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Warren Buffet on effects of Deficit Spending

In this 2007 documentary, Warren Buffet said this in an interview: "If 15 or 20 years from now, 2 or 3% of the GDP is being paid abroad merely to service the debts or the ownership of assets that have been incurred because we're over consuming.. That will be politically unstable"
http://www.youtube.com/watch?v=O_TjBNjc9Bo&feature=youtu.be @ ~21 minutes in.

Could someone with a good understanding of the numbers estimate how much is currently being spent just on the interest payments for the $5.6 trillion of US debt currently held by foreign nations? (source: usdebtclock.org)

I'd imagine the US is well on their way to Buffet's 2-3% that he mentioned 6 years ago.
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Comments

  • PerryHallPerryHall Posts: 45,301 ✭✭✭✭✭
    Interest rates are historic lows now. What happens when interest rates go back up?

    Worry is the interest you pay on a debt you may not owe.

  • VanHalenVanHalen Posts: 3,789 ✭✭✭✭✭


    << <i>Could someone with a good understanding of the numbers estimate how much is currently being spent just on the interest payments for the $5.6 trillion of US debt currently held by foreign nations? (source: usdebtclock.org) >>



    Okay, we're paying interest to foreign nations on $5.6 trillion in debt today and our nominal GDP is around $16 trillion for 2013.

    If we're paying 3% interest on that $5.6 trillion in debt, then that's $168 billion/year in interest to foreign nations. About 1% of GDP (currently).

    As noted by Perry Hall, when The Fed quits buying all the debt and/or interest rates rise? We could quickly get to 2% or 3% of GDP. Don't worry though, the shell game can continue for a long, long time if we play the right cards.
  • coolestcoolest Posts: 2,281 ✭✭✭


    << <i>Interest rates are historic lows now. What happens when interest rates go back up? >>



    Yes, how long can the Fed keep the interest rate at 0%???
  • roadrunnerroadrunner Posts: 28,303 ✭✭✭✭✭


    << <i>Interest rates are historic lows now. What happens when interest rates go back up? >>



    Printing press speed gets increased. Also start printing more $100's than $20's.

    And since our "printing press" is fully digital today...any amount can be key stroked on to the FED/Treasury ledgers instantly.
    Barbarous Relic No More, LSCC -GoldSeek--shadow stats--SafeHaven--321gold
  • derrybderryb Posts: 36,118 ✭✭✭✭✭


    << <i>

    << <i>Interest rates are historic lows now. What happens when interest rates go back up? >>



    Yes, how long can the Fed keep the interest rate at 0%??? >>


    Until the bond market takes them higher. This will occur when US bonds (US debt) see less demand (less faith in bonds). They will have to pay more interest in order to attract buyers. Debt interest is directly related to perceived risk.

    Shouldn't be a problem - US only owes its creditors $17T and is continuing to improve its economic posture. image

    The decline from democracy to tyranny is both a natural and inevitable one.

  • Weather11amWeather11am Posts: 2,021 ✭✭✭


    << <i>Printing press speed gets increased. Also start printing more $100's than $20's. >>



    According to an article I read, the most common bill in circulation is already $100's. image
  • cohodkcohodk Posts: 18,554 ✭✭✭✭✭


    << <i>

    << <i>Interest rates are historic lows now. What happens when interest rates go back up? >>



    Yes, how long can the Fed keep the interest rate at 0%??? >>



    Ask Japan.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • The chit chat around the poker table a few weeks ago was all about the new hundred dollar bill. The topic was that when enough of them were printed they will put a 6 month window out to get the old ones out of circulation and charge a fee to turn in over 100 thousand at a time. Kind of like what they did in Viet nam with the colored script money. The locals were standing by the fence selling it back to the savey GI's for 10 cents on the dollar.
    I would not put it passed this president to do the same....... Just think of all the hundreds overseas in vaults..........

    just Sayin

    Tom
  • vprvpr Posts: 604 ✭✭✭
    It's a bit funny to me that everyone thinks that we are the only ones who have thought of this scenario and that the folks over at the Fed who have much more of an insight into financial markets and who do this day and night are completely oblivious to this scenario. As VanHalen said, this will probably continue on for much longer than expected. The money being printed is just sitting in the banking system and is not going into the economy. Besides, there are many things the Fed can do. Not take interest payments on the treasuries it holds. Ask Japan to not take interest on the debt it holds etc. A secret default. What can Japan really do? They need us, after all. And so does China. Who else will buy the colossal amount of junk they produce?

    Also note that the US can open up the flood gates and let more immigrants in. Even if per capita GDP drops, overall GDP and tax receipts will go up. And at some point, they can completely get rid of Social Security and just provide everyone who put money in and is too old to work, access to 3 meals at a public soup kitchen. That shouldn't cost nearly as much, especially if the soup is made with some artifically flavored corn derivative and pink slime.

    References: Too many to list. PM for details. 100% satisfaction both as buyer and seller. As a seller, I ship promptly and keep buyers updated.
  • derrybderryb Posts: 36,118 ✭✭✭✭✭


    << <i>It's a bit funny to me that everyone thinks that we are the only ones who have thought of this scenario and that the folks over at the Fed who have much more of an insight into financial markets and who do this day and night are completely oblivious to this scenario. As VanHalen said, this will probably continue on for much longer than expected. The money being printed is just sitting in the banking system and is not going into the economy. Besides, there are many things the Fed can do. >>


    While the FED will continue and even increase QE until they can't, they are running out of tricks. When they do, the Treasury Dept. will take over with capital controls. Look for the bond market to seize control of interest rates and expect less personal control over your money that is held by someone else.

    Do not assume that our economic policy makers are concerned about what is best for the American public. If they were, the American public would currently be better off. You can determine where their concern lies by seeing who in fact is better off. Also, do not assume they are the best and the brightest at what they do. They are, in fact nothing more than former Wall Streeters who continue to represent Wall St. There expertise is in figuring out a way to do what they are told to do.



    << <i>Who else will buy the colossal amount of junk they produce? >>


    They will buy it from themselves with the money they create to do so. It's already being done.



    << <i>Also note that the US can open up the flood gates and let more immigrants in. Even if per capita GDP drops, overall GDP and tax receipts will go up. And at some point, they can completely get rid of Social Security and just provide everyone who put money in and is too old to work, access to 3 meals at a public soup kitchen. That shouldn't cost nearly as much, especially if the soup is made with some artifically flavored corn derivative and pink slime. >>


    The burden that a flood of low income immigrants will put on the entitlement system will be multiple times any gain in tax revenue to fund it. You will, however, see those gates opened, but only because Wall St. wants the low-paid labor pool it will provide.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • Steve27Steve27 Posts: 13,267 ✭✭✭


    << <i>The chit chat around the poker table a few weeks ago was all about the new hundred dollar bill. The topic was that when enough of them were printed they will put a 6 month window out to get the old ones out of circulation and charge a fee to turn in over 100 thousand at a time. Kind of like what they did in Viet nam with the colored script money. The locals were standing by the fence selling it back to the savey GI's for 10 cents on the dollar.
    I would not put it passed this president to do the same....... Just think of all the hundreds overseas in vaults..........

    just Sayin

    Tom >>




    It's not going to happen, because they wouldn't want to piss-off our allies and it wouldn't generate much money (the total dollar figure of all currency in circulation is about $900 Billion).
    "It's far easier to fight for principles, than to live up to them." Adlai Stevenson
  • cohodkcohodk Posts: 18,554 ✭✭✭✭✭
    Do not assume that our economic policy makers are concerned about what is best for the American public. If they were, the American public would currently be better off.


    Americans are not enjoying the "good old days" as they may have 15-20 years ago, not because of current policies, but because of drastically changed demographics. 25% of the population has shifted from being gross contributions to the economy through spending, to gross users (detractors) of the economy through increased savings (less spending) and an exponentially increasing medical costs burden. Short of killing everyone after they are retired for 3 years (which was the life expectancy just 40 years ago), the USA will suffer and have restrained growth until the bulk of the baby boomers have passed.

    The USA is not alone in this predicament. Europe, China and Japan face similar situations, but their populations are or will be soon declining. Growth never comes from diminished internal demand.

    So yes, the majority of the globe will deficit spend. May the hard asset monetarists thrive.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • derrybderryb Posts: 36,118 ✭✭✭✭✭
    Americans are not enjoying the good old days because policy has sent their jobs overseas. Policy is taking more from those who produce and giving it to those who only consume. Policy has devalued what producers do have left in their pocket in the face of rising taxes and growing entitlements. Policy no longer rewards those that save and borrow responsibly. Current policy and the debt or government dependency it encourages are what ended the good old days.

    The decline from democracy to tyranny is both a natural and inevitable one.

  • BaleyBaley Posts: 22,658 ✭✭✭✭✭
    The Fed will eventually raise short term rates in a series of quarter point moves, while continuing QE. The higher short term rates, up to about 2%, will cause the banks to increase lending of excess capital reserves. The increased lending will cause increased investment, which will increase the currently low velocity of money in the economy, providing stimulus. Growth will increase, and with it, longer term rates will begin to rise. And then the Fed will begin to taper.

    Liberty: Parent of Science & Industry

  • cohodkcohodk Posts: 18,554 ✭✭✭✭✭
    because policy has sent their jobs overseas

    Uneducated jobs were sent overseas. Educated jobs came to America--doctors, technical and research.


    Policy is taking more from those who produce and giving it to those who only consume.---supports my idea of aging demographics.


    Policy no longer rewards those that save and borrow responsibly--the stock and bond markets are at or near all time highs. Clearly savers have benefited.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • derrybderryb Posts: 36,118 ✭✭✭✭✭
    because policy has sent their jobs overseas


    << <i>Uneducated jobs were sent overseas. >>


    manufacturing jobs were sent overseas. Are these the uneducated people you refer to?



    << <i>Educated jobs came to America--doctors, technical and research. >>


    Most of my doctors are now foreign nationals. The educated jobs that come to America often bring a body with them.


    Policy is taking more from those who produce and giving it to those who only consume.


    << <i>---supports my idea of aging demographics. >>


    demographics? It's more like an increases in dependency on the government to provide for basic needs for Americans of all ages and all backgrounds.


    Policy no longer rewards those that save and borrow responsibly


    << <i>the stock and bond markets are at or near all time highs. Clearly savers have benefited. >>


    Savers are watching their savings lose money each year. High rollers, hedge funds and the investment arm of too big too fail banks have clearly benefited. The rich are getting richer at the expense of the not rich, who are getting poorer.

    The great American economic experiment started unraveling in 2008 and the great American spirit that you so firmly believe in has sat back and allowed it to continue.

    Maybe you should change sides and start warning them. image

    The decline from democracy to tyranny is both a natural and inevitable one.



  • << <i>Americans are not enjoying the good old days because policy has sent their jobs overseas. Policy is taking more from those who produce and giving it to those who only consume. Policy has devalued what producers do have left in their pocket in the face of rising taxes and growing entitlements. Policy no longer rewards those that save and borrow responsibly. Current policy and the debt or government dependency it encourages are what ended the good old days. >>



    Derryb, u hit the nail on the head! Off shoring of labor is an economic disaster for First World Nations.
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