# Why does the U.S government refuse to pay its debts? **URL:** \ **Category:** Great Debates\ **Created:** [July 20, 2013, 12:41am UTC](https://boards.straightdope.com/t/why-does-the-u-s-government-refuse-to-pay-its-debts/663992 "2013-07-20T00:41:44Z")\ **Posts on this page:** 4\ **Page:** 7
**Author:** ![Honesty](https://avatars.discourse-cdn.com/v4/letter/h/f04885/32.png) [@Honesty](https://boards.straightdope.com/u/Honesty)\ **Post date:** [July 29, 2013, 5:01pm UTC](https://boards.straightdope.com/t/why-does-the-u-s-government-refuse-to-pay-its-debts/663992/121 "2013-07-29T17:01:22Z")
> [@pancakes3](#): > > I can’t tell if this is a knee-jerk reaction any/all household analogies or if you honestly have an issue with what I wrote. > > The debt is not a mortgage how? The government took a loan out in the form of bonds which they promise to pay back later. It’s not the exact pay structure of a mortgage but it’s not completely out of hand. I have an issue with both. The household analogy is an appealingly oversimplification of what the U.S government does. Unlike a household, the government can raise and levy taxes; and it can it can print money. Unlike a household, the goal of the government isn’t to do what’s good for the family, but to solve problems that families can’t handle on their own: paving roads, national defense, cushioning the blow of a economic recession. > [@pancakes3](#): > > Just as nobody’s expecting the “present population” of someone with a mortgage to pay back the debt in full, nobody is expecting the “present population” of the US to pay the Debt back in full. This is untrue. Since America’s founding, debts incurred from wars are paid down substantially within a generation. The War of 1812 and the Civil War was paid off in 20 years for example. Also, if we go with your mortgage analogy, wouldn’t a bank expect a homeowner to pay back their loan within the loan period? > [@pancakes3](#): > > The benefit of being a government is that you have a theoretically infinite lifetime. Us mere mortals have to settle for 15, 20, even 30 year mortgages but the government can keep borrowing well past that. The problem with this is that raising taxes in the future causes a distortion in the present and future economy. Deficit spending is not free. Look at how the stock market plummets whenever the talk of higher taxes or interest rates. The current economy is built upon an engine that runs specifically on low taxes and deficit spending. This is not sustainable. > [@pancakes3](#): > > You really lose me in the coward and selfish comment. The government has never… NEVER… not paid its debts. It’s not like the US debt is comprised of the government not paying construction crews to pave roads or skipping out on restaurant tabs. It’s entirely in the form of bonds and bills that have not matured. The second they mature, the US opens up its wallet and pays up. I fail to see the cowardice or selfishness there. Let me try this again. My issue is that the U.S is using a broken system comprising of a low taxes, low regulation, and deficit spending, all of which will likely bring financial ruin to the United States in our lifetime. We’re living in an era where the financial services industry has a disproportionate affect on the lives of everyday Americans; for example, a few days ago, [JPMorgan Chase](http://www.huffingtonpost.com/2013/07/26/jpmorgan-chase-commodities_n_3660727.html) was found out to be sequestering aluminum in warehouses, in order to drive up prices of the commodity. If a consortium of farmers did this with wheat or corn, they’d be brought up on charges and thrown in jail. What good reason is there for the financial industry to have such a widespread and immediate affect on everything else - oil, food, housing, etc etc - disproportionate to their contribution to the economy? What you’re trying to say is that “The U.S pays bondholders, so we’ve always paid our debts!” but that’s ridiculously easy to say. If we continue with deficit spending, low taxes, low regulation, the U.S will go the way of Detroit. In the early 1990’s, the State of Michigan reconfigured the formula so that Detroit will less in revenue in sharing, then again, in 1996 (?) a deal with Michigan Governor Engler and Detroit Mayor Archer to reduce the amount of money to Detroit. If you look at the chart of revenue sharing from the 1990’s, there’s be a continual decline; indeed, from 2011 to 2012, the State of Michigan reduced the amount of revenue sharing to Detroit by $66 million - yes, you heard right, in \*one \*year! Over the last two decades, Detroit relied more and more on municipal bonds, although the depressed revenue sharing, reduced tax base, and corruption, led them unable to bring enough revenue to service payments on those bonds. The Michigan Treasury dealt Detroit a coup de grace in 2012 when they refused to return to Detroit the proceeds from the muni bond sale, thereby (artificially) facilitating the crisis for an “emergency manager”. Now, Detroit is bankrupt and you have an entire nation penning a new chapter in American history. This chapter is where we serve a bankrupt city on a silver platter to corporations, selling piece-by-piece to private creditors. The U.S population gives a standing ovation of schadenfreude. What is fascinating is that President Jackson warned about this in 1837, he said, unless we’re mindful of our politicians and business interest, we “will in the end find that the most important powers of Government have been given or bartered away, and the control over your dearest interests has passed into the hands of these corporations.” Interesting words, don’t you think? > [@pancakes3](#): > > What you’re actually mad at isn’t the debt. It’s the budget. I’m angry that we have a group of representatives who refuse to raise taxes, no matter what. It should be obvious: deficit spending isn’t free. What is interesting is that once we get on that path - reducing our debt - more people will flock to purchase U.S debt, which will make us richer. - Honesty ---
**Author:** ![PhillyGuy](https://avatars.discourse-cdn.com/v4/letter/p/ed655f/32.png) [@PhillyGuy](https://boards.straightdope.com/u/PhillyGuy)\ **Post date:** [July 29, 2013, 11:06pm UTC](https://boards.straightdope.com/t/why-does-the-u-s-government-refuse-to-pay-its-debts/663992/122 "2013-07-29T23:06:48Z")
> [@Honesty](#): > > for example, a few days ago, [JPMorgan Chase](http://www.huffingtonpost.com/2013/07/26/jpmorgan-chase-commodities_n_3660727.html) was found out to be sequestering aluminum in warehouses, in order to drive up prices of the commodity. If a consortium of farmers did this with wheat or corn, they’d be brought up on charges and thrown in jail. Farmer cooperatives have a limited antitrust exemption. Even when [a farmer’s organization loses in court](http://holmes.oyez.org/cases/1950-1959/1959/1959_62), no one, to the best of my knowledge, goes to to jail. In as much as farmer cooperatives don’t choose to withhold product in order to force up prices, it’s because government grain purchases give them the same benefit with little need to actually withhold from market, as is explained here: [http://articles.aberdeennews.com/2013-07-05/farmforum/40397769\_1\_hal-clemensen-south-dakota-wheat-growers-elevators](http://articles.aberdeennews.com/2013-07-05/farmforum/40397769_1_hal-clemensen-south-dakota-wheat-growers-elevators) J. P. Morgan should be broken up because it is too big to fail, not because they profit from providing storage facilities to allow other people to drive up aluminum prices. In this they are little different from big grain silo operators, who, quite rightly, don’t go to jail either. ---
**Author:** ![deltasigma](https://avatars.discourse-cdn.com/v4/letter/d/e5b9ba/32.png) [@deltasigma](https://boards.straightdope.com/u/deltasigma)\ **Post date:** [July 29, 2013, 11:19pm UTC](https://boards.straightdope.com/t/why-does-the-u-s-government-refuse-to-pay-its-debts/663992/123 "2013-07-29T23:19:41Z")
The [fed is reviewing its 2003 decision to allow banks to trade commodities](http://www.cnbc.com/id/100900759) so hopefully they will see that this was a mistake. > [@](#): > > While it is well known that the Fed is considering whether or not to allow banks including [Morgan Stanley](http://data.cnbc.com/quotes/MS) and [JPMorgan](http://data.cnbc.com/quotes/JPM) to continue owning trading assets like oil storage tanks or metals warehouses, Friday’s one-sentence statement suggests that it is also reconsidering the full scope of banks’ activities in physical markets, which help generate billions in profits. ---
**Author:** ![pancakes3](https://avatars.discourse-cdn.com/v4/letter/p/ba9def/32.png) [@pancakes3](https://boards.straightdope.com/u/pancakes3)\ **Post date:** [July 30, 2013, 4:26am UTC](https://boards.straightdope.com/t/why-does-the-u-s-government-refuse-to-pay-its-debts/663992/124 "2013-07-30T04:26:30Z")
> [@Honesty](#): > > This is untrue. Since America’s founding, debts incurred from wars are paid down substantially within a generation. The War of 1812 and the Civil War was paid off in 20 years for example. Also, if we go with your mortgage analogy, wouldn’t a bank expect a homeowner to pay back their loan within the loan period? The duration of the bond/bill is the loan period, and the US is certainly expected to pay back that loan within the period. > [@](#): > > The problem with this is that raising taxes in the future causes a distortion in the present and future economy. Deficit spending is not free. Look at how the stock market plummets whenever the talk of higher taxes or interest rates. The current economy is built upon an engine that runs specifically on low taxes and deficit spending. This is not sustainable. Deficit spending pertains to the budget, not the debt. I know it may sound like semantics, but it’s really an important distinction to make when you’re talking about the economy > [@](#): > > Let me try this again. > > My issue is that the U.S is using a broken system comprising of a low taxes, low regulation, and deficit spending, all of which will likely bring financial ruin to the United States in our lifetime. We’re living in an era where the financial services industry has a disproportionate affect on the lives of everyday Americans Taxes, regulations, deficit spending, and the banking industry are each massive, complex topics that really muddy the waters in a conversation about debt. I’m not trying to dismiss your talking points but that’s the reality of the situation. > [@](#): > > For example, a few days ago, [JPMorgan Chase](http://www.huffingtonpost.com/2013/07/26/jpmorgan-chase-commodities_n_3660727.html) was found out to be sequestering aluminum in warehouses, in order to drive up prices of the commodity. If a consortium of farmers did this with wheat or corn, they’d be brought up on charges and thrown in jail. What good reason is there for the financial industry to have such a widespread and immediate affect on everything else - oil, food, housing, etc etc - disproportionate to their contribution to the economy? The food supply industry are no angels either. They’ve been wantonly taking and spending taxpayer money in the form of subsidies approved by law to drive up prices of foodstuff commodity for years - to the tune of some $20 billion dollars a year. > [@](#): > > What you’re trying to say is that “The U.S pays bondholders, so we’ve always paid our debts!” but that’s ridiculously easy to say. If we continue with deficit spending, low taxes, low regulation, the U.S will go the way of Detroit. I find it a bit disingenuous that you dismiss household analogies because a household cannot print money and are now comparing Detroit to the US. > [@](#): > > In the early 1990’s, the State of Michigan reconfigured the formula so that Detroit will less in revenue in sharing, then again, in 1996 (?) a deal with Michigan Governor Engler and Detroit Mayor Archer to reduce the amount of money to Detroit. If you look at the chart of revenue sharing from the 1990’s, there’s be a continual decline; indeed, from 2011 to 2012, the State of Michigan reduced the amount of revenue sharing to Detroit by $66 million - yes, you heard right, in \*one \*year! Over the last two decades, Detroit relied more and more on municipal bonds, although the depressed revenue sharing, reduced tax base, and corruption, led them unable to bring enough revenue to service payments on those bonds. The Michigan Treasury dealt Detroit a coup de grace in 2012 when they refused to return to Detroit the proceeds from the muni bond sale, thereby (artificially) facilitating the crisis for an “emergency manager”. > > Now, Detroit is bankrupt and you have an entire nation penning a new chapter in American history. This chapter is where we serve a bankrupt city on a silver platter to corporations, selling piece-by-piece to private creditors. The U.S population gives a standing ovation of schadenfreude. What is fascinating is that President Jackson warned about this in 1837, he said, unless we’re mindful of our politicians and business interest, we “will in the end find that the most important powers of Government have been given or bartered away, and the control over your dearest interests has passed into the hands of these corporations.” Interesting words, don’t you think? You mean the same Andrew Jackson that a) freely gave and bartered away control of important cabinet positions with the spoils system and b) killed the national bank and handed over the right to print money directly into private banks (corporations)? Seriously though, Jackson is not exactly a credible authority on macroeconomics. > [@](#): > > I’m angry that we have a group of representatives who refuse to raise taxes, no matter what. It should be obvious: deficit spending isn’t free. What is interesting is that once we get on that path - reducing our debt - more people will flock to purchase U.S debt, which will make us richer. I agree that deficit spending isn’t free. It spells disaster for whoever takes it on be it household, city, or nation. Just don’t get bogged down on the debt part. [caution, I’m about to make a household analogy here]: Just as there are many people with mortgages and car payments that have perfectly balanced checkbooks, so can America exist with debt. The US can wake up tomorrow with 0 dollars worth of debt, pay for all of its bills with cash straight up and still see the ill-effects of inflation, corruption, wastefulness, etc. just as rampant, if not more. > [@stoplight](#): > > The U.S. most often carries a debt. That said, does it make a difference in the long who owns the majority of that debt,? IE, China, Japan and so on? what are the ramifications for the U.S. if the lion’s share of the debt is foreign owned? Realistically? No. There is concern that if China/Japan owns enough (which they don’t, and no single entity does), they can use it to fuck with interest rates. > [@](#): > > Is there a relationship between the Fed continuing to print money, low interest rates, the amount of debt the U.S. has and who owns that debt. And if there is a relationship and should it unfavorably unfold what is the worst case scenario for the U.S.? Interest rates don’t change the amount of the debt but if rates are low people - Asian and Caucasian alike, sell. We already weathered the potential of the worst case scenario where China and Japan had a chance to unload their dollar holdings but didn’t. BTW, this is what people mean when they say that China is buying our debt - they’re buying bonds. It’s not like how some would like to imagine it - Obama going over to Beijing, hat in hand, and palms out looking for a dole out. > [@septimus](#): > > If we accept that foreign-owned debt is more likely to lead to problems than domestic-owned debt (and default or devaluation would certainly qualify as a problem), we should note that _government deficit spending is only part of the problem_. I don’t think there’s any evidence to believe that foreign-owned debt is more problematic than domestically owned debt. > [@](#): > > Not only do Americans refuse to increase taxes, _they borrow or use their surplus savings to buy Chinese-made goods_ rather than investing that money directly or indirectly into Treasury debt. Thus paper dollars (or eventually Treasury paper, or corporate stock-certificate paper(\*)) leaves the U.S. for China as Chinese goods come in. Doom is still quite evitable, but wake-up calls don’t seem to be working. I’ll be sure to keep this in mind the next time I’m at Wal Mart. “Gee, I kinda need a new pack of boxer-briefs but in order to keep Doom evitable, I really should go buy this T-bill instead.” > [@LinusK](#): > > Suppose Americans invest in Treasuries. Any money we invest in Treasuries immediately comes right back to us, doesn’t it? No amount of Treasury buying reduces the amount of money we have by even $1, right? Even if we bought _all_ of the Treasuries, we’d still have exactly the same amount of money as we did before. In other words, the amount of stuff we buy from China really has nothing to do with how much Americans invest in Treasuries. I hope I decipher your “we’s” correctly between when it pertains to the American government vs the American public. The government issues bills and bonds that get immediately bought up. The rest of the transfers take place on the bond market. It’s just the same as the stock market. When facebook went public, their stock got bought up. The rest of the trading taking place now and the prices thereof, facebook has no hand in. So no. If you bought a T(reasury)-Bill, and then bought a pencil from China or a Mango from the Phillipines rather than a homegrown Amerian pencil or Mango doesn’t make a bit of difference. Once the maturation date of the bill hits, you get paid your dollar + whatever interest the bill says it’s good for. > [@](#): > > And: what’s wrong with US dollars going to China? Suppose they use them to buy stuff from us? What’s so horrible about that? Isn’t that exactly what we want? > > Or, suppose they _don’t_ send them back. They just keep them, forever. How does that hurt us? The real reason that Japan, and now more recently Japan has so many T-bills is merely convenience. The balance of trade is decidedly in their favor. When Wal-Mart imports a boat of goods, Wal-Mart has to pay for it, and they cut the check in dollars. That shipping company and that factory now has a bunch of US dollars. Well what’s China going to do with a bunch of dollars when it pays its employees in RMB? Should it convert all those dollars back into RMB? Heck no. The RMB is undervalued. Keep it in dollars! Can we keep that in the bank? Do you really want to keep 1.4 trillion dollars in a bank account? Can we buy stocks? What are you crazy? Hi? Charles Schwabb? I’d like to buy $1.4 trillion dollars worth of Apple stock, please? Hm. Well, in order to keep these dollars in terms of dollars, the only place large enough for me to put this money AND collect interest rather than just have it sit and de-value as inflation marches steadily onwards would be… Treasury notes. Nothing more sinister than that. Seriously. [Previous page](https://boards.straightdope.com/t/why-does-the-u-s-government-refuse-to-pay-its-debts/663992.md?page=6)