

My wife and I could see the housing market approaching the tipping point, and we bought this little log house in 2005, and finally unloaded our big old place in 2006, near the peak of the market. One of my friends (who was the agent who sold our place) and his wife followed suit soon after and bought a small fixer-upper, and sold their large renovated farm-house. Some of our friends questioned our judgement (and probably sanity), but not after 2006/2007 came down.

There were many on this forum who denied that we were in recession, long after it was quite clear that we were. Those of us who hunkered down early, down-sized, and diversified may come out of this nasty situation with most of our skin. Many won't, including middle-class cheerleaders for the GOP who had no idea what was coming down. The conservative fundamentalist Christians who bought our house defaulted and lost it to foreclosure. They paid top price, and got their loan through a mortgage company that was not a bank. The company loaned money, and sold the mortgages, keeping transaction fees, etc. That was a bad sign, when my own bank was reluctant about cashing the check we got at closing.

 

[PhilKravitz]

Is there a tread for US deficit as opposed to debt?

The numbers for the federal 2010 deficit from http://en.wikipedia.org/wiki/2010_United_States_federal_budget are:

total income 2381 billion
total out 3552 billion (including -800 billion of accounting provisions)
deficit 1171 billion

now if we say social security (at 667 billion for the year outlay) has it's own revenue stream (and 2,500 billion in the bank in US treasury bills) and is "off budget" we are left with:

total income 1703 billion
total out 2874 billion (including -800 billion of accounting provisions)
deficit 1171 billion

So the federal government sans social security borrows 40.7 cents of every dollar it spends.

My question is, who are we borrowing from? Do deficits matter? If so, why?

 

[rhody]

When I heard about this, News radio on the way to work yesterday, it took me here:

http://www.stansberryresearch.com/pro/1011PSIENDVD/PPSILCCJ/PR

If you want to read what is presented on the video, close the page and choose the cancel option, the verbatim text is displayed as html.

http://www.stansberryresearch.com/pub/psi/index.asp"

His speech gave me pause, however it turns out that Porter has solutions to the impending crisis. I don't dispute some of his background facts, although I am sure some will disagree. I am not going to be buying his Newsletter anytime soon.

What struck me the most was this, quote from about 1/2 way down the html text.

Like I said, most Americans don't believe the U.S. dollar could ever lose its spot as the world's reserve currency.

But I am here to tell you... this process is already well underway.

For example, although it went almost completely unreported in the U.S. press, last fall, a group of the world's most powerful countries, including China, Japan, Russia, and France, got together for a secret meeting – WITHOUT the United States being present or even knowing about the meeting.

This could all start by a group of foreign governments deciding to not accept dollars at the prevailing rates, imposing discounted rates. We would have to deal with the fallout, and it will not bode well for the average American, people on fixed incomes, etc... etc...

It kept me up when I first read it. Considering myself a pragmatic realist I felt I would share it with the folks in this thread. I am hoping what Porter describes does NOT come to pass.

Rhody...

 

[PhilKravitz]

Rhody, this guy seems to be saying the value of the dollar could decline significantly. But he did not say how much. Would a 50% devaluation bring enough manufacturing back from China that we would have a balanced foreign trade? Or would it take a 90% devaluation? I do not know how to calculate this number. Anybody have any references on how much devaluation will be needed to balance trade and make the deficit spending small enough (in real value) that nobody outside the US cares?

At 90% everybody on a pension or social security will have to go back to work.