Can Obama cut America's debt in second term?

(9 Posts)
Hamishbear Tue 13-Nov-12 10:20:10

So when it becomes a viable alternative, what then?

niceguy2 Tue 13-Nov-12 09:45:43

I also doubt the Renminbi will become the defacto reserve currency by 2015 but already more people are holding it. And the longer the US delay the painful choices it must face, the more likely the Renminbi will be one day.

Personally I think it's a way off because the US is still trusted a lot more than China. The US has been an economic superpower for a long time now whilst China only relatively recently.

But if China does keep on growing and developing then yes I think it is certainly a viable alternative. Economically I'd say it already is. Politically though it's not.

Hamishbear Mon 12-Nov-12 14:42:12

So, if the renminbi becomes the reserve currency by 2015 (as some predict - seems perhaps a little premature to me? Although think it's v possible a bit later) - what then? How will this change things? Will it be a 'viable alternative' in your opinion? Thanks.

Agree with niceguy2.

The reason the US gets away with it is because the USD is the prime vehicle currency. For a while there was a possibility that the Euro would assume this role, but that opportunity has gone now that Europe has become a basket case.

Until there is a viable alternative, the US will continue to be able to print money and obtain all the seigniorage gains that go with that.

niceguy2 Mon 12-Nov-12 14:22:28

Indefinitely no. For some time then yes.

The US is in an unique position because it is the world's largest economy and the fact it is the defacto reserve currency. This means there is tremendous confidence in US government bonds since the US dollar is everywhere.

But that confidence is being chipped away slowly as the debt piles up and more importantly there seems to be political stalemate as to how to fix this. Quite when their day of reckoning is coming (assuming they don't change enough) is difficult to predict. If I could predict it with any certainty I'd be a rich man! smile

Hamishbear Mon 12-Nov-12 11:57:52

Thanks. What is the likely scenario if the debt continues to increase dramatically? Can they go on printing money indefinitely?

niceguy2 Wed 07-Nov-12 23:50:21

Cut? Yes. By any meaningful amount? No.

APMF Wed 07-Nov-12 22:58:21

The national debt is like your credit card bill. It gets to the point where you are paying so much in interest that large chunks of your income goes towards paying the interest as opposed to reducing the original debt. Some Harvard economist had a name, which I can't remember, for this threshold.

Add this to reducing tax base because of ageing population and the toxicity of welfare reform.

So I see the debt problem still as an issue in 2016.

Hamishbear Wed 07-Nov-12 16:45:07

Good news he's in but can he and party begin to navigate a way out of debt, more money printing etc in second term? Is there hope?

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