What are some consequences of the national debt?

My friend is having to do an essay on the consequences of being a debter nation. If you guys can give me some consequences to pass along, I would appreciate it!

I gave him two right off the top of my head:

1) Debt is passed along to future generations, which creates a burden.
2) Debt makes it harder to buy neccessites such as body armor, etc. during a time of war.

If you guys have any more, please let me know!

As of right now almost 20% of our taxes go towards JUST THE INTEREST on non-military related expenses.

In other words the national debt and deficit.

Play with this chart!!


http://nationalpriorities.org/auxiliary/interactivetaxchart/taxchart.html?T1=5000

An individual with large credit card debt ends up being effectively poorer, because a major fraction of every dollar they spend is really spent paying interest to the credit company.

Just like that individual, America is effectively poorer, because something like 30% of every tax dollar we pay goes to paying interest to creditors. It doesn't buy us any goods or services.

As the govt sells more and more treasury securities to finance the debt, the market becomes saturated (and the purchasers run out of money). So, the interest rates on the next t-bills sold have to increase to make them a more attractive investment. Rising interest rates on t-bills raise all the other rates (home loans, car loans, credit cards) right along with 'em.

That can drive up rates and make capital scarce.

Like China. But not to worry, the republicans per dick cheney say debt doesn't matter. Unless of course it includes money to help citizens who aren't millionaires.

are not the ones who have to pay it back. We will have to pay it back which means less money for social programs. They have eaten our seed corn.

Cheney has said: "Reagan proved deficits don't matter"

At some earlier time he probably said; "Hoover proved that depressions don't matter"

Dickie Boy - I hope you die before you get to spend your 3000% gain on your Haliburton stock, you evil godless fucker!

-85%

And what interest does China have in ruining our economy?

The bondholders do not have that right.

What the bondholders could do is refuse to buy more of them and as they mature, not reinvest the money into more bonds.

I keep hearing things about the Chinese "calling in the note" like they have that right. You are right about refusing to buy more.

The bonds are payable in dollars. Why would they want to crash our currency when they would be paid back in devalued dollars for years to come?

Why would they want to crash our economy when the US consumer keeps their factories working? If the factories close, people get out of work. Out of work people create rebellians. The Party more than anything wants to keep power.

.... might not have any short-term interest in "ruining" our economy. But over the longer term China has military goals and weakening us militarily via hobbling us economically is really not that much of a stretch.

Since we went off the gold standard, there's nothing to back up the dollar anymore other than confidence that the US currency is consistent with production of real goods and productivity in general, and that the US <b>pays off its debts</b>. As our deficit approaches the $10 trillion mark, such a promise looks increasingly laughable. The dollar's been *the* currency since the destruction of the British Empire after WWII sank the pound, and because of this the dollar has been the de facto reserve currency used for international transactions the world over. But if the US debt keeps accumulating-- and this before the retirement of the baby boomers-- the central banks elsewhere in the world will see US dollar-backed investments (the T-bills) as lousy bets, with a US debt repayment increasingly implausible. They'll then move their own currency reserves elsewhere, to e.g. euros, yuan (Chinese renminbi) and yen. To make matters worse, we're stuck with interest payments so high that a big portion of our GDP has to go to paying them these days.

The movement away from the dollar is already taking place, and it's one reason that interest rates keep rising (which is on the verge of killing the housing market-- the one factor keeping the US economy afloat). When China removed the dollar peg, it moved to a basket of currencies and, although the exact composition is a secret, the Euro in particular has become a big gainer. Japan and Korea, too, are gradually diversifying into Euros for their reserves-- "gradually" being the key word since too quick a movement out of dollars would cause their current reserves to plummet, so they have to ease out. China's also using its dollar hoard to buy a massive oil reserve from Saudi Arabia, and the Saudis in turn are themselves exchanging the dollar for Euros, parking an increasing fraction of their assets in Europe. So the dollar's becoming a hot potato that fewer people really want or trust. Even black marketeers and drug dealers are increasingly desiring Euros for cash payments, a humorous but very telling indication of where people's confidence lies these days.

The only remaining pillar that's halting a wholesale collapse of the dollar is its essential value in oil trades, something that's been the case since Nixon and Kissinger negotiated a treaty with Saudi Arabia in the 1970's, but even the petrodollar hegemony is falling apart. Iran is already selling its oil in Euros to Europeans and its Chinese and Indian customers, while Venezuela sells some of its oil in Euros or uses barter for the same. Russia still sells mostly in dollars but is also easing into Euro-based sales at least for its European customers, and both Indonesia and Malaysia, interestingly enough, have been making the strongest moves toward Euro-based oil sales.

It's interesting that the dollar's troubles in the past 40 years have both been provoked by American military disasters. The movement of the dollar away from the gold standard was caused in large part by the defeat in Vietnam, indeed this may have been Vietnam's most important consequence. Now, a similar result is unfolding due to the Iraq disaster. Iran will soon be setting up its own oil bourse in March of 2006. While the ministers in charge of the bourse have tried to dampen speculation about which currency will be used, it's not difficult to see that at least some of the denomination will be done in Euros-- in part b/c Iran sells so much of its oil to European customers, in part because Iran sees sales in Euros as a check to the financing of the US military machine that has put Tehran directly in its crosshairs. The Iranians are no fools, and they know that the dollar-- above any other factor-- underlies the USA's increasingly shaky world standing.

If China were to stop loaning us money they could really hurt us. We place our security in the hands of others.

It's like... a trifecta.

Fed'l government borrows some much money it "crowds out" private borrowing.

2. We have to spend too much on interest.

it isn't the size of the debt that's the problem, it's who owns it. Back when the bulk of the debt was owned by Americans we didn't have to worry about the holders of the note calling it in all at once - the government could have put controls on citizens doing that. And, a lot of the debt was held in the form of Savings Bonds that could take years to mature. Even at maturity, they weren't always cashed in right away or they might be rolled into new bonds.

If foreign investors decide to call their notes in, we're screwed.

If we don't mind huge defecits, why would it make it harder to buy stuff like body armor?

If we wanted body armor, we'd just borrow more money to get it.

I think a government unwilling to borrow would have a harder time buying things like body armor.

http://www.federalbudget.com/

http://www.publicdebt.treas.gov/opd/opdint.htm

That is just to pay interest payments. Not for defense, not for health care, not for welfare, not for roads, not for parks, not for paying down our debt, not for anything except paying interest payments to holders of our debt. And one of the biggest holders of our debt is China.