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Why is America in debt and how can we fix it?

  1. May 8, 2015 #26
    This wikipedia article has a list of countries that have done just that. See if you can detect any common themes between them.

    One thing to consider is just who it is you're defaulting on. This linked Forbes article indicates that, as of late last year, 65% of that debt is owned domestically. 16% is owned by social security. Think about that. Of our 18 trillion dollars of federal debt, almost 3 trillion is owed to social security. What happens if/when we default on that?
     
  2. May 8, 2015 #27
    The economy is always growing in the long-term though, so the right analogy would be a business with more spending than revenues (deficit), but despite that, the company value (assets - debt) continued to increase. In such a case, the debt in % of its value would be decreasing, and so it'd be on the right track as the debt became ever more meaningless.
    In any way, declaring bankruptcy would shake-out the confidence in US government and the dollar so bad that it would cause an avalanche of problems in the future, namely causing a financial crisis in the banks (who borrow heavily to US government) and the World economy would fall off all over again like a house of cards. It'd increase the deficit further as a result, and the government wouldn't be able to borrow anymore with low interest rates. There's a strong non-linear effect in declaring bankruptcy, to the negative side.
     
  3. May 8, 2015 #28

    phinds

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    Sure, for a business that is doing that but the US Government is NOWHERE near doing that. You don't seem to understand that the entitlements are going to bankrupt us whether we like it or not if there is no reform. We are growing the debt relative to the economy, NOT growing the economy relative to the debt.

    I agree.
     
  4. May 11, 2015 #29
    Yes if your wealth is in liquid form like bank savings account, or fixed income stream, like interest on some bonds, but not so much, if at all, if it is in productive assets, like houses you rent, or farm.
     
  5. May 12, 2015 #30
    And where are us debtors supposed to get the money to pay for whatever you sell? Our view of business people and entrepreneurs has become so mythic I sometimes wonder if they dress in phone booths and fly from place to place under their own power.
     
  6. May 12, 2015 #31

    phinds

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    You are simply using my comment as a springboard to make your own point without really paying any attention to the validity of my point.

    Would you prefer that you be in debt AND that people not create new businesses?
     
  7. May 13, 2015 #32
    Yeah I get the investment thing. But governments are not businesses; they have a different responsibility. People start businesses to make money in a way they find agreeable for one reason or another. Governments are responsible for the people--or at least should be. I went through a lengthy bout of unemployment back in 2008. I hadn't bought a house that I couldn't afford, I didn't make a loan to someone for a house they couldn't afford, but I was out of a job anyway. I was on the dole for quite a while; it as not a good time--but, selfish person that I am, I preferred it to going hungry.
     
  8. May 13, 2015 #33

    phinds

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    You are simply remaking the point I already made in post #28.
     
  9. May 13, 2015 #34

    SteamKing

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    The debt today is being financed at historically low interest rates, which cushions the blow somewhat. If interest rates should rise in the future, the pain will come back quick and come back hard. Does your wayback machine opine on the interest rates prevalent in 1989 for government debt?
     
  10. May 13, 2015 #35

    phinds

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    Again, the problem is not so much the interest rate on the debt (not saying it doesn't matter), it's that the AMOUNT of debt added each year by the entitlements programs is eventually going to be impossible to sustain at almost ANY interest rate.
     
  11. May 14, 2015 #36

    BobG

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    Ironically, part of the reason for that is better communications.

    There was a time when Congressmen accepted a basic responsibility to keep the government running. Yeah, during wars or national crises, we might run a debt, but the long term mode was you decided how much money you could bring in and the amount of money you brought in was how much you had to spend.

    Congressmen made deals to do as well for their districts as they could, but there were usually no serious consequences if they didn't succeed. Regardless of success or failure, they'd go back and tell their voters whatever they wanted to and how were voters to know if they were telling the truth or lying.

    Nowadays, voters know what their Congressmen have done or not done and hold them accountable. It's important to people in Congress that everyone in Congress win because losing half the time could get them all fired by their voters. Hence, these agreements where "I'll let you win lower taxes if you let me win higher earned income credit" type agreements.

    Of course, that's changing, too, as special interest groups start holding Congressmen an even stricter level of accountability. It's getting to the point where Congressmen aren't being held accountable for losing - they're being held accountable for not burning down the houses of their enemies. Don't know whether things are changing for better or worse, but they are changing.

    In some ways, I feel like we're moving from a representative republic run by professionals (even if some of those professionals are corrupt) to a direct democracy of amateurs.

    Which isn't saying voters are stupid. It's asking how many voters have the ability to hold down a full time job, plus become an expert on how to run the government of the world's major superpower. I'm wondering if we weren't a little better off when we knew a little less and the professionals had the freedom to do what they pleased.
     
    Last edited: May 14, 2015
  12. May 14, 2015 #37
    http://observationsandnotes.blogspot.com/2010/11/100-years-of-bond-interest-rate-history.html shows 1989 interest rate on US treasury bonds of 8-9%, compared to rates today of about 2%. It also shows that today's rates, though low, are not historically unprecedented.
    So, if we come around to the second theme in the thread topic, how can we fix this?
     
  13. May 14, 2015 #38

    phinds

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    Although the workings of the government are a bit afield from the original thrust of this thread, I was to follow up on BogG's comment:

    Another thing that has been at least partially responsible for poor government (gridlock) is the relatively new rules (/laws / whatever) that prevent pork projects. In the past, the first step in a politicians learning to compromise with the other side was in getting help bringing home the bacon for his district/state and in return helping others do the same for theirs. This level of deal-making wasted a lot of money, which of course is why it has been banned, but it did get the lawmakers accustomed to working with each other. Now, it seems, there is no motivation whatsoever for any compromise of any kind.
     
  14. May 14, 2015 #39

    phinds

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    It seems very clear that with our current form of government (government by opposing groups that totally demonize each other and cannot / will not work together) it cannot and will not be fixed until the crisis is upon us. Government by brinksmanship seems to be the name of the game, somewhat more for Republicans than Democrats but neither side is blameless.

    I weep for my children's future.
     
  15. May 14, 2015 #40
    Exploring this theme a little further, is there a form of government that can and has resolved a similar difficulty that we could emulate?
    Is there a well defined difference in the form of government between Greece and Germany for example, or are financial fates a matter of luck?
    Would you recommend a career in politics to them?
     
  16. May 14, 2015 #41

    phinds

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    It genuinely doesn't matter. We are not going to change our form of government, regardless of any evidence that there is a better system (not that I know of any that are better).

    Not unless there is a radical change in how our "leaders" operate. It's true that if no one tries, nothing gets done, but in today's climate, trying to change the government is nothing more than an exercise in what the military calls "pissing up a rope". You may get yourself wet, but you will have no effect on the rest of the world.
     
  17. May 15, 2015 #42
    The Balance of Payments crisis will be resolved in one of two ways. Either the bill will be paid or it won't.

    If it is paid there are two options.
    The mostly foreigners and largely Chinese could purchase a large amount of real estate in the US. This might leave some folks unhappy, but rumour has it that the US one of the few countries that allows such foreign ownership. It would be quite a shock to see most of America owned by foreigners.

    Or US workers could see their working conditions degrade to resemble Bangladesh, so they would be competitive and remain so for likely thirty years, or as long as it takes to pay it off. This might result in much protest and upheaval.

    Not paying is another option.
    That may be easy with China. There has been a bit of contention in the South China Sea, and as China flexes its military a show-down over Taiwan is likely. As both nations are aggressive, especially the US, this could easily result in default, and possibly even a nuclear exchange.
     
  18. May 15, 2015 #43

    phinds

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    Did you not read post #26 or did you not believe it?
     
  19. May 16, 2015 #44
    Except a few harmful quirks of US political system (voting algorithm that encourages 2 parties polarization and draining money to your district; freedom of speech means right to be chatty with your money; possibility to sabotage central gov through debt limit / gov shutdown), that's mostly people. If the USA impose after WW2 its constitution on Germans, then they would anyway behave in their own, more compromise aimed way.

    Assuming that there is a simple fix to US system, I'd say more decentralization. It would not solve problems, however, it would let a few crazy ideas being tested and no-one would dare to express his support for them any more.
     
  20. May 16, 2015 #45

    phinds

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    I can't figure out what you are saying in this sentence.
     
  21. May 16, 2015 #46
    Imagine making the USA more decentralized and a state where Tea Party would have really big power and implemented a few utopian ideas.

    Let them locally cancel safety net and apply gold standard.

    Do you think that after a few years many people would try to convince you that such idea should be repeated in other places? ;)
     
  22. May 16, 2015 #47

    phinds

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    I believe you are right in that particular case, but it's a horrible solution
     
  23. May 17, 2015 #48
    You know, now we have in Poland presidential election, some I'm in somewhat sadistic mood.

    Honestly speaking I see one serious problem:
    -when I suggest some undemocratic ideas to deal with populism - then people around tend to be unhappy;
    -when I suggest some ultra-democratic ideas to deal with populism - then people around tend to be unhappy too.
     
  24. May 17, 2015 #49
    Well they could start by rescinding 90% of the laws that were passed since 1970. Then they need to cut government employment to 70s levels and give control of everything back to the states. There will be another great depression as the economy sorts itself out but after the suffering is over we will have a healthy sustainable economy.
     
  25. May 17, 2015 #50

    phinds

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    Uh ... you're SURE about that, are you?
     
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