The problem with your example is the government is not borrowing and investing the money. It is being spent. We are tapping out our reserves and emergency funds. Then when a real crisis occurs the USA will no longer have any credit options. We may dodge any event/crisis from happening, but not a good bet.
This reminds me of realtors talking about how great a mortgage is, you get to deduct the interest from your taxes. Yes but no mortgage payment is even better.
Interesting discussion - thanks! A couple of things to consider:
1) The money is being invested in research, defense infrastructure, educating citizens, and keeping people healthy. Unlike a typical individual, very little of what the government spends is on "consumption."
2) We cannot ever tap out our reserves or emergency funds, at least as long as the rest of the world has faith in us. Because we have a fiat currency, and because that currency is the world reserve currency, we will never run out of money. That is, unless we go so wild with debt or manage our affairs so badly that people will no longer lend to us. From my perspective, it is the litany of Congressional crises and our lack of a reasonable long-term plan for dealing with our demographic issues that puts us in danger. Our levels of debt (and deficit, after the sequester and tax hikes) are pretty sustainable.
3) "No mortgage payment," would be a very bad thing in our case. Significant amounts of US dollar denominated debt held by foreign powers creates a powerful incentive for cooperation. The relationship between the US and China is clearly much better for the fact that we rely on them and they rely on us - part of that is the significant US debt that China holds. Erase all our debts and it would be much easier for the world to kick the US dollar to the curb.
1. To clarify US does not get money returns on its investments.
2. In the short term yes, long term we will not remain reserve currency. All it takes is for a diamond rich African country to issue bonds or currency backed by diamonds. Poof we are second grade.
3. Yes that is true but you are missing the demographics of China. The one child policy is about to kick them in the teeth. Currently China turns in its T-Bills and buys more T-bills thus making our debt seem like interest only. When the money is needed for their internal problems, elderly care, etc T-bills will be converted to cash. The effect could be as bad as an ARM mortgage. We could see debt cost jump to 8 or 12%.
Now about that bullet. If China should suffer a Tsunami like Japan did they many need to liquidate fast for relief efforts. Say sell T-bills for 80 or 90 cents on the dollar. That would push current T-bills to 21%. And the idea of the USA buying back those discounted T-bills will not work cause we would have to sell T-bills to have money to buy with.
US national debt is a two edge sword. I am concerned we are going to hurt ourselves.
