Now, I remembered seeing you at Austin, TX. Am I right?
This is possible, though unlikely, as I've only been to Austin once, when I was a field service tech for a national ISP. That must have been circa '93.
The bottom line is we are the debtor
We are the debtor?
If anything, I'm the creditor. After all, I purchased some IBonds, loaning uncle sam some money I didn't need, and won't for some time unless I get some crazy urge to fill my closets with sneakers costing $150/pair.
Keeping Debtor/Creditor straight complicates things, so we look for simpler words and examples to share thoughts.
like Message 19474700
or Message 19466372
Writing simple stories to convey concepts helps me to understand complex concepts, but it really is easier to imagine the story than go through the work of actually putting it to paper.
If you fail to pay the bank you will lose your house because your bank is the creditor.
Yep.
The bank owns the house and the mortgage holder makes the payments. And if the payments aren't made, the bank may resell the house to some other, er, bagholder. Who will then undertake keeping the property taxes current and fix the leaky roof, and pay the brokerage commissions if he/she decides relocation must take place.
One article I read shows how this is a win-win, in an inflationary world. The homeowner generally does a better job of upkeep on the house, having a vested interest in the outcome. And the homeowner gets all the cap gains, the bank, merely it's money and some interest.
An interesting part of this is the loan. The homeowner sees the loan as 'debt', but the bank as an 'asset'. That is because every month, a check arrives which pays interest and principle at the bank. It's sort of a follow the money thing. The homeowner takes the money out of his pocket and puts it into the banks pocket.
The 'interest' is the 'rent' of the money used to purchase the property. So instead of 'renting' property, the new owner is 'renting' money.
Though being landless myself, I'll speculate that more wealth has been created using the leverage and home equity gains over our short history as a nation than in the stock market, even though houses tend to be wasting assets.
Now, it is apparent that we owe too much to other nations.
This is the part that isn't apparent, to me at least. First, I can't really tell who owns what, who owes what, and if that really is 'too much'.
When I owed 30k on my credit cards last year, my bankers might have worried a bit, as my pre-tax income was less than 30k. Did I owe too much? I paid the cards off, so maybe not.
We know that someone owes somebody a pretty good chunk of change, but we can't say what that money was used for, investment or consumption. If we break things down to Consumer/Corporate/Public, then we can make a bit of progress.
re Public- we can say the government 'owes' XX trillion dollars. Offsetting this, the government 'owns' Yellowstone park. And tons of Oil/Gas in areas where drilling isn't permitted today. What else exists on Federal lands that could be monetized to pay down debt? Timber?
When you look public debt/gdp, it isn't all that high- about 60%. This is actually down from 1999, and compares favorable with G7.
economist.com
Corporate is a bit more touch and go. But there is some confusion here- as corporations can go tits up, as more than a few I've owned shares in have done, and repudiate that debt with little or no consequences, at least to you and me, unless we own shares in them. And remember, shareholders are a diverse lot spanning the globe, so when Worldcom BKs, debt holders worldwide share in the loss.
Personal debt, well I did a lot of snooping through NIPA tables a couple of years ago, and about the only thing I could find to support 'too much debt' was the increased access to credit provided to lower income households. Actually, Noland pointed this out. But I did hunt..
Message 15543838
They are forced to finance our economy. Luckily, we have the option to print more money to pay for the debt without working. They only see that their hard earned credits evaporate before their eyes. Do you think they feel that we are are a good debtor?
Well, yes, or 'they' wouldn't be lending 'us' money. Remember, we don't really know who 'they' are, nor do we know that 'we' are the borrowers. If a Japanese company wants to build an auto plant in Alabama, and creates an LLC to own it, then has the LLC float a bond to build it, well, is that money 'we' owe 'them'? Is that US Debt? Japanese Debt?
Will they lend us more money in the future?
I hope not. They are pushing interest rates down, and I would like a fair return on my savings if I'm going to live without a speedboat, or $150/pair of Nikes.
When our credit gets worse, the higher the interest rate we will have to pay in order to borrow money.
That is something I have pondered. Will the Ratings agencies downgrade America as they have Japan? That will be a telling story.
{edit: and why is it Japan pays a 1.5% rate on their JGBs? with a lower credit rating and debt exceeding 150% of GDP? Could it be their internal savings? economist.com }
The bottom line is if we are able to pay for the debt in the foreseeable future. I see these two lines are about to intersect. At that point, no more credit. This is what we are worried about.
And this is what we are struggling to determine- For example, is a 500 billion dollars a year increase in debt sustainable?
If the US produces 10 trillion dollars and saves 1%, how many billions of dollars would internal savings alone fund?
10 trillion, that would bd 10,000 billion, drop 2 zeros, 100 billion. I think there's an error here- in that savings is 2-3% of something, but not GDP. Working with big numbers like this is hard, but possible, if we nibble a bit at a time. |
