The National Debt does not have to be "paid off" and will Never be paid off

People have such a hard time understanding the differences between a fiat countries debt and their own personal debt. I mean look what we are about to do to ourselves with this fiscal cliff because of peoples irrational fear of the national debt. I mean it is insane that it's the 21st century and we still cannot grasp how fiat monetary systems work. The problem is people cannot think outside of their own lives. When people think of "debt", they instantly think that is something that will eventually have to be paid back. The reason they think this, is because the law says so. If you borrow money from the bank, you are legally obligated to pay it back at certain intervals. This is simply a self made legal restraint. And we will eventually die, so we don't have til eternity to pay back our debt. So in our own lives, debt is an obligation in which we have to earn money in order to pay it back otherwise face consequences.

The Govt is not a person. A Govt will not "die" one day. Banks are not a person, banks will not "die" one day. The Federal Reserve is not a person, it will not "die" one day.

Those three entities make up our monetary system. Banks and the Federal Reserve can create money. You can't. When you have to pay your debt, you can't just plug numbers in to a computer and pay it off. The Federal Reserve and the banks can. They have complete power to create money. Something you can't do. Which is why debt for you has to be repaid by money that exists, which means you have to do something for that money.

Banks do not have to do anything to create money. They can purchase debt infinitely. And if they can't hold enough of the debt, the Fed can take on the debt infinitely. Anytime debt comes due, to someone in the private sector or the foreign sector, it is nothing more than an asset swap. Whoever had the debt, simply gets money back, and one of our entities takes on the debt. And since banks can simply just create money to pay for the debt, they will never run out of the ability to swap money for debt. And since we mandate our primary dealers to make a bid on every treasury out there, we basically create an infinite ability to spend money and pay back our debts. And at any time there is a disruption, like there was 4 years ago, we have the Federal Reserve that can replenish the banks reserves and take on the debt themselves.

This process has been going on for almost 100 years. Our debt will NEVER be repaid, and it will always grow over time. We will never run out of money to pay for maturing debt. In fact this year the treasury will auction off over $6 trillion worth of debt. All of which will be paid with absolutely no problems.

You are not a bank. You are not the Federal Reserve. You are not the Govt. Your debt is not the same as the Govt's debt because you don't have the ability to create money to pay off your debt.

This debt ceiling debate is absolutely insane. All this talk about "balancing the budget" is insane. We have not tried to actively balance the budget in over 75 years. Yet all of a sudden, we are forcing ourselves in to austerity and depression. It's amazing how people will never grasp this reality and always perpetuate this ridiculous myths about our debt. And that ideology will drive them so far to force us in to a depression. It is unreal.

 

Spoken like a loyal Obama voter who is addicted to government spending and the bloated welfare state.

The level of debt that a nation carries does matter.

Ask the Greeks about that.

Ask the Germans after WWII.

Someday our interest rate on the meney we borrow to service the debt is going to be higher than zero.

If and when interest rates rise to 5% or 15% the liberal / "progressive" / wipe-every-nose nanny state is going to sleep with the dinosaurs and be no more.

 

The interest on all this debt has to be paid. It also creates a dangerous situation. What if interest rates rise? This could spiral out of control and become a debt crisis.

 

We pay $200B on a debt of $15T, about 1.3%.

If rates go to a low historic rate of 5%, the interest on the debt becomes $770B (and that is per year, not that "over 10 years" crap politicians and the media use to increase the impact).

But we can inflate our way out.... When the Fed can no longer control the inflation tiger by the tail, expect 10% to 15%, $1.54T to $2.3T (equal to what the government collects each year).

Who will be the most hurt? From loss of income, retirees, that counted on SSI and Medicare, and the poor. From huge increase in taxes, the middle class and lower middle class (because the rich don't make enough = the Bush tax cuts reduced federal income by $370B per year, only $70B came from the those earning over $250K, the lions share came from those earning less).

Keep believing debt doesn't matter.

Keep believing banks don't die. Keep believing governments don't die.

The Fed will "die" when that tiger gets loose.

 

You know your right. The gov't is not a person. But the gov't is suppose to be there for the people. And when the gov't goes into debt so do the people. Just because a person dies doesn't erase that debt. Where does it go? It is carried on to the ones that aren't dead.

And the gov't cant just print more money to take care of that debt. If they do...the value of our dollar goes to * * * *. And the ones we borrow from are not going to go for that.

And as for a budget. That budget is also there for the people. They have a right to know where their taxes are being spent. If they don't then the entire gov't could end up like the GSA. You really want that?

Like I said before the gov't is not a person...Its there for the people. And whatever the gov't does...it has an effect on the people. So wake up.

 

Cause and effect. Why would the interest rates rise?

 

You are not getting it. When the Govt goes in to debt, the people receive an asset, the Govt receives the liability. The debt does not have to be repaid by the people, it will never be repaid. You are still thinking of the national debt like your own debt. The purpose of this is to let you know that it's not. We are at the bottom of the totem pole when it comes to our monetary system. The Govt will NEVER ask you for money to pay off the debt.

And yes, the Govt (or better yet the Fed/Primary Dealers) can just print more money to take care of our debt. They do it every single year and have for almost a century. You did not get a single thing that I said in the OP.

 

"Die" was in quotation marks for this exact reason. Of course the Govt can fail or our system can fail. But it's not like a set number of years before it happens. It can be next week or a million years.

 

There is a solution we are a unique nation we have ample natural resources, arable land, defensible borders if we wanted to seal them off and could like in WW2 ration essentials and could get off oil if we wanted to for at least several decades. So what if we just refused to pay the debts, eliminated the dollar and restarted with a clean slate using a new currency standard a credit or something what would the world do even China the second we did that and sealed off our nation returning our military, they would have far bigger issues. After a few decades we would likely work out of this debt free and stronger than before it might burt a lot but in the end we would be far better off long term.

 

inflation make the debt smaller and smaller over time...

 

akphidelt2007 knows nothing about economics. Dude educate yourself on economics before you post something.

First, you can't print endless money because you cause hyperinflation. Just look at what happened to Germany after World War 1. Here is a lesson on hyperinflation.

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

Second the debt can be paid off. In fact Congressman Connie Mack has the Mack Penny Plan that can get us to a balanced budget in 6 years by cutting 1 penny for each dollar spent.

http://www.conniemack.com/issues/penny-plan/

 

akphidelt2007 knows nothing about economics. Dude educate yourself on economics before you post something.

First, you can't print endless money because you cause hyperinflation. Just look at what happened to Germany after World War 1. Here is a lesson on hyperinflation.

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

Second the debt can be paid off. In fact Congressman Connie Mack has the Mack Penny Plan that can get us to a balanced budget in 6 years by cutting 1 penny for each dollar spent.

http://www.conniemack.com/issues/penny-plan/

 

If, say, the Treasury decides to refinance the debt by selling long-term debt and buying short-term debt, they could dry up market liquidity. This would lead to an increase in market interest rates, putting the United States in an even more detrimental debt situation that it is in now. Of course Timothy Geithner has not decided to go this route, and there is little indication that he will do so.

 

First, there is little reason to believe the United States would enter a period of hyperinflation. When inflation reaches unbearable levels, the Federal Reserve will simply increase the federal funds rate, as Paul Volcker did in the early 1980's.

Second, you need to understand the difference between deficit and debt. By balancing the budget in six years, the Congressman's plan will simply slow the growth of the national debt.

 

A few possible causes - there are more.

Retirees can't live off the 1.3% and sell their T Bills, and force their retirement funds to seek higher rates.

The Fed can't buy up more debt.

The trust funds (primarily SSI and Medicare - the largest single owner of the federal debt) need their money back.

The holders of, & lenders to, the federal debt get worried about a default (due to political infighting), and threaten to sell off (or not buy more) unless rates increase enough to address the perceived risk.

Or, the economies recovers, and the Fed needs to increase interest rates to keep it from running away, and the $1T in reserves the banks have enter the market at a 30:1 ratio, forcing the Fed to increase interest rates even further.

The US dollar ceases being the worlds reserve currency, and the trillions of dollars held by other countries floods back, fueling inflation, that can only be held in check with much higher interest rates.

 

Lol, I know nothing about economics and this is your reasoning? You have got to be kidding me!! Hahahahahahaha

 

The Fed has almost 100% control over interest rates... whether it be rates on Govt debt, or the fed funds rate. What would cause the Fed to increase rates other than an extremely fast growing economy? I mean they have basically already said they are keeping rates at 0% until 2014, maybe even 2015.

 

"Oh, don't worry. We'll just inflate our way out of the problem..."

 

Okay fine. If printing money does not matter then why not print one million dollar per American. Then give each American 1 million dollar making us instant millionaires?

Printing money has consequences.

 

What would the Fed do to control interest rates in the examples I provided above?

Where does the Fed get the money to buy up debt?

 

so all the people who own treasury bonds dont need to be paid back..they just lose all their money..something like what GM did to its bond holders? they paid 5 cents on the dollar to them and how did that work out for GM..oh not too well..people are boycotting them..they went from number one auto maker to near the bottom now

 

I never said printing money does not matter. But saying I know nothing about economics because you found a definition for hyperinflation??? Oh lord you guys are crazy. We are more in danger of facing deflation than anything else, yet you still are talking about this same hyperinaflation crap people have been talking about for decades!

 

That's not what I said. I said the national debt does not need to be paid back. It is simply swapped throughout the system. So the $4 trillion of maturing debt that we have this year, will simply just either be rolled over by the owners or swapped within our banking system. You guys act like one day the debt will come due. Theres debt maturing every day... and trillions of dollars exchanging hands paying off the debt every year. But it's not really "paying it off", it's simply just swapping... which we can do forever.

 

This is simply false.

The last 3 world economic empires each went into serious decline 20-25 years after going off Gold. The reason for this is when there is nothing backing the paper there is nothing to stop governments from creating massive debt.

We went off Gold around 73 and the Dow peaked in Jan 2000 at 12,000. 27 years .. This is the high in constant dollars and we have been declining ever since.

We beat the average by a few years. The reason for this is that the wave up was much bigger than the previous waves.

Debt is the killer of empires and the Piper is on the way. Of course the last 3 world economic empires Dutch, Spanish, and British .. are still around, but they are nothing that resembles their former glory.

Im not sure which post is more off the mark. You seem to understand the problem of Debt but not where our debt came from.

Our current debt came from Reagan, Bush Sr. and Bush Jr. Only someone who has no fiscal sense blames Obama for our current problem.

Reagan was the worst by all valid measures .. followed by Bush Jr. Bush Jr. was handed an almost balanced budget. Obama was handed a 1.4 Trillion dollar deficit.

Talk about selling the family farm and going to the casino.

By the time Obama stepped into office:

1.4 Trillion dollar deficit
12.9 Trillion dollar debt
Dow had dropped from 14,000 down to 6500
Housing market had collapsed
Financial system was on the verge of collapse (commercial paper markets frozen)

The ship was on fire and sinking fast .. the previous captain poured gasoline on the fire before abandoning ship .. and idiots like Romney and the rest of the "so called fiscal conservatives .. cough cough .. hack hack" .. whine like babies because he used too much water to try and put out the fire.

I am a Goldwater constitution loving fiscal conservative .. and hence there is no party that I can support .. least of all the GOP.

Happy new year and lets hope in 2013 the clown show turns into something resembling responsible govt.

 

Not printing money also has consequences.