Discussing the national debt without mentioning America's GDP is either a demonstration of ignorance or an attempt at deception.
Posted on 05/10/2006 2:40:22 AM PDT by wotan
After rising to $570 an ounce in February and correcting down to $540, gold has been on a tear. In the past sixty days the spot price surged by an astonishing $100, closing above $635 an ounce yesterday, its highest close since 1979. Even more stunning has been the performance of silver. After hitting new highs in February at just under $10.00 an ounce, silver skyrocketed by 50% to almost $15.00 before profit-taking cooled the rally. Palladium and platinum have also enjoyed strong gains during this time frame, but not quite as sensational as gold and silver.
Just as remarkable is the time frame of these gains. Historically, the first quarter of the year is the weakest time for metals. Once Chinese New Year and the Indian festival season pass, international demand for physical gold generally subsides for a while and prices soften. But not this year. As 26-year market veterans, we haven't seen this kind of late-winter rise since the “mother of all bull markets,” the record-breaking run from 1976 to 1980, when gold reached its all-time high of $850 and silver peaked at $50 an ounce.
(Excerpt) Read more at amergold.com ...
If you owe the bank $100,000 and can't pay, you're in trouble.
If you owe the bank $100,000,000 and can't pay, the bank's in trouble.
You are correct. Take a look at Japan:
"No one, apparently, questioned the wisdom of this despite the aggregate property value reaching levels four to five times the aggregate property values in the U.S. Barkley Rosser noted that in 1990 the aggregate value of all land in Japan was fifty percent greater than the value of all land in the rest of the world."
http://www2.sjsu.edu/faculty/watkins/bubble.htm
Maybe. If a loan can be made against an asset that will likely appreciate faster than the cost, then it would make sense to borrow.
Here is an example. Lets say that your sea town could build a pier that could provide fishing business a place to port and sell fish and space for stores that could sell to tourist industry. If the expected tax revenues from direct and indirect businesses exceeded the cost of the debt, then the borrowing would be a no-brainer.
Would you be accurate in saying the day after you built the pier and borrowed the money that the town is millions in debt and this makes all the resident poorer?
To avoid default, the government must pay interest on its debts and pay off maturing debt. It can pay from a budget surplus, pay with newly created money, or pay from the proceeds of selling yet more debt. We don't have a budget surplus. Creating money leads to inflation, in anticipation of which the currency tends to fall. Selling more debt becomes harder as the total debt burden rises, because lenders begin to suspect you might default on your debt and begin to demand greater interest rates or to simply refuse to lend to you at all. Ultimately, you are faced with creating more money (leading to devaluation) or cutting spending (leading to loss of political power).
Foreign owners of debt are affected by devaluation in a very immediate and unpleasant way. Foreigners have been very badly hurt by dollar devaluation in the past. That's why they are looking harder for alternatives - the euro, the yen, precious metals, etc., in which they can hold their foreign reserves. They drawn down their dollar balances to pay for the alternatives, putting downward pressure on the dollar. The larger their share of the total debt, the greater that pressure will be when confidence declines.
Technically, a devaluation doesn't require large scale selling of the currency. Price can fall on very little volume. What is likely to happen is that some large holder of dollars will start selling, others will see what's happening and join in, and, finally, after the dollar has fallen as far as it should, others still will panic and force it down even further, creating a great buying opportunity for those not invested in the dollar.
The Argentine peso in 2002 (I think) was devalued by a factor of 3 overnight relative to the dollar when they ran into a debt crisis. Our debt is worse than Argentina's was then. Our superpower status and our technological lead have been holding us up. Both of these have been deteriorating. Most foreigners see our use of force in Iraq as ill advised and a debacle. Other countries are catching up with us rapidly in technology as well.
With a $12 Trillion GDP, it’s like having a growing $50k per year income and a $36k mortgage. Money has been made cheap to encourage economic growth. Unfortunately it encourages government growth as well. Our national dept is a pest, not a crisis.
It means that Americans have taken a $9 trillion loan against their $51 trillion in assets.
I guess it means its time to explore employment opportunities in China. ;)
Depends on how it's discussed.
Thanks for your very interesting graphs.
The significance of debt varies from country to country. (Should I accuse you of ignorance or deception for not pointing this out?) For example, in Japan there is an extremely high savings rate with corresponding extremely low interest rates, whereas in the US there are negative savings (last time I looked) and a real estate market increasingly in trouble. Japan also has a very large trade surplus where we have an even greater trade deficit.
Your second graph shows that under the current administration debt growth has exploded. It's rising faster than GDP now. An unsustainable rate, I think you'll agree. Don't forget that in addition to the national debt (what the government promised to pay with an instrument of indebtedness) there are other promises to pay not accounted for by it (medicare, medicaid, social security, etc.). When you add these up you get $43T last time I looked, but that is probably way too low now. Not good for your daughter or almost anybody else.
It will become a crisis when the we are forced raise interest rates to entice foreigners to continue investing in the US.
Then sit back and watch the bankruptcies
I have generally thought that currency devaluation had to do with two things : an inordinate increase in the 'money supply'(m1,m2,...)
And, not only that, somebody who signed up yesterday will call you a "DU troll" who wants Speaker Pelosi.
Bushbots are like weeds - they just keep springing up.
The dedicated purpose of this nation is Independence.
9 Trillion in debt means we are losing that Independence.
We are energy dependent on foreign oil from non-democratic and politically unstable nations.
We are labor dependent on Mexico if we are to believe the boys and girls holding elected office when they tell us our illegal immigration problems are because illegals take jobs most Americans will not do.
We are dependent on foreigners to keep down interest rates by buying the obscene public debt run up by two political parties buying their incumbency with public monies the treasury does not have.
Our trade defecit indicates we are dependent on China and others for cheap products that we need and no longer produce ourselves.
What does 9 trillion dollar debt mean?
Just one more way that we have been sold out BIG TIME by those we have entrusted with office.
Not if currency grows at the same rate as productivity. And the last 15 years or so, American productivity has grown significantly.
American productivity has grown by outsourcing all that unproductive and expensive manufacturing while maintaining all that productive bean counting here.
Well as someone who has spent the last 20 years selling American-designed and manufactured technology that significantly improves productivity of especially large, critical industries, I'd say you don't know what the hell you are talking about.
No, I think a bet on gold is a bet that rampant currency inflation will destroy the value of the dollar, and gold is a historic refuge from rapidly inflating currency. I see the price of oil going up as another symptom of inflation. The arabs are not stupid. Chart the price of oil in gold and it is nearly stable. Oil sellers just don't want the same amount of a devaluing assett (the dollar) in exchange. They want equal value, therefore a higher oil price.
No, I think a bet on gold is a bet that rampant currency inflation will destroy the value of the dollar, and gold is a historic refuge from rapidly inflating currency. I see the price of oil going up as another symptom of inflation. The arabs are not stupid. Chart the price of oil in gold and it is nearly stable. Oil sellers just don't want the same amount of a devaluing assett (the dollar) in exchange. They want equal value, therefore a higher oil price.
A bunch of debt is owed to individuals and Americans, it's not all foreign. Everyone with a savings bond or T-Bill owns a piece of American debt. That includes a lot of 12 year olds with nice grandmas.
"The borrower is the lender's slave." Collateral, legal leverage, and all that stuff..... Once the "trust" in the almighty dollar (which is the only thing left to back it) is ever breached, our economy will fold like a paper napkin. It not a matter of if, it's a matter of when. JMO.
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