National debt - what comes next?


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From time to time for propaganda reasons various entities will display a national debt clock always incrementing rapidly to dramatize how fast our national debt is growing.  Of course the debt showing is tied to current spending and there are no unfunded liability projections.  Even more interesting is that government spending budgets are directly related to increases each year mandated by law.   This insanity means that all the money allocated to any project must be spent or budget will forever be lost.

 

The result is that by law the national budget must increase regardless of what party is in power.  There are no actual budget cuts and the definition of spending cut has come to mean cutting or slowing the increase for a particular program (which is always argued that the money saved can be spent elsewhere).   One of the arguments around government spending is that if the economy was better these auto increases would be reduced as a percentage of the overall economy.  In other words we do not have to mind our government spending if we can get our national economy growing more rapidly.  But the spending increases are also tied to economic growth and thus by law the increase will increase with the increases in the economy.  The bottom line is that the debt by law cannot be paid off or actually decreased.  By law the national debt must increase each year.

 

This thread is not about debating any political justification to the debt or spending needs or spending waists.  I have just one question for forum opinions.  What do you personally think will happen when the interest on the national debt cannot be paid by revenues (taxes, fees and fines) collected by the government?

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If we started drilling and exporting our oil and natural gas we could start paying off the enormous United States national deficit.  Make a large portion of the proceeds (about 33 to 40 percent) go toward paying down the national deficit that are taken out of our oil and natural gas reserves.

 

It is going to require also a lot of cut backs and we need to quit giving money to countries that are our enemies.

 

Edit: I hear we have more oil and natural gas than all the Middle East area combined.

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2 solutions:

 

- Remember the old saying "A million here, a million there, and eventually it adds up to real money"?  Turn that into "A billion here, a billion there..."  Eventually, just lop off a zero or three and issue new currency.  Suddenly, the umpteen trillion in debt doesn't amount to much.  Worked for Zimbabwe, right?  Oh, wait...

 

- Engage in a friendly, predetermined *wink-wink* overthrow of the government.  Declare ourselves "The associated federation of South Canadia", and then begin operations with a clean ledger, happily free of debt to anyone.  Worked for Russia, Japan, Bosnia, Kosovo, and others, right?  Oh, wait...

 

Never mind.  I don't have any solutions.

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From time to time for propaganda reasons various entities will display a national debt clock always incrementing rapidly to dramatize how fast our national debt is growing.  Of course the debt showing is tied to current spending and there are no unfunded liability projections.  Even more interesting is that government spending budgets are directly related to increases each year mandated by law.   This insanity means that all the money allocated to any project must be spent or budget will forever be lost.

 

The result is that by law the national budget must increase regardless of what party is in power.  There are no actual budget cuts and the definition of spending cut has come to mean cutting or slowing the increase for a particular program (which is always argued that the money saved can be spent elsewhere).   One of the arguments around government spending is that if the economy was better these auto increases would be reduced as a percentage of the overall economy.  In other words we do not have to mind our government spending if we can get our national economy growing more rapidly.  But the spending increases are also tied to economic growth and thus by law the increase will increase with the increases in the economy.  The bottom line is that the debt by law cannot be paid off or actually decreased.  By law the national debt must increase each year.

 

This thread is not about debating any political justification to the debt or spending needs or spending waists.  I have just one question for forum opinions.  What do you personally think will happen when the interest on the national debt cannot be paid by revenues (taxes, fees and fines) collected by the government?

Germany and Russia comes to mind. Unfortunately both involved one or more major conflicts to shake things up.

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Well its even worse than by law.  It is a mathematical fact that in order for our modern economy to run, it must take on more debt.  If the all debt were eliminated, pretty much all of our currency would vanish.  The actual #s that one sees in their bank account really isn't there because it's been loaned out.

 

It's a shell game/ponzi scheme. What most people don't realize is that paying off the national debt or even not going further into debt is impossible.

 

So, I'm not sure the ability to pay the interest with revenue is the catalyst.  In effect we are already doing that.  4 Trillon budget (of which say 500B is interest) and 1 Trillion is financed, how much different is that from 4T budget and 1.5T financed?  Now if the budget was 4T and we needed to finance 4T, that could still work for a while, until interest rates rose and or the debt-to-GDP ended way up there.

 

Right now and for the last 40+ years the US has a very unique position as being the issuer of the world's reserve currency and this a reason why the US will always have a trade deficit.  We export dollars to the world and they give us stuff, they take those dollars and use them as their backing for their currency.  Because of that reason, the US can abuse their currency more-so than any other country can and get away with it longer.  Even though the Fed has pumped trillions to the banking system, other countries are stuck with an inflating monetary base until something better comes along.

 

Just like SS is a ponzi scheme that works as long as there are more workers paying in than people taking out (with a built-in assumption that the working population will always be larger than the retiring population), the national debt is based on the assumption that future earnings of increased GDP will pay for the larger current debt.  Both work as long as the ratios between the two don't get too out of whack.

 

The main trigger is debt-to-GDP ratio.  At some point your economy becomes too over leveraged compared to the amount that it is producing and the debt it is taking on.  At that point, there are really only a couple of options 1) Hard default on the debt and start over. 2) Soft default by inflating away-which is what we do by taking on more debt. 3) Pay it off and naturally deflate.

 

What is interesting recently is the Feds QE and buying of Mortgage Backed Securities where they are basically trying to lower the leverages by directly buying loans and supplying banks with currency.  So it's a mix of hard default and soft default.  The banks were overleveraged on loans and couldn't pay them back so the Fed bought those loans and supplied them with cash even though the loans were worthless.

 

I saw direct affect of this in 2010 when I was purchasing a house.  I can't tell you the number of records I looked at that had the foreclosure for say 100k to bank A, the bank sold the house to bank B for 100k and then to Fannie and Freddie for 100k, even though the note was worth 50k.

 

The most insidious part of the whole process is that this is what causes the rich to get richer and the poor to get poorer, except no one knows it.  The uber rich are rich b/c they are the most connected to the banking industry and the Fed. 

 

It ends whenever the US economy becomes too overleveraged, and other countries refuse to use the dollar standard, maybe 5 years, maybe 50 years.  When that happens, 2 things will most likely occur, we'll get a massive inflation shock followed by a massive deflation shock and possibly a new currency.

 

What will happen then, pain and a whole lot of it-maybe even a revolution.

 

One of the better videos on the this subject:


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FolkProphet is Church. NeuroTypical is Loudmouth. DHK is Skippy.

And me?

I'm Batman.

 

 

Waaa.  I wanna change my name too.  I wanna be something cool, like, uhm... okay, Batman.

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