401K or bust...

[Al_U_Card]

You can('t) bank on it.

 

http://leadingtrader.com/images/margin-debt.png

[jjbrr]

http://pubs.acs.org/appl/literatum/publisher/achs/journals/content/jcisd8/2008/jcisd8.2008.48.issue-1/ci700332k/production/images/medium/ci700332kn00001.gif

[Al_U_Card]

Ahhh, so all of your "killer" investments turned out to be "lemons"? :lol:

[32519]

The USA is bankrupt with national debt exceeding USD 17 trillion. Effectively your nation is now in a debt trap and it has become unavoidable for your government to continue raising the national debt ceiling in order to meet all your debt and other payments. What do you think will happen to the world economy and the stock markets when the USA defaults? Your two houses (what are they called again?) are forever playing “silly-buggers” every time the debt ceiling needs to be raised. The day will come when they play “silly-buggers” once too often or one day too long and an implosion of the stock markets will occur never seen before and never will be seen again when the USA defaults.

[jjbrr]

http://gifrific.com/wp-content/uploads/2012/04/kid-celebrating.gif

[mike777]

The USA is bankrupt with national debt exceeding USD 17 trillion. Effectively your nation is now in a debt trap and it has become unavoidable for your government to continue raising the national debt ceiling in order to meet all your debt and other payments. What do you think will happen to the world economy and the stock markets when the USA defaults? Your two houses (what are they called again?) are forever playing “silly-buggers” every time the debt ceiling needs to be raised. The day will come when they play “silly-buggers” once too often or one day too long and an implosion of the stock markets will occur never seen before and never will be seen again when the USA defaults.

 

all defaults are not equal, even if the usa defaults it can rise again. the usa is the country of second chances after failure.

 

with that said, many will be hurt..yes. the most important point you make is even in 2014 the world is full of pain.

[32519]

all defaults are not equal, even if the usa defaults it can rise again. the usa is the country of second chances after failure. with that said, many will be hurt..yes. the most important point you make is even in 2014 the world is full of pain.

http://gifrific.com/wp-content/uploads/2012/04/kid-celebrating.gif

Read this article on the National Debt of the United States. Here are some quotes from the article –

Quote 1: “In recent decades, however, large budget deficits and the resulting increases in debt have led to concern about the long-term sustainability of the federal government's fiscal policies.”

Quote 2: “On December 12, 2013, debt held by the public was approximately $12.312 trillion or about 73% of Q3 2013 GDP. Intragovernmental holdings stood at $4.9 trillion (29%), giving a combined total public debt of $17.226 trillion or over 100% GDP. As of January 2013, $5 trillion or approximately 47% of the debt held by the public was owned by foreign investors, the largest of which were the People's Republic of China and Japan at just over $1.1 trillion each.”

 

With $12.312 trillion of the national debt held by the public, imagine the carnage when the USA defaults? This excludes the off-balance sheet obligations of Fannie Mae and Freddie Mac, another $5 trillion.

 

Quote 3: “Sustainability – According to the Government Accountability Office (GAO), the United States is on a fiscally unsustainable path because of projected future increases in Medicare and Social Security spending, and that politicians and the electorate have been unwilling to change this path. Further, the subprime mortgage crisis has significantly increased the financial burden on the U.S. government, with over $10 trillion in commitments or guarantees and $2.6 trillion in investments or expenditures as of May 2009, only some of which are included in the public debt computation.

Quote 4: “Interest costs – Despite rising debt levels, interest costs have remained at approximately 2008 levels (around $450 billion in total) due to lower interest rates paid to Treasury debt holders. However, should interest rates return to historical averages, the interest cost would increase dramatically. Historian Niall Ferguson described the risk that foreign investors would demand higher interest rates as the U.S. debt levels increase over time in a November 2009 interview.

 

How about the United States Debt Ceiling?

Quote 1: “A default could trigger a variety of economic problems including a financial crisis and a decline in output that would put the country into a recession.

 

Or this article United States Federal Budget.

Quote 1: During FY2013, the federal government collected approximately $2.77 trillion in tax revenue, up $326 billion or 13% versus FY2012 revenues of $2.45 trillion.

 

Quote 2: During FY 2013, the federal government spent $3.45 trillion on a budget or cash basis, down $84 billion or 2.4% vs. FY 2012 spending of $3.54 trillion.

 

With expenditure outpacing revenue your country has squat chance to reduce the national debt. Currently you are down slightly on interest payments because of the historically low interest rates. When public debt holders start demanding higher interest rates, your government is going to be placed under even more pressure than it already is.

 

As pointed out by others in all the above related links this cycle is unsustainable. At some point the bubble will burst and the carnage that will spread across the globe is just too awful to imagine. As they rightly say, "When the USA sneezes the world catches a cold."

Ben Bernanke with his monetary policies, has set in motion a cycle of printing cheap money (which is finding its way into the stock market and continually driving prices up), which is going to end in carnage. Janet Yellen is succeeding Ben. Tragically for the Womens Liberation Movement or Equal Opportunity for Women or Women Empowerment Movement or whatever Women Emancipation Movement you care to name, she will be blamed for the carnage created by Ben.

[Vampyr]

Janet Yellen is succeeding Ben. Tragically for the Womens Liberation Movement or Equal Opportunity for Women or Women Empowerment Movement or whatever Women Emancipation Movement you care to name, she will be blamed for the carnage created by Ben.

 

Somehow the above transcends "ordinary" sexism and suggests a worldview that is truly fu cked up. Oh wait...

[barmar]

Somehow the above transcends "ordinary" sexism and suggests a worldview that is truly *****ed up. Oh wait...

Yeah. AFAIK, none of the problems with the healthcare.gov rollout were blamed on Sibelius being a woman. Why would it be any different for Yellen?

[ArtK78]

Ever since I knew of the existence of the National Debt, there have been people shouting to the masses that doom is just around the corner.

 

In the words of Bob Newhart, Stop It! The National Debt is actually essential to our economy. If the National Debt were eliminated, the economy would probably collapse.

 

There are actually limits on how much of the National Debt can be paid off. As a practical matter, those limits are not relevant, as we are in no danger of paying off the National Debt. But there have been times when the US ran a surplus (as recently as the Clinton Administration) and the National Debt was reduced.

[blackshoe]

The National Debt is actually essential to our economy. If the National Debt were eliminated, the economy would probably collapse.

I do not believe this for one minute. Can you prove it?

[ArtK78]

I do not believe this for one minute. Can you prove it?

No, as there has never been a time in modern history that the National Debt has been close to zero.

 

But it really doesn't matter what you (or, for that matter, what I) believe about that hypothetical situation. The main point is that the debt as it exists and as it will exist in the future (no doubt at still higher levels) is not a serious problem.

 

I do know that when there were serious attempts to pay down the debt (or to not borrow because it would increase the debt) the economy suffered.And that is a contrast between trying to equate individual behavior and government behavior. For an individual, it is often (but not always) beneficial to pay down debt. For a government, it is often (but not always) harmful to pay down debt.

 

Perhaps someone could write a story along the lines of Dr. Strangelove except use the National Debt as the bogeyman instead of the atomic bomb - "How I Learned to Stop Worrying and Love the National Debt."

[ArtK78]

By the way, I laugh at the poll choice that equates anything that happens in the economy to the price of gold. At some point, people will have to learn that the price of gold has absolutely nothing to do with the health of the economy or the future health of the economy. You might as well try to determine a correlation between the health of the economy and the volume of fresh lemons imported into the USA from Mexico.

[hrothgar]

I do not believe this for one minute. Can you prove it?

 

Prove it? No. With this said and done, there are pretty well accepted theories that its good to run up debt during economic contractions and good to pay down debt during economic expansions.

 

The only time I recall seeing arguments that it is dangerous to pay down the debt were during the early years of W's first term.

W's economic team argued that it was dangerous to run budget surpluses and pay down the debt as a justification for large tax breaks for the wealthy.

 

(From what I can tell, the entirety of Republican economic policy is large tax breaks for the wealthy. It doesn't matter if you're running a surplus or a deficit, experiencing an expansion or a contraction, the solution is always the same)

[Trinidad]

I do not believe this for one minute. Can you prove it?

As long as the returns on the investments by the government are higher than the interest rates, it pays to borrow.

 

This will generally be the case when you have zero debt, which shows that having some debt is better than having no debt.

 

Rik

[hrothgar]

We are going to witness a conversation about economics between Al_U_Card, 32519, Mike777, and Blackshoes...

I can't but imagine that the post of the year is soon to be revealed.

 

If only the Romney campaign were still paying Lukewarm to post, we'd hit the stupidity trifecta.

[Vampyr]

How do I edit my post so that some version of the word I used actually appears? I tried fu space ck but apparently that wasn't good enough.

[kenberg]

Ever since I knew of the existence of the National Debt, there have been people shouting to the masses that doom is just around the corner.

 

In the words of Bob Newhart, Stop It! The National Debt is actually essential to our economy. If the National Debt were eliminated, the economy would probably collapse.

 

There are actually limits on how much of the National Debt can be paid off. As a practical matter, those limits are not relevant, as we are in no danger of paying off the National Debt. But there have been times when the US ran a surplus (as recently as the Clinton Administration) and the National Debt was reduced.

 

If my weight were eliminated, i would probably collapse. It would be unwise to lean on this undeniable fact as an excuse for doing nothing about my excess weight.

 

I am thinking our problem is more our overall commitments rather than specifically our debt. But debt is a committment, so debt is part of the problem.

[blackshoe]

I am thinking our problem is more our overall commitments rather than specifically our debt. But debt is a committment, so debt is part of the problem.

Precisely. I'm not an economist, but "the debt is not a serious problem" is IMO wrong, and if it's right, there must be some economic theory to back that statement up. So, Art, what is that theory? Where can I study it?

[sfi]

No, as there has never been a time in modern history that the National Debt has been close to zero.

 

1835 was the only time the US had a zero national debt. Shortly after that the country went into the longest depression in the nation's history.

 

Planet Money discussed this in 2011.

[ArtK78]

I am not a practicing Economist, so I really can't answer your question. But it is not a problem. As has been stated by others in other threads, the debt is actually a smaller percentage of GNP now than it has been in the past, and we are still here.

 

Let me know when the US has a going out of business sale. But I don't expect it to happen anytime soon.

[kenberg]

Let me shift a minute to illustgrate a point. I have a friend who thinks the Federal Reserve is a menace. It isn't. But what is dangerous, and I think we are seeing it, is to place too much faith in the Federal Reserve. I am sure that Janet Yellen is brilliant and dedicated. Same for Ben Bernanke, Alan Greenspan, Paul Volker, many others. But they are not gods, and they would probably be the first to note their own limitations, and the limitations of their powers regardless of their brilliance. The danger is that we decide we do not have to make sound decisions ourselves because if a problem arises the Fed will fix it. Maybe saints perform miracle, maybe not, but we don't and won't have a miracle performing saint running the Fed.

 

And this same danger applies to the debt. It's one thing to say that a little debt won't kill us, possibly even is good for us (maybe), but it is another thing entirely to say that the quite large debt, and our massive overall commitment, is nothing to worry about. We just cut some military retirement commitments. I doubt that this will be the last cutback needed in our commitments.

 

 

I also do not expect the immanent collapse of the United States. But again that is different from thinking we are in great shape. If we accept a responsibility to give future generations a strong and prosperous country, it is fair to ask how this plan is going. So-so, in my view.

[Winstonm]

No, as there has never been a time in modern history that the National Debt has been close to zero.

 

But it really doesn't matter what you (or, for that matter, what I) believe about that hypothetical situation. The main point is that the debt as it exists and as it will exist in the future (no doubt at still higher levels) is not a serious problem.

 

I do know that when there were serious attempts to pay down the debt (or to not borrow because it would increase the debt) the economy suffered.And that is a contrast between trying to equate individual behavior and government behavior. For an individual, it is often (but not always) beneficial to pay down debt. For a government, it is often (but not always) harmful to pay down debt.

 

Perhaps someone could write a story along the lines of Dr. Strangelove except use the National Debt as the bogeyman instead of the atomic bomb - "How I Learned to Stop Worrying and Love the National Debt."

 

(empahsis added)

 

I ususally agree with you but in this instance I think you are amiss. It does matter what people think as this misconception about government debt is at the heart of the tea party movement, which successfully shut down the US government over ideological beliefs, which shows there is a real world connection between beliefs and actions.

[32519]

1835 was the only time the US had a zero national debt. Shortly after that the country went into the longest depression in the nation's history.

 

Planet Money discussed this in 2011.

There is a major difference between 1835 and now. Back then Andrew Jackson TOOK ADVANTAGE of a huge real-estate bubble to SELL OFF GOVERNMENT OWNED LAND, and so pay off the national debt.

 

Now it is the federal government CREATING A BUBBLE, this time in the stock market. Following Ben Bernanke’s policy of printing money to stimulate the economy, the world will soon reap the unintended consequences of that policy as much of that money is ending up in the stock market, driving prices up.

 

What will be the catalyst bursting the bubble? I have no idea. The banks were responsible for the 2008 crisis with their sub-prime policy. Maybe the collapse of the Euro? The Eurozone Crisis has been simmering since 2009. There are already enough governments there unable to repay or refinance their debt. A fresh crisis in the Eurozone which somehow spilled over to the USA in ways unforeseen could possibly be the catalyst.

[billw55]

I am not a practicing Economist, so I really can't answer your question. But it is not a problem. As has been stated by others in other threads, the debt is actually a smaller percentage of GNP now than it has been in the past, and we are still here.

 

Let me know when the US has a going out of business sale. But I don't expect it to happen anytime soon.

Where are you getting your information? A quick google search tells me that debt/GDP is at an all time high, other than the world war 2 debts, which were paid down by 1960 or so. That includes higher than world war 1 and the great depression. Most projections seem to show debt/GDP continuing to increase, with a few showing it steady.

 

All businesses operate some revolving debt. But it must be kept to a reasonable percentage of revenue. Same goes for governments. Greece, Spain, Ireland .. bad things do happen when debt gets out of control.

 

So Art, how high is too high?