Warren Buffett only gets it half right
Economics Without The B.S.**:
[** Double entendre intended.]
He is half right about the U.S. never
going into default because its prints its own currency and sells bonds in its
own currency -- but, Why can the U.S. borrow in its own currency when Argentina
cannot?
The other half: Because the U.S.
throughout its history has always been a productive nation; its productivity
rate of growth has always been greater than the debt load; SO, its
bonds/treasuries have always been looked upon as a risk free investment and
therefore always in demand.
If there were no demand for U.S. bonds/treasuries, the United States would have a debt problem. It is our productivity, over our long history, that fuels the demand for our assets and our currency and our debt/credit instruments.
In summary, there are four ways for the U.S. government to pay its national debt:
1. It can default on the debt -- the United States has never done this in its history.
2. It can inflate away some or all of its debt, by paying for its debt in devalued dollars. The United States has done this in the past, but it is a very rare occasion. Recent examples would be when FDR became president during the Great Depression and through a series of actions took the price of gold from around $22/ounce to over $30/ounce. President Nixon also used this when he took the United States off the Bretton Woods system/gold standard and let the price of gold float rather than be fixed to the dollar ($35/ounce).
3. The United States can take in more revenue than it spends. It did this in the post Andrew Jackson period up to the Civil War. We also reduced our public debt load during Bill Clinton's administration, mainly due to the excess collections on Social Security compared to the dispensions of Social Security.
4. And the usual way we pay for our national debt is by rolling over the debt, that is, issuing new debt to pay the old debt.
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