1. Myth No. 1: China is bankrolling the U.S.

“Nearly all of our public debt is held by U.S. banks and by the American public. China holds around 10% of it and believe me they don’t think they are doing us any favors by investing in Treasury bonds.

Yet you read in the paper that you have to treat China with deference because they are such important holders of U.S. debt.

How did China become the owner of so much U.S. debt? It’s because Walmart bought a few hundred million dollars of things from China and had to pay them for it. So Walmart calls JP Morgan and puts those dollars in a China bank account run by JP Morgan in New York. That money then gets invested in Treasury bonds.

The money didn’t disappear and go to China. The money is still in the U.S. economy. Foreigners own about $23 trillion of American assets, but Americans own about $20 trillion of foreign assets.

If foreigners buy U.S. Treasurys, that is fine for the U.S. financial system as a whole. Regardless of the size of our trade deficit, which is a separate debate, it is still a myth that Asian countries are bankrolling the U.S. and that we need China to lend us money to pay for our government’s obligations. Countries that sell more goods and services to the U.S. than they buy from the U.S. end up with trade surpluses in dollars which must be held in dollar assets. These countries can only do three things with those dollars: buy U.S. goods, buy U.S. assets like government bonds, or exchange those dollars for another currency.”

Myth No. 2: Treasurys crowd-out private financing

“If you are I have $10,000 to buy bonds and we decide to invest it all in government savings bonds instead of in corporate debt, then in that case there is less money for the other asset class. But in the financial system, if Goldman Sachs buys Treasury bonds, the Treasury distributes that money to other markets — money markets mutual funds, for example — or another investment. If we invest, the money is gone for us, but if the government issues more debt to finance its budget deficit, the funds available for the private sector are not reduced by comparison. The Treasury cannot increase or decrease the funds available in the economy for private investment.”


Myth No. 3: Saving more means economy will grow faster

“No nation can save its way out of a weak economy. If I save by spending less per week on coffee at Starbucks, then that employee at that particular Starbucks has less customers to attend to, which possibly means less hours worked, which means less money for that employee to spend. So I’m not spending anymore, and now neither is that Starbucks barista because his hours have been reduced. He might even lose his job. Investment has to come first and that will lead to savings. Unless someone spends more on something — whether its consumers, corporate investment, the government, or a healthy blend of all three — then GDP will not increase. Reducing spending and investment in order to save for a rainy day means the GDP will stagnate at best.”

Myth No. 4: Government saving leads to long-term investments

“We are told that if the government had more tax revenues than expenses — a surplus — then that government savings would add to the national savings and investment.

Suppose the U.S. budget was balanced because of a tax hike of $100 billion. Now the government is saving money, has a surplus, and no one can complain about deficits. But what happened? The government took money from people and corporation and used it to pay off Treasury debt.

The government takes the tax receipts and returns it to the public by paying off the principal on Treasury loans. The public uses that money to but back into private sector financial assets. This results ina net change of zero in private sector cash and a net effect of zero on national savings.

Let’s assume there was no tax increase but the deficit through cutbacks is reduced and there is now a surplus of $100 billion. Some people who previously received that $100 billion in terms of employment and retirement benefits, or in a government contract, are no longer getting it.

Aggregate disposable income declines by $100 billion, and personal savings therefore declines by $100 billion, which would lead to less consumption. Getting the government to save more instead of spending more does not directly increase personal savings and investment.”

Myth No. 5: Deficits create tax burdens for future generations

“President Bill Clinton was able to balance the budget for a short period of time in the early 90s because of a booming economy and a tax increase. That surplus didn’t last. They are not permanent, nor do they have to be.

Nearly 20 years after that surplus has been erased to record deficits, taxes are lower than ever. This myth states that deficits are great burdens of repayment for our children because there are more Treasury bonds outstanding that need to be paid off. That would only be the case if you assumed that all of that debt had to be paid off by a certain date. It does not have to be paid off by a certain date. It just gets rolled over.

The U.S. has had Treasury debt outstanding since 1791 and has never paid down the total outstanding. It’s paid off bonds with maturity dates that required them to be paid, but it has often done so by just issuing new debt to pay off principal on outstanding debt reaching maturity.

Issuance of Treasury bonds this year to support a larger deficit this year in an economy of high unemployment will not cause greater tax burdens for the future.”

Myth No. 6: U.S. will face Greece implosion if fiscal deficit not reduced

“The U.S. does not have the same challenges that countries like Greece faced in the eurozone. Euros can leave Greece and go to Germany and still be euros. But dollars cannot leave the U.S. financial system and still be dollars.

To leave the U.S., dollars have to be traded for something else. The ratio of Treasury debt held by the public to GDP is around 65%, while it is around 200% for Japan. Japan has deficit problems, too, but last year, before the natural disasters hit, Japan’s GDP was growing by more than 3%. It had no inflation and unemployment was only 5%. Despite all the fears about Japan’s debt burden being over 200%, its economy outperformed the U.S. and Europe.

The U.S. is not going the way of southern Europe and to suggest so is a total misunderstanding of the U.S. financial system. It is important that the U.S. government works towards a more reasonably balanced budget, but only during times of strong economic activity and only when done over the long term, not just a year or two.

But when it comes down to U.S. Treasury debt, people need to keep in mind that when that debt retires, people either put that money into more Treasury bonds, transfer into a cash-only deposit, or buy some other U.S. dollar asset. That’s not the case in the Eurozone.

You can sell your Italian bonds, pull all of your euros out of Italy and invest those euros in Germany instead, which means the money is gone from Italian assets. The U.S. does not have that problem.”

,,,,http://www.forbes.com/sites/kenrapoza/2011/12/05/author-examines-six-myths-about-u-s-economy/2/

I suppose it's your choice whether or not to accept a comforting lie or an ugly truth. There is enough FDIC insured derivatives in the European market to utterly destroy the value of the US dollar, adding $2 million dollars of debt per capita to our already excessive debts. Our daily international debt to other countries is well over $5 billion. Last month's tax revenue in California was down 22% from the year before. Of all places in the United States, California is being hit the hardest, and this collapse will affect everyone harshly before too much longer. I'd like to suggest research on the German currency and how it collapsed and then, compare it to the US Dollar, which is anything but American.


Those who place value in money over people will ultimately wind up with neither. Our neighborhood is working aggressively to be as independent of the current economic paradigm as possible for good reason. If we work together in our own communities to share ideas and methods of producing necessary goods, when it all comes tumbling down, and it will, we wont just survive. We'll thrive. Already, I've reduced expenses in luxury items by well over $7500.00/year, rent by more than $5000.00/year, and food and water is next. All though these changes, my living conditions have actually improved and we have a new baby who is not suffering in the least. In fact, she too is progressing well and has a better standard of living than most because of clean water and healthy food. In our neighborhood, we rarely talk money other than to note how worthless it is. While we still need money for Rent, and utilities, use of it in general is on the decrease.

here is the liberal logic..

overspend and accrue debt to fix a crisis caused by overspending and accrued debt..

its fning brilliant.. we can all see how well it has worked out..

Wall Street's a casino, Congress are players, the people are the service personnel, the FED is the house.....who do you think wins?

I don't see how anyone could believe that the above logic makes any sense at all or has much basis in truth. It sounds like an Obama propaganda line put out to convince the uneducated that tremendous debt isn't harmful.

In fact, every country in history that has outspent it's treasury failed.

Gubmint is the perfect example of the old "Do as I say, Not as I do" line!

"Rules to live by" are the ones they write, but DON'T follow!

"Lead by example"....just not theirs! (They hate competition!)

is Japan a fail?

I think its not as simplistic as people advertise, the explanations above seem very logical to me.

noone is saying that DEBT is a good thing, but perhaps its not the DOOMSDAY some advertise it to be either,,,,

An interesting choice, Japan is one of the shining examples of the ability to export and beats the US in every category of export except weapons and food. They are also an example of an aging population. Japan has the ability to bring in tons of cash from cars, computers, copy machines, calculators, consumer electronics like DVD players and the like. The US lost the manufacturing battle with Japan long ago and is losing it to China now.

A much more appropriate comparison would be the USSR. Their main export was weapons and they matched your post pretty well in that rubles were mostly just used in the USSR.

Where is the USSR now?

The whole concept being presented in this statement is CRAZY. The US is spending 41% of every dollar it brings in to pay the interest on the debt. There are now RECORD LOW INTEREST RATES. Triple the interest rates to something more real and see how much of the US income is needed to pay the interest in the debt.

Hyperinflation will then wipe out the value of the US dollar.

These events occurred in Mexico and the US bailed them out. They occurred in Brazil and the US bailed them out.

There is no one capable or willing to bail out the US.

Spain is failing now. Will the EU bail them out?

http://bostonglobe.com/business/2012/06/08/banking-crisis-threatens-spain-finances/jHAsih4ZE1pEQ1mj9N7PUI/story.html

Spain has the choice of picking up the debt of a failing banking system or asking the EU to do so. Spain is now having the equivalent of the US housing crash that the US taxpayer paid for.

The explanation of the "Myth" above is a blatant lie.