Q for those with Financial Analysis Training/Experience.

This will answer your questions.

Citizen's Guide to the 2010 Financial Report of the US Government

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I know that the US has borrowed money from China and I've heard that we have "monetized the debt" somewhat, but, I have but very superficial awareness of these measures.

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FYI, the Fed owns more US debt than any other sovereign country, including China.

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No. People don't know what's going to happen next week, much less 5, 10, 15 or 20 years from now

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Truth.

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People may not know what's going to happen in the future, but, folks who are well-versed in financial matters invest in all sorts of goods, companies, etc.

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I didn't think you were asking about investment repercussions, I was assuming political. Nobody really knows what will happen with US debt at the moment.

I believe that real assets will be more and more sought after within 20 years as fiat currency is finding more and more problems. The Euro should be defunct in 10 years but I fear European politics will try to keep it around further. Land, oil, metals, and rare-earths will appreciate more than any other benchmark within the next 5, 10, 15, and 20 years. That is my belief.

Interest on US debt is currently near record low rates. Those rates will not last. If we continue to operate at 10% of GDP deficits, our credit rating will be downgraded and rates will climb quickly. With that, even if we only return to historic interest rate averages ~6%, budgetary costs will more than double. It's coming.

As/if we are forced to move toward balanced budgets, interest on the debt considered as a fraction, not of the budget, but of government revenue will become an increasingly important consideration. It's the only truly nondiscretionary spending on our books IMO. In that equation, 4-6 more years of $1.0-$1.4T deficit spending will result in interest on the national debt overtaking Defense or SS or CMS as our largest single expense item. Not sustainable.

Generally the only practical way to manage the interest dilemma is to devalue the dollar (inflation). Sadly, inflation is the most regressive "tax" there is. The very folks who think federal spending is helping them via entitlements will be absolutely raped when inflation kicks in . . . and they haven't the slightest clue it's coming.

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Or we could tell the bankers that run the Fed to go frick themselves

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While possibly satisfying, it really doesn't do anything about the cost of debt to the gov't.

We could just not pay them back.

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We could just not pay them back.

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Who is "them"?

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And this is really a macroeconomics question, not a financial analysis question.

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Thanks for your input.

Anything else constructive to add?

There's no right answer. You're just going to get a bunch of answers framed in various theories/ideologies, and this thread will just end up more poli-boardesque by the post.

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Folks, this is not a "free for all". I have not commented on this thread because I am neither trained nor experienced in finance, economics, macro-economics, etc.

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I'd guess some of the answers here were less free-for-all, and more fact based than you realize.
Alternately, perhaps the OP question wasn't clear?


Here's a straight-forward, less technical piece on US Debt and it's ramifications:

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National Affairs: Issue 5: Fall 2010
Managing the Federal Debt
by JASON THOMAS

In Washington, on Wall Street, and in foreign capitals, all eyes are on mounting government debt, particularly America's. The scope of American borrowing, and the ease of the government's access to credit, offer useful signals about the strength of our economy and about the future direction of global public finances — especially during this time of economic uncertainty.

But while observers of our debt all track the same trends and the same figures, the most knowledgeable analysts disagree about just what the data reveal. To some, the market for United States Treasury securities — the means by which the government sells debt to the public so it can spend money in excess of tax revenue — appears to be buoyed by insatiable demand. To others, it seems like a bubble ready to collapse. The yields on Treasury bills and notes (or the interest rates the government must pay to people who buy securities) sit at historic lows. But America's public finances (its debt, deficits, and financing needs) hardly differ from those of Spain, which faces the very real prospect of losing access to credit. Some analysts argue that America risks a second Great Depression by borrowing too little, and therefore allowing demand to wither. And yet others argue that we are borrowing too much, thereby risking a currency crisis.

How can the same evidence lead to such wildly divergent conclusions? What exactly are the prospects for America's access to credit in the years to come? And what do the data say about the U.S. dollar's position as the global currency of choice? To answer these questions, we must first think through just what the national debt really is; how it is sold, and to whom; and how our debt looks today in historical perspective.

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The Treasury's most recent announcements paint a grim picture of the government's debt obligations and prospects. At the end of March 2010, total outstanding federal-government debt held by the public was $8.3 trillion (the rest of the familiar $13 trillion national-debt figure is money the government owes itself — to pay for obligations like Social Security or Medicare, for instance). OMB estimates that this public-debt figure will reach $9.2 trillion by the end of this fiscal year, which would be roughly equal to 63% of gross domestic product. In 2011, OMB expects the federal government to run an additional $1.4 trillion budget deficit, which would push the debt-to-GDP ratio to 69%. The last time the federal debt represented a larger share of the economy was in 1950, when it stood at 80% of GDP as a result of the debt incurred during World War II.

Over the second half of 2010 and the first three quarters of 2011, the federal government is therefore likely to issue about $1.9 trillion of net new debt, roughly 10% of GDP over that period. It is important to remember that this is a net figure, which measures only incremental additions to the stock of outstanding debt, not the funds used to pay back maturing debt.

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But economists on the other side of the argument are motivated by concerns just as real. Their worry is not that the United States would default on its debt: The government borrows in a currency that it prints, and it is difficult to conceive of a situation in which it would be more advantageous for the United States to renounce obligations than to print whatever amount of dollars would be necessary to meet them. The real problem is that bond-market investors are not oblivious to this flexibility. When it appears likely that a country will print money to inflate away unsustainable debt burdens, interest rates rise to incorporate an inflation risk premium — thus increasing the burden on the government and on private borrowers. The danger, then, is that excessive borrowing will bring investors' hunger for Treasury securities to an end, causing a spike in interest rates that could crush the American economy and send it into a debt spiral we would find very difficult to escape.

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Irving Howe once wrote that the imagination is constrained by what he called the "provincialism of the immediate" — the presumption that things as they exist today will continue on forever. That presumption is certainly evident in our public finances, as discussions about debt sustainability tend to focus on the burden imposed on "our children and grandchildren" while ignoring the potential for abrupt shifts in investor sentiment today. But the history of modern financial markets is characterized by sudden breaks and swings that cannot be reliably forecast. The current spike in demand for Treasury securities is itself an example of such a change, as it was precipitated by the sudden flow of money out of other investment options in the wake of the financial crisis. Today's historically low yields on Treasury securities should not inure American policymakers to unsustainable debt growth, or make them overconfident of their ability to anticipate and pre-empt a crisis.

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