What an ignorant statement!
Santelli never ceases to surprise. I hope CNBC is getting their money's worth insofar as ratings go from this guy, because they certainly aren't getting any useful information or insight for their audience.
Santelli started his morning rant by making the idiotic statement that we often hear that every child born in the USA comes into the world with a debt of $50,000. That's according to the debt clock, he says. First of all, what's with this debt clock anyway? Does anyone realize that 500 years ago the world went to double entry accounting? That means the way we account for things is as follows: for every debit their is a credit, for every liability there is an asset and for every debtor there is a creditor. So the debt clock is also an asset/savings clock.
Asset Clock! (h/t Matt Franko)
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This is an inarguable accounting FACT (unless you're Santelli, I guess). Once you understand this then every time someone mentions the debt clock they are obligated to state that whatever's on the debt clock ($15.2 trillion), is balanced by an equal amount of assets. This is not opinion or conjecture or wishful thinking. It's a fact.
So let's look at the debt (assets). What is it? What is it comprised of and more importantly, whose debt is it?
The debt is the debt of the government. How do we know this? Because the debt mongers themselves tell us. Not a day goes by without some guy like Santelli or Pete Peterson or David Walker or some other member of the Debt Doomsday crowd admonishing us that the government has to cut its debt. They point to it. They actually say, "Look...look at the $15.2 trillion of debt that we have." The number they are pointing to each and every time happens to be the amount of U.S. Treasury securities outstanding. By the way, as long as we're talking about Treasuries, what are they, exactly? Asnwer: Treasuries are nothing more than dollars with a term and a coupon. The government printed up those $15.2 trillion dollars (in excess of taxes collected) over the past 234 years and paid them to people for goods and services or transfer payments. The dollars now sit in Treasuries because they earn some interest.
I've just answered my second question: Who holds the debt? People hold the debt. People were paid that money when the government spent it. (The government also owns some of its own debt. That's like my right pocket owing money to my left.) The point is, people OWN those dollars. It's not a debt to them, it's an ASSET!
You don't think so? Tell ya what...go into a bank and ask for a loan. The banker will probably ask you to to fill out an application where you will need to list your liabilities and your assets. If you own Treasuries I'm sure you will be putting that down under the "asset" column.
And what about Santelli? What does he think? I wonder if he even owns any Treasuries. If he does, does he consider that a debt? A burden? Hey Rick, if those Treasuries are a burden to you I'd be HAPPY to take them off your hands! And while I'm at it, I'd be happy to take Warren Buffet's $40 bln burden of Treasuries off his hands along with Apple Inc's $100 bln burden. In fact, to show you what a nice guy I am, I will take the whole, $15.2 trillion off everyone's hands right now.
You see, the $15.2 trillion debt of the government is an asset to the non-government. It represents a portion of the financial assets denominted in US dollars that we own. That's right...it's not what we owe, it's what we OWN! It's part of our wealth.
That baby that Santelli talked about at the beginning of his rant is not born with a $50,000 debt, but rather, with a $50,000 asset. Maybe not directly owned in the form of a Treasury, but owned indirectly in terms of his or her share of national national wealth. Telling young people to "vote against that" as Santelli did, is pure stupidity. But, hey, what did you expect from him?
34 comments:
Along these same lines, what is the total sum of US government foreign government debt assets? If every liability of the government is a liability of our children, let's make sure we count every asset of the government as an asset of our children.
Right!!
Another attempt at a "debate" with Santelli? He's already forgotten about you quicker than a bad enchilada.
I never had a debate with Santelli. He can't debate me. He's not capable of debating me. Furthermore, I don't care if I ever go back on that show ever again. It's not important to me, but pointing out stupidity, lies and subversion is. Would you like to tell me that every baby owes $50,000 now?
"That baby that Santelli talked about at the beginning of his rant "... is actually more intelligent than Santelli himself!
Reader/commenter 'Leverage' has the data.
Santelli's Neocortex has apparently completely shut down here.
How can he get out of this???
Resp,
"it's not what we owe, it's what we OWN!"
On the whole, it's actually what THEY own (foreigners, the rich).
Nice fat payments directly from the government. The richer you are, the more the government pays you.
Sorry can't resist.
The United States is a debtor nation. It's net debt is around $4T.
:-)
As of January 2011, foreigners owned $4.45 trillion of U.S. debt
As of May 2011 the largest single holder of US government debt was China, with 26 percent of all foreign-held US Treasury securities (8% of total US public debt).
This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a June 2008 report issued by the Bank of International Settlements, which stated, "Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely."
http://en.wikipedia.org/wiki/United_States_public_debt#Foreign_ownership
Hey Anon,
"Foreign investors in U.S. dollar assets"
Please tell Santelli!
Resp,
"The United States is a debtor nation. It's net debt is around $4T."
Yeah, four-trillion-DOLLARS, so what's your point?
It's the same as the national debt being $15.2 trillion. It's dollars, nothing the gov't can't satisfy and an asset of the non-government, both domestically and the rest of the world.
"Yeah, four-trillion-DOLLARS, so what's your point?"
Which means the US is a debtor with most of its debt in dollars. Simple.
Its not the same as the national debt.
Yes, foreigners can exchange those dollars for goods and services if we feel inclined to sell to them. Or they can use them to satisfy tax liabilities.
what if they start dumping their treasuries?
I'll take Santelli's share AND relieve him of his future Federal 'debt' obligations if he gives me $50,000 now (subject to the condition that the US Federal 'debt' is not converted to a foreign-denominated currency later).
Then he can rest easy.
The foreigners have sent US goods and services and they are happy to hold government liabilities that cost nothing to produce for the government. All the deficit hawks are always talking that you can't create value by printing. It appears that value is sent to US for the print. What are you complaining about Ramanan. That US is benefiting at the expense of the rest of the world?
"Yeah, four-trillion-DOLLARS, so what's your point?"
Which means the US is a debtor with most of its debt in dollars. Simple.
Its not the same as the national debt."
If a foreigner owns 4 billion (I use the SI system) in USD denominated treasuries he can be repaid in USD, which the same issuer of these securities can issue.
So the only problem here is an eventual depreciation of the USD if these foreigners don't find much use on USD and buy other currency with these USD. ¿What's the big deal then? Unless that happens overnight (unlikely) there isn't much trouble.
I bet you that with current liquidity, market depth and trading algorithms foreigners could unload both treasuries or the USD they get paid on maturity in weeks and the market wouldn't move at all. Remember what Mike says usually: "XX trillions of USD have been rolled over this year alone", this happens with yields going historically low!
Unless you have some sort of MadMax scenario this still is a non-issue. Even if all these USD were sold to people who can make use of them (to pay taxes), then would work to correct the current account and balance of trade to a new equilibrium (as well as demand and employment leakage). Suddenly all the 'free lunch' would be corrected. Sure, a Mad Max scenario is possible, but what's the point of discussing such scenario? We as well could end being goldbugs, wearing tin-foil hats and posting all the day in ZH, etc. etc. etc.
I would worry the day taxation in USA is as dysfunctional as in Greece, though. That would be worrying!
Matt,
"Reader/commenter 'Leverage' has the data.
Santelli's Neocortex has apparently completely shut down here."
Hehe thanks, you just have to look at his face when he starts screaming in the video, 'out of his mind' as colloquially would be said.
Here's Brad Pitt's take:
http://www.zerohedge.com/news/santelli-encumbered-youth-us
This whole concept comes from the fact that the the USA has issued - and not taxed back - a lot of fiat currency over the decades.
Good thing all that currency is floating around, otherwise everyone with transactions to denominate ... wouldn't be able to denominate them!
Does building the circulating currency stock of the USA constitute a "debt" in any functional use of the term? No. The only consequence of managing the supply of fiat currency is inflation or deflation, IF we exceed supply tolerance limits.
Nothing to see here folks. Move along.
What's that you say? By exhaling, we're building up a CO2 deficit? Every baby born in the US inherits what, 5lbs in CO2 debt? Say it ain't so!!!
Will we all be waiting to exhale someday?
Lev,
Thanks again for your technical inputs on this.
I encourage you to follow up and seek to build knowledge on this phenomenon ie human brain functions of the moron.... again it is truly fascinating to watch this.
Resp,
Ramanan: "It's net debt is around $4T."
And it's net assets are what exactly? beowulf posted on this previously.
The 4T in debt to foreigners means that they hold 4T in USD that can be spent in the US on goods or invested in assets. If a foreign holder of dollars sells those dollars, then the claim on goods or assets passes to someone else?
So what? If the purchaser spends on goods, then net exports rise, which would have been the case if their had been a trade balance. So it cost the US some interest.
If they invest in the US, then that increases US investment in either capital goods or land, and if they purchase financial assets like equities, then it shifts the external saving to US private from US public.
I fail to see the dire significance of this. Perhaps you will elaborate either here or on your blog.
"This exposure to potential financial or political risk should foreign banks stop buying Treasury securities or start selling them heavily was addressed in a June 2008 report issued by the Bank of International Settlements, which stated, "Foreign investors in U.S. dollar assets have seen big losses measured in dollars, and still bigger ones measured in their own currency. While unlikely, indeed highly improbable for public sector investors, a sudden rush for the exits cannot be ruled out completely.""
And exactly what would happen then? The fx rate would fall, and US exports would soar, which is exactly what the US is looking for. It would let the USD drop about 30% and then intervene, letting the ROW's heads explode as their exports were priced out of the market.
Thinking Fast and Slow - Daniel Kahneman ... Not a bad place to start. You'll find yourself looking at more of his work, I'm sure.
Apj
apj,
book review:
http://www.nytimes.com/2011/11/27/books/review/thinking-fast-and-slow-by-daniel-kahneman-book-review.html?pagewanted=all
resp,
Tom,
"I fail to see the dire significance of this. Perhaps you will elaborate either here or on your blog."
Sorry didn't see this earlier but there's a general tendency to view money as an asset without being a liability and this is a part of it.
It's not the most straightforward thing but I have attempted to do this more in the comments in other blogs than my own (especially because it took me to realize this for a while). Maybe someday I will try to come up with something simpler.
Ramanan:"Maybe someday I will try to come up with something simpler."
I think we need to distinguish real resource constraints from financial issues.
The actual problem the world faces is with respect to production (supply, investment-based), distribution (markets, price-based), and consumption (demand, income-based), but nominal issues largely involving distribution are getting in the way of creating an interdependent and self-augmenting global economy.
As I have said from the beginning, trusting floating fx rates to do the job is too neoliberal a solution for me. We need to do better by applying knowledge. It's basically an engineering problem and finance should not be permitted to get in the way. Too much is at stake.
"That baby that Santelli talked about at the beginning of his rant is not born with a $50,000 debt, but rather, with a $50,000 asset. Maybe not directly owned in the form of a Treasury, but owned indirectly in terms of his or her share of national wealth"
Nice switch around, but way too simplistic. Who actually gets the wealth? Who gets paid all that interest on the debt? The more money you have, the larger the cheques you receive directly from the government. Reverse socialism.
Then there are all those foreign entities getting their frequent cheque direct from the US.
Yes the government spending may have benefitted people from across the social spectrum. It also helped to blow people up in Iraq and Afghanistan. Is the US still paying interest on the money it "borrowed" to pay for Vietnam?
Yes the debt is someone's 'savings'. But whose exactly? And what did the debt pay for in the first place?
Tom: trusting floating fx rates to do the job is too neoliberal a solution for me. Tom, you give in too much to, you are too ensorceled by Ramanan's nonsense. What job is there to do? What problem is there that needs a solution? What imbalance?
A country should use the great benefit of foreign savings of its currency wisely. Just like you should use the proceeds of a bank loan wisely, to build up your business, obtain inventory of things you think might become scarce, and not spend it on cocaine.
Really, that is all. If the floating rates policy leads to a stronger currency, bigger CADs & trade deficits, whoopeee! - that is something good for you, not bad.
If someone else insists on acting crazily to make you wealthier, why should you fight him? You can always just give him the same kind of free gift if you think he is somehow distorting the world economy.
Calgacus, I am not responding to Ramanan's argument about unsustainability. I am saying that morally and geopolitically, too, coordination in developing a global economy is superior to a bunch of financiers taking the lion's share and throwing millions and maybe billions of people under the bus. It's insanity. In addition, as Roger has pointed out we can all have more and our children and theirs can look forward to a better life.
The reality is that global warming is already beginning to bite and this will lead to a resource race that looks like it will result in conflict. That's not me talking but the Pentagon and the German military, too, both of which have voiced their concerns publicly.
Meanwhile, the US position was expressed by Poppy Bush circa 1995, when he said that the American standard of living was not negotiable, even though its involves 5% of the global population using a disproportionate amount of the resources. And look at the distribution of global wealth.
This on track for increasing conflict.
What does anyone think that the GWOT is about. It's about the US geo-strategy of dominating the energy-rich regions of MENA and central Asia, and the push back against that, since none of those countries are strong enough to oppose NATO or even the US alone as state actors.
Does anyone really think that BRIC is just going to continue to roll over before the US forever?
This is the real "case for concerted action."
won't offshore windfarms, nuclear energy electric cars and skyscraper food factories save the day?
y, the lobbying against this by the energy industry is fierce. The other issue is not only technological innovation but also scale up. It takes a long while to scale up at the national and international level, As scale up accelerates, the cost of alternative components decreases with volume, further innovation spurred, and new technology brought on the line to improve efficiency and effectiveness. The existing energy industry realizes this and is attempting to first slow the process down and then dominate it when it becomes TINA for them.
There is a good chance that the next burst will be fracking natural gas. That could extend the shift to alternatives for at least a decade. There is also going to be a lot of pressure to use the huge coal reserves that the US has available by interests like Koch Industries.
Thankfully, Fukushima has soured the public on nuclear somewhat, so unless the industry can convince the public that a safer course is available in constructing new plants, that is probably off the table due to "not in my backyard" pressure.
The other positive (sort of) development is the rising awareness on the part of the public that global warming is resulting in increase weather disasters. But that hasn't yet translated into a popular demand to reduce carbon emissions.
Surprisingly to me, too, is the general public's lack of concern not only with global warming but also pollution. About two-thirds of the people in the US are breathing unhealthy air on a regular basis and stay-inside smog days are accepted in many places as just a matter of course.
Without a rising level of collective consciousness about consequences of the present course and available options, the future is bleak. The energy industry is doing all it can to sew disinformation and to lobby politicians against taking action, e.g., threatening to mount primary challenges and fund opponents.
What kind of nation allows a "national debt" for anything that doesn't benefit ALL the people instead of a few ? Our ND is total usury, so much for Bible toting republicans/ John Law and all that/ total "wealth management" and a basic flaw in our original concept of a "Constitution". You do NOT sell a country and it's people to the highest bidders. You issue GNP based fiat money under strict controls overseen by the states with their powers of nullification (10th) to have many eyes and minds to the task to prevent overprinting to guard against inflation and tax fairly to prevent delfation, etc. There should never be the need for a "deficit" leading to a "national debt"...just print and tax fairly, while encouraging business growth, not allowing free expatriation of resources and other forms of wealth depletion to ruination of a country "as the rich see fit", true to no nation on earth/ total usury logic/ debt slavery/ agenda 21/ ...and the private federal reserve banks printing money as if they owned it to lend/spend or hoard as they see fit instead of being controlled or even taken over by congress, by the federal equivalent of eminent domain like the Bank of North Dakota, the only public bank in the country...since 1919 and a direct reaction against WS and JPM's "fed". He who prints money, ie. "coutnerfeits" (art.1, sec. 8, par. 6), owns the world and it's nations which is against all rules of fairness in mankind and leads to slavery of all sorts for the masses while citadelling the few chosen usurpers. Ben Franklin was right with his colonial scrip and continental, but he lacked the modernity to keep it happening... or there wouldn't have been an "America"...think about THAT !
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Right. This was debated at the inception of the country and unfortunately Alexander Hamilton (representing banker Robert Morris) won that debate.
The essence of the debate was interesting. It was essentially the interests of America v. the interests of Americans. Hamilton argued that the newly founded state needed to be strong and centralized to compete in a hostile world, while populists and democrats argued that a powerful centralized state was not good for Americans in that it would result in control by the privileged, i.e., property owners (populists' concern) or financiers and industrialists (democrats' concern).
We are still engaged in that debate, and the strange thing is that many people are on both sides at once, not seeming to realize that they are incompatible at the core.
TH; I consider Hamilton's argument a non-sequitor. Borrowing gold from the enemy to start a bank has nothing (but bad) to do with monetary policy IMO and is a ruse, dodge or deflection from the real intent he had with his "buddies" in England who still own the BONY today, which is the big/bad fed's home turf right ? thank goodness he didn't last long enough to be "considered" for potus.
"Where do you think the government money comes from?"
In the US, currency (reserve balances and bank notes) is issued by the Fed, and coin and treasury securities are issued by the Treasury. These are government liabilities and when held free and clear by non-government entities they are assets and constitute non-government net financial assets in aggregate on non-government entities balance sheets. (Of course, rb borrowed from the Fed also have a liability on the side of the borrower in addition to being bank assets, and this nets to zero) If the liability is entirely on the side of the government as it is when government purchases assets from non-government, pays interest, or makes transfer payments, these assets are non-government equity. Government reduces those assets and equity by withdrawing currency, ordinarily in the form of rb corresponding to drafts drawn on bank deposits and settled by banks. It's all in the accounting records.
Banks issue credit money which is promise to settle in government money (currency in the form of rb to clear drafts or cash at the window) on demand. Banks can issue credit denominated in the unit of account, in the US the USD) but they cannot issue currency, since the government is the sole provider of its currency.
The US federal government is the sole issuer of USD and everyone else is a user including state and local governments as well as households and firms, and the external sector using USD.
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