I feel like the United States is always meddling in other countries affairs and yet still climbing further into debt. Kind of like someone giving you advice on a golf course who is terrible themself. Is it the military presence? Economic relationships?
In: Economics
We shouldn’t put that much focus on debt, rather inflation. If the US can control it’s inflation, they can always control their debt.
There are several reasons why, ranging from decades of geopolitical footholds, *budgeting* smoke & mirrors, and property owned.
The US has accumulated a TON of assets over the years including; land, property, other countries debt, people (human capital), natural resources, etc. This acts as collateral on debt the US wants to take out to operate or invest in whatever scheme politicians think up.
The National debt (money borrowed) is absolutely an issue. Since the US defecit has significantly increased trillions of dollars the last few years, the US is regularly challenged to move around it’s assets to cover it’s debts. This is done generally by increasing tax revenue, selling assets, and barrowing more money (aka T-bills/bonds).
In the past countries like China would buy vast amounts of T-bills, this was common during both Bush and Obama’s admins, due to the recession. However, now China has threatened to not buy anymore US debt. This has become part of their leverage as a result of the trade war the current administration has brought on the country (in addition to the trillions already lost in trade and GDP). Other countries can buy the US debt, but the amount needed can’t be supported by most other countries, especially if the world is heading into a depression.
Therefore, the possibility of the US defaulting is gradually increasing.
Pretty sure a similar situation happened to Greece or Italy back in the 70’s or 80’s.
The debt is in their own currency, so they don’t need to earn it from others to pay back the debt. They can merely print it at will. The other part is that they still have the most powerful military in the world, so any economic disagreement with other countries can be settled by war. And lastly, they still control most of the world’s most powerful institutions, with a seat in G7, a veto in UN, a vote in WHO. They control the World Bank, IMF, etc.
They piggybacked allied spoils from WW2 after coming in late and with violent provocation. They were literally ok with us all dying until Pearl Harbor. And then they stole victory from the Russians that factually won the war for us all. When the smoke settled, all the other allied countries were on the long road to recovery while America flourished from a lack of war fatigue. America is what it is today because of cowardly decisions
The same way England used to be the most powerful and influential countries in the world despite high debt. They used to say the sun never set on the English Empire However, by the end of WW1 and WW2, they had such debt problems, they could no longer maintain their colonial empire, and England was no longer one of the most powerful and influential countries in the world.
You can say the same thing about a lot of other empires.
Eventually, that debt will have to be dealt with, and America will no longer be able to be an Economic and military powerhouse and be able to issue debt. Then America’s influence will go into freefall.
Generally, Debt isn’t a problem, until people stop lending money to you, then it becomes a huge problem. People are still willing to lend money to America, but as their debt grows relative to their economy, that won’t always be true.
Because the debt we owe is mostly to our own citizens, as well as the world’s wealthy. Also, the interest in U.S. debt is hilariously low (1.25% for a 30 year bond). So, one wonders, if the value of the asset is so poor, why do people buy them? The answer is that the New York Stock Exchange is *denominated* in T-Bills. When you’re in a neutral position, that’s where your money is parked. So most of the U.S. debt, in addition to funding the government, is also acting as scrip (a substitute for money) for the financial sector.
So think about it like this: If you had a business, and you could borrow money at 1.25%, and invest it in your business with an expectation of earning 2.5%, then you’d have an incentive to borrow as much money as possible, as long as you can buy more of whatever you’re getting that 2.5% return from.
Finally, the biggest thing to understand is that countries don’t go broke like households, when they can print their own currency. So if the U.S. government finds itself in a position where it can’t pay back the $25TN it owes to everybody, it can and will print more money, devaluing the currency, and effectively reducing the payout to the holders of the debt. This will do a few things: Make the debt easier to pay off, shaving the profits of the holders of the debt, and make imports more expensive and exports cheaper, which in turn will boost the country’s economy. Effectively, you give the country a pay cut, and make importing things from abroad more expensive thereby.
You’ll also need to distinguish between the total debt and the US government debt. I am assuming you mean government debt. One of the first things to understand is that government debt cannot be treated the same as personal or business debt. The rules are very different.
The US is in a fairly unique position for historical and other reasons. For smaller and not so creditworthy governments (high political risk, unstable economies, high social unrest etc) they may have to take loans in foreign currencies. Governments of more established economies (EU, Japan etc) probably don’t. So there is nuance on what kind of debt government takes on too.
First, all (pretty much) US government debt is issued and paid back in USD which the US government controls. It is, in theory, possible for the US government to simply print as much USD as needed to pay off this debt. It won’t do so because that will almost certainly damage or destroy the US economy. The reasons for the debt are many which require some understanding of how modern economies work.
Debt is the result of a transaction. There is a borrower and lender. Because the US government is seen as safe, it can ask for loans and really has no shortage of entities willing to lend to it. Some are required to (like Soc Sec) others do so because the majority of their income derives from the US economy and they accumulate USD and need a safe place to invest.
To cut this comment short, although the debt is high by absolute numbers, the typical measure of the debt load is to normalize it to the size of the economy. The US economy is huge so the debt/GDP ratio of the US government, while high by historic standards, isn’t the highest in the world. (maybe around the 10th) The US debt fuels it’s economy and the US economy (the demand and consumption) is crucial for many other economies around the world. Many countries would support it simply because not doing so would damage their own economies badly.
The U.S. always pays their debt.
Its not like a credit card balance, its like a large number of IOUs. You give the government money, they give you an IOU good for the amount plus a little extra. When the time comes you give them the IOU and they give you the money promised.
Military power to force others to trade oil in dollars. So nobody wants dollars to drop because oil is too important. Ask gadaffi or sadam 🙂
I’m just wondering- I do not know but – Could it be that they owe so much? Other countries have no choice but to allow things to go on as they are lest lose money they are owed? Also. What they have bought with said money is scary stuff. Weapons…etc?
Latest Answers