Wishful Thinking 101: Can We Talk About the Deficit Now?

**Prince of the Poodles** · 11-09-2006, 08:58

Hmm I dont think I understand.

If Clinton was running a surplus, how were we 20 trillion in the hole in 2000? Was he just not using that money to pay it back, or hadnt had enough time to pay it all off?

Is China in massive debt? What about our European equivilents? How long can a country operate with trillions of dollars in debt? Also who do we owe this money too!?

LoL ima little worked up. I can relate to the Lemur.

**macsen rufus** · 11-09-2006, 12:49

Also who do we owe this money too!?

Isn't it China that's been buying up all your debts???

**rory_20_uk** · 11-09-2006, 12:49

China has reserves of 1 trillion dollars, and has a massive trade surplus. The EU isn't a state in any sense of the word (except in that Somalia is a unified state). Different countries have widely differing debt levels.

Clinton did benefit from an upsurge in the economy. Bush has managed to start two wars which aren't cheap, start up several new plans for defence against a Soviet Russia which again isn't cheap, and finally decided that the Rich and companies pay too much tax.

the economy was due to contract, but Bush has managed to do little to help the country weather this, whist at the same time instigating measures to ignore and exacerbate the problem.

**yesdachi** · 11-09-2006, 16:22

Originally Posted by Prince of the Poodles

Also who do we owe this money too!?

Back in the day Adrian gave a nice breakdown of who held the US’s $ markers, lots of Asian (China primarily) IIRC. Investing in a county shows several things thou and not just a desire to conquer them (insert evil laugh). It shows a confidence that they think the country is a good investment regardless of the current situation. Smart people invested in Exxon after the Valdese (SP) crash because they knew the company was strong and would bounce back (stock dropped to around $4/share and rebounded to $70/share in just a few years, nice ROI for investors who didn’t follow the popularity of the company).

**GoreBag** · 11-10-2006, 07:54

I never understood this debt thing either. I understand that money is loaned and all that, but really, when will the world banks cease to lend? And once a workable, stable budget has been hammered out, who's to say that these debts won't simply be waived?

Canada is still paying off its debts from 80's, but it's a fraction of the US' debt, and we're running a surplus, so, it's not quite the same problem there. I'm looking forward to the day when the debt is no more and we can hopefully cut down some sin tax.

**yesdachi** · 11-10-2006, 14:46

Originally Posted by GoreBag

I never understood this debt thing either. I understand that money is loaned and all that, but really, when will the world banks cease to lend? And once a workable, stable budget has been hammered out, who's to say that these debts won't simply be waived?

Canada is still paying off its debts from 80's, but it's a fraction of the US' debt, and we're running a surplus, so, it's not quite the same problem there. I'm looking forward to the day when the debt is no more and we can hopefully cut down some sin tax.

I wouldn’t waive debt I loaned to someone unless they did something either real nice or beat me to a pulp.

The pain with all the US’s borrowed debt is that we have to pay interest on it.

**Lemur** · 11-10-2006, 14:54

I remember reading somewhere that the U.S. actually defaulted on its debt in the early 1800s, but now I can't find any reference to it. Hmm, maybe this is more of a Monastery question ...

**rory_20_uk** · 11-10-2006, 16:30

Another factor to consider with debt is the interest rate that the debt incurrs. If it is low enough (i.e. below inflation), there is no incentive to pay it off, as in real terms the value of the debt decreases even with interest taken into account.

A government that pays off the debt might well be leaving the country in good financial state long term, but voters might get impatient with the failure of services to improve. Telling them that per year there will be more money in many cases is far less vote-worthy than leaving the debt and spending on things consumers can see.

**Lemur** · 11-10-2006, 16:46

Good point, Rory, but think of the money that would be freed up for other kinds of investments. Money that is sunk into Treasury Bills isn't making new businesses, or funding research, or much of anything. When Gingrich/Clinton brought our budget into a too-brief surplus, other investments boomed. Just think of what would happen if we made a real dent in our debt.

**Productivity** · 11-12-2006, 07:44

Originally Posted by Lemur

I remember reading somewhere that the U.S. actually defaulted on its debt in the early 1800s, but now I can't find any reference to it. Hmm, maybe this is more of a Monastery question ...

I remember seeing a reference to this once in one of my macro texts, but I went looking for it (for Don C if I remember correctly) but never could find it - I'll have a look again a bit later.

**Aenlic** · 11-12-2006, 13:58

In the debt record, there was an oddity around 1835 when the debt dropped from over $4 million to just $33K. In 1837 it was $37K, then up to $336K in 1838 and then back up to $3 million by 1839. I couldn't find a reason for the huge decrease in debt from 1834 to 1835. Except for 1835-1837, every other year since 1791 the debt has been in the millions. The national debt has gone up every year since 1929.

http://www.publicdebt.treas.gov/opd/opdhisto1.htm

Ah, upon further digging it seems the U.S. Congress debated and finally passed a bill in 1834 to pay off the national debt. That is why it shrank. Of course, the next year it sprang right back up again.

I can't find anything suggesting that the government defaulted on the debt. Perhaps it's some kind of urban legend?

Edit: Redleg posted while I was in the midst of compiling all this and happily surfing the net into all sorts of odd corners (I got side-tracked by the whole issue of Andrew Jackson and the 2nd Bank, which was occuring at the same time as the debt payoff). I defer to Redleg's post. It does seem reasonable the the various state defaults of the 1840's was the genesis of the story. I wonder how much of that 1840's problem was the result of the U.S. Treasury surplus of the late 1830's having been re-distributed to the states, leading to massive speculation and economic turmoil.

**Redleg** · 11-12-2006, 13:36

Originally Posted by Lemur

I remember reading somewhere that the U.S. actually defaulted on its debt in the early 1800s, but now I can't find any reference to it. Hmm, maybe this is more of a Monastery question ...

I believe that it happened during the time period around 1840 and was several states not the federal government. An article that links to a book about the subject.

http://links.jstor.org/sici?sici=000...2-Q&size=LARGE

**GoreBag** · 11-10-2006, 18:48

Originally Posted by yesdachi

I wouldn’t waive debt I loaned to someone unless they did something either real nice or beat me to a pulp.

My point exactly. Not many people can afford to really 'beat up' the US unless terrorists are involved and even then, such an extortion scheme wouldn't work very well in the eyes of the world...but I'm getting off on a tangent here. The point is that there isn't much leverage that anyone can really put on the US to force them to repay the debt.