Social Unrest?

Because eventually the debt will get paid.

Right, but it's a negative real interest rate, so the debt you have to pay is lower than what you borrowed.It's free money. Why not use it instead of recovery-threatening taxes?

That would be true had we not squandered so many resources already.There is a limit to how much we can borrow.Nor is there any assurance that it will continue to be a negative real interest rate.Sooner or later we will have to address paying back the debt already accumulated.I agree that it is manageable, but only if there is some long term (25-50 year) program put in place to develop some reasonable monetary policy and I see no evidence of such plans or progress.

Nothing of what you've just said is true.The amount that we can borrow isn't limited by "resources", it's limited by Congressional statute. When the Federal government borrows money, it borrows by term at a fixed interest rate so there is, actually, a guarantee of the interest rate over the term of the loan. And the best way to pay back the debt is by increasing revenues, and the best way to increase revenues is by increasing GDP. Borrowing at a net negative rate to make infrastructure improvements that grow GDP is free money for the cost of free money. It's win now, win later. Pursuing an austerity policy of debt reduction in the face of investors so desperate for the security of Federal bonds that they'll pay us to loan us the money is idiotic national suicide.

Isnt it also limited by the willingness of lenders? What if everybody globally decides to stop buying our debt?

Unlikely. Regardless of current economic conditions, the US has still never once defaulted on a loan payment, and is in fact forbidden to do so by law. US bonds remain highly valued. Even when US credit was downgraded by one agency, the value of bonds went up.The amount that can be borrowed is technically limited by the amount of investors, but that's a resource that hasn't actually seemed to be decreasing any time soon.

Woah...wait a minute, let me get this straight. If our debt is an attractive investment, is this not hooking the U.S. middle class into virtual debt enslavement? And you say that we cant default by law...so we are legally obligated to pay back an enormous and ever growing sum.....but how does debt benefit us? Pay attention, people! It is us that matter first, here. I'll be damned if I shall fore-go my retirement and jeopardize the future of our youth simply to pay interest to China!*war drums pounding in background*I smell another rich people conspiracy here...after all, they benefit by helping foreign investment...not I. Our small time occupation of Wall Street symbolism may one day grow into a national revolution....and when America gets pissed off, the rest of the world has justifiable fear. *sighs*...is there any sane solutions, here?Edited by Phat, : changed subtitle

Remember that the US has traditionally failed to fulfill obligations when ever those obligations seemed onerous, particularly Treaty obligations which form part of the supreme law of the land in theory.

I remember once when you brought this up, jar: Several hundred billion saved would do much to help our situation.

There are no good fast solutions. What is needed is a 25-50 year commitment to fix what we broke and begin establishing a reasonable economy. Hopefully over the next 100 years or so the US could rationalize it's behavior.

Sure it would. And a VAT could be implemented effectively in the US to increase revenue.The problem is the implementation itself. Even if we ignore the political reality of adding such a significant tax, the rate itself is a significant issue.VAT taxes are typically not flat, yet "national sales tax" or consumption tax proposals typically are. Flat consumption taxes are regressive rather than progressive; in other words, the more money you have, the lower the percentage you actually pay in taxes.This is because consumption is limited. If you make $20k/year, you need to spend all of that money on food and clothing and housing. If you make $500k/year, you only need to spend a portion of that on your bare necessities, and are not likely to spend all of it even when luxuries are added in. If you make $10 million/year, you'll only spend a tiny fragment of that amount on your bare necessities, and still have tons left over after luxur1es.The person making $20k will pay consumption tax on something like 80% of his income (assuming rent and a few other items are not taxed). The person making $500k will pay consumption tax on something like 40%, and the person making $10 million will only pay consumption tax on something like 20%. I'm pulling those numbers out of my ass, but the general trend is accurate if not the specific values.This means the the actual burden (not the dollar amount, but the relative impact on your life and actual ability to pay your bills and maintain even a minimal quality of life like eating every day) of such a tax primarily rests on the poor, who can least afford to do so.Most countries with a VAT resolve this problem by charging a lower VAT or even no tax at all on bare necessities like non-prepared food and housing. There's no guarantee that this would happen in any US proposal, though - and in fact so-called "flat tax" proposals have often included no such exceptions in the belief that "fair" means "Everybody pays the same percentage, even if it affects some people more than others."The other argument against an additional national sales tax is that implementing it in the current economic climate would stagnate growth from the bottom up. If you tax me an additional 20% on everything I buy, I'm not going to be able to buy as much, which means the companies I buy from will make less money, and so on.I'm not necessarily against a VAT in principle if its implemented in a way that doesn't force the poor to bear the highest burden, but I'm not so sure that now is a great time.I think better revenue increases would follow along the lines of removing the cap on Social Security taxes and creating new tax brackets for ever higher incomes, and taxation of capitol gains, just off the top of my head.

Whoa, there, sparky. Calm down.Your retirement isn't in danger because of debt to China.Your retirement is in danger because of irrational social security taxation (in the case of social security, where the taxation cap is around $140,000/year, meaning everyone who makes that amount or greater pays exactly the same dollar amount into SS, whether they make $140,000 or $140,000,000) and because of the threat posed by a deregulated banking industry (which caused the current crisis).Debt to China puts us all on the hook, yes, but we still have control over our own laws such that we can change who pays what portion of the burden. It doesn't have to be the middle class. It really won't be, if the trend continues, only because the "middle class" is itself shrinking as the rich get richer and the rest of us stagnate until we're all poor.More importantly, as crashfrog pointed out, when deficit spending helps to increase the GDP, that means the deficit spending increases tax revenue, which means that deficit spending can actually create more money and pay for itself. The trick is more what you spend the money on as opposed to how much you're spending. That depends on what the foreign investment pays for. If we use a bond measure to pay for new roads, you do benefit. If we use bonds to bail out a bank...maybe not so much, at least not directly. Sane solutions begin with putting away the Internet Tough Guy revolutionary speech and thinking about what actually is or is not a problem and how best to address it.The major hurdle is political feasibility - even when you find a solution that can work, getting enough Congresscritters to actually get the measure passed in such a way that it still has the same effect is damned near impossible. And while everybody tends to have a resoundingly low opinion of Congress, nobody seems all that eager to get rid of their own representative, often because the only alternative is even worse.

No, this is exactly not how Federal debt works, because Federal debts are denominated in dollars which the US government can produce by fiat.Imagine that for a second - imagine that whenever you borrowed money, your lenders were willing to let you pay it back in Monopoly money. Imagine also that your name was Milton Bradley and that as a result you were the world's only source of Monopoly money. Now all of a sudden debt looks a lot different, right?Debts that the Federal government sells to investors - primarily US investors, myths about China notwithstanding - don't "enslave" the middle class. You're thinking of debt as a credit you get in the present, to be paid back by your future income (plus an interest rate that represents the statistical risk of lending to people like you.) To the Federal government, debt is a source of revenue in the present that we then pay back with future GDP. And in the present case, we pay back less than we borrowed, because investors want to store their wealth in dollars, and buying Federal debt is the best way to get dollars (because dollars are, in practice, a limited resource.) No, exactly wrong. The rich people conspiracy is to reduce the Federal debt, because that keeps the rate of inflation low, which results in increased wealth for people whose wealth is in dollars, which is rich people, and decreased wealth for people like you and me, whose wealth is primarily in goods (like homes and real estate) and the value of our labor. Yes! And it's exactly what I just told you - take advantage of free fucking cash money to invest in infrastructure projects that grow GDP and make everybody better off, then pay off the debt from the increased GDP. The fastest way to get out of debt is to make more money not cut back on medical care.

Would this analogy be correct?Federal debt is similar to gasoline. I can lose money in gasoline to fuel my tractor. I can then use this tractor to harvest a field. The profits from the sale of the goods will far outweigh the money I lost in gasoline. Is that a fair comparison?Edited by Taq, : No reason given.

Exactly.The key is not debt itself, but rather why the debt was incurred.Unfortunately we incurred a bunch of debt buying bragging rights instead of gasoline for the tractor.