It's naturally very hard for anyone to accept that something they have heard all their lives is true could be false.
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The US Government Debt Ceiling
- Thread starter ipatent
- Start date
There are two things you probably heard of but never understood. There is a Eurodollar market estimated at 13 trillion, it has nothing to do with European's Euro. Eurodollar is rarely/never recirculated back into the US domestic market. It is US Dollars printed overseas for USD to become de facto reserved currency to facilitate the trades. Unless USG is redeeming or the foreigners are buying 13 trillion worth of US domestically produced goods, this number couldn't be reduced. Eurodollar mostly sits on private banks' balance sheets but the Fed is on the hook to manage it if there is a crisis of confidence. Then there is the second point, foreigners holding of US treasuries inside our border, which is about 7 trillions in US treasury and about 4-5 trillions in US non-public assets. As long as USD is a reserved currency, what only matters is national debt, which the Fed must service. Interest payments of servicing these debts have to be collected from US taxpayers. In the next decades, China's CIPS, Russian SPFS, EU's INSTEX, will likely chip away SWIFT's business, or at least for non-USD settlements. We have not balance the budget since 2001 and no national savings, so all the interest payments were de factor borrowing money from the future to pay current liabilities.
Of course I am aware of this, although it is only peripherally related to what I posted on, which was the absurdity of a "debt ceiling."
The servicing of Treasury issued securities is non-discretionary spending. I, and others too, have expressed the opinion that if interest payments become too large a fraction of total spending, these payments could potentially crimp U.S. discretionary spending. One way to handle this is to reduce the number of outstanding securities by buying some significant fraction of them back*. Of course there may be undesirable consequences. The JCB bought back ~50% of Japanese Government issued securities in the past few years. We may use that as a test. When our, or Japan's, government, buys back their own securities, what they are doing is simply exchanging the non-readily spendable, interest paying form of money, for readily circulatable, non-interest paying "outside" money. This does not represent an additional printing of money.
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*U.S. fed QE, although it seems like a lot of Treasuries are being bought, actually involves a paltry amount of securities compared to the total of U.S. Treasury Securities outstanding.
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So you started with a reasonable and factual description of the Eurodollar market and at least a cursory description of foreign treasury holdings (although you failed to mention the reason for those holdings with respect to trade). But then you made some crazy logical leap to veer off into SWIFT payment, which has FA to do with the previous two items. And throw in a balanced budget assertion that also has nothing to do with the previous two items. I can't tell if you suffered some kind of mental break half-way through your post or if you just pasted some info at the beginning and added your own thoughts at the end?
Although it is not conventional debt, it does represent a Treasury liability. As such, every penny must be accounted for, and is.
By passing the liability on. Wish I could "account" for my liabilities that way without the threat of jailtime.
Guess I have to work on my CV on the road to becoming next FedHead.
But you can't. The difference between you and your government was another of my major points. We must all stop equating government finances with our own private finances.
In a non-obvious way, there is a connection between your finances and the governments. It's this: An individuals money is usually fairly closely connected to their productivity, but there are examples where it is not. Similarly, over time, Government issued money is usually connected to GDP. If it becomes significantly disconnected, the purchasing power of the government issued money may decline. This can happen if the government spends too much money in an unproductive ways. Similarly, if you spend too much in an unproductive way, you will find yourself with less buying power. Fiat money is backed by a nation's productivity.