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

1. Jun 2, 2015

### Czcibor

Such calculation is a bit tricky. How to calculate for example Korea, where similar policy worked, and those from Southern live in 1st world country, while the North live in effectively one big Gulag.

Or should we count only when policy failed, while ignore cases where the same policy worked just fine?

2. Jun 2, 2015

### SW VandeCarr

Look up your facts before you post!

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

47,424 combat deaths, 10,785 non combat deaths, total killed: 58,209; wounded: 153,303; total casualties: 211,454

3. Jun 2, 2015

### PeroK

You're still forgetting the casualties on the Vietnamese side. But, I guess, they really don't matter to you, do they?

4. Jun 2, 2015

### Greg Bernhardt

Keep discussion civil please and on topic to "Why is America in debt and how can we fix it?"

5. Jun 2, 2015

### Staff: Mentor

It's worth noting that this is how the US government has historically dealt with most of its debt, at least since the Federal Reserve was created: it simply inflates it away.

Not if you inflate it away instead.

Last edited: Jun 2, 2015
6. Jun 2, 2015

### Staff: Mentor

Please everyone stay on topic. Off topic posts will be deleted.

7. Jun 2, 2015

The "wealth tax" effect is there, yes, but the actual consequences depend on how you print the money and who you give it to. Right now the Fed's main method of printing money is "quantitative easing", which means allowing banks to lend money (mainly for loans on real estate--not just residential but commercial) that the banks don't actually have--it gets printed on the spot when the loan is created. Technically, the bank does have a reserve requirement, i.e., it has to put up some of its own money before the Fed will print the rest; but for banks in the "upper reserve tranche" (I believe that's the term), which is basically any bank you've ever heard of, the reserve requirement is 3%--i.e., for a $500,000 mortgage, the bank puts up$15,000 and the Fed prints the other $485,000. That's not significantly different from no reserve requirement at all. So the main beneficiaries of the Fed printing money are: (1) lending banks, who make money through fees on loan origination; (2) investment banks, who make money on the various creative derivatives built on top of the loans; (3) construction companies, who benefit from the increased demand for real estate; (4) realtors, same; (5) owners of real estate who happened to buy in at the right time. The combination of these is probably more than enough to offset the "wealth tax" effect of inflation. 8. Jun 3, 2015 ### Dotini We are in debt, nationally and globally, because we have borrowed more than we can hope to ever pay back. Devaluation of the currency is the obvious fix, though it will be painful for many, and likely be the cause of unintended consequences. Proposition: If we democratically choose to inflate, then suffer the most terrible of consequences, our actions will have been justified by their well-intentioned motives. Otherwise, progress is impossible. 9. Jun 3, 2015 ### OmCheeto Are you familiar with the City of Bell scandal? It seems to contradict your assertion. In the end, seven Bell city officials, ... were convicted on graft and corruption charges and given sentences ranging from probation to twelve years in prison. I suppose, since you used the phrase "can be", your assertion isn't totally wrong. But to me, the answer as to why we are in debt, is simple: We've elected officials who put us there. As to why we keep electing these boobs, is somewhat complicated. And I'm sure we've discussed it before, so I won't go there. 10. Jun 3, 2015 ### aquitaine We kind of have ourselves to blame for that one. There are too many who wanted something for nothing, which can last for quite a while until we start running out of other people's money. But now that it's starting to happen it's a question of which promises are we going to keep and break. 11. Jun 5, 2015 ### OmCheeto This combination of following articles reminded me of this thread: Today I saw that one of my Facebook friends shared the following: Now, in the national big picture,$100,000,000 isn't really that big a deal. It's only 31⊄ per American.

But let's say you work all year, save up all your money, through all your money away at the end of the year, and buy everything you need from someone else, on credit.
Sounds like a recipe for debt to me.

Of course, the "discussed before" comment I made on Wednesday, was referring to a grand old thread: "What is wrong with the US economy? Parts 1 & 2"
It's fun to go back:
Post #1, Sept 3, 2006; "Nothing!"
Post #2, Sept 17, 2006; "[Think again]"
Posts #3 through #2254; "Blah blah blah blah blah........"
Post # 2255, Apr 3, 2009; "hmmmm......" {end of discussion}​

And of course, much of the problem can be blamed on inattentive idiots:

Last edited by a moderator: May 7, 2017
12. Jun 5, 2015

### SteamKing

Staff Emeritus
The Apple story is pretty much the same as the Immigration story.

There are a record number of people who are no longer in the work force, because of layoffs, plants moving offshore, whatever.

At the same time, there are some who say we should let as many immigrants as possible into the U.S. because there are all these jobs that "Americans won't do."

Somebody's lying, big time.

13. Jun 5, 2015

### gleem

They won't take some jobs because they are not desirable, they are too hard, or they don't pay enough and are often seasonal. I live in an area that requires a lot of lawn care. We have a large Hispanic (Mexico and Central American) workforce. It hits the high mark in summer when it is very warm (here) . This is not a job most Americans would accept. American in fact never liked agriculturally related jobs that is why we had a migrant work force for decades. I also see crafts persons from central america and china. I have heard that Honduran women where sought after for domestic jobs because they were good workers.

Although companies say that their greatest resource is their workforce it is also their greatest expense. Obviously it is the greatest target for cutting costs. (moving production offshore, automation, using only part-time help or simply selling foreign products.). Even though some manufacturers try to keep jobs in the States they find it difficult to compete with those who use foreign goods. One struggling US furniture company was contacted by a Chinese company who said sell our product and you will make more money. But doing so would put his craftsmen out of a job.

Are we as citizens supporting our own infrastructure? I think not too much. US consumers want cheap products. What is left for US citizen to do? Service jobs: waiting tables, bar tending, domestic services, private trainers, personal shoppers, private tutors, security services, Yacht crew ( David Geffen's 450 ft Yacht "Rising Sun" has a crew of 50- Greed is good), pick your dream job. Health care may be one that will continue to grow and be desirable as we slowly eat and drink ourselves to poor health. Checking the classified in my small local newspaper I estimated that there are at least 40 jobs many in health care and many others requiring experience or specific skills (HVAC, pumbling ...).

Finally how many professionals do we need. computer analysts?, accountants, MBA's, physicists. Well I guess the job market will tell us.

We are producing new products so fast that they hardly hit the market before they are unfashionable or obsolete. To me this is maddening. I hate shopping and therefore I am a poor consumer. It is an economic Bolero and like Bolero the tempo won't (can't) continue forever. When the music stops will there be enough "chair" for everybody?

14. Jun 5, 2015

Staff Emeritus
Anyone who visits Academic/Career Guidance knows that there are jobs that Americans won't do. "I have a bachelor's in physics! I will not sully my hands working in..in...commerce! How dare you even suggest such a vile thing!"

More seriously, the U6 is 10.8%, down from a peak of 17% in 2010. It was that high in 1994, and almost that high in 2004. The U3 rate is 5.5%, which it llast was in 2004, 1988, 1996, 1974 and more. (Of course because the population is increasing, the total number of unemployed is also increasing, but I'm sure that's not what you need) What is new is that white collar workers are starting to show the same job market volatility as blue collar workers did in the past. There are lots of reasons for this. There are jobs, like travel agent, which practically don't exist any more. The are jobs, like insurance appraisers, where technology has dramatically reduced the numbers needed. College degrees, once the ticket into a cushy white collar job, are not as demanding as they were, and employers have responded accordingly. Communications improvements now let many white collar jobs be outsourced. And, as I alluded to above, recent grads are generally fussier about what jobs they won't do - although obviously not to that degree.

15. Jun 5, 2015

### Staff: Mentor

The irony of those threads, that when there wasn't much (outwardly, anyway) wrong they are active and when there was much wrong, they died.

16. Jun 10, 2015

### OmCheeto

For the most part, I enjoyed all of those threads, as I was always learning something new, and usually peculiar.

June 2009 thru July 2012:
Looking back again, I find it amusing that any of us thought we could predict how it would all shake out, when the Economists didn't seem to have a clue.
It was pure luck, IMHO, as to who was correct back then.

hmmm.... I appear to be having a senior moment of nostalgia. Perhaps I should get back to the present.

I guess I have nothing to add, except, whatever happened to the OP? He hasn't been around in over a month.

17. Jun 19, 2015

### JonDE

Doesn't increasing inflation generally lead to an increase in interest rates on government bonds though? For example, if inflation was 6% buying a bond that pays 2% would seem to be a terrible investment, it would seem to be a better investment to buy almost anything else.

As for SS, correct me if I'm wrong, but I don't believe that it is even a source of debt or deficit at the moment. From the way I understand that how it works, when SS runs a deficit, intra-governmental bonds (those that are held for SS) are sold to pay for it, since the government would then run a larger deficit, more extra-governmental bonds (not sure that's a term, but I think its obvious what I meant) are sold. Since both are counted towards the total debt, there is no increase in total debt. Its just transferring debt from between the government to outside the government. Of the 16 or so trillion we are in debt, none of it is from social security and can't be until the SS trust fund runs out of bonds, which last estimate I saw, wont be until the 30's. So I don't see it as a viable short term problem or answer.

18. Jun 20, 2015

### Staff: Mentor

Yes, but not nearly enough to compensate for the inflation. In other words, the US government can reduce its debt in real terms by printing more money, even after you allow for the effect that printing the money will have on the interest rate on the debt.

But that makes a big difference. Debt that the US government owes to itself can be handwaved away by politicians--which is, of course, exactly what they have been doing for decades about the fact that the SS trust fund's surplus has been used to finance other government activities. Debt that the US government owes to outside entities has to be taken more seriously--for example, it can cause the US government to want to print more money in order to inflate the debt away, which doesn't happen with debt owed from one part of the US government to another.

19. Jun 20, 2015

### JonDE

Is there evidence of this though? Looking at it from an investor's perspective, if the interest rate didn't keep up with interest, then it would be less appealing, driving down demand, and driving price up. That and the treasury sells some Treasury Inflation Protected Securities (TIPS) that are adjusted for inflation, which wpuld completely negate any attempt to inflate away debt, they don't normally sell well because they are considered a bad investment.
But I don't hear politicians hand wave this away, in fact the only numbers I ever hear are the total debt number and the total deficit number. Most of us have heard at one point what the deficit is, but can you honestly say you have ever heard of what the deficit is minus the portion owed intragovernmentally?

20. Jun 20, 2015

### SteamKing

Staff Emeritus
Some investors look at other things besides interest rates. Investors, above all, want to make sure that if they buy a government bond, the government is going to be there when this bond matures, so they can get their money back, and maybe some interest. You can't say that about Greek government bonds, or the bonds of many other countries around the globe. Even at the abysmally low interest rates which U.S. Treasury bonds are currently fetching, there aren't a lot of investors who would touch a Greek bond, no matter what interest rate is being offered.

It all depends on the amount of TIPS securities sold versus the amount of other types of debt instruments sold by the Treasury. If there is only a small fraction of outstanding debt in TIPS, it doesn't really matter that these bonds are "inflation protected", 'cuz the government just sells that much additional debt down the road, when the bonds are redeemed, to make the bondholder protected against inflation, by the way, which is a number conjured up by the same government selling the TIPS in the first place. IMO, to make the process fair, someone else should decide how much the rate of inflation is than the seller of the bond.

Since when do you expect politicians to tell the truth, the whole truth, and nothing but the truth? Just because you limit yourself to keeping track of only two numbers, this does not mean that these numbers are the only critical information to be considered. Much additional information can be gleaned from reading all sorts of government reports and white papers prepared by think tanks.

It's in the interest of incumbent politicians not to talk about possible insolvency in government programs like Social Security. If they did that, even low-information voters might get scared and vote for the other guy come the next election.