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Originally posted by Great King RatPeople invest in debt (bonds), generally because they are historically less volatile than stocks (equity). Partly due to corporate law, in a bankruptcy, bond holders are usually first in line to get paid, and stockholders last. This is not so true any longer, when government can unilaterally declare new rules for bankruptcy, as in the GM bailout.
Question for someone who understands economics better than I do: what does it mean when somebody or a country "invests in (American) debt"?
Does that not sound terribly, terribly wrong for some reason?
Governments and foreign banks are just investors, trying to maximize their investments.
Originally posted by KazetNagorraThe "problem" of Norway, is really that of a controlled central bank artificially keeping interest rates so low as to encourage malinvestment, and taking on unnecessary debt.
Even when a nation is running a budget surplus, the rate at which bonds mature will generally be larger than the rate at which the debt is shrinking, so even then they will need to borrow new money to pay off old debts. Even the debt itself is not necessarily a problem - Norway issues government bonds not because it needs to, but because it has to pay s ...[text shortened]... nvestment fund (which holds more assets than the sovereign debt of Norway) to pay off its debts.
If market rates prevailed, it would force Norway to make positive steps, like reducing taxation, eliminating debt service. The artificially, below market rates offer no resistance against unrestrained spending.
Originally posted by sh76Yes! Stacking of loans, while legal, was a major contributing factor in the housing collapse of 2008.
Perhaps, but what other choice is there? If you own a house and have to make a balloon payment of $50,000 to pay off a line of credit, so you refinance and take out a loan from a different bank of $50,000, using your house as collateral again, is there anything wrong with that?
Originally posted by normbenignHere's kind of an "until there isn't" case in point, a small thing, but ...
Treasury bonds look good, save the low return, until they bomb. As is, TBs don't pay enough to beat inflation, so the result is that you are guaranteed to be a loser, though not as big a loser as if you bet on stocks or futures.
The nation's largest manager of money market mutual funds said Wednesday that it no longer holds any U.S. government debt that comes due around the time the nation could hit its borrowing limit.http://abcnews.go.com/Business/wireStory/fidelity-sells-off-short-term-us-government-debt-20520740
Money market portfolio managers at Fidelity Investments have been selling off their government debt holdings over the last couple of weeks, said Nancy Prior, president of Fidelity's Money Market Group. While Fidelity expects the debt ceiling issue to be resolved, the Boston-based asset manager said it is taking steps to protect investors.
Prior said that Fidelity no longer holds any U.S. debt that comes due in late October or early November, the window considered by many investors to be the most exposed if the government runs out of money and defaults on its obligations.
The Obama lovers here will say this wouldn't even be an issue if it wasn't for the knuckle dragging mouth breathers holding up the debt limit increase, but as always they ignore the fact that we have added 6 trillion in debt in the last 5 years. That's what's truly driving the debate.
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Originally posted by Great King RatIt's like the credit crisis. Everyone was happy and making money.....till it all went belly up.
It's sick and twisted. And it's amazing how happily everyone plays along. We deserve an economic meltdown of epic proportions.
I submit that this meltdown is being imposed upon us. Collectivists routinely use the guise of "crisis" to impose their collective wills upon us. It will only get worse for everyone, the only question becomes, when?
The credit crisis is but one example. They simply used the crisis to steal trillions from taxpayers and a myriad of laws while they suffered no ill, nor did their corporate buddies. The only question is, was it intentionally created or simply oppurtunistic? I'm beginning to suspect the former
Originally posted by moon1969And most of the big cities in the US are right behind Detroit headed for bankruptcy due to irresponsible borrowing. The borrowing is fostered by the artificially low interest rates created by the Fed.
US states and municipalities also issue bonds. A common and effective way for growth. New schools. New hospitals. New electrical or utility infrastructures. Etc.
Originally posted by SleepyguyRaising the debt ceiling is a classic kick the can down the road tactic. Instead of attempting to deal with spending excesses, the Obama solution is the same as Presidents before him of both parties, borrow more. Except that he is doing so at unheard of amounts.
Here's kind of an "until there isn't" case in point, a small thing, but ...
[quote] The nation's largest manager of money market mutual funds said Wednesday that it no longer holds any U.S. government debt that comes due around the time the nation could hit its borrowing limit.
Money market portfolio managers at Fidelity Investments have been selling o ...[text shortened]... t we have added 6 trillion in debt in the last 5 years. That's what's truly driving the debate.
With the debt approaching 17 trillion, and probably equal to national GDP by end of Obama's term, I believe the default is coming, one way or the other. How long will anyone continue to buy US debt? Apparently not Fidelity. How long before others jump ship?
The Republican proposals are really just at the edges, and meant to ease the fears of the investor class, but I think the whole sippuku dance is just for show. The default is almost inevitable, and the chaos from it hasn't even been imagined by either party.
Originally posted by normbenignMaybe the solution is to get those interest rates even lower, so that people can pay back their debts. Sweden ran a negative base interest rate for a while.
And most of the big cities in the US are right behind Detroit headed for bankruptcy due to irresponsible borrowing. The borrowing is fostered by the artificially low interest rates created by the Fed.
Originally posted by Great King RatWhat is 'as little debt as possible'? Surely no debt is the answer?
Should it not be considered wisely to have as little debt as possible? It's one of those things that my parents taught me when I was younger and I consider that pretty solid advice.
I think most of the world disagrees with you. If not, mortgages wouldn't exist, nor would credit cards.
I don't have a credit card, but I believe a mortgage can actually save me money.
Similarly, a government which borrows money, invests it in infrastructure, education and their economy may see a profit in terms of tax revenue later on.
Zambia borrowed money in its early years on the belief that they could pay it off with copper. Then the copper price dropped and we spent the next 40 years paying much of our budget as interest payments. I believe that many of the loans have now been 'cancelled'.
Sometimes governments or institutions lend us money with the understanding that much of the money will actually return to their country.
Actually, I'm disagreeing with myself because I too have a mortgage. That's the way society works and while you don't have to have a mortgage, for most people it's part of the natural course of their lives. Because let's face it: what other choices do you have if you want to own a house? And yes, I agree, a mortgage can save you money.
But it's at it's heart still a twisted system that we've gotten ourselves into. Your Zambia story is a nice - well, not so nice - example of this. Sure, most of the times there won't be any problems and maybe taking a loan is in society today often the best of a bunch of bad options. But when it goes bad it tends to go very bad.
People in the Netherlands today who have a house and get a divorce, often have to sell their house for less than what they borrowed. Getting a mortgage is basically taking a (more-or-less calculated) risk with the most amount of money you'll probably ever spend and yet we all do it.
I keep thinking about my parents telling me only to spend money that you have and can miss. In the house they bought with borrowed money. And I can't blame them.
Dunno. This economic crisis too will blow over and we'll all continue the way we always do.
Originally posted by Great King RatI feel obliged to point out here that this only applies to the wealthier people in wealthier nations. In Zambia, mortgages are almost unheard of. The bank interest rates are too high. If you can't pay up front for a house, you build one bit by bit.
That's the way society works and while you don't have to have a mortgage, for most people it's part of the natural course of their lives.
But it's at it's heart still a twisted system that we've gotten ourselves into.
Certainly the richer nations that were fueling their economies by encouraging people to spend borrowed money was a twisted system and a large part of the pain after 2008.
People had massive credit card debts and mortgages that they could not afford for houses that were over valued.
Sure, most of the times there won't be any problems and maybe taking a loan is in society today often the best of a bunch of bad options. But when it goes bad it tends to go very bad.
It can be a risk, but at the same time, if it goes bad, sometimes you can default (as countries do). The problem with that, is that lenders then charge higher interest rates.
This economic crisis too will blow over and we'll all continue the way we always do.
Its only a 'crisis' because you think you should be richer than you ever really were. You were living on borrowed money and now you can't you think you are poor. The fact is that citizens of first world nations get paid significantly more fore a given amount of work than those of us in poorer countries. You can only get away with that for so long. Mobile jobs will continue to migrate to countries with lower salaries. It takes a while because sometimes it means educating your workforce, sometimes it means building a new factory, and sometime there are political risks involved etc. But I seriously think 1st world nations either need to keep trying to stay ahead in terms of skills, or get used to a rebalancing. Of course as poorer nations get richer the movement will slow down.