The Federal Reserve; US Debt; and the Deficits means a POWERFUL UNITED STATES

I was deliberating here to make a thread along certain interests of mine and I simply don't know. I want to generate a lot of discussion however without first resorting to an article or journal but simply listing the basic way the US and Global Economies really work and go from there. I'm tired of reading and hearing about the "evil Federal Reserve" or how the US Dollar is going to be worthless or how the world should return to a reserve currency or even how the Federal Deficit is a "bad thing".

Where to start though?

Well how about we go in a circle and start with deficit.

The US Deficit is a result of something called a Seigniorage or more colloquially - an Inflation Tax. How this works is far too complicated to explain in a first post but it basically works with a simple equation involving money supply and Inflation rate (real inflation rate).

The US Inflation tax is estimated to generate anywhere from about US$280 Billion to US$1 Trillion in unaccounted for revenue.

The way it is generally expressed is via deficit spending - since this deficit spending is paid-off by the inflation tax automatically when the Federal Reserve rebates the Treasury Department.

Now I mentioned a rebate...in short US Dollars retired yield a profit for having been worth more face value than it cost to print. Since within the economy this yields a zero-sum return basically the Federal Reserve pays its operational costs costing the Treasury Department a very small interest on printing money.

But where the Government reaps the reward is from over-seas Dollars.

Dollars held as Foreign Reserve Currencies means that the US makes a huge profit on printing money. There is another effect, reserve currency status makes the US Dollar impecably strong. 150% stronger than the next strongest currency in fact - the Euro.

65.7% of all Foreign Currency Reserves are US Dollars.

The Euro is only about 20% and about 16% of that is from the inherited Deutsche Mark.

The next leader is the United Kingdom at about 2%.

This means the US Dollar is incredibly strong and thus the US can get away with huge trade deficits and debts.

The US Debt is far better than most nations anyway.

But as for the trade deficit - China has calculated the actual US trade deficit (entirely) to be around only US$2 Billion. How? You have to consider savings in costs; sales to other nationals that the US profits from and the fact that the US owns a lot of foreign assets.

So inevitably this leaves a question of Dollar reserves.

China has a lot. But this position actually attaches them to the US intimately. China cannot sell off a lot of US Dollars without deflating the value of the US Dollar and therefore destroying their Foreing Currency Reserves and credits.

Destroying such a thing would destroy their economy.

So in the end; the Federal Reserve makes the US Government a lot of money; the deficit is off-set by the inflation tax; and the US Dollar being supreme as a Foreign Currency makes the US Dollar the strongest currency in the world and the US Economy the strongest economy in the world and allows the US to do more than other nations could such as have a huge trade deficit.

Thank you, I hope you find this a good ground to start a discussion on all the misperceptions.

Good post.

You still got debt though...

with a country roughly

HEre we go. Here's the debt counter clock....

US Debt counter Clock.

With congress having set the limit for US debt at 9 trillian dollars, and increasing at 1.93 billion dollars per day since sept 29, 2006...

It will reach that 9 trillian mark in about 57 days.

When it does, with a population of 301,624,814 people...


Every man woman and child owes estimated: $29838 each.

And yeah so it's not soo bad, considering that you have all those reserves that other countries have. Anyways...

Meh. It's still alot of debt.

Your thread is nonesense. You are confusing America, the American Government, and the Federal Reserve Board.

The Federal Reserve is not a part of the US government.

The Debt keeps rising. Sure, the value of the dollar always goes down, but that does not mean that debt is a good thing.

We still owe, and the income tax is just barely covering interest payments on the debt.

You see, our debt is over eight trillion dollars and income tax revenue is around half a billion each year. While this is only about one third of the federal governments income it does represent all of the income from the parties liable for the debt.

Put your thinking cap back on and you will see that the national debt is a horrid thing.


If it did not exist income taxes would not exist.

Originally posted by Malichai
Your thread is nonesense.

I totally agree with that, (TheIntelligentInvestor) do you have even any economical understanding? Just look on the last China headlines on Bloomberg or the Financial Times. It's not not far from the crisis in 1929, "the Great Depression". You will have a lot to see this year.

I dont understand the economics very well, but i cant see how such a high level of debt could ever be good.
Ive got a question but,

Member back duing the depression days, you see images of people with bag loads of money trying to buy bread?>

The economy went bust because the government of the day effectivley printed money.

Well, right now the government is paying billions upon billions of dollars to these companies working in Iraq.

Arent we there, effectivley printing money and handing it to the american companies, thus putting it into the cycle?

We arent getting anything for this outlay, accept bills

Could this come to bite us?

Agit: Heck yes it will nip us in the butt if not take our rear end off.

As inflation goes up, debt goes through the roof, reserves dissapear or are non-existant then our dollar is worth SQUAT on that alone. Secondly when you add outsourcing to it we go bust. Game over. Sorry no reset.

A strong economy has MASSIVE export and little to no imports, however we are the OPPOSITE of that, and then to boot the government goes and bankrupts us through wars. Go look at how much a tank costs and then stop and think how much it costs to maintain that ONE TANK. Then multiply that by over 600 tanks being used by the military. Ouch? That is to say NOTHING about the OTHER expenses we see. The military gets OVER 600 BILLION a year to spend NOT including the OTHER deals that are signed in by congress granting 17 billion here, 80 there, 175 billion over yonder. Money is being shipped overseas due to outsourcing so we have a little problem: printing more. You see you print more money during a war right? (logic) So thus the dollar is worth LESS! (logic) So that means the more that is pushed out, yet thanks to corporate control is sent BACK TO US as others have said means we have a surpluss of dollars floating around. This means should this actually hit the market, goobye dollar. It would take less than one nation demanding payment for our debt to make a dent right about now.


For those who say the economy is hard to understand: Yeah, you should go read the CIA world factbook and look at the BASIC US expenses, you WILL choke when you look at the stupidity of it. Also I doubt even the "economists" understand the US economy because the rules are made as the elites go. There is still almost 0 rules to be followed in the system so its one giant ball of yarn that is exteremely tangled up. Just one way of making sure people do not ask questions.

The debt is effectively fueling this nation's line of credit/loan capability with a remorseful bliss that accompanies economic growth, not consumer stagnation at the hand of credit/loan agencies. The debt is not cut and dry even at face value. With a more explicit interpretation than is formally given in most cases, away from strictly face value, I can prove the debt is not entirely a debt, and is instead the economic measure of not only the US but increasingly of the global economy's infrastructural growth which over 6 billion people in the world depend upon.

The debt is a bond between two nations that brings them together in a special and very intimate way, making it in the lenders best interest to take care of the debtor in order to make certain he can pay in full.

Do the Chinese buy Treasury items with the intent to sell these Treasury items and collect 100% fare on these items? NO, they are meant to collect the interest in the obligation of China's own manufacturing prowess making good on certain quotas previously established in order to build the initial line of credit. The real value is having US dollars to trade when commodities and goods are priced in the US dollar, such as corn, wheat and sugar. What we are really seeing that in the US Treasury's power to sell debt notes, bills and bonds is the lending power to offer China a ticket out of acruing unnecessary debt themselves by having to make laudly inappropriate request to convert and/or reset prices out of the original monetary stadnard.

In order for the Chinese national companies and other private firms to conduct business at the expense of the US Treasury Department, the intent must become an agreement that latter on down the road, the Chinese will in due course of time, begin to manufacture goods to sell to the global market and cover at least partially the loan given to them by the US.

These countries (such as China, used previously as an example) are effectively walking away with the best deal in the whole of the process of expanding the US debt, essentially the role of the US to lend US dollars. These nations collect not only interest and avoid interest by not acruing payments needed to make transactions that convert from a pricing monetary standard to a held monetary standard of the national bank but also collect an intimate role in US investment, and in a simply stated manner they are investing in their own ability to recieve further loans from the US Treasury, almost like a down payment. In summary: THEY ARE GETTING AWAY WITH MURDER!

[edit on 16-4-2007 by etotheitheta]

Originally posted by DaRAGE
Good post.

You still got debt though...

with a country roughly

HEre we go. Here's the debt counter clock....

US Debt counter Clock.

With congress having set the limit for US debt at 9 trillian dollars, and increasing at 1.93 billion dollars per day since sept 29, 2006...

It will reach that 9 trillian mark in about 57 days.

When it does, with a population of 301,624,814 people...


Every man woman and child owes estimated: $29838 each.

And yeah so it's not soo bad, considering that you have all those reserves that other countries have. Anyways...

Meh. It's still alot of debt.

Bottom line is the US Debt is only 64.3% or so of the US GDP meaning equivilent to a corporation it is only 64.3% of its net income. A Company is said to have a good credit record when its long term debts are no more than 300% that of the Net Income (meaning it can be paid off within 3 years).

This is true of the United States. The United States could pay off its debts in half a year.

Originally posted by Malichai
Your thread is nonesense. You are confusing America, the American Government, and the Federal Reserve Board.

No I am not

The Federal Reserve is not a part of the US government.

I know - but it does exactly what the US Government tells it to do or it will lose its charter and cease to exist.

The Debt keeps rising. Sure, the value of the dollar always goes down, but that does not mean that debt is a good thing.

Debt is a good thing - the greatest and wealthiest men in any nation has always built their empires on debt. Most of them are where they are today such as Warren Buffett - Donald Trump - the Rothschilds - the Rockerfellers - the Thyssens.

We still owe, and the income tax is just barely covering interest payments on the debt.

That's because you don't understand how the debt is paid.

You see, our debt is over eight trillion dollars and income tax revenue is around half a billion each year. While this is only about one third of the federal governments income it does represent all of the income from the parties liable for the debt.

The US GDP is US$12 Trillion and climbing. No biggie.

Put your thinking cap back on and you will see that the national debt is a horrid thing.

Put your thinking cap on in the first place and you'd understand debt is a necessary thing for economic growth. It expands liquidity.

If it did not exist income taxes would not exist.

Originally posted by absente

Originally posted by Malichai
Your thread is nonesense.

I totally agree with that, (TheIntelligentInvestor) do you have even any economical understanding? Just look on the last China headlines on Bloomberg or the Financial Times. It's not not far from the crisis in 1929, "the Great Depression". You will have a lot to see this year.

How so? I don't understand how you make your argument? How will the Great Depression happen when steady controlled inflation is a safeguard against Depressions?

So your argument is non-existent...look at Financial Times? Where does it say we are doomed?

Originally posted by Vekar
Agit: Heck yes it will nip us in the butt if not take our rear end off.

As inflation goes up, debt goes through the roof, reserves dissapear or are non-existant then our dollar is worth SQUAT on that alone. Secondly when you add outsourcing to it we go bust. Game over. Sorry no reset.

There is of course always a reset...but you are too over-dramatic to understand this. You are also wrong - US Currency as a Foreign Reserve has increased in the last few years. Which flies in the face of your theory.

A strong economy has MASSIVE export and little to no imports, however we are the OPPOSITE of that, and then to boot the government goes and bankrupts us through wars.

This is absolutely and utterly absurd and does not merrit a counter argument it simply is completely wrong; China and Germany both know this.

Go look at how much a tank costs and then stop and think how much it costs to maintain that ONE TANK. Then multiply that by over 600 tanks being used by the military. Ouch? That is to say NOTHING about the OTHER expenses we see. The military gets OVER 600 BILLION a year to spend NOT including the OTHER deals that are signed in by congress granting 17 billion here, 80 there, 175 billion over yonder.

You are werong again not only on budget figures (nominal) but this is a pitiful argument concerning the US Budget is only 10% of the US Economy and the Defense Budget is only about 3.5%

Money is being shipped overseas due to outsourcing so we have a little problem: printing more. You see you print more money during a war right?

No....you're wrong here as well...where are you getting your info? Go to the Federal Reserve Website for public information.

(logic) So thus the dollar is worth LESS! (logic) So that means the more that is pushed out, yet thanks to corporate control is sent BACK TO US as others have said means we have a surpluss of dollars floating around. This means should this actually hit the market, goobye dollar. It would take less than one nation demanding payment for our debt to make a dent right about now.


For those who say the economy is hard to understand: Yeah, you should go read the CIA world factbook and look at the BASIC US expenses, you WILL choke when you look at the stupidity of it. Also I doubt even the "economists" understand the US economy because the rules are made as the elites go. There is still almost 0 rules to be followed in the system so its one giant ball of yarn that is exteremely tangled up. Just one way of making sure people do not ask questions.

I am deeply disappointed in the trash presented in this thread - but it's not worth my time to explain how it is all wrong. "The CIA Factbook" sums it up.

I will make a general statement:

First - strong economies are NOT measured by imports/exports ratios. Here are some countries with MASSIVE exports compared to imports.

Niger.

Zimbabwe.

Angola.

Guinea.

What do these countries all have in common? MASSIVE CHRONIC POVERTY

Now the US Government makes money off printing money but there's a tollerance for how much this can occur. It is based on supply and demand. Germany failed at this concept in 1920 and their economy hit a MASSIVE inflation.

Two World Wars, two economic DESTRUCTIONS and Germany is still the second strongest economy in the world - proving that you DO get a second chance.

The US Debt is in the form of bonds etc. and builds ties between the US and other nations and builds strength in the US economy by providing liquidity. The US Economy is growing faster than the interest on the debt and thus it is a SOUND investment.

So your trying to tell me that being $9 trillion in debt is a good thing for the U.S.? That it makes us "powerful?"

You're right about China selling off parts of their U.S. currency holding - it would make the rest of their reserves lose a LOT. HOWEVER, you're forgetting one thing - WHAT IF China decides to SELL ALL of it's dollars and switch to euros?

Originally posted by TheIntelligentInvestor
I will make a general statement:

First - strong economies are NOT measured by imports/exports ratios. Here are some countries with MASSIVE exports compared to imports.

Niger.

Zimbabwe.

Angola.

Guinea.

What do these countries all have in common? MASSIVE CHRONIC POVERTY

What they have in common is massive debt. These are the main targets in the debt relief program because the debt has so impoverished the people and made the governments unworkable.

Now the US Government makes money off printing money but there's a tollerance for how much this can occur. It is based on supply and demand. Germany failed at this concept in 1920 and their economy hit a MASSIVE inflation.

The US government supplies printed money as it is needed. This goes to the BANKS. It is not spent by the government.

The banks have the power to issue credit which becomes money when it is employed.

Printing currency is a chore. Issuing credit is power.

Two World Wars, two economic DESTRUCTIONS and Germany is still the second strongest economy in the world - proving that you DO get a second chance.

I would rather miss the crappy period between oops and second chance.

Chance is a rather iffy sounding word.

The US Debt is in the form of bonds etc. and builds ties between the US and other nations and builds strength in the US economy by providing liquidity.

What 'ties' does this build other than we owe them?

The US Economy is growing faster than the interest on the debt and thus it is a SOUND investment.

I disagree.

US Economic Growth From 1968

Economic growth is far below interest on US securities.

And that is not all of our debt by far. The dollar itself is debt too. All the ones outside America are debt just as much as those bonds, bills and notes....without the interest...

Then there is State debt, county debt, municipal debt, personal debt.....

We're up to our eyeballs in debt!

Im not going to dispute the larger points of this thread, mainly because, i dont really know economics, but i do have a question. Who exactly benefits from the US government being in so much debt? You say (or have alluded to) debt is a good thing, well if so, who is it good for? The American worker? Or the American banker? Should not the question if debt is good or bad also be measured by who it effects and how it effects them?







[edit on 16-4-2007 by InSpiteOf]

TII: AHHAAHA! Anyway, EXPORTS is one part of economy, learn that. When you have 0 exports you have 0 cash flowing in from other nations and thus you are either self contained or building up your economy by providing jobs because you SELL THINGS! Your quoting of nations is PATHETIC! What do they export? Show me! Then show me WHO RUNS IT! Corporations from the USA! The corporations have a STRONG history of impoverishing nations they go into. The CIA world fact book shows how PATHETIC AND WEAK our industry is and how screwed we are when it comes to exports. We IMPORT more than we EXPORT! That USED TO BE THE OTHER WAY AROUND! Anyway, the US economy is weakening and it will take very little to crush it.

Malichai: "I would rather miss the crappy period between oops and second chance. Chance is a rather iffy sounding word."

VERY TRUE! I would rather skip the "oh (self censored)! Lets hope we get a second chance!"

The U.S. government has $9 trillion in debt. The U.S. population has $48 trillion in debt.

mwhodges.home.att.net...
www.financialsense.com...

Originally posted by k4rupt
WHAT IF China decides to SELL ALL of it's dollars and switch to euros?

The Chinese would have plenty of worthless Euros in that case. The Euro compared to the dollar is a mouse fart in an elephant dung heap. Who outside of EU countries using the Euro does China trade with Euros? The US dollar is the dominant reserve currency in the world, followed by a far distant second, the Euro.

Question, to who do you suppose China can and may sells it's dollars?

I think "TheIntelligentInvestor", and quite possibly "etotheitheta", is a Government Schill coming onto the this web site to 'talk-up" the gov's rediculous amount of debt, supporting a house of cards. I suggest that if ya'll would step back, you'd see the arrogant little game that "TheIntelligentInvestor" is playing, with....

"I am deeply disappointed in the trash presented in this thread - but it's not worth my time to explain how it is all wrong."

What arrogant hogwash, from an intellectual bully.

THEINTELLIGENTIVESTOR joined ATS today. His ploy is transparent, and etotheitheta is his tag team member, who joined in February. Gonna poop out a little propaganda for us...

"and the Deficits means a POWERFUL UNITED STATES"...

right. As long as the rules don't change. You make it sound like that the Weimar Government in Germany screwed-up by not printing ENOUGH money. Wrong! They had no gold to back up the perception of value of their PAPER RECEIPTS... called "money".

This all works until you can't stuff anymore Dollars into China. What happens when/if they won't play anymore? We will then have a serious problem, because there IS no real or percieved wealth (precious metals) behind all that paper. And don't tell me I don't get it. It is that simple. It's a house of cards, AND YOU AND YOUR BUDDY ARE OUT PLANTING SEEDS OF DECEPTION, AS PROPAGANDISTS.

B.

In fairness to TII, there was room to open a discussion on the topic…perhaps the OP could elaborate on thoughts and open some individually. There are several very large topics all rolled into one glancing post. Hopefully, TII will elaborate because I do agree there a great number of misconceptions on all the topics mentioned (doesn't mean I will always agree).

Much of what is touched on by the OP is rooted in some of John M. Keynes assertions stemming for the 1920’s through to his open letter to FDR which are still argued in contemporary economic circles. One of these arguments is that deficit spending can prime economies of scale though what Keynes referred to as counter-cyclical demand management policies (demand meaning aggregate demand). From there it spun-off and is a big topic.

Also, the debasement in the value of currencies to increase expenditure shortfalls has been around for millennia. "Inflation tax" has also been seen as equally long as a way for governments (not just the US) to levy a hidden tax on holdings of real money balances.

Explaining how a trade deficit works probably needs its own thread as does discussing foreign US dollar holding etc. For a first post, it’s quite a big spread of large debatable/misunderstood topics, but interesting.


mg