US is becoming a debtor nation: What R the possible consequences of that fact?Can anything good come from it?

Question

Pls, I want economic and socio-economic consequences if you can argue them. Mere assertions don't help to understand fully what is happening to the US. Skip the Q if you have nothing substantial to contribute to understanding what it means!

I think someone is forgetting the restructuring taking place underneath all that debt eg diminshed manufacturing base, lack of savings, unmaintained infrastructure, shrinking middle class and job loss. Greater reliance on imports and the use of the military rather than diplomacy to mention but a few item that are omitted. I too know the oil and banking worlds at age 56 and I have been abroad to all continents save Australia.

Answer 1

I agree we are debtor nation and at this time, going more into debt. The loose monetary policy combined with loose lending criteria, and US dollars being recirculted back into the US by primarily China, were an important part of the real estate speculation bubble. Social impact...home ownership rates increased, rising home prices, along with low rate home equity loans encourage US consumers to spend and us thier house like a credit card. Now foreclosures are rising, home prices are declining and banks are taking major write downs.
Debt is a double edged sword, without debt, me and my neighbors would not own a home, or the sewer project and turnpike would not have been built.
The general economic priciple of diminishing returns applies to debt. So it is hard to say how much debt is the right amount.
Historically too much debt has led to currency declines, and if lending is suddenly cut off, ie a credit shock, then an economy can go into a deep and long recession.
Any lenders left over would require much higher rates, which of course puts a further drag on the economy.
Politically, like oil, relying on foreign lending has political risks.
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Answer 2

The U.S. or any country for that matter has periods of when they spend more than what they receive in income(Federal Taxes), it leads to a spending deficit. If the U.S. spends less than what it collects in revenue then the government has a spending surplus. Since you want to know about debt I'll stick to that area. When the government wants to spend more than it receives in revenue the rest of the spending has to come from credit, which is lent by other countries as well has domestic and international companies. This credit comes in the form of Treasury Bills, which the Federal Reserve Bank of New York controls through Open Market Operations(by buying and selling them). This allows the federal government to borrow cheaply at about a 4% interest rate. Now anyone can buy these Treasury Bills(U.S Debt), but many foreigners purchase them because they are safe investments, meaning the U.S. has a great credit history. The U.S. has only defaulted once on its debt right after the Revolutionary War. When you hear people saying foreigners own U.S. debt, all they mean is that foreigners bought our Treasury Bills. Now this is not the first time we have had debt, but this is the first time since we have had such a high Debt to GDP ratio, which is about 65% Debt to GDP. We are still completely solvent!! Having debt is really nothing to worry about and is actually "healthy" in a free market capatalist economy. You have nothing to worry about we are not the only country with debt, virtually every other country in the known world has debt. Think about it this way you get a credit card with $1000 spending limit, but only make $300 a month. If you wanted to you could max out the credit card because you will pay it off with your future paychecks over a period of time. The U.S. government works the same way it keeps racking up credit debt, but will eventually pay it off from the revenue from the furture collection of taxes. There is nothing to worry about, our economy is huge at about 13.5 trillion dollars(13,500,000,000,000). We have the largest and most integrated economy in the world. The government knows it can pay down the debt in a few years using "tax smoothing", so thats why it doesn't worry and just keeps spending and spending. Focusing on the deatils of the economy, since our dollar is worth less now Americans are spending less, which causes and increase in savings domestically. To foreigners our weak dollar looks "cheap" so they begin to invest heavily in the U.S. economy, such as purchasing a large share in an American company(jetBlue for example just sold a large share to a European airline). All this investment and additional saving will be great for the economy, by helping build infrastructure and the most important would be the additional capital being built by Amercan companies, which would be well used in the future.

Answer 3

Of course something good can come from it. Do you understand that being a "debtor nation" means foreigners are bringing over truckloads of cash that are being productively spent in the U.S.? This is real money that builds infrastructure, creates and expands businesses, and creates jobs.

Even when a foreigner does nothing except buy a U.S. Treasury Bond, that frees up the government from having to tax the population for that bit of cash, which in turn leaves that money among the private economy to spend and invest.

Healtap -- you are being gullible and simply blaming every problem and every change you've ever heard of on "debt". Quit listening to politicians and learn to think for yourself. None of those things you mentioned are caused by being a "debtor nation". It is a permanent fact of life that resources are scarce, and there are always political challenges in the world to deal with caused by one thing or another. Not only is that not caused by debt, but debt is one of the best solutions for overcoming the problem of limited resources -- that's why debt exists in the first place.

Answer 4

Yes, if money is invested wisely, it can be BENEFICIAL.

However, it is worrysome that country relies more and more on borrowing. Rich countries are those who lend, usually the struggling countries take it!

US USED to lend money to others, but is now acting more like a struggling country.

I agree that some good can come of it, but one has to be very careful.

Borrowing when in trouble to pull yourself out is OK. However, constantly borrowing money, to finance bankrupt government, or CITIZENS who live waaay beyond their means is a road to disaster.

Do you THINK anyone would give money without benefits? US taxpayers fund other nations by returning debt.

US government is corrupt and incapable, it isn't borrowing money to invest into something useful, but just to patch things up.

Should something bad happen, it will just push taxes up, and citizens will pay. Already, citizens are getting little for their taxes- no healthcare, measly social insurance, almost no security of any kind.

All the finances are running in RED in US.Trade deficit is enormous- weak dollar is masking it a bit, budget is running -, everything is running -.

Answer 5

Anything good is coming from external debt for Us working class because
1.When money is being used in productive inversions means developing, but
when money is not being used in productive inversions means developing difficulties
as Iraq war is based in external debt
Therefore, external debt means developing difficulties

2. USA National debt is now: $8,9B, the most of this debt is owned by China and Japan banks, if US has problems to pay them, they starts to rule US economy imposing conditions to US gov.

3.US gov in order to pay interests and services of the national debt would have to cut social services.

4. Gas price could increase because countries which export it oil to US could requiere euros. Iran treasure is already in euros. US import 65% of the oil consumed.

5.The adjustment process--global rebalancing--will include continued dollar weakness and a fall in U.S. consumption, invariably a sufficient condition for a U.S. recession.

6. G10 chairman Jean-Claude Trichet is concern about the risk of Us Economy. He said :"We will have to follow carefully what happens particularly in the US,' Trichet said adding that there was a 'possibility of a fallout (in) the real economy in the US' from the current subprime lending crisis".

Answer 6

Simple accounting. We need people in our government that
will step up to the plate.
We need to push our representives to address the state of the nation with more than lip service.

Answer 7

Why Panic, and be rude?
You want an answer "you" want to hear!
Sorry! Not today!