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blue1914 -> RE: What I Wish I Knew About McCain? (8/10/2008 10:33:08 PM)
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quote:
ORIGINAL: Dubya
quote:
ORIGINAL: blue1914
Since I just posted this in the thread about Mr. Obama, I would love to know from Mr. McCain his plan to deal with a mounting national debt (made up mainly of debt to other nations) in the face of a falling U.S. dollar (which raises the value of the debt by default).
This is flat out wrong! Considering how often you seem to interject this falacy in various threads makes me wonder where you are getting this nonsense.
First of all, the foreign holdings of our national debt totals less than 23% as of November 2007.
Secondly, the debt is purchased in the form of U.S Dollar based instruments... T-Bills, bonds, etc. If the dollar falls in value we do not owe more... the lending nation earns less in terms of his currency. He always receives the percentage interest according to the contract which is based in U.S. Dollars. If the dollar strengthes relative to a foreign investors currency he benefits from a more favorable exchange rate.
Finally, rest assured, the dollar has risen in value all week. No need to panic and definitely no need to adopt economic policies based in bad assumptions.
Perhaps your statements are based upon ignorance of the makeup of the U.S. national debt or they are ignorance of what is meant by the words I've selected to make up my sentences. Not an issue, I'll provide a little education on both.
First to the national debt. Please remember that there are really "two" debts. One debt is the value of the publically circulating U.S. currency instruments. Since there is no gold standard (or any hard currency standard for that matter), all U.S. currency is issued as a debt payable by the U.S. government upon demand. Currency in general is a big "IOU" from the U.S. government to any bearer of those dollars. At this point, the only thing supporting those "IOU's" is the full faith and credit of the U.S. government-in other words, a dollar is a dollar because the U.S. government says it's a dollar. As long as there is faith that the U.S. government will make good on any demand, the value of a dollar is trusted-that's really the basis of a "Fiat" currency. Of course in a system such as this there are TONS of options for failure, but the house of cards is standing for today, and that house makes up 52% of the total dollar amount owed.
The OTHER 48% ("hard" money that needs to be repaid) is made up of loans from other sources in the form of U.S. dollar denominated currency instruments-savings bonds, T-Bills, etc. etc. THAT debt is dominated (largest single expense in that catagory) by foreign owned U.S. dollar denominated currency instruments (about $1 trillion worth). The remaining 75% are made up to other smaller catagories. In terms of money that must be repaid, indeed, foreign debt intruments DO dominate the catagory.
Here's a little additonal background info for you to check out on the story. It's a basic overview, but it does touch the high points.
http://www.msnbc.msn.com/id/17424874/
Next to the statement about the value of the debt. Please note-I did not comment on the amount of the debt (which stays static) but instead the VALUE of the debt (which could be seen as a function of the value of the money which makes up the debt).
With inflation and deflation, the value of money does change over time (if you don't believe me, just look at the current value of the currency of Zimbabwe). The most common influencer of this is the faith foreign nations have in the economy of a country. That is what's been has been happening with the U.S.-and to your point of "rising" over a week, of course you have to realize that is a relative term and you have given no context. That said, I will choose an example base currency to attempt to complete your illustration. If you use the EUR/USD (Euro/Dollar) pair then yes, you are correct that the value of a dollar has risen over that of a Euro in the past week, but it's a little like putting one's thumb in a dike if you will. Put into context, this pair has GAINED (since the Euro is the base currency) over 100% of it's value since the launch of the single Euro currency in 1999. Long and short, foreign investors are consistently showing a greater confidence in the economies of the European Union than in that of the U.S.-and the pace is accellerating in recent years. Growth like this brings the possibility of something that affects that "first" national debt, that of U.S. dollar deonominated debt instruments.
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