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
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.
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.
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.
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 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.
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.
isnt it mostly issued through government bonds? some1 correct me if im wrong but basically they owe the money to themselves..
Iām 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?
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 š
Sovereign debt is fundamentally different from household debt.
If you’re a regular person, debt is a hard limitation – in part because *money* is a hard limitation. Money is something that you have to constantly struggle to acquire. You have constant expenditures required simply to survive. If your debt grows out of control, you’ll lose access to your property, your home, and so on.
A nation does not interact with money or property in that way. Nations create money. Nations declare and define property.
Nations are also more complex entities. Imagine owing money to your own lung, or to a single blood cell; that’s nonsensical for a human, but entirely mundane for nations. Not only is much of that debt to their own citizens, some of it is even from one government agency to another.
Thus, for a sovereign nation, “debt” is just one form of control and distribution of power. It’s not simply that a nation can take more debt than an individual – it’s that the meaning of “debt” is deeply different.
All the functions of sovereign debt are outside the scope of an ELI5, but probably the simplest way to view it is a promise to exert power in the future. The US has a history of not breaking that kind of promise, and has the power to make good on that kind of promise. All the different kinds of power feed into that – economic foremost, but its economy is also backed by military power, cultural power, diplomatic power, and so on.
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