Re: National Debt

On May 7, 3:16 pm, Lantern <lanter...@xxxxxxxxxxxx> wrote:
What's the big problem with the U.S. national debt? The carrying
charge on the national debt has stayed the same for years.... 7% of
our national outlays. If we can carry the debt..why is it a problem?
(Ref. pie chart in your IRS 1040 Instruction Booklet, page 83). The
carrying charge for the national debt in the past several years has
been: 7%,7%, 8%, 10% and 11%...in fact the cost of the national debt
has been going down....down I tell you! Borrow, spend...be happy!

The Fed needs some national debt to conduct open market operations
with bonds that are its primary tool for regulating the economy with
the money supply and, thereby, controlling inflation. Some criticism
of a very large national debt follows:

1. If the debt grows so large that it cannot be financed primarily by
the American public and foreign nationals hold too large a proportion
of the debt but decide to cash in all at once, the Fed might
experience both a financial crisis and an international crisis.

2. A run on the Fed might result in the immediate need to collect
funds through additional taxes which could cripple the economy.

3. If the Fed fails to pay bondholders, then future issues of bonds
become impossible to sell.

4. If investors become reluctant to purchase Treasury bonds, the
interest rates might have to soar to attract new buyers. That would
drive up interest rates across the economy.

5. The compulsory sale of bonds by the Fed to finance the debt reduces
the money supply and increases the value of the dollar against foreign
currencies.

.

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