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Who do we owe? Deficit question...

  1. Mom Kat profile image86
    Mom Katposted 4 years ago

    Alright, so I have a question & I would appreciate not being attacked. 
    With the debates and election coming up, as usual, one of the big topics is the national deficit.

    My question is this: Who do we owe that much money to?
    It keeps going up, why?  Where is all of this borrowed money going?

    I'm not an idiot, I'm just not knowledgeable on this particular topic.  I would appreciate someone explaining what causes the deficit in regards to spending.

    This is NOT a place to vent your political views - I don't care which president did what, when, or why.  I don't care what Obama or Romney's plans are.... well, I DO care, but not for this question.

    I just want to know how we got in debt as a nation so badly.  Do we owe Japan, China, Mexico, Who?
    What the heck are we buying that's so expensive?

    Break it down for me in layman's terms if you don't mind.  Thanks.

    1. 0
      JaxsonRaineposted 4 years ago in reply to this

      It goes to whoever will buy it, really.

      Every year we have a deficit, which is the difference between how much money the government taxes, and how much it spends. That goes into the debt, which is the total debt we owe.

      Sometimes the government 'borrows' from itself, so it is internal debt. But when it doesn't have enough money, it sells treasury bills, bonds, and notes. Anybody can buy them, so a lot of our debt is actually held by Americans.

      For the real big dollars, the government holds auctions to sell bills and notes, that's mostly where other nations will step in to purchase millions/billions in bonds... anywhere from short-term to 30 years.

    2. Josak profile image60
      Josakposted 4 years ago in reply to this

      As Jaxson said our debt is merely the accumulated deficits because we are spending more than we produce (on everything from the biggest military spending in the world to government community programs) that debt keeps going up.
      Our debt is much the same as a loan you might take out on your house, the difference is the collateral is different, instead of the bank repossessing your house if you don't pay back the loan the collateral in this case is the reputation of the US. Thus far we have always paid our debt so many people want to buy that debt as they collect the interest and it's pretty secure, that is perhaps starting to change with the credit rating downgrades.
      Just under half of our public debt is owned by foreign investors the largest of which are Japan and China who both own over a trillion dollars in debt.

    3. Shyron E Shenko profile image84
      Shyron E Shenkoposted 4 years ago in reply to this

      Hi Mom Kat, 

      How we got so badly in debt.  When President Clinton was in office he balanced the budget and we had no deficit and we had a surplus in Social Security.

      When President George Bush took office he used the SS surplus on the Afganastan War.  Then started his private war with Iraq, and the borrowing started over again, and when he left office the deficit was over 1 and a half trillion dollars. 

      President Obama got tthe deficit down a little bit each year he has been in office. and he is still working on it.

      You other readers did good job of explaning the other parts of your question.

      1. Mom Kat profile image86
        Mom Katposted 4 years ago in reply to this

        Thanks Shyron, I was looking at the how & why - not so much the "who"

        I think there is enough negativity aimed at politicians right now.  I feel that in order to address the problems we need to look at the situation & address the problems, not just point fingers & blame.

        I actually have a pretty fantastic idea that I feel would go a long way toward helping the national debt, increasing jobs in America, stabilizing the economy & all that jazz ~ I just needed to know exactly what/where the debt was coming from (or going).

        It stinks that my plan will never be heard or put into action since I don't run in political circles.  It isn't like I can just call up the President & say, "Hey Mr. President, I've got a great idea. What to hear it?"

        1. livewithrichard profile image85
          livewithrichardposted 4 years ago in reply to this

          No, but you can write up your plan and send it to your State Rep or your Congressman... this is where it needs to start anyway.  Before you send it to your Rep you need to get a consensus from friends, neighbors, and anyone else that is willing to stand by it and get some signatures.  If the Rep or congressman does not act or respond to it then you have the signatures to use as a petition to give to the media and get things rolling.  You don't need to run in political circles to be a concerned citizen.  This is how the whole process works... you don't think the congressmen come up with their ideas on their own do you... smile

          1. Mom Kat profile image86
            Mom Katposted 4 years ago in reply to this

            Well this isn't like a bill, an act, or any of the "typical" things people push for when they go out getting petitions & stuff... this is completely different.
            But I hear where you're coming from.
            I've had this idea for years & I highly doubt it's been tried before (or I would have heard about it).  I've never done anything with it, but I'm starting to get an itch to ~ I guess it could be done on both a state & federal level, however, I think it would be most productive as a strictly federal endeavor.

            Anyway, thanks livewithrichard, I appreciate you're explanation on how to "get'er done".

            1. peoplepower73 profile image89
              peoplepower73posted 4 years ago in reply to this

              I submitted my suggestion for re-training the unemployed to Obama at whitehouse.gov and he actually replied and thought it was a good idea.  For two years now, I receive Christmas cards from him and the family.  Here is the link:  http://www.whitehouse.gov/contact/submi … d-comments

              You are limited to 2,500 words...good luck

              1. Mom Kat profile image86
                Mom Katposted 4 years ago in reply to this

                wow, thanks peoplepower73, I think I might try this!

                Now to just get it worded in under 2,500 words... lol

        2. JSChams profile image60
          JSChamsposted 4 years ago in reply to this

          If you want answers you will always get BUSH thrown at you. Count on it.

          1. Repairguy47 profile image61
            Repairguy47posted 4 years ago in reply to this

            Lets say Obama is reelected, whose mess does he inherit this time?

        3. Shyron E Shenko profile image84
          Shyron E Shenkoposted 4 years ago in reply to this

          Hi Mom Kat, I did not mean to point fingers, just stating facts, if the facts point that way that is what it is!

          Yes you can send your ideas to the President and he will read them.  Just go to his website and send him your plan.

          1. Mom Kat profile image86
            Mom Katposted 4 years ago in reply to this

            I just didn't want this turning into a political debate.  There are quite a few heated people over the election right now, being that it's so close.

            My question wasn't intended to start another "forum war" over sides smile
            That's the only reason why I didn't want any names.
            I know you weren't trying to stir up any trouble Shyron.  I appreciate your input.

    4. CHRIS57 profile image61
      CHRIS57posted 4 years ago in reply to this

      Good question.
      First of all i would not call it money that is owed but value that is owed. By renaming the game we get rid of all the monetary fetishists and make a quick dive down to basics.
      A sovereign national economic is comprized of all participants, of the public, corporate and household participants. So it is not necessarily public debt that indicates the state of an economy but the total of public, corporate and private debt. (If it were not so, then why is Japan not in the limelight with more than twice the public debt of the US?) The total debt is some stunning 300plus % of GDP. But debt is one side of the coin, the other side is assets, values.
      So if you buy a new lawn mower with your credit card, you get the asset, the value of a new mower. The sum of asset (plus) and credit (minus) is initially zero. If you use the lawn mower, you have to maintain it, but eventually it will start falling apart and you have to replace it by a new one. Accountants call this depreciation. I would assume the sum of all assets is some 6 times the GDP. If the average time for things falling apart is 6 years, then you may understand why you need a functioning economy with a good GDP. Some goods donĀ“t deteriorate within 6 years, housing, real estate lasts longer, capital investment, machinery will also last longer. However you coffee machine will fall apart faster and the pizza that you bought on you way home will be gone within hours.
      The nature of the US economy is that most (some 90%) is service oriented GDP. Service is actually void at the point of sale, same as your pizza is after you had dinner.  The US only has 10% producing capability. If all that producing capacity would go into production, then the mean depreciation time would have to be 10 years, you got my math?
      Things fall apart faster and so the US economy as a whole has to buy goods from outside the economy, has to import more than it exports. The difference between import and export is some 5% of GDP. So the economy needs 10% plus 5% of GDP to prevent values, goods from falling apart, from depreciating (again little maths: 100% divided by 15% gives a factor of 6,6, so 6,6 years mean depreciation time, right on, quod erat demonstrandum).
      Back to debt and assets: We have 300% debt backed by 600% assets. There are more assets than debt. That is why the friendly world in the neighbourhood keeps lending values, goods (represented by money, by USD). We have a debt/asset rate of 50%. You think that is good? Not necessarily. In case of bankruptcy, foreclosure, you name all the bad words, in that case the value of the assets will just evaporate. If you have to sell your lawn mower, you will most certainly not get the net value of that thing, you get much less. And here we have the real question:  Is there enough asset value in the US economy in case of bankruptcy to stand in for the total debt? If not, then the US is no more sovereign. It is at the mercy of the lenders.
      This not Keynesian or Austrian economics. This is not Milton Friedman and the Chicago boys. This is simple common sense, hopefully.

    5. peoplepower73 profile image89
      peoplepower73posted 4 years ago in reply to this

      Here is the answer to your question.  This is hot off the press. http://finance.yahoo.com/blogs/daily-ti … 08431.html

      It also has interesting comments how any candidate is going to deal with China.

  2. 0
    JaxsonRaineposted 4 years ago

    Its not just our reputation on the line, its future money on the line. If we stop paying people back, we'll have to offer higher interest rates in the future to get people to buy. It's hugely important for our economic survival to slow our borrowing over the next 5-10 years.

    1. Josak profile image60
      Josakposted 4 years ago in reply to this

      Agreed but that is directly controlled by our reputation as a safe investment. I should have laid out the importance of that reputation.

      1. 0
        JaxsonRaineposted 4 years ago in reply to this

        I just wanted to expand on what you said. Sometimes it's nice to agree smile

        1. Josak profile image60
          Josakposted 4 years ago in reply to this

          no problem smile

  3. Mom Kat profile image86
    Mom Katposted 4 years ago

    So how do we pay it back?  If, say Sweden has a bond for $100 (just to keep it simple)
    then can we pay that back whenever we get the money, or is there a set day/date when we must pay it back with interest?
    So if Sweden buys a $100 bond, they get $110 on a specific date because that includes the interest...

    I'm really trying to understand this from a basic/fundamental point.
    I appreciate you're willingness to try & explain it to me smile

    1. 0
      JaxsonRaineposted 4 years ago in reply to this

      Ok, so Sweden buys a $100 30-year bond. To keep it simple, say it's at 4%, paid annually.

      Sweden pays us $100. We pay them $4/year, for 30 years. Then, at the end, we also pay them $100.

      It's basically like buying CDs through your bank. You pick a time-frame and interest rate that appeals to you.

      1. Mom Kat profile image86
        Mom Katposted 4 years ago in reply to this

        THANK YOU!! see, now this I can understand smile

        You should teach a class or something.  Thank you, thank you, thank you.

    2. Josak profile image60
      Josakposted 4 years ago in reply to this

      Generally just like with a loan an individual makes there is a repayment scheme over a certain period meaning we have to make payments of an agreed upon amount and at an agreed upon time.

      From Wikipedia:

      Treasury notes (or T-Notes) mature in two to ten years, have a coupon payment every six months, and have denominations of $1,000. In the basic transaction, one buys a "$1,000" T-Note for say, $950, collects interest over 10 years of say, 3% per year, which comes to $30 yearly, and at the end of the 10 years cashes it in for $1000. So, $950 over the course of 10 years becomes $1300.

      No problem with explaining, there is nothing better than someone who wants to learn and the more informed we are the better it is for the country.

  4. Wayne Brown profile image85
    Wayne Brownposted 4 years ago

    The "deficit" is the revenue shortfall between what is spent and what is available to spend.  At present, our spending has increased by a factor of over 140% in the past four years.  Revenue has increased by a factor of about 43%.  The federal government has not had a Congressional approved budget in over three years thus spending is basically discretionary in some ways...at the whim of the administration. Those who might point out to you that Clinton achieved a budget balance fail to point out that his spending was kept in check...compare notes between the present annual spending levels and those of Clinton versus in the inflow of revenue.  We now borrow just over 40 cents of every dollar we spend and as our "deficit" grows, that ratio has the potential to grow as well.  Our national debt...the total amount we owe both to the American taxpayers and other nations such as China has surpassed 16 trillon dollars growing by six trillion since 2009.  Our politicians continue to harp about revenue shortcoming while continuing to look for creative ways to spend even more money...mostly in the process of "buying" votes for their re-election from various sectors.  Increasing taxation only puts more money on the table for them to spend and they allow the accumulating debt to continue to grow.  This is a recipe for disaster in the making and it eventually ends with a highly over-taxed public attempting to care the debt burden of some fiscally irresponsible politicians.  ~WB

  5. rafken profile image74
    rafkenposted 4 years ago

    Basically we owe a banking elite. Ever since the Federal Reserve Act came into being on December 23, 1912 a deficit is inevitable. The Government has to request the Federal Reserve, a private company owned by elite bankers, to authorize the creation of more dollars. The "Fed" then authorizes banks to have more credit. At this time it may be good to remember that a bank only needs to have 1/10th of the funds it credits in its vaults. Although there is only 1/10th of the money in existence, the "Fed" has to be paid interest on this virtual money, not only from the bank but also from the Government. If the banks cannot pay this interest, that is when they ask for a Government bailout, at which point the Government, should it approve the bailout, is paying the "Fed" double on virtual money. Currently all income tax collected in the United States is paid to the "Fed" in interest payments. That means that what the Government actually spends, is either from other taxation or from further "virtual loans". These same elite bankers also own most of the western media and they use this to stir up ill feelings. This in turn leads to conflict. As the same people also own the majority of the World's Central Banks, the IMF and World Bank, all countries involved in the conflict will have to seek more loans. Regardless of who wins or loses the conflict, the bankers are sure winners. Unfortunately, under the current political system, any candidate running for President needs the financial backing of these elite and so on election, regardless of their Political Party, they will owe these same elite. Since its conception, only 3 Presidents have opposed the Federal Reserve Act, the last one being Kennedy and oddly enough, the other 2 were also assassinated. I hope this helps your understanding.

  6. Reality Bytes profile image95
    Reality Bytesposted 4 years ago

    At this point in history, the United States needs to borrow money just to cover the interest payments on the country's debt.  If an individual was in the same situation, they would be considered insolvent.

    Imagine being in a situation personally where you are paying interest on your interest.  The fear for me is that the government is deflating the value of the dollar for the purpose of making it easier to repay the debt.  When a dollar only buys a pennys worth of value, the debt will not seem as large.  Of course, the people will see their savings and retirement accounts being absolutely worthless.  Bur what do the global elite care for the individual! If given the chance, the Federal Reserve would just create 16 trillion dollars and pay the debt off, of course the value of the dollar at that point would not be worth the linen it is printed on.

    As to who holds the debt, I am aware that Japan has purchased an enormous amount of our debt from China.

    Bloomberg News
    China Set to Lose Top U.S. Lender Spot to Japan

    Chinese holdings of Treasuries rose 0.1 percent this year through August to $1.15 trillion, Treasury Department data on international capital flows released today show. Japan, a stronger ally of the U.S., raised its stake by 6 percent to $1.12 trillion, on pace to top the list of foreign creditors by January

    http://www.businessweek.com/news/2012-1 … dot-lender

    Washington's $5 trillion interest bill

    Uncle Sam will shell out more than $5 trillion in interest payments over the next decade, according to the latest projections from the Congressional Budget Office.

    Over the decade, more than 14% of all revenue the government is projected to collect will be sucked up by interest payments.

    That's a lot of money that can't be used on the country's other priorities.
    Indeed, between 2013 and 2022, estimated interest costs will be:

    higher than Medicaid spending;

    equal to half of Social Security spending;

    close to what is spent on all of defense.

    If it turns out that rates rise one percentage point higher than CBO projects, that could add roughly $1 trillion to interest costs over the decade.

    http://money.cnn.com/2012/03/05/news/ec … /index.htm

    If it were not for the interest payments, many of the United States problems could be easily rectified using the revenue that the government currently collects.  There would be no reason to ask more from the citizens.  In fact it would be possible to eliminate many of the governments revenue sources.  It would not be a bad thing if the people were allowed to keep the wealth they earn!

    BTW:  Good thread!

  7. peoplepower73 profile image89
    peoplepower73posted 4 years ago

    I created a hub page on "What is the difference between the national debt and the deficit? and a hub page on "What does the Federal Reserve do?"  I would post the links to these two hubs, but I wont' do it because it could violating hub page policy.  So instead I'll share the highlights of what I learned.

    This country has had a national debt since its inception.  Each president inherits the debt of the previous administration. The budget of course is the difference in income versus outgo.  If there is more income than outgo, there is a surplus.  If there is more outgo than income, there is a deficit.  The interest on the deficit gets added to the national debt at the end of each year.

    The federal reserve controls the money supply and the interest rates.  To increase the money supply, they do not print more money.  The only time that is done is to replace worn out money.  They increase the money supply by buying securities (debt) from dealers in the Federal Open Market.  The dealers deposit the money into member banks of the federal reserve.  The banks can then loan out a percentage of that money to other banks.  The percentage is determined by the Federal Open Market Committee (FOMC). That percentage is called the Fractional Reserve Requirement. Each bank can then loan out up to the reserve.  This is how they create money out of nothing.

    Currently, the feds have a policy called Quantitative Easing 3 (QE3).  With QE3 they are now buying 40 billion per month of toxic mortgage backed securities to increase the money supply and clear bad loans.  They will continue to do this until 2015 or until the economy and job markets recovery substantially.

  8. AndReall profile image60
    AndReallposted 4 years ago

    The one that we desire!

  9. peoplepower73 profile image89
    peoplepower73posted 4 years ago

    Here is the answer to your question.  It was just posted on Yahoo:  http://finance.yahoo.com/blogs/daily-ti … 08431.html

  10. knolyourself profile image59
    knolyourselfposted 4 years ago

    Private bankers print to money for the cost of the paper and ink and lend to the federal government at interest. War, war and more war is where most of the new deficit is coming from, and bailing out the thieving bankers trillions.