If the real return were negative, why would China and other large international investors be putting so much money into it?
Although doubtless some people wish it were; then restructuring the debt would be as easy as making more room available in Hilbert’s Hotel. 
It is not if, it is a mathematical fact.
The Chinese official sources buy the American bonds in relation to the management of trade transactions and the foreign exchange operations.
It is an accurate response, you clearly do not understand at all the bonds or the bond market and are making assertions based on a primitive and inaccurate conceptoin. Your first statement clearly showed you do not understand the bonds versus the loans.
What an absurd straw man.
The figures were given in my post, for the 2016 period. There is no statement of “no individuals.” That is your very clumsy straw man.
The majority of the holding are to the institutional investors and to the government entities, like your social security program, holding a third approximately of this. The institutional entities are heavily the retirement funds and the retirement pensions, the retired persons having the pensions and the private retirement funds.
Your assertions are not very interesting, but obviously come from your deeply held conspiracy theory beliefs. It is not interesting to discuss further since it will be the repetition of the deaf response.
I continue to disagree, but since all we have here are dueling assertions, I’m going to drop out. No one else can possibly be interested, and I’m certainly not going to change anyone’s minds. I do wish the discussion could have been handled politely, but sometimes the SDMB lets show its inner id.
(I should also note that I am totally aware of the fact that much of the money raised by borrowing does, in fact, go to help the poor, through various government programs, so some of it comes back to the less-fortunate. Alas, a lot of it goes to military spending, which is for-profit money, benefiting the industries that provide weapons and services to the military – and very few poor persons own stock in such industries.)
I’m not sure I understand the question you’re asking. We’re transferring money to them because they loaned us money and now we’re repaying those loans. But we pay back more money than we received because that’s how interest works.
Dial it back and do not personalize your arguments in this way. If you feel you must, the BBQ Pit is right around the corner.
[/moderating]
No there are not dueling assertions.
There are some numerical facts that are being attempted to be buried in deviations in straw men (the end usage of the American government spending was not the subject, it was the idea that the interest paid on American government bonds is mostly going to the rich).
The US government portion of your debt:
the bold added to the retirement and the general social programs.
The interest is here benefitting these programs that since they are the general basic retirement, the general basic health and the retirement of the central government workers (who are not mostly the wealthy we can say with confidence)
This is representing around 1/3 of your debt already and it is mostly going to social needs. The social security program benefits the low income I am sure, it is the majority as was pointed out in the other thread but ignored. The Medicare I see by reading is also aimed at the elderly and interesting for lower income poor elderly and even the young disabled persons. Maybe the central government retired workers are not poor but the average salaries of them tell me they are not more than the middle class in the huge majority.
Outside of the American central government there is
Again the social is emphasized.
The holding of the US central bank, since the US central bank pays back to the US treasury its profits, is a circular, and is not benefitting the rich.
The other large components are the pension funds, and the pension funds they are mostly benefitting the workers, and the retirement accounts of the states (we can be confident not the rich in their great majority, these retired workers) and the mutual funds.
For the others, the insurance companies has an ambiguity as they hold usually the government debt as a fixed revenue base to back up the insurance policies. If you believe the majority of the insurance policy benefit goes to the rich, then you code this as Rich benefit… but if like most countries it is widely held by the middle income, it is an economic enabling for the middle income.
As another article found easily with googling makes the observation “about two trillion dollars more is held by public and private pensions, trusts, and insurance contracts that are managed for individuals’ retirement needs.”
So as was correctly stated earlier in this thread, the area where from your type of the analysis you have the correct complaint, it is perhaps about the Foreigners, which is indeed a large segment. These are the Japan and the China by their governments for the usage in the foreign exchange operations in the US dollars.
the vast majority of the holding clearly is not going to categories that are representing the rich interests.
Your statement: “who is getting this interest money? The effect is a transfer of wealth upward, benefiting the rich” is not backed up by the actual figures of the holdings of the American debt and was based on a lack of understanding of the bonds and on its holding.
This is not statement on if the American debt is good or bad in its usage, it is only that this assertion made had not the foundation in actual numbers and the economic functions of the holdings.
As a practical matter so long as interest payments on outstanding debt are being met things can muddle along for a long time. Once servicing existing debt becomes problematic, it’s game over, for most countries anyway. The “20 Trillion” part, plus the implied future spending obligations (Estimates vary, but around 100 Trillion) are not expected to be “paid off” as such. Technically, the US government has never defaulted, even during the Civil War interest payments were met. It’s very important of course that obligations are met, governments just like individuals have a credit rating and this affects how much and at what rates they can borrow.
Interest rates naturally factor heavily on when things blow up, I read some years ago the entire federal debt “rolls over” every four or five years. So long as borrowing rates stay low, things aren’t too bad. Normalized rates of 4 to 6 per cent would balloon debt payments very quickly. Don’t look for a cigar-chomping “Tall Paul” Fed head to jack overnight rates to 15 per cent to stem any excessive inflation down the road, that simply isn’t in the cards. What complicates things is the fact the US dollar was selected long ago as a reserve currency, meaning the demand for dollars overseas is high, countries have, or had, to use dollars to purchase oil for example, at prices settled in dollars. Consequently huge amounts of dollars circulate in foreign markets as part of the oil trade.
Monetary inflation is not technically a default, but it is a distinction without a difference at some point if severe enough. Even “target” rates of 2% are corrosive to savers over a few decades.
Thank you for your considerate, lengthy, fact-based post. I will seriously reconsider my position.
My only response, now, is to claim innocence from committing any “straw man” attack. I only wrote what I believed was true, and NEVER attempted to corrupt what you (or anyone else) had said. That specific charge is untrue and unfair.
As to the rest of my errors, okay, I was probably wrong. I believed what I said, on the basis of the reasons I presented. Being wrong is an important constitutional right, even on the SDMB.
(I still hold that Reagan-era tax cuts, plus Bush-the-younger tax cuts, plus the proposed Trump tax cuts, constitute a huge funneling of money upwards, from everyone else, to the rich. Also the inflationary degradation of wages, coupled with the unrecompensed increase in worker productivity, shoves money from the working poor toward the rich. Finally, the simple demographic facts show that there ARE more rich and more poor, and fewer people left in the middle class. The PROBLEM is real. I thought that interest on the national debt was one of the causes. I know you, personally, are one of the SDMB’s more dependable members, so I’ll have to accept I may have been right. Thank you for providing FACTS so as not to be merely making assertions.)
The real return of shorter US bonds is negative. That’s a fact and if you don’t know that it calls into question why you’d be making strong statements about a topic you where you don’t know basic things like that.
Again assuming the weighted average maturity of US public debt is around 5 yrs (it’s somewhere around that) and the fact that the real 5yr yield is around zero, we can roughly say overall the real return to US bond investors is around zero.
As to the question of why investors would invest in zero or negative real return bonds, I refer you back to my easier example. Why do investors invest in negative nominal return German bonds? But again it’s a clear fact they do.
And my point, with due respect to those who have pointed out other holes in your argument, pre-empts those points. It would still be difficult to assess the distributional effect of net real interest payments by the govt if they were being made. But since the US govt is paying around zero net real interest now, and hasn’t in awhile, that point is moot. There’s no ‘transfer upward’ because there’s virtually no transfer now at all from the US govt to/from debt holders.
the 'target rate, which many now believe is too low now there is the decade long experience of the near zero interest, is only corrosive to the saver who is putting the savings into the savings that are fixed return.
The saver who saves to the equity or to the other assets that value upwards with inflation (like the real estate typically does not experience this.
The savings in a bond fund or the retired person with the non inflation adjusted pensions or social program, they will be impacted of course.
That, at least, is easy to answer. I thought I knew a fact. (Also…you just introduced a new term, “shorter,” that I had not seen in previous parts of this discussion.)
(re investing in negative rates of return, is that something like trading debts? I remember when people made millions of dollars buying and selling Brazilian debts. If I buy something from you for negative twenty dollars, and sell it to someone else for negative fourteen dollars, I guess I’ve “made” six dollars.)
Just saying, “You don’t know what you’re talking about” is a very poor form of argument here. It doesn’t spread the mustard, or even cut the cheese. It’s mean, and that makes it harder for a good person (may I?) to admit to his errors.
Just fyi, from somebody who has not been party to this conversation: you had no prior grasp of such an elementary idea as real rate of return; you seem to have a shaky grasp on what a bond is, let alone the dynamics of the bond markets; you now appear to be confusing yield (which can be negative, even nominally) with price.
And yet, from this position of almost complete ignorance, you continued to make bold claims, unsupported by evidence, some of which verged on conspiracy theorizing that the bond market was fundamentally structured to transfer wealth from the poor to the rich.
Perhaps, if you wished for a higher level of discourse in this debate, some degree of humility about your own level of expertise might have been helpful?
Back to one tidbit of the OP that’s been mostly slid past.
Bolding mine.
Any sudden large change in any significant financial activity will trigger chaos. A mere commercial bank announcing it was considering bankruptcy triggered the 2008 meltdown. The US Treasury announcing it would henceforth never borrow again and would instead retire all current debt in full as and when due would be an earthquake compared to the light bump with a feather that was Lehman Brother’s hiccup.
The fact you can’t quit cold turkey without feeling a consequence is not even remotely proof that whatever you’re doing is inherently unsustainable.
The US could indeed begin to reduce the rate of debt increase until the increase became zero and went into negative territory as net debt is retired. All the while rolling over the current debt as it matures, net of the adjustments above. The key here is simply not to surprise the markets and ensure you don’t create square corners in the real economy by creating artificial shortages of liquid debt securities.
Short term US Treasury debt is an important lubricant in and of itself having nothing to do with it being debt *qua *debt. Draining *all *the oil out of a machine running under load is not smart.
What *can *be unsustainable is debt accumulating faster than willingness * ability to pay. Corrected for future inflation and future interest rates. Could we get there if we tried extra hard to be extra stupid and extra short-sighted? Sure. Are we there today? Definitely not. Are we now stumbling in that general direction? Arguably so; arguably not. Yet.
Clearly any and all arguments about the future have to assume some trajectory of change over time. The more stuff that happens smoothly and slowly the more likely those projections are to be right. And vice versa.
Surprises are, by definition, surprising. If the Yellowstone supervolcano lets go tomorrow, I guarantee the US debt won’t be paid in full. Neither will that much matter; it’ll be a rounding error in the rest of the planet-scale crisis for humanity.
You overstate the case somewhat. Yes, I was (and am!) ignorant, but not quite as ignorant as you describe. This is getting WAY beyond the parameters of the thread, but you are (ironically) ignorant to the actual dimensions of my ignorance.
(e.g., I am NOT confusing yield with price! I really do know the difference between those two terms. I am ignorant as to why anyone would invest in a product with a negative yield – and I know that isn’t an actual negative number. No one is buying a $100 bond and getting paid back $95 at the end of its term. And…if I’m wrong about that, and people actually are doing exactly that…then WHY? WTF would anyone pay to lose money?)
Also, this is economics, where differences of opinions exist even among acknowledged experts. Does anyone really “know what they’re talking about?” We still have people insisting that a major tax cut will pay for itself via economic stimulus. Do they know what they’re talking about, considering some of them are Ph.D.s in economic science?
ETA: Oh, also, I NEVER engaged in any “conspiracy theorizing.” I believed that the payments on the debt benefited the rich, the same way the Reagan tax cuts did: not as a “conspiracy,” but merely as an integral part of the structure of the payments.
Apparently not:
And as for this:
If the experts don’t agree on everything, they know nothing? All levels of ignorance are equal? Perhaps I should I refer you to Mr Asimov.
The Nobel Prize for Economics might be a soft award, but I’m fairly sure that all the recipients at least know the difference between a bond’s price and it’s yield, and that they understand the concept of a real rate of return.
And yes, this is exactly what investors in 10yr German government bonds were (effectively) doing in late 2016. The Swiss benchmark still has a slightly negative yield.
Never. The debt doesn’t matter. Hasn’t matter since the 70s. It’s just a number.
On top of that, we run the whole world. We are everywhere propping up economies with military bases for instance. Imagine what happens if we default. Everything collapses.
There will be something to ‘magically’ solve the ‘problem’ that really doesn’t exist. For instance the Trillion Dollar Coin. It only exists because the common people think it has meaning. Everyone in the govt knows it means nothing and parades out the dog & pony show every few years talking a bout a ‘crisis’ that doesn’t exist.
The national debt became meaningless a long time ago. Otherwise we would have already defaulted since that $ is never getting paid back AND it will always rise. Once you understand those 2 things, you will understand the national debt. I realized it when we blew past $5T.
I didn’t say that, sir. You are not quoting me accurately or fairly.
Let’s all STOP making this thread about me. (I ask the mods’ assistance in this.) I’m not important, and I have acknowledged that I was in error.
That is impressive. But, once again, why the hell would anyone put money into one of those?
Would you prefer to invest in something that you are virtually certain will decrease in value a small amount, or something that has the potential to massively decrease in value?