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Why does the debt matter?

Discussion in 'Survival/Preparedness Forum' started by emt1581, Mar 23, 2012.


  1. emt1581

    emt1581
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    I've raised the question multiple times but have not seen any real thoughts on the issue.

    But when it comes to the massive national debt, value of the dollar, etc...compared to the reality of each nation in regard to food, supplies, service, etc...what does it matter what the numbers show?

    Now the obvious answer for all of us individually would be that those numbers within our debt show what we owe to utility, mortgage, credit card, etc....companies. If we don't pay we no longer will get those services/goods...simple.

    However, as the national debt grows, there is a lot of panic about the credibility of the dollar, yet nothing happens to reflect/validate that panic on any lasting level. PM's may jump a little but even that is not happening.

    As for real world debts....are we running out of food, fuel, workers, services?? What are we lacking other than on paper?

    Could this be why everyone in government as well as most of society gawks at the amount but doesn't really do much about it??

    What are your thoughts? Why does the national debt and value of the dollar matter when looking at tangible supplies/services?

    Thanks

    -Emt1581
     

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  2. inzone

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    etc etc and etc. It was the same exact way in all of these places and many more.....before the crash! some wag will likely come on now and say, oh no, weimar was a little different because....however I think these are differences without real shtf distinctions, because all of these economies crashed and crashed badly after resorting to massive creation of debt (and p.s. it does not ultimately matter too much whether that debt is created by fiat instruments (printed currency) ,quantitative easing, bonds, any governmental promises to pay, special drawing rights and their electronic penumbras, treasury notes and instruments, sovereign "IOU's", or other paper/electronic/promissory/contractual methods.
    U.S. is living on rapidly dwindling borrowed time based on our national goodwill, reserve currency status, and the fact currently oil is traded in US dollars, and our rule of law and our carrier battle groups and large military, etc.
    Guess what? ALL of the above are interdependent and all are now vulnerable in one way or another.
    history repeats itself, and imho we are watching it do this in the US. ymmv and I pray I am wrong, but sadly, I dont think I am.
     

  3. cyrsequipment

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    Because high debt devalues our currency, property and trade. Making everything more expensive in one way or another.
     
  4. itstime

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    Easier to leverage us as a country? Pretty much just cripples us if another country calls is out on it. (China)
     
  5. Devans0

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    Only IF we pay the bill to China.

    Controlled inflation keeps capitalism alive. Otherwise, money hoarders will dry up the economy and stagflate it, ie Japan. Spending in bad times gives fantastic bang for your buck, stocking away in good times and living below your means prepares you for the next cycle. The way things are going, I expect ammo prices to shoot up in bubble mania. I have my stock and some to sell/trade until the politicians go to their next fiasco.

    I am not worried about money/ inflation at this time. IMO, bond yield curves show where we are, roughly speaking. That says we are safe.
     
    #5 Devans0, Mar 23, 2012
    Last edited: Mar 23, 2012
  6. thesurefire

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    The numbers are a running tally. Think of a family. They buy a house for 200k. That house then becomes worth 100k, so instead of selling it, they keep it and buy another house for another 200k, this time in debt. Now they owe 200k and have 300k worth of property. Same thing happens again. Now this time they owe 400k and have 400k worth of houses. Repeat again, and owe 600k on 500k worth of property.

    If you cant see that this strategy is going to end in the family losing everything they have to foreclosure I cant help you.

    That's exactly what the US is doing, and the more we owe the worse it will be (the more we will lose) in the end.

    We're running out of oil. Oil makes the USA go around. From farming to military, and everything in between.

    Printing more money wont solve that issue, because at some point other nations are going to realize we don't have anything they want. That means we can give them paper, but if that paper isn't going to buy anything useful... whats the point of the paper?

    We used to be ok because we basically had a monopoly on the tech industry. Now, South Korea, Japan, and even China and India make everything we do for half (or less) the cost.


    It could be, but personally I think humans are just really bad at both numbers and planning for the future. If you see a rattle snake you get scared. Psychologically we're programed to deal with immediate threats. not something that happens a month in advance, let alone years, or even decades in advance.

    We spend like there isnt a tomorrow. We have for years. Now people whine about inflation, gas prices, and food prices. We should have thought of those consequences 30 years ago when we started racking up massive debt.

    Its not going to get any better because the government isnt going to stop spending. Gas, food, utilities, all are going to cost more and more, until the entire system breaks, and we end up basically cut off from any foreign imports.

    Since we cant supply even half of our oil use, that time will mark the collapse of the USA as we know it.

    Dollar figures dont matter. Relative value matters.

    For example, lets say I make minimum wage, say 16k a year. Thats 16 AR15s. Fine.

    The problem is when my father made minimum wage in his day, lets say he made 8k a year. That wasnt 16 AR15s, it was 35 AR15s.

    The point is as our currency devalues the country cant hold the same standard of living. It isnt just the dollar that the fat cats are devaluing, its your time, and your expertise in whatever field you work in. We're literally paying for other nations to become better at doing (or manufacturing) things than we are. How is that a smart approach to the future?

    Add in welfare rats, the super expensive Obamacare, and soaring gas and food, and we as a nation are really, really hurting.

    On the gold standard we were protected from this, now, literally our nation is at the mercy of the idiots in Washington who appear to be unable to apply ANY common sense to the situation we're in.
     
  7. thesurefire

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    Just like the bond yield curves in Greece told all the investors that they were safe?

    I recall that ending in the instantaneous evaporation of something like 100 billion dollars of "wealth".
     
  8. Aceman

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    Please go post this in the Financial Speculation forum, the General chart Area, or the Political forum...which is where this will end up.

    Or - give me advice on how to prep for economic collapse and the likely symptoms of it (besides welfare moms becoming criminal and over running the world with crime and baby's) or tell me how to prep for avoiding it.

    But take the political/economic speculation elsewhere. It will neither help me prepare or survive.
     
    #8 Aceman, Mar 23, 2012
    Last edited: Mar 23, 2012
  9. cowboy1964

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    PMs have tripled just in the last few years.

    If interest rates rise significantly most of the federal spending will be going to paying the interest on the debt.
     
  10. Big Bird

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    We (the borrowers) pay interest in the form of dividends to out bondholders. This is a significant and growing portion of out Federal Budget. The more we borrow the less money we have to spend on things like defense, Social Securty, Medicare, etc.

    Eventually the principle on the bond must be repaid.

    As a nation, we cannot borrow (and spend) our way to prosperity.

    The current level of indebtedness of this country is not without precedent--we have as a matter of fact had as much debt as a percentage of GDP in the past and worked and grew our way out of it. Nor do higher levels of debt automatically result in armageddon. Japan currently has twice the amount of debt as the US (again relative to GDP not in absolute terms) and Japan has even bigger demographic problems than we do. We both need more young people than we have to continue to support the old people sucking on the medicare and SS teats.

    In any case...we aren't on the edge of a cliff yet. Even if we get there it doesn't necessarily mean the end of the world. Governments all over the world and even State and Muncipal Governments here at home have a LONG history of defaulting on their public debt. They don't fall into chaos. But a lot of people do get hurt--most especially the bond holders.
     
  11. bdcochran

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    Why does the national debt and value of the dollar matter when looking at tangible supplies/services?

    Gee. I guess your personal debt and the value of the dollar that you spend matters when looking at tangible supplies/services. Same thing on a national level.

    EMT works. A retired person does not work. EMT receives a paycheck. The paycheck is more than he will earn when he retires (unless he is a double dipping civil servant, right?). When EMT buys his Toyota Corolla for $15,000 when he is working and now needs to buy a new Toyota Corolla (same damn model) when he is retired for $35,000 and he has his retirement, then the value of his dollar is darned important when looking at tangible supplies/services.

    I made a silver dime when I baby sat as a kid. Now I understand that babysitting pays $10 an hour or more. It is absolutely delusional to believe that the value of a dollar does not matter when looking at tangible supplies/services.

    National debt. We owe the money to ourselves. No the hell you don't. You owe the money to the people who invested in your bonds, notes and treasury bills, not the grasshoppers who spent their money on beer, cigs, fast cars. The "we owe the money to ourselves" mentality comes from people who invest your money, not theirs.

    If you want to believe that the $35,000 house you bought in 1970 can be bought again for $35,000 in 2012, there is no hope for your logic. If you think that you made money because the house is now worth $700,000 and YOU pay taxes on the gain and that you can buy the same house for less than $700,000, there is no hope for your logic. You are taxed on an delusional gain.
     
  12. quake

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    :patriot: Well said, BD.
     
  13. arclight610

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    Possible scenarios:

    1) Debt gets so high that we cannot even afford to pay the interest on it, unless we borrow to pay the interest which just perpetuates the cycle. What would you do if your mutual fund manager told you that they were going to stop paying dividends on your investment, or your bank told you that you are no longer going to receive interest on your money market account? You'd find a new bank that will! People would stock investing in the US or possibly call in their debts, which we could not pay.

    2) People pull out their investments outright, which we could not pay.

    3) Foreign countries lose faith in the USD, because of astronomically high debt, and drop us as the Reserve Currency. This leads to $10/gal gas and generally higher prices in everything else. The US economy becomes crippled.

    4) Foreign countries retaliate to our inability to repay debt with embargoes, sanctions, and possibly military action.

    There are alot of possibilities
     
  14. thesurefire

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    The issue of social or political unrest, or that or runaway inflation is integral to my prepping strategy. If you choose not to prepare for those issues, that's fine, just ignore the thread.

    If trying to understand the future wont help you prepare you're saying what happens in the future is irrelevant to what you need to prepare for, which is absurd.

    I think its more accurate to state that the dollar has lost 2/3 of its value in the last 10 years. Gas prices have more than doubled, and food prices across the board have about doubled.


    This is a concern as well.

    I agree, but don't you think that if we continue increasing the debt, or in this metaphor accelerating towards that cliff the outlook is bad?

    At some point we'll be going so fast even if we try to slow down we wont be able to do it in time. Thats why these issues are important now.


    This is why the standard of living cant continue to increase forever.




    This is the outcome I'm most worried about. The US economy would be crippled, but that would have large ripple effects in the world economy. The transition of the US from the worlds only super power to just another country will happen. Its only a matter of when and how painful it will be.

    An oil embargo would hurt. I'm not concerned about military action.
     
    #14 thesurefire, Mar 24, 2012
    Last edited: Mar 24, 2012
  15. UneasyRider

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    This is one of the big reasons to prep long term food storage and PM's EMT. Focus on these basic facts:

    1) Our debt has passed the point where we have any possibility of paying it back. So the "Genie" can not be put back into the bottle.

    2) Interest rates are typically 3-4 percent above the inflation rate, otherwise nobody would loan money. So if the real inflation rate is 17% the real interest rate should be about 20%. If we used those numbers on 16 trillion in debt our yearly payment on debt would be what, about 3.2 trillion per year? Our yearly federal income from all sources is about 2.3 trillion while we spend 3.6 trillion.

    What do you think will happen when the market takes over and interest rates go up?
     
  16. emt1581

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    But playing devil's advocate and sort of cross referencing supply/demand with the debt level...

    What tangible goods/services are we, or any other country, running out of?

    The majority of explanations seem to be about credibility. In other words if we don't pay back what we agree we will pay back, no one will want to do business with us.

    Now I understand that currency of some sort matters because it is a universal and portable means of paying for things. I'm just curious, aside from the status of that currency, what goods/services are lacking...other than oil?

    Thanks

    -Emt1581
     
    #16 emt1581, Mar 24, 2012
    Last edited: Mar 24, 2012
  17. bdcochran

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    In response to UneasyRider:

    What do you think will happen when the market takes over and interest rates go up.

    1. the "market" has taken over.
    a. Foreign investors buy fewer US bonds and notes. They invest in other items.
    b. The increase in US money supply has already contributed to an increase in food, energy, and material costs. (Hint-the price of a used Leatherman tool has gone up about 50% since November 2009)

    2. what happens when interest rates go up, generally? (now I will say that if inflation gallops along, then the "real" interest rate would gallop along too. As you know, the nominal interest rate is being artificially kept low now.)
    a. it rations the allocation of investments;
    b. it defeats the goal of easy money (making housing prices stay up better, keeping loans flowing to marginal businesses, keeping credit card balance rates as low as they are now)
    c. with a sense of humor, I say it makes the economy a bit worse, tax collections decrease, and politicians worry about really keeping expenditures under control.

    Under Jimmy Carter, inflation roared along at about 25% per annum for a while. Bank interest paid on deposits was nominal. You have actual inflation going along at about 8% right now with 1% paid on bank deposits. Same deal. You lose the value of money by saving right now. You do better to pay off debt.
     
  18. bdcochran

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    EMT: Nothing is lacking at all.
    I will pay you $50,000 this year as a civil servant. I will assume that you can afford to buy a Toyota Corolla for $16,000. Assume that everyone in this country can buy a Toyota Corolla for $16,000 today and does so.
    Now, I double the amount of money in circulation. I said the total of all currency is double.
    Can everyone in the US buy a Toyota Corolla for $16,000? Remember, everyone has double the money.
    Ok. Here is the answer -no.

    But we have double the money, EMT says. Yeah, but people will bid $32,000 per Corolla if everyone is to be able to buy one. If you can't figure this out, show this posting to someone at work to explain to you.
    You have more dollars bidding for the same number of items.
    There is no shortage of gasoline. If you want to pay $5 a gallon. There is no gasoline if you want to pay $2.50 a gallon.
    EMT. What was the federal minimum wage in the 1950s? 25 cents an hour. What is the minimum wage today? $7.25 an hour. Did it increase because the productivity of the American worker increased almost 30fold? Of course not. It increased because money was pumped into circulation through a variety of means and as a consequence, the price of items went up.
     
  19. UneasyRider

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    Good explanation of the allocation of scarce resources.
     
  20. thesurefire

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    If there is one thing in this thread you need to understand it is this.

    It doesn't matter if there's a shortage of goods, services or anything else. The fact is if you cant afford to buy it, you wont have it. That's why the debt matters.

    Lets say I own all the food in the world. Want to eat? Pay me 500 dollars for a meal. Cant? Then starve to death. Just because food exists (there is a supply of it) doesn't mean you will get to eat.