More debt

Yesterday, I posted about the Greek debt problem.
Well, what about debt here in the good ol’ U.S.?
How are we fairing out with out sound fiscal responsible government?

Not too good. Kind of bad. Could be better.
Okay, truth is- really really lousy.

This first part is just an overview of how it all works.
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What does the US debt come from?

The debt comes from excess government spending. The government runs a very large budget deficit. In other words, each year the government SPENDS WAY MORE MONEY than it brings in from collecting taxes and the other ways it makes money.
Therefore it must borrow the rest.

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How does the Gov borrow money?

The Gov borrows money by selling Government Securities (Bills/Bonds/Notes). When someone buy a government Bond or T-Bill, they are loaning the government money.
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What is the Debt?
The total debt is the total amount of government securities outstanding (in other words, you total up all of the government securities that have to be paid back and that is the total U.S. debt).
Right now, it is about 14 trillion dollars.
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How do governments pay debt back?
They do it by issuing new debt (they take out new loans to pay the old ones back).
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Let’s break the loans down-

There are Government Bills (T-Bills):
These are typically loans for less than a year.

There are Government Notes
These are typically loans for 2 to 10 years.

There are Government Bonds
These are typically loans for more than 10 years.

So you can see that, when the government borrows money, it has a choice as to when they want to pay those loans back.
Really the loans never get paid back. When the securities become due to be paid back, the government sells new securities to pay for the old ones.
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One more interesting part that is not as widely known.
When a government sells securities, it is often to foreign investors. This creates a huge demand for the currency as the foreign investors must exchange their own currency for the currency of the country selling the securities. This strengthens the currency of the country selling the securities.

In the case of the U.S., this is how the U.S. offsets its huge trade deficit. In other words, selling government securities is why the USD does not weaken due to the huge trade deficit.

Debt1

US Debt Now

The US Debt right now is about 14 trillion
It is expected to hit 15.5 trillion next year, which would about equal the total GDP (the debt will be 100% of total GDP).

About 45% of this debt is owned by China and Japan.

http://en.wikipedia.org/wiki/2010_United_States_federal_budget

The interest payments on the public debt are presently 18% of the federal budget.

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Social Security is not part of the Federal Budget general fund. It is a separate account and has its own source of income. Social Security payments do not go into the general fund, they go in the Social Security trust fund. The trust fund is supposed to be used to pay future benefits.
Currently, there is more being payed into the Social Security Trust Fund than is being paid out to beneficiaries. What’s left over is routinely being “borrowed” and used as if it were general budget revenue. This is part of why in the 1990s we had a budget surplus (the government borrowed all of the excess social security money and replaced it with IOUs and then claimed it had a surplus).

http://www.socialsecurity.gov/OACT/ProgData/fundFAQ.html