Here is a direct quote from New York mayor Bloomberg about the national debt:
“We are spending money we don’t have. It’s not like your household. In your household, people are saying, ‘Oh, you can’t spend money you don’t have.’ That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”
Bloomberg is a billionaire. Indeed, he is a self made billionaire. When it comes to something like this, he ought to know better. Right now, Bloomberg is ignoring some very important facts:
1) At the moment, the Federal Reserve is just printing money to buy the bonds that cover the federal deficit. The Fed expects to buy over one trillion dollars of bonds this year even though the deficit is now projected at something in the area of "only" 900 billion dollars. This means that no one out there in the world is actually lending the USA more money.
2) Every large economy in the world is running at a deficit except for China. European countries like the UK, Germany, France, Italy and Spain are borrowing huge amounts each month. So it Japan. Indeed, some of the nations are borring more per capita that America at the moment. That means that the folks out there who are supposedly lending money to the USA also have to come up with cash to lend to nearly the rest of the world economy. It also means that China is the one country with the ability to just stop buying debt, a move which would hurt the world economy but which would completely cripple all of China's adversaries. We cannot be sure that China will never decide to bring down the USA just by deciding to no longer buy our debt.
3) Bloomberg is assuming that everything that has been happening will just continue to happen. When housing prices went up for decade after decade, financial gurus like Bloomberg assumed that they would continue to rise for decades more. As a result, they built entire financial empires on debt secured by home mortgages. Guess what! They were wrong, and when the housing market went down it nearly took the entire world economy with it specifically because these gurus could not recognize the possibility of such a decline.
Some day, and it may come soon, there will be a catalyst which starts people moving their money somewhere other than investment in US debt. It will be a small move at first, but eventually, if we do nothing, the move will hit a tipping point. After that, there will not be sufficient people (other than the Federal Reserve) to buy Treasury securities. If that happens, the Great Depression of the 1930s will look like a stroll in the park.
Bloomberg should know better.
“We are spending money we don’t have. It’s not like your household. In your household, people are saying, ‘Oh, you can’t spend money you don’t have.’ That is true for your household because nobody is going to lend you an infinite amount of money. When it comes to the United States federal government, people do seem willing to lend us an infinite amount of money. … Our debt is so big and so many people own it that it’s preposterous to think that they would stop selling us more. It’s the old story: If you owe the bank $50,000, you got a problem. If you owe the bank $50 million, they got a problem. And that’s a problem for the lenders. They can’t stop lending us more money.”
Bloomberg is a billionaire. Indeed, he is a self made billionaire. When it comes to something like this, he ought to know better. Right now, Bloomberg is ignoring some very important facts:
1) At the moment, the Federal Reserve is just printing money to buy the bonds that cover the federal deficit. The Fed expects to buy over one trillion dollars of bonds this year even though the deficit is now projected at something in the area of "only" 900 billion dollars. This means that no one out there in the world is actually lending the USA more money.
2) Every large economy in the world is running at a deficit except for China. European countries like the UK, Germany, France, Italy and Spain are borrowing huge amounts each month. So it Japan. Indeed, some of the nations are borring more per capita that America at the moment. That means that the folks out there who are supposedly lending money to the USA also have to come up with cash to lend to nearly the rest of the world economy. It also means that China is the one country with the ability to just stop buying debt, a move which would hurt the world economy but which would completely cripple all of China's adversaries. We cannot be sure that China will never decide to bring down the USA just by deciding to no longer buy our debt.
3) Bloomberg is assuming that everything that has been happening will just continue to happen. When housing prices went up for decade after decade, financial gurus like Bloomberg assumed that they would continue to rise for decades more. As a result, they built entire financial empires on debt secured by home mortgages. Guess what! They were wrong, and when the housing market went down it nearly took the entire world economy with it specifically because these gurus could not recognize the possibility of such a decline.
Some day, and it may come soon, there will be a catalyst which starts people moving their money somewhere other than investment in US debt. It will be a small move at first, but eventually, if we do nothing, the move will hit a tipping point. After that, there will not be sufficient people (other than the Federal Reserve) to buy Treasury securities. If that happens, the Great Depression of the 1930s will look like a stroll in the park.
Bloomberg should know better.
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