Posted on 03/20/2020 11:29:40 AM PDT by Red Badger
What you always have to look at is the debt to income ratio. Writers love to focus on huge debt numbers, but unless they compare that with income they aren’t telling you anything.
In the case of the national debt, it has to be compared to the percentage of the GDP. And to the percentage of tax receipts that are required to cover interest payments.
IIRC federal government spending since 1953 has fluctuated from 17% to 24% of GDP. It was running about 20% before this current pandemic excitement.
For 2019, net interest payments on the national debt amounted to 9% of federal spending. During the 1990s it was closer to 15%. Some of that drop is due to the very low interest rates on the current debt, which of course won’t be permanent.
Basically the percentages aren’t out of line despite the bigger numbers. Some of the bigger numbers are due to inflation’s erosion of the dollar, some is from growth of the economy.
“And there is not enough cash to even pay the debt.”
We employ a Funded Public Debt. An innovation of Alexander Hamilton. That doesn’t require “paying the debt”. It only requires paying the interest on it. Right now that net interest is running at 9% of federal spending.
IIRC the last time we paid off the national debt was 1835. About a year later a recession began that lasted until 1844 and the government resumed borrowing.
“There is simply not enough debt in the world to match the derivatives”
“Debt to match derivatives” I don’t think that actually has any financial meaning- derivatives are created on top of debt instruments.
“(that’s the risk of shorting).”
Actually you described the risk of being on margin. Short sellers make a fortune in a collapsing market like we are seeing right now.
Or he could not do any of that, and watch as the economy collapses. That happened during Hoover. Didn’t turn out well.
You keep telling yourself that.
There's such a thing as cash flow. And making the interest payments too.
Guess what happens when all the live-like-kings-get-paid 80%-of-your-highest-salary-for-live state govt. workers retire?
The money ISN'T THERE. And IIRC, at least one of the worst states, has said it is UNCONSTITUTIONAL (under the state Constitution) to cut the pension payments.
There's an analogy between fractional lending meaning there's not enough cash to give everyone their money if they want it at the same time; and not having enough collateral if all the people who bet the wrong way on derivatives have to come up to scratch at the same time. It might be possible to settle by promising future cash flows (i.e. promises of the future payments on debt)...but there's not enough debt around.
“There’s such a thing as cash flow. And making the interest payments too.”
Interest payment on the national debt was 9% in fiscal 2019. It was 15% in the 1990s. Where do you see a problem?
“Guess what happens when all the live-like-kings-get-paid 80%-of-your-highest-salary-for-live state govt. workers retire? The money ISN’T THERE.”
They may not get paid what they expect. State gov’t promises aren’t a federal gov’t responsibility. If pensions bankrupt California something will give. And depending upon who is President, it may be state pensions that break. There is no requirement for federal taxpayers to bail out states.
I’m talking about corporate debt, not national debt (which is bad, but the country can’t go bankrupt, and can always print money). Corporation have been borrowing like crazy because interest rates have been so low, and selling bonds to pension funds and investors. To the tune of ~$10 trillion dollars, $1.2 trillion rated as junk. That market is in free fall right now.
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