US debt approaching $20 Trillion

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tampaite
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US debt approaching $20 Trillion

Post by tampaite »

With US debt approaching $20T and other unfunded federal govt debt obligations around $100T - how will the next 15-25 year horizon affect stock market?

I think with higher debt repayment obligations, the county will not have resources to invest in infrastructure and development - You cannot print money as a way out - just ask Venezuela or Zimbabwe.

Given that I have another 20 *working* years - I'd like to understand short-term and long term ramifications.
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rmelvey
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Re: US debt approaching $20 Trillion

Post by rmelvey »

Inflation rates are very low right now and there is very high demand for US dollars. The debt is not a burden right now. In fact, I would be more worried about the government trying to pursue a budget surplus than a budget deficit with current conditions.
dekecarver
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Re: US debt approaching $20 Trillion

Post by dekecarver »

Guess we need to get the interest rates up so that debt can be paid back with cheaper dollars?
petulant
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Re: US debt approaching $20 Trillion

Post by petulant »

Taxes will go up

and/or interest rates will stay low to keep the debt's carrying costs under control

and/or inflation will be used to knock the debt down over time

and/or the country will implode.

I dunno OP, maybe you should invest in a diversified stock portfolio in tax-advantaged accounts and consider buying a house with a mortgage.
msk
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Re: US debt approaching $20 Trillion

Post by msk »

I have always been amazed at how much faith foreigners have in the US $, given the debt level :confused Personally I feel that the biggest danger is to the $ rather than directly to the stock market. What if the Chinese dump US Treasuries... That will lead to US interest rates having to be raised, inflation becoming rampart, the stock market p/e collapsing, etc. What do I do? Just invest in Total World, VT or similar, no bonds (can't identify a "safe" currency, CHF?) , and relax.
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willthrill81
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Re: US debt approaching $20 Trillion

Post by willthrill81 »

tampaite wrote:With US debt approaching $20T and other unfunded federal govt debt obligations around $100T - how will the next 15-25 year horizon affect stock market?

I think with higher debt repayment obligations, the county will not have resources to invest in infrastructure and development - You cannot print money as a way out - just ask Venezuela or Zimbabwe.

Given that I have another 20 *working* years - I'd like to understand short-term and long term ramifications.
Keep in mind that virtually every nation in the world has record levels of debt. It's not really about how much debt the U.S. has but how much debt it has relative to other nations. The dollar is still the world's largest reserve currency (about two-thirds of it if I recall correctly).
msk wrote:I have always been amazed at how much faith foreigners have in the US $, given the debt level :confused Personally I feel that the biggest danger is to the $ rather than directly to the stock market. What if the Chinese dump US Treasuries... That will lead to US interest rates having to be raised, inflation becoming rampart, the stock market p/e collapsing, etc. What do I do? Just invest in Total World, VT or similar, no bonds (can't identify a "safe" currency, CHF?) , and relax.
If the U.S. market were to fail, it would largely take the rest of the world's equities along with it. And the Chinese can't just 'dump' treasuries; there must be a buyer. They can't 'call them' out of the blue either.
Last edited by willthrill81 on Sun Feb 19, 2017 10:48 am, edited 1 time in total.
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KlangFool
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Re: US debt approaching $20 Trillion

Post by KlangFool »

tampaite wrote:With US debt approaching $20T and other unfunded federal govt debt obligations around $100T - how will the next 15-25 year horizon affect stock market?

I think with higher debt repayment obligations, the county will not have resources to invest in infrastructure and development - You cannot print money as a way out - just ask Venezuela or Zimbabwe.

Given that I have another 20 *working* years - I'd like to understand short-term and long term ramifications.
tampaite,

<<You cannot print money as a way out >>

Why not? If you borrowed in US dollar and you pay back in US dollar, why that is not possible?

<< just ask Venezuela or Zimbabwe.>>

They cannot print US dollar.

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Re: US debt approaching $20 Trillion

Post by KlangFool »

msk wrote:I have always been amazed at how much faith foreigners have in the US $, given the debt level :confused Personally I feel that the biggest danger is to the $ rather than directly to the stock market. What if the Chinese dump US Treasuries... That will lead to US interest rates having to be raised, inflation becoming rampart, the stock market p/e collapsing, etc. What do I do? Just invest in Total World, VT or similar, no bonds (can't identify a "safe" currency, CHF?) , and relax.
msk,

What makes you think that they are in better shape than the USA? Where else could they put their money and it is safer? Answer that and you will have your answer.

Sometimes, it is good enough to be the best among the worst.

<<What if the Chinese dump US Treasuries>>

Where can they put the money?

KlangFool
Last edited by KlangFool on Sun Feb 19, 2017 10:57 am, edited 1 time in total.
KlangFool
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Re: US debt approaching $20 Trillion

Post by KlangFool »

Folks,

If you bet that inflation will go up and US dollar's value will go down, why would you pay off your fixed 15/30 years mortgage?

KlangFool
Last edited by KlangFool on Sun Feb 19, 2017 10:56 am, edited 1 time in total.
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bottlecap
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Re: US debt approaching $20 Trillion

Post by bottlecap »

You don't know, I don't know, no one knows for sure.

You can't either guess and make a bet, or maintain a diversified portfolio.

JT
awval999
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Re: US debt approaching $20 Trillion

Post by awval999 »

Why I'm sure this isn't financially "correct" I always look at it like this:

The 2016 GDP of the USA was $18.56 trillion (2016, Nominal)

So our debt as a country is approximately 1x GDP. Think of it like household income (and I know there's many reasons why this isn't correct but just bare with me)... so our country has borrowed the equivalent of 1x of our yearly output/income. Meh... nothing to get all excited about IMO.
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snowshoes
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Re: US debt approaching $20 Trillion

Post by snowshoes »

tampaite wrote:With US debt approaching $20T and other unfunded federal govt debt obligations around $100T - how will the next 15-25 year horizon affect stock market?

I think with higher debt repayment obligations, the county will not have resources to invest in infrastructure and development - You cannot print money as a way out - just ask Venezuela or Zimbabwe.

Given that I have another 20 *working* years - I'd like to understand short-term and long term ramifications.
https://www.youtube.com/watch?v=q6vi528gseA -Obligatory Greenspan snippet- Any all that that entails and its inflationary metrics. Good luck!
petulant
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Re: US debt approaching $20 Trillion

Post by petulant »

awval999 wrote:Why I'm sure this isn't financially "correct" I always look at it like this:

The 2016 GDP of the USA was $18.56 trillion (2016, Nominal)

So our debt as a country is approximately 1x GDP. Think of it like household income (and I know there's many reasons why this isn't correct but just bare with me)... so our country has borrowed the equivalent of 1x of our yearly output/income. Meh... nothing to get all excited about IMO.
Why not include state and local government debt, and why not use actual tax revenues (close to 18-20% of GDP) instead of GDP?
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Ged
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Re: US debt approaching $20 Trillion

Post by Ged »

To begin about 30% of that debt is owed by one branch of government to another. In other words irrelevant.

Then there is the fact it's all dollar denominated. If the government needs to pay it off all it has to do is print a few trillion dollar bills.

Finally debt is not a problem if it is small relative to assets. The US Government owns vast tracts of land and huge natural resources. Just the oil and gas reserves are worth about $130 trillion.

Simply there isn't a reason to worry.
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Re: US debt approaching $20 Trillion

Post by Boglegrappler »

So our debt as a country is approximately 1x GDP. Think of it like household income (and I know there's many reasons why this isn't correct but just bare with me)... so our country has borrowed the equivalent of 1x of our yearly output/income. Meh... nothing to get all excited about IMO.
Thats a way to look at it, I suppose.

How about Federal debt per person = 20 trillion/319Million people= about $ 62,000 debt per person (men, women, children, etc.) I suppose it just has to be serviced (interest paid), but that number has gotten my attention. It will get even more attention if you calculate debt per income tax payer, which is more than double the 62,000.

Buffett's next letter is due on this coming Saturday AM. Maybe he'll have an observation about this. :)
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willthrill81
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Re: US debt approaching $20 Trillion

Post by willthrill81 »

KlangFool wrote:Folks,

If you bet that inflation will go up and US dollar's value will go down, why would you pay off your fixed 15/30 years mortgage?

KlangFool
I'm not personally betting on inflation going up during the remaining term on my mortgage, and your home cannot be foreclosed upon if there's no mortgage on it. :wink:
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EyeYield
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Re: US debt approaching $20 Trillion

Post by EyeYield »

Speaking of taxes, it's not fair to tax the mods so early on Sunday.

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willthrill81
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Re: US debt approaching $20 Trillion

Post by willthrill81 »

EyeYield wrote:Speaking of taxes, it's not fair to tax the mods so early on Sunday.

This post has been brought to you by:
Thread Has Run It's Course Productions.
There are potential actions that individuals could take, though, to prepare for the OP's concern, and we're not discussing potential legislation or politics (yet!).
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Re: US debt approaching $20 Trillion

Post by LadyGeek »

^^^ but they will be soon. EyeYield nailed it. This thread has run its course and is locked (conjecture on economic policy). See: Unacceptable Topics
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