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News The United States debt

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  1. Dec 6, 2009 #1
    Is it perpetual? I think it will continue to be very large because the US is top dog. How many nations are likely to ask the US for their money back, and what could they possibly do to warrant the US to pay up?

    People seem to like our money, so why not share?
     
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  3. Dec 6, 2009 #2

    Matterwave

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    Debt itself is inevitable, and sometimes preferable; however, the levels as they are now are ridiculous. One of the top U.S. expenditures every year (behind defense, and welfare, and stuff like that) is the repayment of interest on debts owed.

    Not many are likely to ask for all the money back since they are earning interest on it. Also, I'm not sure if they could even ask for the money back since the contract probably stipulates the time the U.S. has to repay (i.e. 50 year loans or something).
     
  4. Dec 6, 2009 #3
    According to

    http://en.wikipedia.org/wiki/List_of_countries_by_external_debt

    the United States are #18 in the world by external debt per capita, behind most of Europe, and #26 by the ratio of external debt to GDP.

    There are many different kinds of debt, and sometimes people are careless when they speak about "debt" in general. Often people talk about "U.S. debt" without being specific, and assume that all of it is money owed by the federal government to foreign countries. In reality, yes, the U.S. government owes a lot of people a lot of money, and much of that is owed to residents like you and me. If you have any money in your 401k - chances are, the U.S. government owes money to you. The country as a whole owes a lot of money to foreigners, but much of that is owed by private companies and not by the government. Et cetera, et cetera.

    It is in the form of bonds of varying maturities. Foreigners can't really ask for the money back, but they can try to sell their existing bonds, and that would raise interest rates that we'd have to offer to get any future debt.
     
  5. Dec 6, 2009 #4
    If you have gov't debt in your 401k, then convert it to something else. Gov't debt tends to pay lower interest, in part because of a tax benefit. Since your 401k is tax deferred, you don't get the tax benefit, just the low interest.
     
  6. Dec 6, 2009 #5

    russ_watters

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    Yes.
    Was that intended to be serious? It isn't like the US is declining to pay her debt - no one has to ask. The US rasises money by doing things like selling bonds, which have a set lifespan and payback. The US always pays them back and they are considered among the safest investments around. Think about it - if they didn't get paid back, people would stop buying them!
    Huh?
     
    Last edited: Dec 6, 2009
  7. Dec 6, 2009 #6

    russ_watters

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    Gov't debt pays lower interest because it is guarnateed. Often there is an equation (such as 110-age) used to calculate the appropriate stock/bond ratio (%) in a portfolio. The older you get, the less risk you can handle, so the more bonds you should hold. Here's some discussion on it: http://www.mymoneyblog.com/archives...step-1-deciding-on-the-stocksbonds-ratio.html

    Interesting graph on that page, showing the range of returns by the stock market from 1950-2005. Over that time, you can see that if you bought stocks (meaning a diverse mutual fund like an S&P index fund) and held for 5 years, you could have lost 2.4% or gained 28.6%, depending on which years they were. But if you bought and held for 25 years, the range goes to all gains, of 7.9-17.2%.

    Unfortunately, we happen to be experiencing the first deviation from that trend since WWII. If you bought stocks near the height of the tech boom, in 1999, you've seen a negative return these past 10 years.
     
  8. Dec 6, 2009 #7
    And because the interest they pay is tax advantaged. I didn't say don't own gov't debt, just not in your 401k.
     
  9. Dec 6, 2009 #8

    russ_watters

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    ....And I was saying that a very large fraction of people do own government debt in their 401k's!
     
  10. Dec 6, 2009 #9
    Sorry, I missed that part. I was only saying that they shouldn't.
     
  11. Dec 6, 2009 #10
    That is arguable. Higher-interest commercial bonds have higher interest because they have higher risk of default.

    And it is also a moot point, because many people hold bonds indirectly. You may think that your money is invested in stocks, but the asset manager of the mutual fund can decide to move any portion of your money into bonds or money market funds (which are, again, really bonds).
     
  12. Dec 6, 2009 #11
    Do you deny that US gov't debt has a tax benefit and this is part of the reason that they pay a lower interest rate than corporate bonds? If you buy this debt, do so outside of your 401k.
     
  13. Dec 6, 2009 #12

    russ_watters

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    I'm actually not sure what tax benefit you are talking about (the whole point of having a 401k as opposed to another type of investment instrument is in the tax benefit!), but either way, every 401k for an older person needs to have a large guaranteed, fixed-income component. It is right to have that in a 401k, not wrong.
     
    Last edited: Dec 6, 2009
  14. Dec 7, 2009 #13
    You don't pay federal income tax on the interest paid by tbonds, tbills, etc. The gov't can sell them at a lower interest rate that way. It's ok to buy bonds for your 401k, just not gov't bonds. It's ok to buy gov't bonds, just not in your 401k.
     
  15. Dec 8, 2009 #14
    That's state income tax. And it only applies to private citizens holding treasure bonds directly, not to foreigners or tax-sheltered accounts or corporations or residents of states with no state income tax, such as Texas and Florida. I suspect that effective interest reduction due to this effect is very low.

    To give an example, ten-year yields are currently 3.45%, and you can pick up some Microsoft corporate bonds maturing in 2019 (not exempt from anything) with current effective yield to maturity of 3.8%. And some of the 0.35% represents risk that Microsoft might be having financial troubles in 2019, with the potential downside of up to -100%.
     
  16. Dec 8, 2009 #15
    I took the liberty of emphasizing the word some.
    Sorry, you are right, it's state income tax, not federal that represents the rest of the 0.35%. And it's a double whammy since not only will you get a lower interest rate, you will pay the state tax on the interest when the money comes out.
     
  17. Dec 20, 2009 #16
    That World Bank data is from Sept, 2008 according to the footnote. Since then, the US national debt has increased from 8 or 9 trillion $ to over 14 trillion. The US debt to GDP ratio is now about 100%.
     
  18. Dec 20, 2009 #17

    russ_watters

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    $12.1 B currently, but the point is valid. A lot has changed since Sept of '08, with a drop in tax revenue combined with a vast increase in government spending via the two bailouts. It's a very big problem.

    http://www.brillig.com/debt_clock/
     
    Last edited by a moderator: Apr 24, 2017
  19. Feb 18, 2010 #18

    Astronuc

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    Simpson, Bowles Take Aim At Deficit Cuts
    http://www.npr.org/templates/story/story.php?storyId=123848421

    Alan Simpson is one of my favorite Washington personalities. I would have like to see him as president. Simpson has a wonderful sense of humor.

    http://www.pbs.org/newshour/rundown...es-national-commission-on-debt-reduction.html
     
  20. Feb 19, 2010 #19
    Raising the retirement age is on the table and yet an expansion of Medicaid is also on the table in another debate.

    So basically, working people will have to work longer and non-working people will be able to retire sooner?
     
  21. Mar 12, 2010 #20
    That is sadly out of date. http://www.bloomberg.com/apps/news?pid=20601087&sid=aVDEHvI9WH_Q" [Broken] has a piece with figures according to the CBO, Congressional Budget Office.
     
    Last edited by a moderator: May 4, 2017
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