Is Amercia Broke?

[Ridgley]

I was listening to LBC this morning and they said in eight days America will be broke from my understanding does this mean a stock market crash and a knock effect towards us? I would like to know your thoughts about this I find this sort of thing mind boggling. Forgive me for being a bit dime as I really don?t understand economics when America and Britain borrow money from whom are they borrowing it from?

[mockney piers]

They Borrow money from lenders, anyone willing to buy their debt.

States usually raise money through the issue of bonds.

A bond is basically a bit of paper that states that someone lent the issuer (in the case of your question the UK or US gov't) x amount of money, and it will be repaid to the holder of the paper in n number of years with y amount of interest (hence why they are called Fixed Interest investments).

In this fashion bonds are actually tradeable items and work almost like money. Unlike cash however bonds are subject to risk because the issuer can default on the promise to repay the money, which is effectively what may happen if the debt row can't be sorted out.

So when you ask who do they borrow the money off you're really asking who buys the bonds.

The answer is other countries (These days primarily China), financial institutions (banks, pension funds etc, the low risk character of bonds is useful in helping to offset against higher risk securities like shares, derivatives commodities etc), companies and private investors (think about the war bonds drive of WW2 where they got lots of everyday people to buy gov't bonds in order to quickly raise the money needed to build all those weapons, kit out all those armies and ship them around the world).

It's all a bit more complicated than that obviously, but that's the bare bones of it.

[Jeremy]

Good summary, mockney.

The US can't repay their loans, so they need to borrow more money. But the Republicans are pushing back, and there is a huge debate raging about the balance of spending cuts, taxation, and borrowing (similar to what we've seen in the UK and Europe).

I'd be surprised if they didn't come to some sort of compromise, the repercussions for the US would be unthinkable. And yes, there would almost certainly be a huge impact to us, and probably the whole world.

[StraferJack]

Anyone believe that the current argument is financial not political?

Surely it's largely born out of the republican/Tea Party hatred of Obama? If Bush was in power the current limit would be raised without the blink of an eye

[Ridgley]

Thanks guys for giving me a clear understanding.

[Ridgley]

Even if the Rublicans don?t like the democrats, they still need to work together or like Jeremy said it will be unthinkable the repercussions. So basically they have to suck it up for the good of the country

[StraferJack]

In a nutshell, yes Ridgely. But it's a measure of just how far Out There they have become that we (by which I mean the US) finds ourselves in now

[mockney piers]

The US government is becoming a giant ponzi scheme, skimming money off the top to pay vast sums for things they can no longer afford.

If they resolve this debt crisis they really need to look at ways of bringing down national debt else thy'll lumber from one crisis into another.

Strafer's right in that this isn't actually a financial crisis, as long as people are willing to buy US debt they can keep it going, but like the rest of us there are going to be some severe cuts in order to bring this debt under control. You can bet your bottom dollar (baddam tish) that the first thing to go will be all the medicare stuff Obama fought so hard to push through. These wars are costing a pretty penny too.

But if they do default then government will struggle to function, they will continue to struggle to pay their debts, any new issues will have to be at much higher rates of interest, there will be another banking crisis considering the sheer levels of US debt around the world, the US economy will suffer meaning all our economies will suffer.

Even republican cycnicism won't dare face the consequences of that, but they'll make Obama pay that's for sure.

Ooh, it's like a sort of domestic, financial cuban missile crisis isn't it!!

I posted this elsewhere but it's a nice illustration of the size of the debts the US faces.

http://www.wtfnoway.com/

[Jeremy]

It seems the Republicans are almost cutting off the nose to spite the face.

I'm sure a deal will be struck, but I suspect the Democrats will be forced to make most of the concessions.

[DJKillaQueen]

They will default on Aug 2nd if they can't extend their borrowing so they'd better hurry up and sort it out. And yes, as others have said above, the consequences of a US default are something to worry about.

[acm]

.

[acm]

.

[Heinz]

I am to understand by some sources that the federal reserve is the institution that lends quite a lot of the money the state requires.

I am also to believe there is something fishy about this arrangement, because it is a mainly private institution authorized to have money printed...which it then lends to the state...at interest.

A substantial portion of the taxes raised by the state are then used to service the debt...clever eh?

The Jekyll Island Club source : wikipedia

Main article: Jekyll Island Club

[edit]Planning of the Federal Reserve System

See also: History of the Federal Reserve System

At the end of November 1910, Senator Nelson W. Aldrich and Assistant Secretary of the Treasury Department A. Piatt Andrew, and 5 more of the country's leading financiers, who together represented about one-fourth of the world's wealth[citation needed], arrived at the Jekyll Island Club to discuss monetary policy and the banking system, an event led to the creation of the current Federal Reserve. According to the Federal Reserve Bank of Atlanta, the 1910 Jekyll Island meeting resulted in draft legislation for the creation of a U.S. central bank. Parts of this draft (the Aldrich plan) were incorporated into the 1913 Federal Reserve Act. On November 5?6, 2010, Ben Bernanke stayed on Jekyll Island to commemorate the 100-year anniversary of this original meeting.[9]

Forbes magazine founder Bertie Charles Forbes wrote several years later:

Picture a party of the nation's greatest bankers stealing out of New York on a private railroad car under cover of darkness, stealthily riding hundred of miles South, embarking on a mysterious launch, sneaking onto an island deserted by all but a few servants, living there a full week under such rigid secrecy that the names of not one of them was once mentioned, lest the servants learn the identity and disclose to the world this strangest, most secret expedition in the history of American finance. I am not romancing; I am giving to the world, for the first time, the real story of how the famous Aldrich currency report, the foundation of our new currency system, was written... The utmost secrecy was enjoined upon all. The public must not glean a hint of what was to be done. Senator Aldrich notified each one to go quietly into a private car of which the railroad had received orders to draw up on an unfrequented platform. Off the party set. New York's ubiquitous reporters had been foiled... Nelson (Aldrich) had confided to Henry, Frank, Paul and Piatt that he was to keep them locked up at Jekyll Island, out of the rest of the world, until they had evolved and compiled a scientific currency system for the United States, the real birth of the present Federal Reserve System, the plan done on Jekyll Island in the conference with Paul, Frank and Henry... Warburg is the link that binds the Aldrich system and the present system together. He more than any one man has made the system possible as a working reality.[9]

[Ridgley]

Thanks acm very interested how you explained it I had no idea that America pays two types of taxes that must make life very complicated and expensive it like paying tax in London and in the Home Counties.

[mockney piers]

It is more complicated (especially as prices in shops don't include some of the taxes), but they actually have less tax despite having more taxes.

In the US they're much more resistant to raising taxes than we are over here hence why the focus is currently on what is being cut.

Generally Brits are ok with a tax increase if they think the money will be spent wisely, though after new labour.....

Here's a breakdown of relative burdens from here http://www.photius.com/rankings/tax_burden_country_ranks_2009.html (2009, hence the 15% vat rate in uk)

with the overall picture being

As you can see NY is quite high but texas is just cheap as chips!

rank country overall corp pers wealth emp ss pers ss vat

1? France1? 167.9? 34.4? 52.1? 1.8? 45.0? 15.0? 19.6?

2? China? 159.0? 25.0? 45.0? 0.0? 49.0? 23.0? 17.0?

3? Belgium? 156.4? 34.0? 53.5? 0.0? 34.8? 13.1? 21.0?

4? Sweden? 150.7? 26.3? 61.0? 0.0? 31.4? 7.0? 25.0?

5? Netherlands? 146.5? 25.5? 52.0? 0.0? 18.8? 31.2? 19.0?

6? Austria? 144.5? 25.0? 50.0? 0.0? 31.5? 18.0? 20.0?

7? Italy? 139.4? 31.4? 42.3? 0.7? 35.0? 10.0? 20.0?

8? Argentina? 136.3? 35.0? 35.0? 1.3? 27.0? 17.0? 21.0?

9? Finland? 136.1? 26.0? 53.5? 0.0? 27.0? 7.6? 22.0?

10? Greece? 127.1? 24.0? 40.0? 0.0? 28.1? 16.0? 19.0?

11? Brazil? 126.3? 34.0? 27.5? 0.0? 28.8? 11.0? 25.0?

12? Spain? 125.6? 30.0? 43.0? 0.0? 30.2? 6.4? 16.0?

13? Hungary? 124.0? 19.0? 38.0? 0.0? 27.0? 17.0? 23.0?

14? Portugal? 123.3? 26.5? 42.0? 0.0? 23.8? 11.0? 20.0?

15? Japan? 122.6? 41.0? 50.0? 0.0? 13.7? 12.9? 5.0?

16? Germany/Berlin? 120.5? 30.0? 47.5? 0.0? 12.0? 12.0? 19.0?

17? Slovenia? 119.2? 20.0? 41.0? 0.0? 16.1? 22.1? 20.0?

18? Turkey? 118.0? 20.0? 35.0? 0.0? 30.0? 15.0? 18.0?

19? Poland? 116.0? 19.0? 32.0? 0.0? 20.0? 23.0? 22.0?

20? Norway? 116.0? 28.0? 40.0? 1.1? 14.1? 7.8? 25.0?

21? USA/NY City? 115.4? 46.2? 45.5? 0.0? 7.7? 7.7? 8.4?

22? Ukraine? 113.6? 25.0? 15.0? 0.0? 50.0? 3.6? 20.0?

23? India? 113.4? 42.0? 34.0? 1.0? 12.0? 12.0? 12.4?

24? Mexico? 112.5? 28.0? 28.0? 0.0? 38.7? 8.0? 15.0?

25? Switzer/Zurich 111.2? 27.1? 42.6? 0.7? 17.1? 16.1? 7.6?

26? Denmark? 110.5? 25.0? 51.5? 0.0? 1.0? 8.0? 25.0?

27? Luxembourg? 108.8? 28.6? 39.0? 0.0? 13.8? 12.4? 15.0?

28? Malta ? 108.0? 35.0? 35.0? 0.0? 10.0? 10.0? 18.0?

29? United Kingdom? 106.8? 28.0? 40.0? 0.0? 12.8? 11.0? 15.0?

30? Romania? 106.7? 16.0? 16.0? 0.0? 39.2? 16.5? 19.0?

31? Germany? 106.3? 15.8? 47.5? 0.0? 12.0? 12.0? 19.0?

32? Slovakia? 105.6? 19.0? 19.0? 0.0? 35.2? 13.4? 19.0?

33? Canada/Ontario? 105.5? 32.0? 46.4? 0.0? 7.4? 6.7? 13.0?

34? Israel? 104.9? 26.0? 46.0? 0.0? 5.4? 12.0? 15.5?

35? USA/Illinois? 101.6? 42.3? 38.0? 0.0? 7.7? 7.7? 6.0?

36? Azerbaijan? 100.0? 22.0? 35.0? 0.0? 22.0? 3.0? 18.0?

37? Czech Republic? 99.0? 20.0? 15.0? 0.0? 34.0? 11.0? 19.0?

38? Australia? 96.5? 30.0? 45.0? 0.0? 9.0? 2.5? 10.0?

39? Estonia? 95.5? 21.0? 20.0? 0.0? 33.5? 3.0? 18.0?

40? Ireland? 94.8? 12.5? 44.0? 0.0? 10.8? 6.0? 21.5?

41? Lithuania? 94.0? 20.0? 15.0? 0.0? 31.0? 9.0? 19.0?

42? Vietnam? 93.0? 25.0? 35.0? 0.0? 17.0? 6.0? 10.0?

43? Uzbekistan? 93.0? 21.5? 25.0? 0.0? 24.0? 2.5? 20.0?

44? USA/Texas? 92.6? 36.0? 35.0? 0.0? 7.7? 7.7? 6.3?

45? South Korea? 91.7? 24.2? 36.3? 0.0? 14.0? 7.2? 10.0?

46? Latvia? 89.1? 15.0? 23.0? 0.0? 24.1? 9.0? 18.0?

47? Indonesia? 89.0? 30.0? 35.0? 0.0? 12.0? 2.0? 10.0?

48? United States? 85.3? 35.0? 35.0? 0.0? 7.7? 7.7? 0.0?

49? Malaysia? 85.0? 25.0? 27.0? 0.0? 12.0? 11.0? 10.0?

50? Philippines? 84.3? 30.0? 32.0? 0.0? 7.0? 3.3? 12.0?

51? South Africa? 84.0? 28.0? 40.0? 0.0? 1.0? 1.0? 14.0?

52? Thailand? 84.0? 30.0? 37.0? 0.0? 5.0? 5.0? 7.0?

53? New Zealand? 80.9? 30.0? 37.0? 0.0? 0.0? 1.4? 12.5?

54? Kazakhstan? 79.0? 30.0? 10.0? 0.0? 27.0? 0.0? 12.0?

55? Singapore? 78.5? 17.0? 20.0? 0.0? 14.5? 20.0? 7.0?

key

corp - corporate

pers - personal

emp - employer

ss - social security

[Ridgley]

Wow! lets hope they can sort evething out. Thanks MP

[????]

StraferJack Wrote:

-------------------------------------------------------

> Anyone believe that the current argument is

> financial not political?

>

> Surely it's largely born out of the

> republican/Tea Party hatred of Obama? If Bush was

> in power the current limit would be raised without

> the blink of an eye

Me - I agree. I think the US has to face upto this at some point but am suspiciuos on exactly why now

[mockney piers]

If the US is plunged into turmoil then Obama is screwed for the presidency next year.

Could they be really that cynical and short termist?

I can't believe Obama isn't managing to get the message across that this huge debt is thanks to Bush's tax cuts and spending spree.

[Huguenot]

Three simple charts...

I think they (the right wing extremists) are that cynical and short-termist.

[Mick Mac]

Interesting that Obama makes reference to Hedge Fund managers. He's beginning to sound like Vince Cable.

[????]

Obama is showing a distincxt lack of balls on this in the same way that Cameron doesn't seem to really be stood up and counted on matters of principle - just modern pro politicians maybe

[New Nexus]

'I believe that banking institutions are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property until their children wake-up homeless on the continent their fathers conquered.'

Thomas Jefferson, 1802.

[Loz]

New Nexus Wrote:

-------------------------------------------------------

> 'I believe that banking institutions are more dangerous to our liberties than standing armies.

> If the American people ever allow private banks to control the issue of their currency, first by

> inflation, then by deflation, the banks and corporations that will grow up around the banks

> will deprive the people of all property until their children wake-up homeless on the continent

> their fathers conquered.'

>

> Thomas Jefferson, 1802.

That would be interesting... had Thomas Jefferson ever actually said that. Which he didn't.

[TheMontes99]

....

[New Nexus]

I know this has been used before, but I think it speaks volumes.

http://i212.photobucket.com/albums/cc26/missadi/imageaxd.jpg