RAB Capital Global Portfolio Strategist Marshall Auerback on the outlook for the federal government’s mounting debt.
July 28, 2010
Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
"Overall household indebtedness is up from $7 trillion to almost $10 trillion since 2000. On this sum, we estimate, the American consumer has an annual interest bill of more than $500 billion; a sum, by the way, that vastly exceeds his current income growth." —Kurt Richebacher
"The Greek offer is not sufficient and they have to go away to come up with a revised plan," said a spokesman for the German Finance Ministry. The Greeks must first have a plan that satisfies the Germans which this comment states they clearly don't yet and then the Greek Parliament will vote on it this weekend. This said, whatever package gets voted on in Greece is basically an up or down vote on euro membership so we are entering another uncertain weekend for global markets. A failed vote will likely lead to a hard default which may be what...
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July 28th, 2010 at 3:30 pm
Before I watch, can I tell the answer from the network on which the interview appeared? :)
And is the whole problem due to “entitlements” and not trillions in bank and RE bailouts?
July 28th, 2010 at 6:51 pm
Dang it. He’s just not falling for the leading questions… and he’s rational. I wonder if he’ll be back.
July 28th, 2010 at 11:46 pm
This video was “worth it” for the entertainment value alone. (Check out the style-and-substance contrasts between the interviewers and interviewee.) The info from Marshall is a bonus!
July 28th, 2010 at 11:52 pm
Just watched it again. I take back my last statement, since it was unfair. The Fox interviewers did a good job, by asking questions which are on a lot of viewers’s/people’s minds.
July 29th, 2010 at 6:23 am
i think there is something this guy does not understand: all debt is not equal. private and corporate debt is quite different from government debt. corporations borrow to invest in PROFITABLE enterprises, people get loans they COULD SERVICE, governments incur debt that is PURE LOSS to the society: there is no net benefit, because the government owns to its people collectively more than it borrows and it promises to pay it back by taxing those people collectively with higher rates. government debt is a type of ponzi scheme perpetrated by accounting gimmicks.
July 29th, 2010 at 6:29 am
SO IF WE TRY TO REDUCE DEFICIT IT WILL MAKE THINGS WORSE-DEFLATION OR MAYBE DEPRESSION. ON THE OTHER HAND, IT SEEMS AN EQUAL NUMBER OF EXPERTS BELIEVE THAT IF WE DO NOT REDUCE THE DEFICIT WE WILL GO BANKRUPT. SOME BELIEVE BOTH WILL HAPPEN. CONFUSED AND FULL OF CONFIDENCE(NOT).
July 29th, 2010 at 10:15 am
Baychev is correct. Federal government debt is different from private debt. It also is different from state and local government debt. Individuals, corporations and local governments all can go bankrupt. The federal government, being monetarily sovereign, cannot go bankrupt. It has the unlimited ability to create money.
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If taxes were $0, and there were no T-securities, the government’s ability to spend would not be reduced by even one penny. The federal government neither needs nor uses taxes or borrowing to pay its bills. So for the question at the top of this post — “Will Investors Lose Confidence in U.S. Debt?” — the answer is “Who cares?”
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Federal borrowing is an unnecessary relic of the gold standard days, which ended in 1971. The creation and sale of T-securities now is a useless enterprise.
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Here is how the government borrows:
1. A lender — let’s say China — first must deposit sufficient dollars into its checking account at the Fed.
2. When China buys a T-bill, China’s checking account is debited and its savings account at the Fed is credited. There is no physical movement of dollars. It’s just a debit of one account and a credit of another account, at the same U.S. bank.
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Notice that in order to “lend” to us, that is to buy our bonds, China first must acquire dollars and then deposit them in our bank. Then they merely trade one form of money (dollars), which pays no interest, for another form of money (T-bonds) which does pay interest. No money is created in the process. When is money created? When we originally create the T-bonds, which we do out of thin air.
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The concern about federal debt is nonsensical. “Federal debt” is a misnomer for “federal money created.” The lower the debt, the less money the government has created. Since a growing economy requires a growing supply of debt, it is absolutely necessary for the federal government to run deficits, i.e. to create money, in order for our economy to grow.
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The DEBT/GDP RATIO mentioned in the video is equally nonsensical, since it merely is a ratio of federal money created vs. product, and has nothing whatever to do with the government’s ability to pay its bills or with any other economic measure. The next time you read or hear someone talking about Debt/GDP you’ll know that person does not understand federal financing. Sadly, Bernanke may be the next one to do it.
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Rodger Malcolm Mitchell