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Author: sykesix Big gold star, 5000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 56736  
Subject: Re: Surowiecki on Soc Sec, Medicare Date: 2/4/2013 3:30 PM
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Since you believe that Obama's budgets are "very constrained", maybe you can explain why there has been more than a doubling of the deficits under the Obama regime (8yr projection from the Obama budget) than under Bush or Reagan? ...

I didn't say "budget" has been very constrained. I said "federal spending" has been very constrained. Those are different words that have different meanings.

This is a common point of confusion I see all the time from conservative posters. They thing because deficits have increased therefore spending must have increased as well. However, that notion is false. The growth rate of federal spending is the smallest it has been in decades, and much smaller than under big spenders like Ronald Reagan.

I've been making this point about Reagan and spending for about 15 years now on the boards, and people are either shocked or just won't believe it. Why believe facts when a myth will do?

... and why do you think the bond market will continue to buy US Treasuries in light of the reckless spending projected in Obama's budget?

Again, you seem confused about the difference between spending and borrowing. I assure you, those are quite different things. The bond market cares not a wit about spending. The bond market cares about getting paid back. That's all they care about and America is the best nation on earth when it comes to getting your money back. After the Revolution, the country was broke and deeply in debt in the form various bonds issued by both the states and the Continental Congress. These bonds had mostly been bought up by speculators. Some argued that it would easiest to ignore the old bonds and start fresh with the new government. Since the governments who issued those bonds didn't really exist anymore and it would mostly benefit a few speculators, defaulting looked like an easy way out.

However, Alexander Hamilton who argued successfully that as a nation, we should honor our words regardless if it was difficult or expensive. The result was the USA has never defaulted on a debt and that is primary reason why the dollar is the world's reserve currency.

The fact the dollar is the world's reserve currency brings us many economic advantages, one of them is that people from other countries are willing to loan us money at interest rates below the rate of inflation. That is a screaming deal from our perspective, and we get that deal only because as a nation we always honor our debts.

As an aside, is the bond market acting like it is concerned about Obama's "reckless spending" as you put it? We borrowing money at below the rate of inflation. Spain and Greece do not get anything close to that deal. Do you know something about economics that the bond market doesn't? Swami says no.

To address your question, there are only two reasons US bonds might not get paid back

1) The cost of debt service becomes so large we don't have money to pay. That theoretically could happen, but right now the cost of debt service--while large in terms of dollars--isn't particularly large in historical terms. For example, the cost of debt service was proportionately much higher when Reagan was president. We paid our debts just fine back then so there is no reason to think we can't do it now or in the future. Take at look at the very same document you linked to. As a percentage, from now until 2022 debt service never even reaches Ronald Reagan levels.

2) Math challenged, teabagging idiots in Congress decide not to allow the Treasury to borrow money for spending math challenged, teabagging idiots in Congress already authorized. In other words, they want to violate the promise our Founding Fathers made at the beginning of this nation.

The fact that the teabaggers are math challenged doesn't bother me. It is more amusing than anything. But their complete and even joyous ignorance of the foundations the nation was built on and their attempts to destroy the institutions that made this nation great--all the while wrapping themselves up in the flag--truly amazes me. The Tea Party is just rationalizations for ignorance and selfishness taken to an extreme.
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