Welcome to the New Depression

[Duck-Billed Catechist]

If we default, how are the Chinese going to collect? What security instrument is attached to these debts?

The main thing is that no one would give us new credit.

[Motorik]

Kind of like how once you go bankrupt in the US you can never get credit again?

[Duck-Billed Catechist]

The rates the gubment can currently get are based on the notion that it's the most credit-worthy agent in the world. If that changes for any reason, then credit will get a lot more expensive.

[ZenLunatic]

I was once told, by my college economics professor, that the majority of the national debt is money owed by one branch of the government to another. I don't know if that's entirely true, but it made me feel better...Now, the fact that China is purchasing our debt is scary.

 

I dont know about that statement. It is basically any debt our country has with bonds, bills, notes, and such. Can be anyone from companies, people, or another country. I think its at like 9 trillion, I dont see any one country taking that on.

[quarter23cd]

how are the Chinese going to collect?

General Tso called. He wants his chicken back.

[John Smith]

I was once told, by my college economics professor, that the majority of the national debt is money owed by one branch of the government to another. I don't know if that's entirely true, but it made me feel better...Now, the fact that China is purchasing our debt is scary.

 

I don't know where you went to school, but if quoted correctly that economics professor is wrong wrong wrong!!! And so wrong that the statement shows a total incompetence in his chosen field of study, and sounds more like a political pundit than a real educator. Our national debt is and has always, in my lifetime at least, been held by outside sources. Individual people hold a lot of our nations debt through a number of means mainly through savings bonds and bond funds. Many stock funds hold a certain amount of treasury debt, many retirement plans hold treasury bills. Foreign entities have always held a lot of our debt. In the 80's the Japanese held a bunch as did the Dutch I think. Now our largest creditor is the Chinese. This is a simplistic answer but our national debt, the stuff you hear about in the news everyday is and has always been held primarily by investors. These investors are individuals, funds, retirement plans and foreign entities among many others.

 

I will add this...throughout the BUSH administration one certain political party has tried to muddy the waters by implying that the debt held by our social security system is not real debt because it is merely IOU's held by one branch of the government to pay another branch etc... implying that it is all a shell game. Heck president Bush himself even staged a show where he went to a file cabinet showing that the SS debt is just paper in a file. This argument works well for those who are not fully informed or choose to not be fully informed. That debt held by the social security admin is the HIGHEST rated debt we issue as a country. If that debt were defaulted on, as has been suggested by those who want social security to fail, then it would have catastrophic effects on all our other outstanding debt held by outsiders. Creditors around the world would sell sell sell their debt because they would lose faith in the US government to pay and it would cause A near immediate recession and or depression as we would have to pay it out and we would not be able to raise any more capital or very little capital. Any econ 101 professor without an agenda to peddle should know this. This is stuff talked about daily in the markets and in fact after Bush's show I believe Greenspan had to do some tap dancing to settle fears that the administration was planning to default this debt.

[John Smith]

If we default, how are the Chinese going to collect? What security instrument is attached to these debts?

 

Umm if we fail to pay any bonds that become due...we as a nation are fugged. The bonds are backed by the full faith and credit of our government, I'm not sure of the exact wording. However should we choose to default then we would most likely not be able to sell bonds anywhere for sometime. We might be able to sell higher interest bonds which would not be good. We might be able to get shorter term bonds on the market which is also not very good. No matter how you slice it, not paying our debts as a nation is not a wise fiscal policy. Some might say it is a wise political strategy, but lets say we default on or payments to China and things escalate to war level, we would not have the cash available to fund our war and things would just go down hill from there. That is not a wise political move in my eyes.

[JerseyMike]

way to generalize

 

Way to be a smug asshole.

[cryptique]

General Tso called. He wants his chicken back.

Failing that, he'll just keep putting lead in all of our toys.

[Twisted Acres]

General Tso called. He wants his chicken back.

 

[ZenLunatic]

Just hurry up gimme my $800 already.

[John Smith]

I'm not claiming everything's peachy keen, but the economy is more than the DOW and lending issues.

 

Exactly the economy is more than the Dow and lending issues. But the Dow is supposed to reflect confidence in the economy. The markets are supposed to reflect how the economy is moving and are more than simply people gambling on will this stock rise or can I make money on that commodity. Ditto for the interest/mortgage issue.

 

Here is part of the problem...when the government issues more and more debt more and more of our nations wealth leaves the country through the debt service (interest) payments. Also the more interest we pay as a nation, the more it crowds out other spending...things like school funding, road /infrastructure repairs & building, national defense, national offense and all other government spending. On a more immediate level the mortgage industry has entered a phase whereby many banks and lending institutions may be royally fugged. The market over inflated the values of homes, people borrowed against those increased values and now the market is coming back into where it truly should be...i.e. the bubble hast burst. Now many many people have loans that are higher than the values of their homes. They can not move they can not sell because they don't have that additional "bubble cash" needed to pay off the full loan. The banks have to start writing things off, so they now have less cash available to loan for new housing and new investment...

 

If you think the economy has been rosy and cheery for the last 7 years then chances are you earn a healthy income. Most of us are feeling the pinch of higher oil prices, which extend much deeper and much further than just the price of gasoline. I earn a very good living and have been feeling extremely squeezed for several years, in spite of my cutting spending and actively working to keep bills low. If you think the down turn in the economy is new think of this...A friend of mine is the CFO of a company that sells yard care products. He said that orders for his company's products have been falling for 19 months. People who buy homes buy his products so his company has gone from three shifts to one and a portion of a second. Right now he sees nothing signalling any sort of uptick.