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

Question

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

"foreign investors would be less likely to buy our bonds" and finance our lifestyles . Doecn't lack of independent productivty and good-paying creative and manufacturing jobs spell big trouble.

Answer 1

The USA has been a debtor nation for a while now. Historically, no debtor nation has ever been able to hold on to power but there has also never been a world-wide economy based on the economy of one single nation as there is now. IMO, the USA will find itself in a weaker position but other countries, unable to afford the consequences of an American economic breakdown and the overall stability that the USA military provides the world, will not allow that to happen. The result would be a new dark age (the very reason the Islamo-fascists is so anti USA).

Answer 2

This is somewhat complicated because the US isn't the average debtor nation. In oil-producing countries, oil is generally priced in dollars and dollars are the reserve currency throughout much of the world. This has meant that the United States could run up massive debts and continue to print dollars, almost, but not quite at will so long as monetary policies were inflationary, instead of deflationary. If we followed a deflationary monetary policy than the actual real value of the debt would lessen signifigantly, the dollar's value would go down, and people would quit pricing oil in dollars and keeping dollars as reserve currency and on top of all of that, foreign investors would be less likely to buy our bonds.

Over the last year or so, the dollar has seen deflation, which has made the rest of the world nervous and brought accusations from Japan and China (the two largest foreign holders of our bonds) that we were deflating the dollar intentionally in order to help wipe out some of our debt. Russia, Iran, and other oil and gas-producing nations have announced they'll get rid of some of their dollar reserves and use Euros instead. Some OPEC nations have openly called for oil to be priced in Euros instead of dollars, which even further compounds the issue.

If, oil would no longer be priced in dollars and if the dollar loses out to the Euro as the choice reserve hard currency in the world, then our money supply would be in great peril. Our debt would become untenable and few foreign banks (and many American banks too) would refuse to buy our bonds. Our currency could fluctuate wildly and we'd be subject to much higher inflation and/or deflation than we've seen at least since the late 1970's.

If our government suddenly had a bad credit rating, we'd be in serious financial trouble here at home since our government insures many investments and loans. Our budget would become a mess (it would need to be balanced, at the very least) and the fact that we have a massive trade deficit that shows no signs of reversing would make matters worse. A nation that has a great deal of debt, but produces a great deal (in terms of manufacturing) can make that up through their immense trade surplus (which is how the United States became wealthy in the first place, we had debt, but huge trade surpluses in manufactured goods and agriculture).

There's other effects that we must consider, for the "World Bank Effect" or "IMF Effect" could take hold. Since so much debt is held by foreign nations, they could take it upon themselves to dictate monetary and economic policies to the United States. If the United States refuses, they could flood the market with our bonds, which would become essentially worthless, sending our credit rating plummeting, meaning the government could only raise money through domestic bond sales (which no one would buy) and direct taxation. This is one of the reasons why some people strongly feel that our massive debt and our huge annual budget deficits and our immense trade deficit are conspiring to do us in economically. Others feel it's no big deal and as long as Americans consume more than they can really afford (the average American family has $8,000 in credit card debt) then the American economic engine will run smoothly. But, the recent deflation of the dollar and the mortgage crisis has gotten many in the U.S. and throughout the world worried that the American economy could in fact, be built upon a house of cards (with almost no industrial, manufacturing base left to even things out) and be ready to collapse. I hope that helps, but of course, all of this is debatable and many will disagree.

Answer 3

Well, it means that one day oil might be priced in roubles. What do you think of that ? US currency and asset prices will have to fall. Standard of living will have to fall. Or US will have to start WW3, just as Hitler started WW2 because he was basically broke. Nice thought, ain't it ?

Answer 4

I'm so low on the food chain none of this affects me. Skip this answer if you don't understand what it means.