U.S. Treasury Posts First January Budget Surplus Since 2008

[SemiAuto]

http://www.washingtonpost.com/blogs/...-and-deficits/

This article is worth reading. As usual simplistic arguments are off the mark. What's your take on this?

(My contention, and I have an MBA and prob a better grasp of economics than the average bear, is that if I think I understand it, and it's in the realm of macro-economics, I am probably wrong!)

After the last few years we should certainly be aware that markets can misjudge risk, sometimes dramatically so (it was markets that placed a high value on subprime mortgage backed securities in 2007, after all). But if deficit hawks think the markets are wrong, they need to identify what exactly is wrong, and why they’re so certain they’re right.

This.

The Federal Reserve is propping up the entire U.S. economy by buying 61 percent of the government debt issued by the Treasury Department, a trend that cannot last, Lawrence Goodman, a former Treasury official and current president of the Center for Financial Stability, writes in a Wall Street Journal opinion article published Wednesday.

They're monetizing the debt.

[ms maggie]

This.



They're monetizing the debt.

You could be right, but frankly I look askance at articles like this: the 61% is relative to last year, not the total govt debt. You have to dig further into the article to get that. Seems fairly agenda driven.

A good journalist would give the trend, the aggregate number, not just the one lone fact. Doesn't mean it's not a concern but the source is suspect as to their opinion, given how they stacked the deck so to speak.

[flyboy56]

http://www.washingtonpost.com/blogs/...-and-deficits/

This article is worth reading. As usual simplistic arguments are off the mark. What's your take on this?

(My contention, and I have an MBA and prob a better grasp of economics than the average bear, is that if I think I understand it, and it's in the realm of macro-economics, I am probably wrong!)

The only reason most of the deficit doves don't think debt is a problem is because the US can print it's own money and the world will continue to buy our debt because they don't want us to fail economically. The US is the worlds cash cow. Just look at our import/export deficit. More goods come to the US as opposed to being exported out. Americans are the biggest trinket consumers in the world. And the dollar is the world standard by which all other currencies are compared. Many economists don't see a day when foreign investors lose faith in the green back and shift their investments elsewhere. The question really is how much debt can we take on before interest rates start to rise?

[Jeebus]

I'm sure all these conservatives can point us to the last time a Republican President actually DECREASED the deficit.

And then we can take you seriously.

Red Herring Alert!

A Red Herring is a fallacy in which an irrelevant topic is presented in order to divert attention from the original issue. The basic idea is to "win" an argument by leading attention away from the argument and to another topic. This sort of "reasoning" has the following form:

• Topic A is under discussion.
• Topic B is introduced under the guise of being relevant to topic A (when topic B is actually not relevant to topic A).
• Topic A is abandoned.

This sort of "reasoning" is fallacious because merely changing the topic of discussion hardly counts as an argument against a claim.

[SemiAuto]

You could be right, but frankly I look askance at articles like this: the 61% is relative to last year, not the total govt debt. You have to dig further into the article to get that. Seems fairly agenda driven.

A good journalist would give the trend, the aggregate number, not just the one lone fact. Doesn't mean it's not a concern but the source is suspect as to their opinion, given how they stacked the deck so to speak.

Here ya go.

And it's evil twin.

[soulflower]

I understand that you posed the question to Larry, but the article itself is overly simplistic (as it has to be in such media venues). There is a significant problem regarding the interest burden, which the article briefly touches on. Servicing the national debt is nearing $1 trillion annually, and IMO that is a huge problem. It will only increase with continued high levels of deficit spending. The Fed has run out of magic pills to spur economic growth, but at least it looks like we're slowly pulling out of the recession. One thing is for sure, interest rates will be kept artificially low for the foreseeable future to keep our "interest" payments manageable (for now at least).

Excellent points

I think what Krugman and the Fed are arguing is that we need to focus on economic growth right now more than anything else.

The long-term debt problem is something that needs to be dealt with eventually but not before we deal with high unemployment and sluggish economic growth.

[ms maggie]

Here ya go.

http://cnsnews.com/news/article/fed-...rpassing-china

Looks like fed owns about 15% of the debt. That number in of itself tells me nothing. What is this in a historical context? Will dig deeper.

[flyboy56]

"This second round of easing was known as QE2. The Fed was actually hoping to spur inflation a bit by increasing the money supply. Expectations of inflation increase demand, which would spur economic growth. That's because people are more likely to buy consumer products now if they know prices will be higher in the future."

http://useconomy.about.com/od/glossa...ive-Easing.htm

How many American consumers even know what Quantitative Easing is let alone forseeing prices will be going up soon so they run out to buy the trinkets at a lower price before it rises. How laughably out of touch the money manipulators are with the average American.

[ms maggie]

http://cnsnews.com/news/article/fed-...rpassing-china

Looks like fed owns about 15% of the debt. That number in of itself tells me nothing. What is this in a historical context? Will dig deeper.

This goes only thru 2011 but shows a steady rise 2007-2011 of foreign ownership of US debt, at 57% of total debt in 2011.

http://www.fas.org/sgp/crs/misc/RS22331.pdf

[flyboy56]

Excellent points

I think what Krugman and the Fed are arguing is that we need to focus on economic growth right now more than anything else.

The long-term debt problem is something that needs to be dealt with eventually but not before we deal with high unemployment and sluggish economic growth.

The problem is most of the QE money is being bottlenecked at banks because the loan requirements are too high. Which is why economic growth is so slow if in fact anyone wanted to take out loans. So what are the banks doing with all of the cash reserve? Investing it. Great for the stock market.

[flyboy56]

The Debt Is in Two Categories

The U.S. Treasury manages the U.S. debt (among other things) through its Bureau of the Public Debt. The Bureau has broken out the debt into two main categories: Intragovernmental Holdings ($4.9 trillion) and Debt Held by the Public ($11.6 trillion).

Intragovernmental Holdings - Just under one-third of the Federal debt is owed to about 230 other Federal agencies. How does this happen? Some agencies, like the Social Security Trust Fund, take in more revenue from taxes than they need right now. Rather than stick this cash under a giant mattress, these agencies buy U.S. Treasuries with it.

Which agencies own the most Treasuries? Social Security, by a long shot.

Debt Held by the Public - Foreign governments and investors hold 48% of the nation's public debt. The next largest part (21%) is held by other governmental entities, like the Federal Reserve and state and local governments. Fifteen percent is held by mutual funds, private pension funds, savings bonds or individual Treasury notes. The rest (16%) is held by businesses, like banks, and insurance companies and a mish-mash of trusts, businesses and investors.

http://useconomy.about.com/od/moneta...ional-Debt.htm

[flyboy56]

More revenue is being brought in to Social Security Trust Fund from taxes than is needed right now. These excess funds are used to buy long term US Treasuries which run the risk of rising interest rates. I wonder how many Americans know their future pension is being invested in risky long term bonds?

[flyboy56]

This goes only thru 2011 but shows a steady rise 2007-2011 of foreign ownership of US debt, at 57% of total debt in 2011.

http://www.fas.org/sgp/crs/misc/RS22331.pdf

As of September 2012, foreign debt dropped to 48%. That is a huge loss for the economy. This means the Feds would need to create more money just to make up the loss of foreign investment.

[ms maggie]

More revenue is being brought in to Social Security Trust Fund from taxes than is needed right now. These excess funds are used to buy long term US Treasuries which run the risk of rising interest rates. I wonder how many Americans know their future pension is being invested in risky long term bonds?

This has been going on for years. I laugh when people say we can't afford SS. Sure we can, we can't afford Congress using those funds to appear to balance the budget. Risky is a relative term. Compared to what?

[flyboy56]

This has been going on for years. I laugh when people say we can't afford SS. Sure we can, we can't afford Congress using those funds to appear to balance the budget. Risky is a relative term. Compared to what?

Duration risk

The modified duration of a bond is a measure of its price sensitivity to interest rates movements, based on the average time to maturity of its interest and principal cash flows. Duration enables investor to more easily compare bonds with different maturities and coupon rates by creating a simple rule: with every percentage change in interest rates, the bond’s value will decline by its modified duration, stated as a percentage. For example, an investment with a modified duration of 5 years will rise 5% in value for every 1% decline in interest rates and fall 5% in value for every 1% increase in interest rates.

http://www.investinginbonds.com/lear...catid=3&id=383

They may be bringing in more that they need now SS wise, but as you previously pointed out the baby boomers are just now starting to retire, and the workforce is shrinking.