Trump quote - need to understand it better

Discussion in 'Politics, Religion, Social Issues' started by thermodynamic, Jun 28, 2016.

  1. thermodynamic Suspended

    thermodynamic

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    #1
    If everyone is already crowing about other countries' lending us money, the article makes an interesting point.

    Or is he speaking on the behalf of regular American citizens?
     
  2. MacAndMic macrumors 6502

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    #2
    How about supplying the question he responsed to so we can understand the context.
     
  3. Dmunjal, Jun 28, 2016
    Last edited: Jun 28, 2016

    Dmunjal macrumors 65816

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    #3
    What Trump is saying is that we cannot pay back our debts (true statement) and we might have to default on some of it.

    Everyone starts screaming bloody murder but not realizing we've already had a partial default at least two times in the 20th century. Once in 1938 when Roosevelt devalued the dollar by 20% when he outlawed the ownership of gold. And in 1971 when Nixon took us off the gold standard permanently.

    Default of one form or another is the only option now. Either outright default or through inflation. I prefer the former which hurts banks while the latter hurts the middle and lower classes.

    But of course, governments are following the inflation route to protect the banks and 1%.

    No wonder you're seeing a populist uprising in much of the West.
     
  4. Renzatic Suspended

    Renzatic

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    #4
    The thing is, we can pay back our debts. All we have to do is create a functional, sustained surplus, and slowly pay it back over the course of a couple of decades or so.

    ...which is easier said than done, of course. Because, hey, what should we cut? DISCUSS AMONGST YOURSELVES!
     
  5. Dmunjal, Jun 28, 2016
    Last edited: Jun 28, 2016

    Dmunjal macrumors 65816

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    #5
    You must not be good at math. Surpluses come with a growing economy. That means normal interest rates of about 5%. A $20T debt at 5% is $1T in interest annually. Our $4T federal budget cannot afford that. We'd have to get rid of most entitlements, most of the military, and raise taxes to 50% on the middle class.

    We are 7 years into a recovery and the debt still grew every year. We had a booming (but fake) economy from 2004-2006 and the debt still grew every year.

    This is a bipartisan problem and will never get resolved.

    In fact, the problem is getting worse as Boomers retire over the next few decades.

    We can never repay our debt. Period.

    Trump is right on this issue.
     
  6. Robisan macrumors 6502

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    #6
    Meanwhile, in the real world, you must not be good with facts. Interest rates on issued Treasury bonds don't change. Much of the debt accrued in the past eight years bears interest rates at or near zero percent, not 5%. Total interest for the last full fiscal year (2015) was $402.4 billion, not $1 trillion. If we have a "growing economy" then tax revenues will grow too, so the federal budget won't be a static $4T.

    ...adding, Trump's quote in the OP relates to how he runs his private business. He borrows and invests. If the investments pay off, he wins. If the investments tank, he threatens bankruptcy and pays less than 100% back to creditors. Heads he wins, tails creditors lose. Many banks simply won't lend to him anymore, not wanting to take on "Donald risk."
     
  7. Dmunjal macrumors 65816

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    #7
    That's what the debt was sold at. The problem is that Operation Twist a few years ago refinanced all that debt to short term Treasuries that are coming due in the next few years. That new debt will be financed at then current rates. Do you believe we'll have zero percent rates forever?[​IMG]
     
  8. Robisan macrumors 6502

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    #8
    Again, facts. Operation Twist involved only about $650B, not "all that debt." It occurred five years ago, so it shows in your chart. Based on your chart dated July 31, 2014 -- two years ago -- it appears over $5T of US debt has been refinanced recently at near zero interest rates.
     
  9. Dmunjal macrumors 65816

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    #9
    Rates will go up eventually. The Treasury still sells hundreds of billions of debt annually. And they have to rollover debt that is maturing. Not all of it is 30 year debt.

    On top of that, the Treasury has never had a surplus in decades except during one year which had booming revenues due to the dot com bubble.

    I'd be happy if GDP grows faster than debt because at least you're moving in the right direction. That hasn't happened for 16 years now.

    We've added $15T of debt since 2000 and we certainly didn't improve GDP by that amount.

    It's not like Congress is going to solve this problem anytime soon. They want even more debt for the warfare and welfare state.

    Odds are we'll going into a debt crisis in the next 5-10 years. Japan will go first and then Europe, and then the US.
     
  10. Meister, Jun 28, 2016
    Last edited: Jun 28, 2016

    Meister Suspended

    Meister

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    #10
    No need for elaborate explanations.

    The matter is obvious and as usual Trump is 100% correct.

    What america needs is somebody who is good at managing bankruptcies and we all know the Donald is well experienced at those.
     
  11. 1458279 Suspended

    1458279

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    #11
    Didn't we do something like that after the civil war? Reconstruction?

    https://fee.org/articles/the-economic-costs-of-the-civil-war/

    Some are saying the sooner we do this, the sooner we can get back to a workable system.

    As it stands now, the payment on debt will be our 3rd largest expense.

    The real issue is will we change our way. It's like someone that gets a gambling debt washed and goes right back in for more.
     
  12. Dmunjal macrumors 65816

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    #12
    It could be done but it would have drastic ramifications. We have lived beyond our means for decades and the bill has to be paid one way or another.

    Here's some perspective. We had one surplus in the last 40 years. That was about $100B. And it lasted for one year. We would need five times that for 40 straight years to pay off the debt. Virtually impossible.
     
  13. mrkramer macrumors 603

    mrkramer

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    #13
    The financial system relies on being able to buy US debt as a safe investment. As long as that demand is there and we are able to consistently make payments when they are sue there is no need to ever pay off all the debt. For example the UK just refinanced debt dating back to the 1720's in the past couple years.If the government periodically refinances it when interest rates are low there is no problem.
     
  14. Bug-Creator macrumors 6502

    Bug-Creator

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    #14
    Surplus and a growing economy can't happen ?

    Must be living in Nevereverland......
     
  15. vrDrew macrumors 65816

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    #16


    Do you know how much money there is in the world?

    The reality of modern economics is that there is a simply incredible excess of capital; generated every day; around the world. And that modern industry simply does not have the demands for publicly-raised capital that it did in a former era.

    Yes, $3 trillion of US Govt. debt coming due in a year sounds like a lot. Until you begin to understand that world GDP is probably on the nature of $270 trillion; and world investable liquid assets are likely twice that. Out of all the cash investing that people do around the world every year, it hardly seems unreasonable to expect people to choose US Government bonds and bills for about 1% of that total.

    Especially when you consider that most of the people buying US Government bonds and bills are precisely the same people who've just sold a bunch of them.

    We live in an era where there is a glut of capital. Too much money chasing too few high-yield, safe investment returns. That situation may, at some point in the future, change. But that is also likely to mark a return to the sort of high-growth economic period that (like it did in the 1950s and 1960s) - tends to make the spending and deficits of a former period sink into irrelevance.
     
  16. bent christian, Jun 29, 2016
    Last edited: Jun 29, 2016

    bent christian Suspended

    bent christian

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    #17
    Donald Trump shows how little he understands government financials with this one, single statement. Governments are not businesses and they run differently than one's personal finances. Unsurprisingly, Donald Trump does not seem to understand this.

    The U.S. declaring bankruptcy would not only make government more expensive to run, it would throw just about everyone's retirement investments into turmoil and make the global crash of 2008 look like a hiccup. This man's thought processes are stunted. What a train wreck of a candidate - a national embarrassment.
     
  17. DearthnVader macrumors 6502

    DearthnVader

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    #18
    You do relies what we are talking about is a default on US Treasuries?

    This would send interest rates through the roof on any Treasuries we needed to roll-over, and anyone looking to barrow money in consumer credit markets would also face sky high interest rates.
     
  18. appleisking macrumors 6502a

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    #20
    People fundamentally misunderstand something about the US economy. We do not actually ever need to pay back our debt. We simply have to control our expenses to a level at which economic growth allows us. There is no possibility of default and no possibility of rampant inflation as long as we don't finance our debt by printing significant amounts of money.
     
  19. Dmunjal macrumors 65816

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    #21
    I think it happens the other way around. The US defaults because rates go up. The Fed can only control short term rates but the long term rates are controlled by the market. QE did affect this some, though.

    Right now, there is confidence in Treasuries but that's because inflation has been subdued. If and when the economy goes to its normal growth rates and normal inflation, higher rates will be demanded by the market. This will make the interest payments on the debt that much higher. Of course, we can pay it but at what cost? We'll have to raise taxes or cut spending to pay for it.
     
  20. Dmunjal macrumors 65816

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    #22
    Where did all this money come from? It came from central banks flooding the world with excess capital. At some point, it goes too far. Just like 2008 and you have a bust and the capital dries up. We are in the biggest bond bubble of all time. Who in their right mind would buy a 10 year bond at 1.5% interest when inflation is almost 2%? You're losing money every year.

    The reason is that the bond market is manipulated by central banks. And that cannot continue indefinitely.
     
  21. Dmunjal macrumors 65816

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    #23
    Only because we are the reserve currency of the world. Venezuela, Argentina, Zimbabwe and others have proven you cannot do this indefinitely.

    Will we be the reserve currency forever? Ask Britain about that.

    To me, it's like saying smoking hasn't killed me yet. But, shouldn't we stop because we know it will eventually kill us?
     
  22. flyinmac macrumors 68030

    flyinmac

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    #25
    We owe this guy, the other guy over there owes us.

    Simple, we sign over our collection papers to the ones we owe money to.

    Not that they'd be happy to exchange one debt for another. But in reality every country owes money to someone.

    We could pass debts around all day long.

    Or for fun, we'll just print off enough cash to pay off all our debts. Then the following day convert the entire country to new money and ban the spending of old cash.
     

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