Debt Reduction Works - Why doesn't the government get it?
Government doesn't "get" debt reduction. The government's not like you or me. The government can - and it looks like they will for as long as any of us are still around - have debts as far as the eye can see.
I just read a study that 2009 will mark the 24th year in a row that the U.S. will be a "net debtor" nation. "Net debtor" means we buy more things from other countries than we sell to them. The U.S. has been a "net debtor" for 24 years!
For years I read that it doesn't really matter - the government running up big debts, that is. People use to say that our national debt wasn't important. The argument was: we just owe the money to ourselves. And, it kind of made some sense for a while. How?
Well, U.S.Treasuries are the government's debt. When the government wants to borrow money, they issue a treasury bill, treasury note, or treasury bond - just like a city or a company might issue a bond when they want to borrow money. And for a long time treasuries were bought and held by Americans.
But now, most treasuries are bought and held by foreigners. In fact, over the last year or so, Americans are selling treasuries and the new bonds are only being bought by foreigners. So as it turns out we don't "owe it to ourselves."
What happened? Did the government get kind of lazy over those 24 years? Were they just figuring since we "owed it to ourselves," why make a big deal about it. What about now? Do they care? Who knows? But don't you think they should? Here's one reason why.
Back in the early part of the 20th century, the British pound was the reserve currency of the world. The pound was the basis for all international trade. When countries bought or sold anything, they did it in pounds. And for most of that time Britain was a "net creditor" nation. They sold more to other countries than they bought from other countries.
Then, because of World War I, when they had to borrow lots of money to fight the war - a war that no one expected to drag on for four horrendous years - they became a net debtor nation. And within ten years of their becoming a net debtor nation, the U.S. (which had become a "net creditor" nation during that time) dollar replaced the pound as the reserve currency. Now international trade was conducted using dollars. The pound was no longer the reserve currency of the world.
So now that you know that the U.S. has been a net debtor nation for 24 straight years, you've got to wonder how long it will be until some other currency replaces the U.S. dollar as the reserve currency. Being a net debtor bumped off the pound; you've got to think it'll eventually do the same thing to the dollar. I mean after a while, who's going to trust the currency of a country that's always in debt - and just keeps building up more and more of it?
Would you borrow money from someone who owed a ton of money to other people? And don't tell me it's different when it comes to governments. Just use your common sense and answer the question.
There's simply no way - at this point - that the U.S. will be able to practice the kind of debt reduction you and I do. They won't be able to do it enough to make us a "net creditor" nation again.
Why not? Is it that our debts are just too big? Yes, but it's really more than that. To reduce our debt, the politicians have to stop promising all sorts of goodies to the voters and to the lobbyists who use their money to buy big contracts and projects from our Senators and Congressmen.
So now you know the reason the U.S. won't be engaging in a debt reduction plan anytime soon. And you've also got a pretty good look into the future: endless debt for the U.S. government.
And that's why you keep hearing and will keep hearing about the "demise" of the dollar. Even if the dollar rallies from time to time - and it will - the end game is pretty clear.
(And, of course, that's why you've got to have some sort of strategy to protect yourself, right?)
That's pretty much what it comes down to. Really. Sad, isn't it? At least it makes me sad to watch it happening - especially when I know the reasons why.
I just read a study that 2009 will mark the 24th year in a row that the U.S. will be a "net debtor" nation. "Net debtor" means we buy more things from other countries than we sell to them. The U.S. has been a "net debtor" for 24 years!
For years I read that it doesn't really matter - the government running up big debts, that is. People use to say that our national debt wasn't important. The argument was: we just owe the money to ourselves. And, it kind of made some sense for a while. How?
Well, U.S.Treasuries are the government's debt. When the government wants to borrow money, they issue a treasury bill, treasury note, or treasury bond - just like a city or a company might issue a bond when they want to borrow money. And for a long time treasuries were bought and held by Americans.
But now, most treasuries are bought and held by foreigners. In fact, over the last year or so, Americans are selling treasuries and the new bonds are only being bought by foreigners. So as it turns out we don't "owe it to ourselves."
What happened? Did the government get kind of lazy over those 24 years? Were they just figuring since we "owed it to ourselves," why make a big deal about it. What about now? Do they care? Who knows? But don't you think they should? Here's one reason why.
Back in the early part of the 20th century, the British pound was the reserve currency of the world. The pound was the basis for all international trade. When countries bought or sold anything, they did it in pounds. And for most of that time Britain was a "net creditor" nation. They sold more to other countries than they bought from other countries.
Then, because of World War I, when they had to borrow lots of money to fight the war - a war that no one expected to drag on for four horrendous years - they became a net debtor nation. And within ten years of their becoming a net debtor nation, the U.S. (which had become a "net creditor" nation during that time) dollar replaced the pound as the reserve currency. Now international trade was conducted using dollars. The pound was no longer the reserve currency of the world.
So now that you know that the U.S. has been a net debtor nation for 24 straight years, you've got to wonder how long it will be until some other currency replaces the U.S. dollar as the reserve currency. Being a net debtor bumped off the pound; you've got to think it'll eventually do the same thing to the dollar. I mean after a while, who's going to trust the currency of a country that's always in debt - and just keeps building up more and more of it?
Would you borrow money from someone who owed a ton of money to other people? And don't tell me it's different when it comes to governments. Just use your common sense and answer the question.
There's simply no way - at this point - that the U.S. will be able to practice the kind of debt reduction you and I do. They won't be able to do it enough to make us a "net creditor" nation again.
Why not? Is it that our debts are just too big? Yes, but it's really more than that. To reduce our debt, the politicians have to stop promising all sorts of goodies to the voters and to the lobbyists who use their money to buy big contracts and projects from our Senators and Congressmen.
So now you know the reason the U.S. won't be engaging in a debt reduction plan anytime soon. And you've also got a pretty good look into the future: endless debt for the U.S. government.
And that's why you keep hearing and will keep hearing about the "demise" of the dollar. Even if the dollar rallies from time to time - and it will - the end game is pretty clear.
(And, of course, that's why you've got to have some sort of strategy to protect yourself, right?)
That's pretty much what it comes down to. Really. Sad, isn't it? At least it makes me sad to watch it happening - especially when I know the reasons why.
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