nice post …

nice post …

The minimum payment will be based on an amortization schedule determined by life expectancy and whatever interest rate the Federal government is paying on that debt. Yeah, yeah, just work out the average interest rate across all of it. You can’t directly refinance it, but you have the option of taking out a home equity loan and paying off your share of the debt.

Okay, that’s all a fantasy. There’s ample evidence that the average Congressperson doesn’t have the willpower to stay on a sensible diet and exercise regularly, something that would directly benefit them as individuals, so there’s no reason to believe they can actually stop spending our money. However, you can refinance your share of the national debt and it bears a striking resemblance to the plan I just laid out. Steven Landsburg explained how to do it in this column (http://www.slate.com/id/2028) nearly a decade ago.

What’s so wrong with public borrowing? Higher government spending leads to inflation, if it is financed by increasing the money supply. How does this happen?

1. The U.S. Treasury sells U.S. Treasury securities (e.g., bills, notes, and bonds) to the Federal Reserve. The Federal Reserve pays for the U.S. Treasury securities with newly printed Federal Reserve Notes (what you and I call dollars – although Constitutionally, that’s incorrect), or by electronic credit to the Treasury. The Treasury then pays for the higher spending with this new money. The recipients of the new money deposit it in their commercial banks. The deposits serve as reserves upon which more money can be loaned out by the banks in a ratio determined by the Federal Reserve-prescribed Reserve Ratio. Note that the new money becomes what is called “high powered money” when it is received by banks and a multiple of which can be loaned out subject to the Reserve Ratio. No other transaction generates this multiplier effect on the money supply.
2. To get around bond sale limits to the Federal Reserve, the Treasury sells U.S. Treasury securities to the public and the Federal Reserve buys same from the public with newly printed Federal Reserve Notes.

Now, here’s what galls me: how many Senators and Congressmen will admit to you the American taxpaying saver/investor that they are increasing the money supply and depreciating the U.S. dollar through their legislated expenditures?! Of course, they don’t. Instead, they yammer about greedy companies (especially greedy oil companies), stingy oil producing nations, etc.

The debate of whether we should increase the debt ceiling must include whether you and I are happy to bear the burden of inflation’s effects. I’m not.

The longer the insanity goes on, the harder the fall will be when we run out of options. It’s not a matter of if we will wise up — it’s when.

Happy St. Patrick’s Day! It’s that time again… Time to put together my weekly roundup of the best personal finance posts from the MoneyBlogNetwork and beyond.
First off, I just discovered the joy of podcasts… More specifically,…

There is a remarkably large portion of our debt held by foreign countries (i.e. China). If China (or others) thinks the U.S. will default on debt payments, it’ll sell off some or all of the U.S. debt holdings.

This would likely put excessive supply of U.S. debt on the market and drive up the interest rates on U.S. debt so that sufficient demand for the debt is created. End result would be higher interest rates on U.S. debt. Higher interest rates compound our already mind-boggling problem.