Hint: No, it won't. NO, MARTHA, IT REALLY WON'T! Have you ever taken the Series 7 General Securities Exam? I scored a 96. My former Human Resources director told me it was the highest score she'd ever seen. (Granted, I know people who have scored a perfect 100. But they teach the Series 7, and regularly re-test to keep their edge).
Let's say we cut the US Federal Budget across the board by 40% tomorrow (to $1.7 Trillion dollars, roughly as large as the biggest of the CLINTON Budgets), and we cut all Federal taxes by 10% across the board also (to roughly $2.2 Trillion). At that point, we're running a Federal Budget Surplus of $500 Billion per year -- enough to pay off all Federal debt in about 18 years (ceteris paribus, of course -- We'll assume that all future receipts and outlays rise together in concert at a rate equal to inflation, and that any "excess revenues" generated from economic growth are returned to the Taxpayers in additional tax cuts.)
Those with an understanding of the CAPITAL MARKETS understand that if the Federal Government is "Paying off the country's mortgage", i.e., redeeming $500 Billion per year in Federal Debt (Treasury Bonds) and not issuing new Federal Debt (Treasury Bonds) for sale, the Federal Government is returning $500 Billion dollars per year in Cash ("liquidity") to the former Bond-holders.
Now, MARTHA... if there's $500 Billion in Cash being returned to the former Bond-holders, and no new Federal Debt, here's your $64,000 question: where is that money going to go? Unless you think that the average Treasury Bond investor (who is generally looking for the safest investment he can find) is likely to go blow his wad in Vegas or online Stock Market day-trading, the correct answer is: interest-bearing Bank Deposits. Savings, CDs, Money Market Accounts -- if the ultra-conservative "safe money" investor cannot invest his money in Federal Debt (because President Ron Paul is paying it off), he will put his money in interest-bearing Bank Deposits.
So, now, what you have is a Banking System which is, in fact, being flooded with an additional $500 Billion per year in NEW Liquidity -- that is to say, $500 Billion per year in New Deposits from former Federal Bond-holders whose Bonds are being redeemed in Cash and are looking for interest-bearing accounts in which to stash that money. And what are those Banks going to do with that $500 Billion per year in New Deposits? Well, they're going to attempt to lend it out at a 3-6-3 profit, of course, according to the Banker's Rule: "Borrow at 3, Lend at 6, Golf at 3".
They're going to Lend out that $500 Billion per year New Deposit base to Home-Buyers, Small Businessmen, Farmers, Commercial Developers, Investors, Speculators -- everyone who makes this great country profitable and financially delightful in which to live.
As cva66snipe said:
The fact is, I'll take cva66snipe's home-spun wisdom over your supposed knowledge of "how federal debt comes into existence" any day of the week (and I've probably got you beat on that, anyway -- just off the top of your head, how would you construct an equity-index-option credit time spread assuming matching strike prices? What's your maximum upside? What's your maximum downside?).
What you don't seem to recognize is the fact that WHENEVER the US Federal Government runs a Deficit, it must find investors with Cash on hand to purchase its Bonds, and it thus operates as a rapacious competitor in the Capital Markets: sucking money out of the pool of available investment capital (which could be better invested in Private profitable enterprises) and away from Bank Deposits (fairly directly) -- and as long as the Federal Government has Trillions of Dollars of National Debt, it must exact Hundreds of Billions of dollars a year in Taxes from the Economy, AGAIN sucking money out of the pool of available investment capital and therefore away from Bank Deposits (somewhat more indirectly).
The fact is, "Paying off the Country's Mortgage" (i.e., redeeming Federal Debt in Cash) would flood the Banking system with New Depositors flush with New Cash Deposits, and could touch off an incredible self-reinforcing Economic Expansion which would make the Roaring Twenties look like the Great Depression by comparison.
But, of course, you'd have to have an understanding of the Capital Markets to understand that. For cva66snipe, it is enough to know that "You cannot forever Spend more than you Get, without expecting eventual Disaster". But if that's all he knows about Macro-Economic Public Finance, it is enough... because he's right.
Best, OP
“The rich ruleth over the poor, and the borrower is servant to the lender” - Proverbs
I ONLY mentioned what would happen if we attempted to pay down all of the outstanding debt. YOU added the part about ALSO cutting the budget and generating additional revenue. A HUGE DIFFERENCE!
Have you ever taken the Series 7 General Securities Exam? I scored a 96. My former Human Resources director told me it was the highest score she'd ever seen.
What was your "reading comprehension" score?
Only some sophomoric moron thinks you could cut the Federal budget 40%, taking $680 BILLION dollars of economic activity out of the economy, and somehow MAGICALLY your tax receipts will stay the same. WHAT A HUGE AND BASIC SCREWUP!
He's "WICKED SMOT"!
Sell the June OEX xxx strike calls calls and buy the May OEX xxx strike calls. Do you hedge the theta on these, leg into the position, or simply do them as a spread? If you take one of these strategies, do you do so on the basis of delta, or does directional movement come into play? Do you have a mathematical reason for such a distinction? Would you ever do the inverse of the spread by buying the May xxx puts and selling the Junes? Would you close the trade or would you hedge on May expiration and how would you hedge the theta? Why does this strategy suck? Finally, why does OEX option trading suck to begin with, and why should a broker never recommend his non-institutional clients to trade these instruments (the answer is not risk related)?