When the economy crashes, how can the US still borrow to pay for

the military activity?

We're close to the $8 trillion cap.

What am I missing?

Obviously, there are a lot of countries that are needing liberation and in a free-enterprise world they can't expect to be liberated for free.

How can they be bought? I wonder what the price would be as everybody has theirs. Base survival not excepted.

The government is bankrupt. The only thing left to seize is the 60% of FICA that still goes to support our elderly parents and grandparents.

That is if we can't force a change.

The rich need to be taxed. Fuckwit's giveaway to his own class has caused this whole problem. If we don't manage to get this stuff overturned (and soon) we won't have a country left.

We'll be serfs living on someone else's land at someone else's discretion, with no rights at all.

with 'new dollars' that are not convertable,
and are worth what the gvt tells you they are.

Rationing, black markets, all that stuff is on its way, along with $6/gal
gasoline or $2.50/gal gas you are only allowed 5 gallons of a week.

we'll be sunk. I guess the Chinese then would be the military, and they seem to have money - and we don't.

or a few other states in return for help.

nt

...at your door and informs you he's having sex with you and you're also his cook now.

"I've just called your country's loans in. Your yummy bits belong to ME now, and I want Mulikan cheezburger to eat after you give me head. Later, I want 'Round the World'..."

According to Paul Volker it was by consuming 6% more than we produce, which meant we needed to get foreigners to buy our debt. There are legitimate reasons for bankruptcy, like a business which tanked in an economic downturn secured by a personal loan, and a health care crisis -- but credit card debt????? IMO, that is not a reason for filing -- the cost of welshed consumer debt is distributed to all of us, and it is not right to expect everyone else to pay for your lack of frugality. It doesn't mean I don't consider 30% interest rates usurious, because I do.

ourselves all the way. China didn't force us into this; we walked into it with eyes wide open.

The loans are in the form of treasury bonds which mature at certain dates. No bondholder can decide when to "call in" these loans. All they can do is sell them. If they sell a lot of them, the price of the bonds goes down and so does the value of the US dollar.

On advantage the US has had is that its currency is the "reserve" currency. In other words, everything is calculated in terms of dollars. By contrast, the problem a country like Argentina has is that its loans are calculated in a foreign currency to it, dollars. If the Argentine peso declines, it gets harder and harder for them to pay interest and principal on their bonds, because it takes more and more pesos for each dollar.

By contrast, we have our creditors over a barrel, almost as much as they have us over one. If worse comes to worse, we will simply print dollars and pay off our loans to the Chinese with worthless paper dollars.

This is in effect the government looting the financial sector, because as dollars get more and more worthless, our investments denominated in dollars, like bank accounts, stocks and bonds, also become more worthless.

So the last resort is actually looting from wealthy investors as well as everyone with a 401K by depressing the value of their financial investments -- fitting irony for the idiots who supported shrub in order to get a short term tax cut.

I think we're saying much of the same thing...

which is that once the rest of the world uses the Euro as the reserve currency and we have shown that our currency is unreliable, then we loose the biggest asset we have had since the Bretton Woods arrangement after WWII. Our debts will be denominated in a reliable currency rather than our own -- like the Euro.

And yes, there will be big time inflation. But I doubt the IMF will get involved precisely because up till now our debts are in dollars, and we control the number of dollars that we print.

Yeah, that'll happen. :eyes: they'll takke the last 3 pennies from Medicare before Ken Lay has to sell one of his airplanes.

selling and neither do other countries. That is how we'll break, I think.

I mean, it's no secret that they won't be worth crapola. What am I missing. . ?

everyone else with us. Depression

other countries holding our bonds would not want that to happen.

IOW, it's a global economy, we're all connected and if our economy goes down, we're taking hostages. Bush knows this, so he continues on in his mafia style way.

The US right now is in the "too big to fail" category like the US motor industry in the 1970s. China is in deep shit. It has invested a lot of its cash in US dollars and US bonds. Now it realizes that shrub has made us insolvent. But if it sells the bonds and dollars, the value of them will crash and it will lose its 700 billion nest egg in US dollars.

That's why the bushistas are so obnoxious with our creditors and the WSJ and NYT business pages say the bushistas are playing a game of chicken. They are saying we'll be as nasty as we wanna be and you can't set off a run on our bonds/dollars.

we have an insane president who thinks that no one will call his bluff and so he will continue to drive the dollar downward in reckless disregard of any *one* economy. But what will happen is this: the trend that he is setting is unsustainable. And since ultimately he has no regard for the average american, let alone the average world citizen, it won't matter to him. He'll continue untill we reach the dead end.

How many years will this take?

can repay its debt (or even pay interest on its debt) in a timely manner... I believe that's when the World Bank (or is it the IMF?) steps in and takes over. But before that happens, expect to see some big-ass inflation. If countries start pegging their currency to the Euro, rather than the dollar (some have recently started pricing their oil in Euros, rather than dollars), then the dollar will have even less sway in the world, there will be too many of them chasing too few goods, the dollar will devalue (further), and prices will rise precipitously in the U.S.

No, I'm not an economist. But I try to fake it sometimes...

is supposed to be HEAD of the World Bank.

economy gone bad.

two candidates who don't know how to run anything

the country has to borrow to finance for two large parts of defense budget and interest payments to foreign debts, others relate to capital replacements; etc. Unless the country can improve deficits by independency from oil imports, adjustment of exchange rates, improvement of tax revenue and other measurements. New age Middle east is a very long term war and it cannot be regarded as US war alone. The expenses should be shared equally by other countries.
We need a smarter leadership.

Japan currently has a debt load of 3x that of the U.S. (relative to their economy) and, while their economy has been stagnant, it has not crashed in the cataclysmic sense expressed by the chicken littles in this thread. Two questions:

1) Why has it not?
2) Why is the U.S. different?

Serious questions, and I would appreciate a thoughtful answer.

reaction is that it is not 3x at all

My faulty memory; should have looked it up before posting

http://www.cia.gov/cia/publications/factbook/geos/ja.html

Japan - 154.6% of GDP (2003)

http://www.cia.gov/cia/publications/factbook/geos/us.html

United States - 62.4% of GDP (2003)

They can finance their own debt internally without any difficulty at all. Do you get it now?

But a good bit of the debt is still owed to foreigners. The savings does help offset that somewhat.

Don't recall the details, but I DO think the US "helped" them.

We are right there to "help" others with their financial crises, but when WE fall, there will be no oone "big enough" to help us.. We will go down hard, and drag the others with us:(

here's the best I could find:

http://www.bradynet.com/bbs/us/100058-0.html
Germany, Japan

As U.S. debt swells, the Treasury will have to compete with the governments of Japan and Germany for investors. German Chancellor Gerhard Schroeder faces a projected 15.6 billion-euro ($18.3 billion) budget shortfall in 2004 and wants to pay for tax cuts by selling 29 billion euros of debt. By the end of 2004, the German government's net financial liabilities are likely to rise to 52.4 percent of the nation's nominal GDP -- double the level of a decade earlier, according to the Organization for Economic Cooperation and Development.

In Japan, Prime Minister Junichiro Koizumi pledged to cap annual government bond sales at 30 trillion yen ($275 billion) and then broke his promise because of slumping tax revenue. Koizumi's government plans to sell 36.4 trillion yen of debt in the fiscal year ending on March 31, 2004. National debt accounted for 71.7 percent of GDP last year and will rise to 88.6 percent by 2004 -- a fivefold increase in the past decade, the OECD forecasts. The Concord Coalition's Bixby says rising government debt in Europe and Japan will make it tougher for the U.S. government to finance its deficits without offering bond investors higher yields. ``As other countries have their own debt problems, capital may stay in Europe and Japan,'' he says. ``We may find that it is not as easy to attract foreign capital.''


________________

I don't think Japan's debt is 3x ours considered ours was (according to the site I linked above) at a record $33 trillion back in 2003. Plus, it looks like Japan is having an easier time financing their debt than we are.

33 trillion is total debt for all sectors, not just government

In fact, the government debt (6 trillion or so) is less than 20% of the number; even if the entire government debt was paid off, they total debt would still be 27 trillion.

But that is apples and we are discussing oranges.

And those number for Japan do not agree with others:

http://www.cia.gov/cia/publications/factbook/geos/ja.html

Japan - 154.6% of GDP (2003)

http://www.cia.gov/cia/publications/factbook/geos/us.html

United States - 62.4% of GDP (2003)

And this:

http://www.atimes.com/asia-crisis/BB03Db01.html

"Japan already holds the record as the world's most indebted government. Its newest budget deficit, at 38.4 percent, will only compound this. At this pace, Japan's debt will top 150 percent of its GDP within three years."

And this:

http://202.221.217.59/print/business/nb06-2004/nb20040626a4.htm

"At 1.4 times gross domestic product, Japan's public debt burden is the highest in the industrialized world. Per person, the government's liabilities total 5.5 million yen."

Japan seems to have a debt around 150% of GDP.

http://www.asahi.com/english/opinion/TKY200502110123.html


and this on the sagging dollar.

http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=275404

"So what does all of this mean?

That is a question over which there is sharp disagreement within the economics community. Some people argue that the Japanese, Chinese and others have no choice but to continue to buy dollars or their economies will be devastated. Some refer to this as "the balance of terror." Others argue that the current direction of U.S. external debt is unsustainable and that eventually the dollar will fail and might well take the global trading system down with it. Because no nation in the modern economic era has played such a dominant role in the world economy as the United States, and no nation has ever had anything like the amount of debt that the U.S. now owes, we are in totally uncharted territory.

There are, however, some disturbing precedents. Most global depressions have been rooted in currency problems. The depression that began in Europe in the 1920s and quickly spread to the U.S. was directly tied to the fact that trade was carried out in gold and the United States had been so dominant in transatlantic trading that a huge portion of the world's gold ended up here. Just like a monopoly game when one player ends up with all the money, the game ends. Europe's inability to buy American products meant that we had invested in far more capacity than we needed and Wall Street suddenly realized that American stocks were grossly overvalued.

Are we headed toward that type of an economic melt down? No one knows and it probably depends a good deal on how we and other nation's handle these problems over the course of the next several years. John Williamson of the Institute of International Economics argues persuasively that the policies followed by China and Japan have not been in their own best self interest. Both countries could have used the dollars they earned from their exports to buy badly needed consumer and capital goods as well as a wide array of technical services rather than the U.S. treasury notes on which they have spent hundreds of billions of dollars and on which they will take very substantial losses under almost any scenario.

The U.S. should become much more assertive in demanding the devaluation of the China's currency. Since the Chinese won't let the dollar reach its true value against the Yuan, the dollar will fall even more dramatically against currencies that are not being manipulated and in particular, the Euro. The U.S. should also take steps to reduce the size of its federal budget deficit which tends to suck more foreign products into the country and accelerate borrowing from overseas."
----------
There are some things in the above article which don't seem right, especially the comments on Australia and Portugal.
-------
I did a fast look at China, Germany, Japan and the US and Canada. Revenues and expenditures in Canada, Germany and China (2003) cancel each other out basically. The US and Japan run expenditures well higher than their revenues, again 2003, about 300 billion. And the US keeps increasing that expenditures at a very fast rate. The other countries see us going in the wrong direction. Japan might be perceived as going in a better direction, ie, the first article.

Also for a good joke, click on the bottom right of the page of the second article. A SS (non)joke

People like to think in terms of cataclysms. Easier to get your head around. My guess is the U.S. economy's reaction to the gov't debt could be very much like Japan's - stagnation. But with significant inflation too. What has Japan's inflation been like the past 10 years, I wonder?

has been happening in the rest of their economy

keep spending like crazy

is used simply to buy dollar securities to prop up the value of the US currency against the yen. This trade is one of the most important factors propping up the world financial system. It keeps Japanese industry competitive by holding down the value of the yen and at the same time it provides much of the liquidity to fund the US deficits. Both countries are completely dependent on each other.

http://www.financialsense.com/editorials/fekete/2005/0227.html

Thanks for posting this excellent doc.

Dollar's fall will attract more foreign investments and pull back
of US investments from oversea, not only to buy T bills but also
the Wallstreet, that help keeping the equity market from being bought cheap and out of the street. So capital growes along with employment.

It may increase pressure of inflation from imports and growth of exports. However, if the constant cost and the flexible cost of imports are higher the benefits of extra exports then the trade deficits are more widen. Within few years, Japan and Europe may have to adjust their exchange rate to protect their jobs and market. So it is just a short term cycle of economy.

Warren Buffet has invented a better idea of trade coupons and that will help but still in the closet's white paper.
The dollar's fall is unavoidable in the long term of 20 years span or more because of US incapacity of competition in the global economy with many countries. However, Jap can have surplus trade with China and the rest of the world, so their theory and application of supply and demand chain management are correct and smarter, no job exports, no anti-inflation by unemployment, no emerging domestic economy...

Bloomberg Columnists

William Pesek Jr. is a columnist for Bloomberg News. The opinions expressed are his own.

Greenspan Humbled By Asia's Central Bankers: William Pesek Jr.

Asia's group includes officials from Japan, China, South Korea and Southeast Asian nations who met in Bangkok last week to discuss the dollar's slide.

The group is a formidable crowd, considering it holds well over $1.1 trillion of U.S. Treasuries.

http://quote.bloomberg.com/apps/news?pid=10000039&refer=columnist_pesek&sid=aKmRPPpmFAfg

In theory, several things could happen.

The countries to which we are indebted could foreclose on us.

Can you say, "America: Going Out of Business Sale! Everything Must Go!!!"?

Yeah, I don't see it happening either.

The interesting thing here is, if we call our creditors' bluff, destroying our currency, and daring the nations we owe to try to collect (i.e.: Fortress America style war), will they actually want to try to invade the U.S.?

Or does the richest nation in the world go to some sort of international bankruptcy court with the World Bank/IMF?

Congress keeps raising the cap, though, and people keep lending us the money.

At some point, the world will start pulling its investment, and we will have to change our conduct or suffer the consequences.

Decline of the US Dollar: Who Benefits?

Uncle Sam has reneged and defaulted on up to 40% of its trillion-dollar foreign debt, and nobody has said a word except for a line in The Economist. In plain English that means
http://globalresearch.ca/articles/FRA501A.html

"Uncle Sam runs a worldwide confidence racket with his self-made dollar based on the confidence that he has elicited and received from others around the world, and he is a also a deadbeat in that he does not honor and return the money he has received.

How much of our dollar stake we have lost depends on how much we originally paid for it. Uncle Sam let his dollar fall, or rather through his deliberate political economic policies drove it down, by 40%, from 80 cents to the euro to 133 cents. The dollar is down by a similar factor against the yen, yuan and other currencies. And it is still declining, indeed is apt to plummet altogether.

There was also a spate of competitive devaluations in the 1930s, called the "beggar thy neighbor policy" of shifting the costs for the neighbors to bear. True, as the dollar has declined, so has the real value that foreigners pay to service their debt to Uncle Sam. But that works only if they can themselves earn in currencies that have increased in value against the dollar. Otherwise, foreigners earn and pay in the same devalued dollars, and even then with some loss from devaluation between the time they got their dollars and the time they repay them to Uncle Sam. China and other East Asian nations do earn in dollars, to which they have pegged their currencies, so they have already lost a substantial portion of their dollar stake, by far the world's largest."