vivacious wrote:
As you probably know the American government gets money from China, its own citizens, etc. The debt comes from a few different places. As the most powerful economy in the world there's no reason why it wouldn't be loaned money. You wouldn't have a situation of currency collapse like in South America or Africa that happens sometimes.
And as I noted before, partly because of petrodollars and other factors, America can take on much, much more debt than any other country.
I agree with everything you said in this post except this. The US issues its own currency. This means that all Dollars come from the US government or the credit from banks granted the right to do fractional reserve banking by said government. There can be no other source. Any alternative is illegal.
We are no longer under the gold standard and it has fundamentally changed the nature of the game. If the US needed gold from China to back its gold-based currency this would be an issue. It is no more since the dollar is a fiat currency. (This is what all hard money proponents are missing. They long for a hard currency but treat the floating fiat currency like it was based on gold, using the wrong model to describe reality.)
From this it follows that China has to get these Dollars from the American Government, not the other way around. Similarly US citizens have to get the dollars first before they can have them taxed away.
In effect, the US does not "loan money" at all. It spends more than it taxes and the difference is a number in an account at the Fed called the deficit.
China holding US treasury bills is better to be seen as the equivalent of you having money in a savings account at your bank. When "China wants their money back and demands US debt payment", something that freaks people out big time, it is the equivalent of your bank moving your money from your savings account to your checking account. The only result of this is that the bank now no longer has to pay interest on your balance. If you are your banks largest client and you do this asset swap, nobody is worried that your bank goes belly up.
The other irony is that the government deficit is equal to a private sector asset, simply as a matter of accounting. Hence the debt clock can also be seen as a net private wealth clock. Since the deficit is the difference between the dollars the government has spent into existence and the dollars it has taken back through taxes, it indicates the money that is left in savings in private accounts. It also offers interest-paying assets, which is a relic from the times when the US was gold-backed and the US actually needed some real-world asset for every dollar.
But since very few people actually understand how a fiat money system actually works and because there are very loud voices still describing the US as if it ran under the gold standard, this leads people to disastrous conclusions.
I've been typing my fingers off trying to get this through to people on this forum.
What I find strange is the combination of the belief that
a) the US will run out of dollars
and
b) that the US will print so many dollars that it will result in hyperinflation
Which one is it?
a is impossible, because they can theoretically do b. Since even the massive stimulus did not wreck the dollar
b is unlikely when still recovering from a recession and needs to be dealt with by spending cuts and/or tax increases WHEN there is high inflation. It is not very helpful when recovering from a recession.
Further reading:
http://wfhummel.net/governmentdebt.html
