Originally posted by Meh Gerbil
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One day another company you own called Gerbil Construction Inc decides to build a big gerbil wheel. It needs a loan to do so, so it rocks up to the Bank of Gerbil and says "hi, we're a well-established company with a very good credit history, can you loan us some money?" Bank of Gerbil looks over their application and approves the loan. A contract is drawn up regarding the loan that says that Gerbil Construction Inc will pay back the money with interest, and both parties sign it. Gerbil Construction Inc is thus able to go ahead with their big wheel-building project because they now have the money to do so. Bank of Gerbil is in turn able to pay interest to the savings accounts of its customers because of the interest it is getting from the loan to Gerbil Construction Inc. Everyone is happy.
But one day rumor spreads among the gerbil community. A few conspiracy-theory prone gerbils claim that something really really dodgy is going on here because both companies happen to be among the dozens of companies owned by Meh Gerbil. "He's lending money to himself!" they say. "He's stealing our savings and putting worthless IOU's in their place!" others say. The manager of Bank of Gerbil tries to calm the crowd, he reminds them that lending out money is what banks do, that of course they lend money out at interest, because that's how banks work. He reminds the crowd that Meh Gerbil owns two dozen companies, and the fact that two of the companies happen to have interacted is nothing particularly abnormal. He reminds the crowd that Gerbil Construction Inc has existed for more than a century and has a really really good credit history and thus Bank of Gerbil's loan to them is a safe one and much safer than a loan to Dodgy Gerbils Inc who were also trying to get a loan that day but who were denied.
That's what is going on here with the US government. The Social Security fund is essentially a bank who wants to pay interest to the customers who have savings accounts with it. To do that, it loans out that money in order to get paid interest on those loans. The US treasury is an entity who wanted to borrow money and pay it back with interest. So the one took out a loan from the other. That they both happened to be US government entities is largely beside the point since they each operate independently, and there's nothing strange or unusual about such behavior.
repayment of those bonds is dependent upon future taxes.
The system is thus primarily dependent upon the willingness of the market to buy US treasury bonds. Basically the market penalizes countries that don't have a good credit history by charging them higher interest rates for their bonds. Let's say I'm an investor looking to buy bonds. Greece comes to me and says "we want to sell you bonds", and I say "sheesh, not sure if I can trust that you'll actually pay it back. So what I'll do is charge you a 20% interest rate on the bond, because I judge that that balances out the chance that you might never pay it back." The US comes to me and says "we want to sell you bonds", and I say "sure, you've basically never missed a payment in your history, I'll charge you 1% interest on the bond."
As the market gets less and less willing to buy US treasury bonds, the US treasury has to offer better and better deals (i.e. higher interest rates) to convince people to buy the bonds.
It is possible to get a situation where nobody is willing to buy bonds at almost any price, which is called a credit crunch and that is basically economic armageddon depending on how bad it is, because our whole modern global economic system relies on credit being available and bonds happily rolling over.
So far we've never had a credit crunch so bad that it's made the US treasury scream for mercy, but it's theoretically possible. At that point the US federal government would have to step in and come to the US treasury's rescue in some way. There are all sorts of ways they could do it, because remember at the end of the day the economic system works the way it does because the government says so, and if the government really wanted to they could say different. So their options would include things like: (a) simply choosing to have the US Treasury default on all its bonds (which would instantly reduce the amount of US federal debt to zero, and give the US a bad credit history, and the losers would be anyone on the globe who held US treasury bonds... which includes most banks in the world so you'd get a whole lot of banks immediately declaring bankruptcy as a result), (b) immediately trying to use current taxes to pay off the existing debt, (c) printing new money and paying off the debt with that new money. The printing money option would be most feasible, and various economists already think this would generally be a good thing for the US to do at least in part.
I just don't understand how you can call the USA terribly evil and corrupt and claim her citizens are unware of this corruption and then oppose those of us here who say, "I don't want the USA managing my healthcare because her politicians are corrupt." You are asking me to trust a government that you've claimed is untrustworthy, sinister, and lawless.
I think the US citizens should reasonably expect that their government provides them with the basic services that governments elsewhere in the Western world do, and that includes things like roads, police, water, education, and healthcare.
I think that US citizens are naive as to how much power they have to actually fix corruption in their government if they set their minds to it. They moan and whinge about government corruption, but they take it for granted as part of the system and wrongly consider it to be an inherent flaw in government itself, rather than realizing it is fixable and very much optional, and that they ought to be doing something to fix it.
I think that US citizens in general are woefully under-informed about the historical and present actions of their country on the international stage. They seem to have a delusionally over-exaggerated view about how much "aid" and "help" the US gives to other countries, and an almost complete ignorance of the US's long history of supporting dictatorships, and overthrowing democracies, and using military force for commercial interests.
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