What Happens if America Can't Pay Debt?

[Kjertesvein]

I hope I live to tell the tail of this story. How long until China is a consumer economy?

[Exarch]

what hppens if american cant pay its debt?

you get mail order american brides

[Shams al-Ma'rifa]

what hppens if american cant pay its debt?

you get mail order american brides

I don't think they would fit into standard packaging

[Gelgoog]

The US is a consumer nation, if we stop consuming and outsources labor then alot of countries like china and india get badly hurt in the process. If the countries we owe money to are making a profit off the interest, then its really not that bad. Fact is if china loaned us 1 trillion dollars and we paid them 1.1 trillion back quickly, then they aren't making as much as if we paid them 2 trillion over a longer period. Countries loan money just like banks so they can make a profit. These countries are investing their money in the long term, they know the US is too big to fail. Considering the butt load of natural resources the US had, it is pretty well established that we will can come up with cash to pay out bills. The natural resources of the US are essentially what we would call collateral.

I hope I live to tell the tail of this story. How long until China is a consumer economy?

80 years at least. Chinese like Indians are natural penny pinchers, they are not going to consume like Americans for a long time. The only way you can get asians to spend alot of money is to setup casinos. Then they will blow their life savings rolling the dice. Have you ever been to las vegas, its like 80% asians during most of the year. If the US goes bankrupt all we have to do is setup Casinos everywhere and give the asians reduced rates to fly over, then we will make our money back.


example:

[Angrychris]

yeah we can just print some more up....wait minute?

[Sphere]

Actually, if the Federal Government was just taxing at a rate similar to a that of 2000, the base budget would be breaking even right now. Total Government taxes in the US are at a relatively lower rate than most European governments (28% of GDP) and are currently historically low as compared to the past. If we were taxing at the rate of the the UK (37%) or France(44%) the US would be swimming in a massive surplus.

US debt levels are actually not that big of a problem as of right now; Our debt levels were actually considerably greater in the period after WWII, and compared to many other western nations (Canada, UK, Japan etc.) we are actually in better shape. Not to mention that we can borrow almost an unlimited amount of money at about 4-5% interest because of the dominance of the dollar in the reserve markets.

The problem is not that we are in dire straights as of right now, just that the financial course is unsustainable in the long run. In simple mathematical terms, its not a hard problem to fix; raise taxes to about the year 2000 levels (i.e repeal the Bush tax cuts), and reduce spending, mainly through reductions in SS and Medicare benefits along with a more reasonable defense budget. Politically though, these things are nearly impossible.

[Nietzsche]

Actually, if the Federal Government was just taxing at a rate similar to a that of 2000, the base budget would be breaking even right now. Total Government taxes in the US are at a relatively lower rate than most European governments (28% of GDP) and are currently historically low as compared to the past. If we were taxing at the rate of the the UK (37%) or France(44%) the US would be swimming in a massive surplus.

US debt levels are actually not that big of a problem as of right now; Our debt levels were actually considerably greater in the period after WWII, and compared to many other western nations (Canada, UK, Japan etc.) we are actually in better shape. Not to mention that we can borrow almost an unlimited amount of money at about 4-5% interest because of the dominance of the dollar in the reserve markets.

The problem is not that we are in dire straights as of right now, just that the financial course is unsustainable in the long run. In simple mathematical terms, its not a hard problem to fix; raise taxes to about the year 2000 levels (i.e repeal the Bush tax cuts), and reduce spending, mainly through reductions in SS and Medicare benefits along with a more reasonable defense budget. Politically though, these things are nearly impossible.

You are making the assumption that "all things would be equal." Raising taxes chokes off productivity and would likely result in a net loss of revenue. There is a point of diminishing returns with taxes and productivity. Given the current recession, I would suggest we may already be past it. Raising taxes is the answer of the statist attempting to keep current spending levels. A wiser decision would be to put an end to our profligate spending. That, however, is obviously too much to ask the apparachiks.

[Exarch]

better yet
tax the out of churches
make those greedy basterds cough up the dough

[Sphere]

Raising taxes chokes off productivity and would likely result in a net loss of revenue. There is a point of diminishing returns with taxes and productivity. Given the current recession, I would suggest we may already be past it. Raising taxes is the answer of the statist attempting to keep current spending levels. A wiser decision would be to put an end to our profligate spending. That, however, is obviously too much to ask the apparachiks.

The US is definitely on the lower half of the laffer curve right now, especially with the massive two year tax cut in the Stimulus bill. So it makes sense to increase tax levels to help deal with the budget deficit, while it also makes sense to reduce spending. You've got to chew at the problem from both ends, unless you're politically indoctrinated that is, then it's one or the other.

[Nietzsche]

The US is definitely on the lower half of the laffer curve right now, especially with the massive two year tax cut in the Stimulus bill. So it makes sense to increase tax levels to help deal with the budget deficit, while it also makes sense to reduce spending. You've got to chew at the problem from both ends, unless you're politically indoctrinated that is, then it's one or the other.

I don't see how the question is one of indoctrination. It's a quite simple equation. You have revenue A, you spend B (where B > A), you are left with deficit C which requires borrowing D. If raising taxes will not substantially increase A, you must reduce B to pay off the growing C and D.

Given the current C is $12 trillion (and D is some percentage of that) and the recession, taxes will only push revenue and productivity down even further resulting in a greater C and more borrowing D (such as raising the debt limit a mere $1.9 trillion). Don't see how that is political; rather, it is blatantly obvious. If you suggest arching upwards to taxes equivalent of France or some other Euro power, perhaps you should look at their unemployment rates, deficits, entrepreneurial spirit.

[Sphere]

I am talking about...

1.) Raising federal revenues back up to 19 or 20% of GDP (we were at ~15% in 2009, 18.5% is the past 50 year average, the last year this rate was this low was 1950)

2.) And cutting federal spending by about 10-15% as a percent of GDP.

Certainly increasing taxes will hurt economic growth, but IMHO the tipping point were you start seeing reduced revenues is certainly somewhere above 20% of GDP, and if we are talking about how to fix the deficit, revenues are our concern. If you are looking for some historical data showing that that tipping point is below 20% you'll have to rely on the 2003-2006 data after the Bush tax cuts, but you'll also have to argue there is no bubble growth in those numbers.

[Exarch]

i've got a great idea on how USA can alleviate its debt or at least, improve or even reverse the trade deficit with China:

allow american satellite companies to work with their chinese counterparts, and loosen the restrictions on dual-use/satellite techn or better yet, sell arms to the Chinese army

[Tiwaz]

You missed the part about the exports increasing faster than imports....

And have you calculated, assuming absolutely nothing changes, how long it will first take for US exports to reach equality with imports and then succeed them until you have paid off the debts?

We are talking about decades here. And during decades, lots of things can happen.

I don't see how the question is one of indoctrination. It's a quite simple equation. You have revenue A, you spend B (where B > A), you are left with deficit C which requires borrowing D. If raising taxes will not substantially increase A, you must reduce B to pay off the growing C and D.

But raising taxes DOES increase A substantially. Lowering A and imagining that magically that makes even more money is unrealistic.

Given the current C is $12 trillion (and D is some percentage of that) and the recession, taxes will only push revenue and productivity down even further resulting in a greater C and more borrowing D (such as raising the debt limit a mere $1.9 trillion). Don't see how that is political; rather, it is blatantly obvious. If you suggest arching upwards to taxes equivalent of France or some other Euro power, perhaps you should look at their unemployment rates, deficits, entrepreneurial spirit.

Taxes also increase revenue. There is hard limit on how much US government can cut spending. Real organization cannot arbitarily cut it's expenses to make ends meet. There are always very large mandatory payments you have to make.

As for taxing like Eurozone. Not as bad as you think. While unemployment is issue, deficits are considered manageable in West Europe.
As for enterpreneurial spirit... That crap does not pay for expenses. Having spirit is cool, but actually having functional economy is better.

[Maulet]

You missed the part about the exports increasing faster than imports....

I think that isn't true, mainly because that pdf includes "services" as exportations, and obviously that is not real economy, but just playing the monopoly.

[Pickle_mole]

sell you in exchange for what? Weapons? certainly. But not gonna be dollar until you pay the money back lol. If you pay them money, what if you default again? They are not stupid. It's a horrible idea lol. Basically US economy will stay in barter until they repay their debt.

and dont worry, tons of countries need oil, don't forget china that is buying up all the oil it needs. Saudis dont have to worry about it.

our gdp is 14 trillion, we could cancel our debt to china, buy pesos and use those to trade with, problem solved
But on a serious note, if only china was buying oil the sauds would be hurting hard, our GDP is around 14 trillion, almost twice that of china, if we stopped buying oil the sauds would be ed.

[Sphere]

But raising taxes DOES increase A substantially. Lowering A and imagining that magically that makes even more money is unrealistic.

There is definitely a point were lowering taxes will increase government revenues. However, to think that the 15% of GDP the fed is currently running on is anywhere near that level of taxation just doesn't make sense. Even Reagan only cut the rate down to 17%, but was forced to raise it to ~18% by the time he left office to try and curb massive deficiets (and notably during his increase in taxes federal revenues continued to increase).

[bushbush]

our gdp is 14 trillion, we could cancel our debt to china, buy pesos and use those to trade with, problem solved

it's only in nominal value...if US cancels debt, its dollar will worth nothing and your GDP wouldn't even be able to be measured with dollar, it will worth 0 in nominal sense. Who is gonna sell stuff to you or buy stuff from you?

though i don't mind selling something in exchange for american weapons . That would be likely of what will be happening.

But on a serious note, if only china was buying oil the sauds would be hurting hard, our GDP is around 14 trillion, almost twice that of china, if we stopped buying oil the sauds would be ed.

doubtful, China needs as much oil (soon more) than the US, it's just going to be the oil tankers arriving in Shanghai instead of San Fransisco.

[Nikitn]

Then we take the money by force.

[bushbush]

Then we take the money by force.

lol like russia is doing better, how many russian billionaires are selling their houses and boats?

[Gelgoog]

raising taxes? wtf? Why would we want to do that...so the government can give more of our hard earned money to failing companies and huge bonuses to their executives?