National Debt - To Whom Do We Owe?

[ATOMonkey]

Who owns the debt? You and I largely. Our currency is funded with US debt. Our retirments, in both 401k, IRA, and Pensions are largely backed by US debt.

Also consider, that foreign currency is often funded through the US debt they own.

Let's say I'm a tin pot dictator. I want to start a country. So, I make up the "Monkey" currency. It is worth only what I say it is worth. So, I take 1,000 Monkeys and buy $1,000 in US debt, at a one to one ratio, because the US is stupid and hard up for cash. Now, my 1,000 Monkeys are worth $1,000! So, I can now distribute Monkeys in my country that are backed by US soverign debt. Then, the US pays me, a paltry percentage to hold their debt. I can use those dollars to buy more US debt and issue more Monkeys to my people. All the while, no one ever really produces anything of value or wealth. And thus the FIAT currency system goes round and round. The only problem is that each time it goes around it loses a little steam. Eventually it crashes in upon itself and everything resets.

Just like the Euro mess. The Euro was crashing, losing value. So, we trade dollars for Euros, and the EU uses those dollars as a means of value for their Euros. Confused???

 

[level.eleven]

Who cares. Repudiate the national debt. It has been quite often in the nation's history.

http://www.lewrockwell.com/rothbard/rothbard190.htmlhttp://mises.org/daily/1423

Of note, look at the numbers for when this article was published in 1992. Look at them now.

 

[ATOMonkey]

That would destroy a LOT of wealth, both at home and around the world. I do not think that would be such a wise idea.

As I posted earlier, several countries' currency only has value because we say our currency has value.

If we repudiate our debt, the whole house of cards collapses. Especially since we've been funding the Euro through the IMF.

You're basically talking about the collapse of the entire civilized world.

 

[level.eleven]

That would destroy a LOT of wealth, both at home and around the world. I do not think that would be such a wise idea.

As I posted earlier, several countries' currency only has value because we say our currency has value.

If we repudiate our debt, the whole house of cards collapses. Especially since we've been funding the Euro through the IMF.

You're basically talking about the collapse of the entire civilized world.

Government can only raise funds in 4 ways. Taxes, borrowing, money creation, or the sale of assets. Maximizing all four sources will not even dent the national debt. If foreign capital gets burnt, who cares? Perhaps they will think twice the next time they choose to invest in the US federal government. This also serves the purpose of reducing the federal budget. It would be a good thing if China quit loaning us money because we defaulted on the loan. Repudiation won't be full mind you, rather a partial approach. It would have to be coupled with rethinking outlays. I'm not inside the loop enough to put numbers on these sort of things. What I do think is that the approach is sound, and honestly, the only option we have. Accounting gimmicks are over.

There is also the moral side of the equation regarding public debt. I like the example given by Rothbard with regards to Russia.

Consider this question: why should the poor, battered citizens of Russia or Poland or the other ex-Communist countries be bound by the debts contracted by their former Communist masters? In the Communist situation, the injustice is clear: that citizens struggling for freedom and for a free-market economy should be taxed to pay for debts contracted by the monstrous former ruling class. But this injustice only differs by degree from “normal” public debt. For, conversely, why should the Communist government of the Soviet Union have been bound by debts contracted by the Czarist government they hated and overthrew? And why should we, struggling American citizens of today, be bound by debts created by a … ruling elite who contracted these debts at our expense?

Repudiation Is an Option - Paul Cwik - Mises Daily

ETA: The "wealth" that would be destroyed, isn't wealth at all. It is an accounting gimmick.

ETA #2: Do you think that what you outlined was by accident or by design?

 

[ATOMonkey]

The only difference is that the world reserve currency has never been repudiated.

It would be like if gold suddenly lost all value, and every country based their currency on the value of gold.

I know that's not realistic, but it's equivalent.

All the currencies of the world only have value, because our currency has value. If we repudiate our debt, their currency no longer has value. Our currency no longer has value, since the value of our money is based on "the full faith and credit" of the United States.

The only reason our currency has any value is because of the faith people have that we will service our debt.

You're basically talking about going back to hard currency like gold and silver and dissolving the entire global fiat monetary system.

That's going to cause a lot of pain.

Not saying that it won't happen on it's own, but I'm not one to go looking for a fight.

Likely, what will happen is that the entire world will come under a global currency, which operates independant of any soverign nation.

 

[level.eleven]

So then we just continue down the "deficits don't matter" route and await total collapse?

 

[ATOMonkey]

So then we just continue down the "deficits don't matter" route and await total collapse?

No, we dig ourselves out of the whole the same way we got into. By slowly paying off the principle of the debt each year.

 

[Carmelbythecorn]

The only difference is that the world reserve currency has never been repudiated.

It would be like if gold suddenly lost all value, and every country based their currency on the value of gold.

I know that's not realistic, but it's equivalent.

All the currencies of the world only have value, because our currency has value. If we repudiate our debt, their currency no longer has value. Our currency no longer has value, since the value of our money is based on "the full faith and credit" of the United States.

The only reason our currency has any value is because of the faith people have that we will service our debt.

You're basically talking about going back to hard currency like gold and silver and dissolving the entire global fiat monetary system.

That's going to cause a lot of pain.

Not saying that it won't happen on it's own, but I'm not one to go looking for a fight.

Likely, what will happen is that the entire world will come under a global currency, which operates independant of any sovereign nation.

That seems to be the push...to replace the dollar as the world's currency. That will cause a lot of pain as well...but primarily in this country...which if that happens will never be the same. I think you'd see oil prices skyrocket as well as prices of just about everything. Hyperinflation here and global economic collapse and depression. In other words, the same thing that the Stimulus and the various Quantitative Easing strategies tried to avoid, but will probably only make worse (if only later).

Just my opinion...

 

[level.eleven]

No, we dig ourselves out of the whole the same way we got into. By slowly paying off the principle of the debt each year.

So, you are going to raise taxes or print more money, correct? Selling assets isn't gong to happen. It is impossible to borrow your way out of debt. So the only options left are to raise taxes and print money.

 

[Stschil]

So then we just continue down the "deficits don't matter" route and await total collapse?

Yeah, that and keep teaching our children that too. If we all buy the lie, it becomes true, right???

 

[ATOMonkey]

So, you are going to raise taxes or print more money, correct? Selling assets isn't gong to happen. It is impossible to borrow your way out of debt. So the only options left are to raise taxes and print money.

Reduce spending, was left out for some reason.

 

[level.eleven]

Reduce spending, was left out for some reason.

Because it isn't an option. Roll back spending levels to 20 years ago? Still trillions over budget. Roll them back 50 years. Billions over. It was also left out because of your concern of social unrest. I'm sure you've seen the images from Greece. In addition, to avoid your fears of social unrest, military spending would have to be increased. Full faith and credit of the federal government has more to do with a military presence than a firm handshake between debtors and creditors.

 

[J_Wales]

That seems to be the push...to replace the dollar as the world's currency. That will cause a lot of pain as well...but primarily in this country...which if that happens will never be the same. I think you'd see oil prices skyrocket as well as prices of just about everything. Hyperinflation here and global economic collapse and depression. In other words, the same thing that the Stimulus and the various Quantitative Easing strategies tried to avoid, but will probably only make worse (if only later).

Just my opinion...

pacem ora, para bellum

 

[EvilBlackGun]

There is a 3-edged sword to consider.

<Snip> ... raise taxes ... print money ... correct? Selling assets isn't gong to happen. It is impossible to borrow your way out of debt. So the only options left are to raise taxes and print money.

Wait; there IS another option. You've forgotten "the blood in the streets" option that was only hinted-at with the Occupiers. There IS the real possibility that Americans will go off the really-pissed-off end of the handle, and make the original revulsion at King George seem like a panty-raid. No single edge of this sword-tripod can be totally eliminated. Taxes will be eliminated for the duration of the revulsion, and no-one in D.C. will need paid. Et Cetera. Printing more "money" will be ineffectual, since the vendors of those dollars will be in the Bastille, awaiting worse. Those wise men and women whom we revulsionists appoint as watchers of our funds, food, future, and fortune will be in charge of the New Solution where we've established New Government, based upon the true consent of the governed. John Galt will carry on and take us through. Stand there and watch it happen, or get to arms and MAKE it happen. Run to the sound of the cannon. The long line of usurpations and complaints is ending.

 

[level.eleven]

Reduce spending, was left out for some reason.

How do you stop this? The cycle cannot be broken by simply reducing spending. Romney is going to ask if he wins. So will the next guy.

Obama Requests $1.2T Increase In Debt Ceiling | Fox News

 

[88GT]

So then we just continue down the "deficits don't matter" route and await total collapse?

Why are you arguing over the method? If the end result is the same, does it really matter how we got there?

Different line of thinking: would wealth creation in terms of GDP/GNP change the debt picture at all?

 

[mrjarrell]

Cutting spending, (even to negative levels) taxing and printing money won't work. The debt (including unfunded mandates) is well over $110 trillion. Probably closer to $120 now. You could inflate to levels that would make Weimer Germany look fiscally responsible and it wouldn't make a dent. Tax everyone, corporations included at 100% and we wouldn't even touch it. Without repudiation and a declaration of bankruptcy (with a drastic restructuring afterward) there's just no way to actually pay off this monster that the government created.

 

[Darral27]

It is all owed to me. PM me for where you can all send checks. Payable to cash only. Thank you

 

[John Galt]

Is it really a moral debt to be paid if the debt is based on fraud and deceit? Compare life to a casino. To live and function in society you have to "play the game". So, you're in the casino and rolling the dice everyday, only to rack up an unimaginable and unpayable debt. The manager knows there is no way in hell you can repay this debt, so he assigns this debt to be paid by your children and grandchildren. What happens if (when) you discover that the dice were loaded, the deck was stacked and there was no way in hell that there you were going to do anything but rack up an unimaginable and unpayable debt. Sure, you were allowed to "win" once in a blue moon, but the outcome was fixed before the first hand dealt/roll of the dice.
Do you still feel obligated to pay the debt? We've been played, we're being played, and they're using our morality of "obligation" against us to continue the game. I say let the inevitable correction begin ...

"If there must be trouble, let it be in my day that my children may have peace." - Thomas Paine

Revolution 2.012

 

[level.eleven]

Why are you arguing over the method? If the end result is the same, does it really matter how we got there?

Different line of thinking: would wealth creation in terms of GDP/GNP change the debt picture at all?

Well, I think repudiation would result in a more favorable result and deter this from occurring again in the future. You are less likely to loan money to an entity that didn't pay you back at full value the previous time. Plus, as stated up-thread, this is a route governments have pursued in the past with favorable results. The state of Indiana, for instance, has written off debt in the past.

Honestly, I am out of my element with regards to your second point. For that matter, I am not an economist at all. Even declaring myself an amateur would be an injustice. But, for that matter, no would anyone else on the board. I'm just trying to understand.

Regarding your second point, I don't know why we constantly hear debt to GDP ratio touted by economitricians. It is said that the better the ratio the more likely it is the nation can cover their debt. We are at 100%. Some Euros are at 200%. Japan is at 300%. The output of the private sector has little relation to the ability of a government to cover it's debt. Particularly when they can print money. Taxing production is counterproductive to increasing GDP. I guess the theory is the more our people produce, the more we can tax them. But, by taxing them you stifle production. I believe that is a position of the MMT economists. But, I don't think it is sound policy to play the juggling game.