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debt limit will be reached in february

J

jhu

Lifer
apparently our debt limit of somewhere above $8 trillion will be reached in February. what would the repercussions of not raising the debt limit be? i really don't understand how we can just keep doing this without any consequences. if an individual were to raise his debt limit, his cost of borrowing would be astronomical. why isn't this the case for a country?
 
because the US government is carrying way less debt load than a lot of other 1st world countries, so its still a good buy.
 
Originally posted by: jhu
apparently our debt limit of somewhere above $8 trillion will be reached in February. what would the repercussions of not raising the debt limit be? i really don't understand how we can just keep doing this without any consequences. if an individual were to raise his debt limit, his cost of borrowing would be astronomical. why isn't this the case for a country?
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Because every country is in debt to each other...
 
no clue. i dont really get it either.......how do we even have money? or is it just iou's? i guess thats politics and ill nefver understand it.
 
Originally posted by: ElFenix
because the US government is carrying way less debt load than a lot of other 1st world countries, so its still a good buy.
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Where is this information available?
 
First we must understand the money creation process. Here is a brief break down of the process:

1) Congress votes to increase the Federal debt limit, let say by $1 billion, and instructs the treasury to write interest bearing bonds for $1 billion.

2) The Treasury offers the bonds to the Federal Reserve against the taxpayers' ability to pay.

3) The Federal Reserve buys the bonds by simply creating a book keeping entry for $1 billion to the credit of government's checking account. The fact is these credits are based on nothing. The Federal Reserve just CREATES them.

4) The Treasury can now write checks against the created credit.

5) These checks are dispersed throughout the country, endorsed by recipients and deposited into banks.

6) The banks send the Treasury checks to the Federal Reserve to be cleared. The Fed debits the Treasury's account and credits the banks with the amount. These credits increase the banks' reserves.

7) These reserves serve as the based used by the commercial banks to create checkbook money and to lend it out at interest.

 
Originally posted by: ElFenix
because the US government is carrying way less debt load than a lot of other 1st world countries, so its still a good buy.
Click to expand...

Doesn't matter how much debt you have, it matters more on your ability to pay that debt. If you can grow your economy faster than your debt, your ability to pay (typically if you don't cut out all of your revenue) will rise faster than your debt.

The US has doubled it's debt to GDP ratio in the last 25 years or so - do debt is rising much faster than the ability to pay has grown.

While not a problem completely just yet, it could turn out to be one...time tells all! 🙂

Interesting to note that China and Japan have stopped purchasing US debt (Japan has sold off some this year) and the biggest foreign purchaser is now Carribbean Banking Centers (sounds shady, does it not)? Of course, the US citizens are the biggest holder of debt at the US government (SS fund, etc).
 
Originally posted by: dababus
First we must understand the money creation process. Here is a brief break down of the process:

1) Congress votes to increase the Federal debt limit, let say by $1 billion, and instructs the treasury to write interest bearing bonds for $1 billion.

2) The Treasury offers the bonds to the Federal Reserve against the taxpayers' ability to pay.

3) The Federal Reserve buys the bonds by simply creating a book keeping entry for $1 billion to the credit of government's checking account. The fact is these credits are based on nothing. The Federal Reserve just CREATES them.

4) The Treasury can now write checks against the created credit.

5) These checks are dispersed throughout the country, endorsed by recipients and deposited into banks.

6) The banks send the Treasury checks to the Federal Reserve to be cleared. The Fed debits the Treasury's account and credits the banks with the amount. These credits increase the banks' reserves.

7) These reserves serve as the based used by the commercial banks to create checkbook money and to lend it out at interest.
Click to expand...

how can something so immaterial have so much sway on us?
 
Originally posted by: Engineer
Originally posted by: ElFenix
because the US government is carrying way less debt load than a lot of other 1st world countries, so its still a good buy.
Click to expand...

Doesn't matter how much debt you have, it matters more on your ability to pay that debt. If you can grow your economy faster than your debt, your ability to pay (typically if you don't cut out all of your revenue) will rise faster than your debt.

The US has doubled it's debt to GDP ratio in the last 25 years or so - do debt is rising much faster than the ability to pay has grown.

While not a problem completely just yet, it could turn out to be one...time tells all! 🙂

Interesting to note that China and Japan have stopped purchasing US debt (Japan has sold off some this year) and the biggest foreign purchaser is now Carribbean Banking Centers (sounds shady, does it not)? Of course, the US citizens are the biggest holder of debt at the US government (SS fund, etc).
Click to expand...
i'd imagine that purchasing bonds would go against china's new controlled float policy. if they're purchasing US govt debt they have to do so with US $, which would increase the price of dollars on the international markets. as they're starting to float their currency they no longer need to defend dollars as much to keep the exchange rate at a constant number.

it could also be that they're out of hard currency, but i doubt that.
 
Originally posted by: jhu
Originally posted by: dababus
First we must understand the money creation process. Here is a brief break down of the process:

1) Congress votes to increase the Federal debt limit, let say by $1 billion, and instructs the treasury to write interest bearing bonds for $1 billion.

2) The Treasury offers the bonds to the Federal Reserve against the taxpayers' ability to pay.

3) The Federal Reserve buys the bonds by simply creating a book keeping entry for $1 billion to the credit of government's checking account. The fact is these credits are based on nothing. The Federal Reserve just CREATES them.

4) The Treasury can now write checks against the created credit.

5) These checks are dispersed throughout the country, endorsed by recipients and deposited into banks.

6) The banks send the Treasury checks to the Federal Reserve to be cleared. The Fed debits the Treasury's account and credits the banks with the amount. These credits increase the banks' reserves.

7) These reserves serve as the based used by the commercial banks to create checkbook money and to lend it out at interest.
Click to expand...

how can something so immaterial have so much sway on us?
Click to expand...

Jhu, am not sure what you are exactly referring to. Are you commenting about money, the money creation process, the Fed, bonds or bills.

Can you be more specific...

Thanks.


 
Originally posted by: dababus
First we must understand the money creation process. Here is a brief break down of the process:

1) Congress votes to increase the Federal debt limit, let say by $1 billion, and instructs the treasury to write interest bearing bonds for $1 billion.

2) The Treasury offers the bonds to the Federal Reserve against the taxpayers' ability to pay.

3) The Federal Reserve buys the bonds by simply creating a book keeping entry for $1 billion to the credit of government's checking account. The fact is these credits are based on nothing. The Federal Reserve just CREATES them.

4) The Treasury can now write checks against the created credit.

5) These checks are dispersed throughout the country, endorsed by recipients and deposited into banks.

6) The banks send the Treasury checks to the Federal Reserve to be cleared. The Fed debits the Treasury's account and credits the banks with the amount. These credits increase the banks' reserves.

7) These reserves serve as the based used by the commercial banks to create checkbook money and to lend it out at interest.
Click to expand...

Can you please explain that again, but in English this time? 🙂
 
In simple English, the government swaps these bonds for bank notes which are our common currency.

Government sells these bonds to Federal Reserve (privately owned), the central banks of foreign nations (China, Japan, Germany etc) and the public.

In reality, the government DOESN'T NEED to borrow money by offering bonds, it itself can create money (just like the banks) and circulate in the economy.



 
Originally posted by: ElFenix
because the US government is carrying way less debt load than a lot of other 1st world countries, so its still a good buy.
Click to expand...

o Rly? what are they debt loads of other 1st world countries?
 
Originally posted by: dababus
In simple English, the government swaps these bonds for bank notes which are our common currency.

Government sells these bonds to Federal Reserve (privately owned), the central banks of foreign nations (China, Japan, Germany etc) and the public.

In reality, the government DOESN'T NEED to borrow money by offering bonds, it itself can create money (just like the banks) and circulate in the economy.
Click to expand...

1) The Federal Reserve is not a private bank
2) The government cound just create the money, but that would just cause massive inflation
 
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