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rated:
Yes political, but NOT pointed at either party.
BUT, more importantly, a lesson in math, budgeting, and simple English!

The budget explained in Simple English.

I love it when things are simplified so that we all can understand.
 
United States Tax Revenue: $2,170,000,000,000
Fed Budget: $3,820,000,000,000
New Debt: $1,650,000,000,000
National Debt: $14,271,000,000,000
Recent Budget Cut $38,500,000,000


Now, remove 8 of the Zeros and pretend it is a household budget...
Annual family income:  $21,700
Money the family spent: $38,200
New Debt on credit cards: $16,500
Outstanding Balance on Credit cards:  $142,710
Total Budget cuts which some politicians are PROUD of:  $385


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You left out some things...
- The family has a printing press in their basement
- The family has armed nuclear missiles ai... (more)

hipnetic (Nov. 12, 2016 @ 6:40a) |

and... crickets...

samko (Nov. 17, 2016 @ 6:36p) |

The interesting question is whether the U.S. can inflate it's way out of debt by printing money without it being seen as... (more)

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This post can not become a political debate. We have a political discussion thread here.

I am looking at this thread as a general economics thread.

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This thread has great promise. Let's make fatwallet finance great again.

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Neilium said:   This post can not become a political debate. We have a political discussion thread https://www.fatwallet.com/forums/off-topic/1159165.

I am looking at this thread as a general economics thread.

  Agree, and thanks for reminding everyone that I intended this NOT to be political.... but simply an oversimplification of a simple problem that the simpletons in Washington cannot understand... QUIT SPENDING MONEY YOU DON'T HAVE!  And don't be proud of a tiny "budget cut" when it is a small percentage of every other expenditure or NEW debt on the books.

One day, the piper must be paid....

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Non sustainable budget. 21k income with 142k cc debt

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It is quite common for municipal entities to use debt to finance certain activities. The municipal world would pretty much collapse if debt were not used to finance infrastructure. And it makes sense... the new bridge will bring benefit to the people using it for the next 50 years not the people who paid taxes for the past 50 years.

I have no idea how the federal debt separates out into operating funds versus capital funds. I'll look to others to help show that to me. I'm just here to say that for the capital portion, it certainly makes sense to me to finance that with debt.

So for your household analogy, is the federal debt buying a house we'll live in for the next 20 years (capital expense) or is it buying crap from WalMart that is consumed and gone before the end of the year? (basically operating expenses)

I don't think it's fair to lump it as "spending money you don't have". Appropriate use of debt has been an essential element of economic growth.

Also, I think the debt to GDP ratio is important. The US has a stable high paying job to use your household analogy. Compare that to other countries which are not as stable and have lower GDP. We have higher income, so we can get a loan for our BMW. Less well off countries struggle to make payments on the loan for the used Yugo they just bought.

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Technologist said:   Now, remove 8 of the Zeros and pretend it is a household budget...



Annual family income:  $21,700
Money the family spent: $38,200
New Debt on credit cards: $16,500
Outstanding Balance on Credit cards:  $142,710
Total Budget cuts which some politicians are PROUD of:  $385


  Individual would declare bankruptcy and wipe out the $142,710 and $16,500 on credit cards. Not a real option for the government.  

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The GDP to debt ratio is important but when it is used to justify why it is ok to spend more (vs. why more spending is needed), then it becomes a problem.

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Technologist said:   
Neilium said:   This post can not become a political debate. We have a political discussion thread https://www.fatwallet.com/forums/off-topic/1159165

I am looking at this thread as a general economics thread.

  Agree, and thanks for reminding everyone that I intended this NOT to be political.... but simply an oversimplification of a simple problem that the simpletons in Washington cannot understand... QUIT SPENDING MONEY YOU DON'T HAVE!  And don't be proud of a tiny "budget cut" when it is a small percentage of every other expenditure or NEW debt on the books.

One day, the piper must be paid....

  Oh, its even better than that - a $10-billion expense line this year may be projected to cost $12-billion next year.  Politicians reduce that budget line to $11-billion, and claim to have cut spending by $1 billion.  Even though the amount being spent is actually $1-billion higher.

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Similar number for the past XX number of years.

Spending, and borrowing MORE than they take in....

Small budget cuts, claiming a win (Smal as noted above)

You have to STOP spending and paying back the debt sooner or later.. Most of the simpletons just keep kicking the can down the road, until years later (when they are dead and can't care less).

Again, if this were a family in my neoghborhood, and they showed me THESE numbers, I'd tell them the same thing... Put the shovel down, you're alreay in a deep hole... QUIT DIGGING DEEPER!

ETA, sorry , this was a response to debentureboy... didn't know so many were gonna get inbetween our responses...

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atikovi said:   
 
  Individual would declare bankruptcy and wipe out the $142,710 and $16,500 on credit cards. Not a real option for the government.  

  Actually it is, depending on to whom the debt is owed.  I for one think we SHOULD wipe out debt with:

Anyone that is or has harbored terrorists.
anyone that simply stands around with their hand out
Anyone that we have defeated in war.  We HELPED them rebuild after we kicked their ass... that should be enough.  Other countries (in the past) simply kept the land of those conquered, and made their people 2nd class citizens / slaves.  not the US... We didn't do anything after the war, other than say "sorry boout the mess, we won, now be nice or we'll be back" and then paid $$$$ to make them somewhat better off.  And now, they loan us money (probably our original money) and charge us INTEREST on it...

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US debt is in a spiral and unstoppable. It is impossible for any president nor any circumstance to stop the trends towards bankruptcy.

Debt to GDP ratio is over 110% and there has never been a time in the history that it stopped and went other way except the 2000's when there is the internet affect on the economy. Ain't gonna happen again

https://fred.stlouisfed.org/series/GFDEGDQ188S

 

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The tax revenue shown above includes only income taxes, not payroll tax revenues (almost $1 Trillion in 2016), a large portion of which are used to pay for social security benefits for retirees and beneficiaries. If the US has a surplus in SS taxes, these are "borrowed from" and made to make the "deficit" look smaller. It's fair to add the amount "borrowed" from the surplus, because someday the US will have to borrow from someone else or raise revenue to pay it back.

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debentureboy said:   It is quite common for municipal entities to use debt to finance certain activities. The municipal world would pretty much collapse if debt were not used to finance infrastructure. And it makes sense... the new bridge will bring benefit to the people using it for the next 50 years not the people who paid taxes for the past 50 years.

I have no idea how the federal debt separates out into operating funds versus capital funds. I'll look to others to help show that to me. I'm just here to say that for the capital portion, it certainly makes sense to me to finance that with debt.

So for your household analogy, is the federal debt buying a house we'll live in for the next 20 years (capital expense) or is it buying crap from WalMart that is consumed and gone before the end of the year? (basically operating expenses)

I don't think it's fair to lump it as "spending money you don't have". Appropriate use of debt has been an essential element of economic growth.

Also, I think the debt to GDP ratio is important. The US has a stable high paying job to use your household analogy. Compare that to other countries which are not as stable and have lower GDP. We have higher income, so we can get a loan for our BMW. Less well off countries struggle to make payments on the loan for the used Yugo they just bought.

  Municipal debt is intended to be used for things with long lifespans, not to keep the lights on.

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Its not really that simple, treasuries are not the same as credit card debt.

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This family borrows at close to zero percent real and can print money at will. Normal household finance doesn't exactly apply.

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Technologist said:   
atikovi said:   
 
  Individual would declare bankruptcy and wipe out the $142,710 and $16,500 on credit cards. Not a real option for the government.  

  Actually it is, depending on to whom the debt is owed.  I for one think we SHOULD wipe out debt with:

Anyone that is or has harbored terrorists.
anyone that simply stands around with their hand out
Anyone that we have defeated in war.  We HELPED them rebuild after we kicked their ass... that should be enough.  Other countries (in the past) simply kept the land of those conquered, and made their people 2nd class citizens / slaves.  not the US... We didn't do anything after the war, other than say "sorry boout the mess, we won, now be nice or we'll be back" and then paid $$$$ to make them somewhat better off.  And now, they loan us money (probably our original money) and charge us INTEREST on it...

  Anyone we have defeated in war?  It should definitely help out our situation if were able to eliminate the debts held by the government or citizens of Great Britain, Mexico, Spain, Cuba, The Philippines, Germany, Austria, Hungary, The Czech Republic, Turkey, Italy, Japan, Iraq, and Serbia.  Using this method, we could even wipe out debts held by Native Americans, Hawaiians, the American South, and the Chinese (through the Boxer Rebellion intervention). 

Discussion of tax rates and spending levels is the wrong approach.  The US should clearly be invading high lending, militarily weak countries as a way to solve our domestic spending problems.
 

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Technologist said:   
atikovi said:   
 
  Individual would declare bankruptcy and wipe out the $142,710 and $16,500 on credit cards. Not a real option for the government.  

  Actually it is, depending on to whom the debt is owed.  I for one think we SHOULD wipe out debt with:

Anyone that is or has harbored terrorists.
anyone that simply stands around with their hand out
Anyone that we have defeated in war.  We HELPED them rebuild after we kicked their ass... that should be enough.  Other countries (in the past) simply kept the land of those conquered, and made their people 2nd class citizens / slaves.  not the US... We didn't do anything after the war, other than say "sorry boout the mess, we won, now be nice or we'll be back" and then paid $$$$ to make them somewhat better off.  And now, they loan us money (probably our original money) and charge us INTEREST on it...

  
 Can you list the nations we 'defeated in war' and approximately how indebted we are to them, respectively?

 The dynamics of international economics isn't as cut and dry as some would have you think.  

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Just want to remind everyone to stay on topic.

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fleetwoodmac said:   US debt is in a spiral and unstoppable. It is impossible for any president nor any circumstance to stop the trends towards bankruptcy.

Debt to GDP ratio is over 110% and there has never been a time in the history that it stopped and went other way except the 2000's when there is the internet affect on the economy. Ain't gonna happen again

https://fred.stlouisfed.org/series/GFDEGDQ188S 

 

  

https://en.wikipedia.org/wiki/History_of_the_United_States_publi...

Debt / GDP was higher after WWII.       There are many times in the US history that debt went down.   (if you look back further than 1960's like your link)


 

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Technologist said:   Yes political, but NOT pointed at either party.
BUT, more importantly, a lesson in math, budgeting, and simple English!

The budget explained in Simple English.

I love it when things are simplified so that we all can understand.


 
United States Tax Revenue: $2,170,000,000,000
Fed Budget: $3,820,000,000,000
New Debt: $1,650,000,000,000
National Debt: $14,271,000,000,000
Recent Budget Cut $38,500,000,000


Now, remove 8 of the Zeros and pretend it is a household budget...


Annual family income:  $21,700
Money the family spent: $38,200
New Debt on credit cards: $16,500
Outstanding Balance on Credit cards:  $142,710
Total Budget cuts which some politicians are PROUD of:  $385


  

Where did you get the numbers?     I assume out of a tired old meme.    Looks close to 2009 levels but the spending didn't hit 3.8T.   Was actually more like 3.5T.    

Currently the US tax revenue is estimated at 3.3T and the budget is 3.9T.    So the spending / revenue is significantly better versus the height of a major recession.

Total national debt is over 19T.  ... I'm not pretending that the problem is fixed.  


ETA:  actual figures : https://www.whitehouse.gov/omb/budget/Historicals
 

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TravelerMSY said:   This family borrows at close to zero percent real and can print money at will. Normal household finance doesn't exactly apply.
  
Came here to say this.  Left satisfied that someone else said it. 

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Households are not autonomous currency issuers. Big difference. Federal government has inflation risk but no solvency risk.

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debentureboy said:   It is quite common for municipal entities to use debt to finance certain activities. The municipal world would pretty much collapse if debt were not used to finance infrastructure. And it makes sense... the new bridge will bring benefit to the people using it for the next 50 years not the people who paid taxes for the past 50 years.

I have no idea how the federal debt separates out into operating funds versus capital funds. I'll look to others to help show that to me. I'm just here to say that for the capital portion, it certainly makes sense to me to finance that with debt.

So for your household analogy, is the federal debt buying a house we'll live in for the next 20 years (capital expense) or is it buying crap from WalMart that is consumed and gone before the end of the year? (basically operating expenses)

I don't think it's fair to lump it as "spending money you don't have". Appropriate use of debt has been an essential element of economic growth.

Also, I think the debt to GDP ratio is important. The US has a stable high paying job to use your household analogy. Compare that to other countries which are not as stable and have lower GDP. We have higher income, so we can get a loan for our BMW. Less well off countries struggle to make payments on the loan for the used Yugo they just bought.
 

  


When you buy a house, you don't buy another house the next year, and a third house the year after that. We've been spending half again what we make for decades. It can't all be capital, unless we're fighting Skynet, colonizing mars, or building a dyson sphere.

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Not my area of expertise, so take with a grain of salt...  I don't think the debt has to be paid back sooner or later.  I think it can go on forever.

I agree with many here that the analogy to a household breaks down. It can also be useful.  For instance, I started floating money with CC issuers sometime around 1995.  I've been doing it consistently ever since.  If I find a place to put my money that brings me more value than what I'm paying in interest, why not?  The same can be true for the government.  

Also, there will ALWAYS be bridges to build.  Using my 50 year comment above, then there will always be need for new debt to be issued to pay for new bridges (or whatever capital items the country wants / needs).  

As for the OPERATING cost part, that's where I think things get a bit stickier.  From a household standpoint does it make sense to fund current operating needs with debt?  Generally, no.  Have I ever done it?  Yes, and I had a plan to get out of it.  Does the government have a plan to get out of the debt used for operating expenses ?  I don't think the political process can think like a pre-FWF recent college grad circa mid 80s...  I was single, few constraints, good job with rapidly rising wages, a few backup plans...  these are things that our political process just can't put together and agree upon, so for the government to go backwards through the process of paying down operating expense debt is probably quite unlikely.  Possible, just not likely due to the political will required -- lots and lots of unhappy people (voters) due to reduced services and / or increased taxes.  Most people love the idea of paying down the national debt / slamming the excess government spending.  Few people want to give up the nice things we have or the (relatively) low taxes we pay.  

Fortunately, we typically have inflation that eats away at the debt in a sneaky mostly invisible way (Invisible to most people, not necessarily FWFers) Future taxpayers pay off the debt with dollars that are worth less and less each year.  Sneaky, isn't it? 

This last concept (the political will thing) is a part of why some folks say things like:  “Democracy is the worst form of government, except for all the others.”  (Often credited to Churchill, but he was probably quoting someone else)

In a democracy, the decision I made to spend money I didn't have for a short time and having the plan that I stuck with to pay it off afterwards often falls prey to the (often) uninformed voter and the politicians.  (Sorry, that was kind of a run-on sentence.  It might have to be read a few times to get it.  Sorry)

Think about who votes in America.  Most do not study economics.  Most don't study foreign relations.  Most don't even know how the government works or what it supplies.  How can we depend on these folks to make the proper decision tomorrow?  (Election Day)  

All in all, I think our debt is fairly reasonable.  I also think we had an extreme event in 2008 after which, both parties agreed to huge government spending.  I think that was the right decision.  If you look at economic growth following the crash, we did a lot better than Europe, who did not spend their way out of the bottom.  Yes, there are lots and lots of other differences between us and Europe, I agree.  

The 2008 jump in debt was extreme and will have effects for many many years to come.   Were you in favor of that move or not?  What are your credentials for agreeing or disagreeing?  I'll admit I have no credentials for judging if it was right or wrong.  I just have an opinion.  It was an extraordinary event and incredibly complex -- weighing moral and economic issues with very little prior experience / knowledge to base things on.  "To big to fail" versus "As you sow, so shall you reap" (morale dilemma) "If Big Bankco fails, it will crash the entire country.  We need to bail them out"  (Economic guess versus future impact of unknown magnitude) No one knew the answers to these questions at the time.  Some people made decisions which were right or wrong and the decisions were made to benefit the people or themselves / their cohorts.  I'll never know which.  We did make it out though, so I walk away thinking we did the right thing.  

Final thought:  Dave Ramsey doesn't run the US Government and that is a very good thing.  
Technologist said:   Similar number for the past XX number of years.

Spending, and borrowing MORE than they take in....

Small budget cuts, claiming a win (Smal as noted above)

You have to STOP spending and paying back the debt sooner or later.. Most of the simpletons just keep kicking the can down the road, until years later (when they are dead and can't care less).

Again, if this were a family in my neoghborhood, and they showed me THESE numbers, I'd tell them the same thing... Put the shovel down, you're alreay in a deep hole... QUIT DIGGING DEEPER!

ETA, sorry , this was a response to debentureboy... didn't know so many were gonna get inbetween our responses...

  

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wilesmt said:   This thread has great promise. Let's make fatwallet finance great again.
  
So FWF isn't great now?

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Logical fallacy. You can't take a household budget and apply the same logic to a national level. Economics 101

Why? Because the national government manages the creation of money. http://blogs.reuters.com/great-debate/2013/01/14/why-public-debt... 

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A brief primer on US debt.

The US issues treasury bonds to finance its deficit spending. These bonds (and bills) have terms ranging in maturity from 1 month to 30 years at the then-current interest rate (based on demand).

Generally, these bonds are being paid interest on an ongoing basis and, when they come to maturity, the face value is paid out.

The increase in debt is due to more bonds being issued than retired. Of course, when you retire a 30-year bond at 7.5% (about what they were paying 30 years ago) and issue one at 2.25% (about the current rate), that's not bad.

The metric that most economists look at is the deficit and debt as a percentage of GDP. It essentially adjusts the borrowing for inflation and productivity increases. In fiscal year 2016, the deficit was 3.2% of GDP, a range that most economists consider reasonable. In 2015, the debt to GDP ratio was 104%, high by historical standards, but lower than all-time highs. Most of the increase was added in the wake of the financial crisis and the percentage has leveled off (though it is still rising) in the past 6 years.

In order for the debt/GDP ratio to decrease, there are a few different things that can happen. Growth in borrowing can increase at a slower rate than spending, inflation, and/or productivity growth.

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The analogy with a household budget does not work. There are many clear explanations of public debt, here's one from Forbes, explaining that public debt = private surplus.

Public Sector Debt = Private Sector Surplus 

Here's the Wiki on sectoral balances: Wiki: Sectoral Balances 

"According to the sectoral balances framework, budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation. Therefore, budget surpluses are required only when the economy has excessive aggregate demand, and is in danger of inflation."

Edited to add: This may be political but it is definitely not partisan. Neither major party has spoken coherently about public debt, instead both assume that 'paying down the debt' is a good thing, when it is clearly not.

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UncaMikey said:   The analogy with a household budget does not work. There are many clear explanations of public debt, here's one from Forbes, explaining that public debt = private surplus.

Public Sector Debt = Private Sector Surplus 

Here's the Wiki on sectoral balances: Wiki: Sectoral Balances 

"According to the sectoral balances framework, budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation. Therefore, budget surpluses are required only when the economy has excessive aggregate demand, and is in danger of inflation."

Edited to add: This may be political but it is definitely not partisan. Neither major party has spoken coherently about public debt, instead both assume that 'paying down the debt' is a good thing, when it is clearly not.

  
And to add slightly to this. In periods of a significant decrease in private sector demand (like we had in the most recent recession), most economists believe in the Keynesian idea that the government should use deficit spending to prop up the economy.

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What is this household's net worth? edit: what is in their assets column?

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UncaMikey said:   The analogy with a household budget does not work. There are many clear explanations of public debt, here's one from Forbes, explaining that public debt = private surplus.

Public Sector Debt = Private Sector Surplus 

Here's the Wiki on sectoral balances: Wiki: Sectoral Balances 

"According to the sectoral balances framework, budget surpluses remove net savings; in a time of high effective demand, this may lead to a private sector reliance on credit to finance consumption patterns. Hence, continual budget deficits are necessary for a growing economy that wants to avoid deflation. Therefore, budget surpluses are required only when the economy has excessive aggregate demand, and is in danger of inflation."

Edited to add: This may be political but it is definitely not partisan. Neither major party has spoken coherently about public debt, instead both assume that 'paying down the debt' is a good thing, when it is clearly not.


This.

The whole thread is based on a false equivalency. Anyone who took basic economics in college knows that while there are Parallels between microeconomics (the economics of households and businesses) and macroeconomics (the economics of countries), the science behind the two are vastly different, including the meaning and significance of debt.

C'mon Fatwalleters! We are supposed to be nerds!

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The US like many western nations is living beyond its means... it is not sustainable and will not end well. With 20 trillion in debt if interest rates reverted to even historical levels (5%) it would blow a 1 trillion dollar hole in the budget to service the debt. At the same time, baby boomers are suppose to be retiring and drawing lots of social security and medicare benefits. Ultimately a lot of the false promises that politicians are making will not materialize.

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atikovi said:   
Technologist said:   Now, remove 8 of the Zeros and pretend it is a household budget...




Annual family income:  $21,700
Money the family spent: $38,200
New Debt on credit cards: $16,500
Outstanding Balance on Credit cards:  $142,710
Total Budget cuts which some politicians are PROUD of:  $385


  Individual would declare bankruptcy and wipe out the $142,710 and $16,500 on credit cards. Not a real option for the government.  

  
Uh, depending on the debtor, WAR?

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kriskos4 said:   
wilesmt said:   This thread has great promise. Let's make fatwallet finance great again.
  
So FWF isn't great now?

Where have you been.....

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Neilium said:   Just want to remind everyone to stay on topic.
  horse has already bolted..........

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So, what is the equivalent of cutting cable TV and switching to prepaid cell phone?

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You can't really make the comparison between the us economy and a household budget:

http://www.nytimes.com/2012/01/02/opinion/krugman-nobody-underst... 

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Ecuadorgr said:   So, what is the equivalent of cutting cable TV and switching to prepaid cell phone?
  higher gas mileage, investment in renewable energy

Skipping 35 Messages...
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The interesting question is whether the U.S. can inflate it's way out of debt by printing money without it being seen as de facto default. Obviously, in theory, the government could decide every American citizen gets $1,000,000 for every dollar they have and all people (the country included) could be debt free in a day, the Dave Ramsey dream. Obviously the insane inflation would be seen as a default making...pretty much everybody pretty hesitant to lend to the government in the future and knocking the U.S. off the throne of the world's reserve currency it is now.

Obviously that extreme of an example would never happen, but what happens if/when the U.S. does this significantly more slowly? At what point does the market see that U.S. Government securities are a negative return when adjusted for inflation and stop buying them?

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