(C) Daily Kos This story was originally published by Daily Kos and is unaltered. . . . . . . . . . . The Deficit and Debt That Should Matter [1] ['This Content Is Not Subject To Review Daily Kos Staff Prior To Publication.'] Date: 2023-05-30 Now that it seems we will have soon passed the crazy nonsense of the federal debt ceiling, it’s worth stepping back and considering what does and does not matter about deficits and debts. We are often subjected to hysterical pearl-clutching about the federal government debt, so much so that most would assume it’s an imminent disaster. But is it? You see, every dollar of federal debt is somebody else’s asset. And who possesses this debt? Well, in 75% of the case, we do. Three quarters of the federal debt is held by banks, insurance companies, institutional investors, Social Security, pensions, 401k accounts, and individual Americans. Basically, for a large chunk of the debt, paying it off would essentially mean taking money out of one pocket and putting it in the other. But, it’s important to remember that many of these institutions, they are required by law to keep a certain percentage of their assets in the safest possible place, which is a US Treasury T-bill. The other 25% is held by foreign governments, companies and individuals. And should we be worried about them? Not at all! The current yield on a 10-year Treasury is 3.754% (less than our present inflation rate). That means that anyone holding that asset is, in effect, paying our government to hold their money! And yet they continue to gobble them up! Why? Because US Treasuries are the literal gold standard of the world financial system. Everything is benchmarked against them. They are the safest asset of all, because they are undergirded by the largest, most dynamic economy in the world. Their strength is so profound that they allow us to escape the consequences of our foreign trade deficits. According to classical economics, any nation that runs a trade deficit for very long will face dire consequences. Eventually, their trade partners will demand they make good on the differences between their exports and imports, either by increasing their exports or reducing their imports. When things get out of whack in a nation’s trade balance, they are prone to financial crises, like those which wracked Mexico, Argentina, Lebanon, Russia and Thailand, and which chronically burden the economies of Africa. But us? Since 1980, we have run trade deficits, trillions of dollars worth, and we have suffered no consequences. It’s like we were able to walk into a supermarket with $100 and leave with $106 worth of food and groceries, and the store saying, “That’s okay; we’re good.” Because that’s what has been happening! The debt that should really matter— our accumulated foreign trade deficit — results in …crickets. And it’s all because our US Treasuries are as good as gold. No, they’re better than gold. They are the assets that the world needs and craves. Which is why 10-year T bonds pay only 3.754% interest and all the hysteria about the debt is utter nonsense. [END] --- [1] Url: https://www.dailykos.com/stories/2023/5/30/2172281/-The-Deficit-and-Debt-That-Should-Matter Published and (C) by Daily Kos Content appears here under this condition or license: Site content may be used for any purpose without permission unless otherwise specified. via Magical.Fish Gopher News Feeds: gopher://magical.fish/1/feeds/news/dailykos/