it doesn't make sense to me how extra money causes more debt. does this make sense to you?
Where is the only place that the SSTF surplus can be "parked" for 10-20 years?
Governmental T-Bills. That's also known as debt. And the money that the government receives from the SSTF is applied to the general budget and spent.
I would recommend some of the commentaries by Martin Gross, who discusses this point as well. Despite $320 Billion in surpluses over the past year, the US national debt is $67 Billion higher than it was in December 1998.
Now it could theoretically be spent on paying down existing debt, but given the recent capital flight to T-bills from other assets, paying down $230 billion in existing national debt would only skew money into the governmental bond markets to the detriment of the commercial bond markets.
Would you rather buy commercial paper with a higher interest rate, or buy governmental paper where you know you have a guaranteed buyer each year that will increase the face value of the discounted bound you purchased?
This would all be different, however, if that surplus were invested in hard assets, rather than future governmental obligations that have to be paid for by future taxpayers.
take a look at some of the big players' balance sheets. their debt is STAGGERING!
And you make my point exactly. While US companies are currently suffering a profit recession, heavily subsidized overseas competitors are mired in bad debt.
Now were you an investor in the emerging markets, would you buy assets in an economy which YOU KNOW is mired in bad debt that will eventually have to be either monetized or written off completely?
That's why we can carry this trade deficit... because as screwed up as our financial system may be, our competitors is even more so.
Fire away!!
Ron |
