$50 billion here, $50 billion there, and before you know it

Discussion in 'Current Affairs, News and Analysis' started by AndyPipkin, Jan 29, 2006.

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  1. The Army has to start replacing and or refurbishing equipment that has been used in Iraq. The Army figures we need to spend over $1.5 billion just to replace helicopters that have been lost. To replace/refurbish tanks and IFV would cost billions more.
     
  2. In a shocking development, the Treasury Department website is openly stating that as of January 24th 2006 our national debt stood at $8,185.3 billion.

    http://www.publicdebt.treas.gov/opd/opdpenny.htm

    Yet the US national debt 'ceiling' stands at $8,184 billion - a full billion less. Although called upon by John Snow, congress has not passed an expansion of the debt ceiling and so the US government is now operating in technical default.


    "US in Technical Default" 28 January 2006
    by Dr. C. H Martenson
    http://www.safehaven.com/article-4511.htm
     
  3. Yes, NWD, it must be very worrying having a government debt as % of GDP slightly below the EU average and well under half of Japan's, we all know what a basket-case they are...

    http://www.oenb.at/isaweb/report.do?&lang=EN&report=10.17

    I'm sick of saying it, but the US really DOES NOT have a government borrowing problem. Sure, it could do with borrowing less, but who couldn't. The real problem is the trade deficit.
     
  4. Future payment obligations pursuant to federal "entitlement" programs are not included in the federal debt because the money has not yet been appropriated, borrowed, or spent.

    These obligations include medicaid and social security.

    These obligations are so large as to call into question the relevance of debt owed the public as a metric of the state of federal finances.
     
  5. The debt breakdown per citizen is $27,470.22 . Not all that very large. But way off topic here.
     
  6. It has been estimated that when we compared the capitalized value (i.e., future accruals reduced to present value by arithmetical discounting) of future federal entitlements obligations to the capitalized value of future federal revenues, there emerges a "fiscal gap" of between forty trillion and seventy-two trillion dollars.

    "Speeches ignore impending U.S. debt disaster
    "No mention of fiscal gap estimated as high as $72 trillion" by Carolyn Lockhead. 12 September 2004
    http://72.14.203.104/search?q=cache:393DDrGq1nkJ:www.sfgate.com/cgi-bin/article.cgi%3Ffile%3D/chronicle/archive/2004/09/12/MNG2S8NOI21.DTL+%22impending+US+debt+disaster%22&hl=en&gl=us&ct=clnk&cd=1

    I don't see how this can end any way but badly.
     
  7. I must be getting old. I can remember when 50 Billion waas considered to be a lot of money.
     
  8. I think the point that NWD is trying to make, is that the deficit now exceedes the mandated level. It may well be lower than the EU average, or Japan's; it may well be relatively small per capita; the point is, the 'executive' has exceeded the 'legislative's' authorisation. It's not a financial problem, it's a political problem.
     
  9. I struggle with the concept of a nation owing so much money to the rest of the world!

    Arnie buys the latest stereo from Japan and pays in dollars. China converts some of that sum to yen to pay the immediate bills, but now has dollars left over. China uses that money to buy Treasury Bills (T-bills in the jargon). Because China and others are buying T-bills, the price increases, the effective interest rate falls, the dollar climbs, long-term interest rates fall, the Government then issues more T-bills, Arnie remortgages his house and buys a bigger stereo from China. China now has even more dollars, which it uses to buy gold, oil, copper, coal, steel etc.

    The rising cost of those commodities feeds back into America, interest rates climb, T-bills fall, the currency falls, China sells T-bills, the currency falls further, and Arnie is sacked so that he can sit at home listening to his wonderful stereo!

    Except the last bit hasn't yet happened. For some reason, China and the Far East still love T-bills and the dollar; even when America is massively in debt to the rest of the world. But Mr Greenspan says it is all OK and he has been Chairman of the Fed for the last few years. He retires in the next few days - so it will be interesting to see what happens!

    Litotes
     
  10. I wonder how much the problem really is the trade deficit. I'm no expert and I am using some slightly old figure but as of april last year the US 12-month current account deficit was $665.9 billion, or 5.7% of GDP. Negative balances in the current account must be made up for by positive balances in the capital account ie foreign money. Spending has been fed by low domestic interest rates and government spending (government deficit was around 3% of GDP last year). So basically this shortfall is being funded by foreigners buying up US treasuries (about half of all publically owned treasury bonds are foreign held). This has largely been Far east central banks and I recon more and more OPEC countries (wonder where the windfall from high oil prices will go with small domestic economies). Normally this could be corrected by allowing the dollar to depreciate but foreign central banks won't let that happen as they will loose competitivness and hence why they have been funding this whole deficit (and then dumping them into treasuries). This is why america can simply keep borrowing more and more and the far east is funding it all. 70% of all foreign reserves are now in dollars.

    How sustainable is this? Foreign central banks have to keep down inflation that comes with keeping your own currencies artficially low... Hence why they are selling bonds on the domestic market to excess money supply. This has to be expensive - the interest rates on US treasuries are incredibly low right now and foreign CBs are losing money issuing thier higher interest bonds. World Bank estimates this costs $250m a year/$10b they hold. S. Korea reached its limit a while ago and China has been maintaining it by putting treasuries into state owned banks at artifically low rates. This cannot go on much longer.

    As said I'm no expert and I know i'm paraphrasing a lot of what has already been written...but it seems to me that there is no political will in either the US or the far east to break this cycle. With a still shakey US economy and export oriented far eastern markets this can't continue indefinately. With a $9trillion economy of course it is currently sustainable... the point is, the whole mechanism that is making this debt possible simply isn't.
     
  11. This massive trade deficit is a problem particularly considering that China has just announced a $100US billion trade surplus. The US were already p*ssed off at the imbalance of Chinas trade and the fact that the Chinese will not float there currency which is killing the US export trade.
     
  12. And I think T6 needs to learn the difference between a decimal point and a comma before trying to discuss macroeconomic policy, defense spending or anything else that involves big numbers:

    Coming back to the original subject of the thread for a moment, for a quick run down on how fcuked up the US defense budget process is, click on the following:

    http://www.cdi.org/program/document.cfm?DocumentID=3268&from_page=../index.cfm

    http://www.cdi.org/program/document.cfm?DocumentID=3270&from_page=../index.cfm

    And that's just the appropriations phase of the PPBS. 8O