bond market can cover our huge deficit?

[goddess40]

"Goddess if you look into it you will find that the bond market can easily handle the deficit"
I post on the Weight Watchers site, forties Give Peace a Chance thread. The above is a response to my pointing out that bush has not lowered taxes but instead has deferred them for the middle class by running up a record deficit. Has anyone heard this nonsense before?
They have become nastier and nastier as bush looks worse and worse.

[lutherj]

1. They're confused

I think they are talking about treasury bonds covering the trade deficit, which is a different issue. Because the US dollar is a kind of international standard currency, and oil is sold in dollars, foreign countries need to retain large sums in dollars, which they usually invest in US treasury bonds. As I understand it, this is currently covering the trade deficit gap. However, there is the possibility that if the dollar continues to decline that foreign investors would dump the treasury bonds and instead invest in Euros or something, which would cause a financial crisis here in the US. So, actually they are wrong about the federal budget deficit, cavalier about the trade deficit, and don't really know what they're talking about.

[goddess40]

4. thanks, the sad part is they latch on to these ideas...

and they don't let go. I hope you don't mind if I use your explaination, at least the posters on our side will have an idea where our right wingers are getting their 'facts'.

[Turbineguy]

2. Ask them if they are buying bonds

expect: "Oh no, the interest isn't high enough!"

[orwell]

3. Banana Republic

Of course you can float paper in the form of debt. The question is what interest rate you have to pay and how much you are mortgaging the future. The relative collapse in the US dollar is telling you that this deficit is not viewed favorably abroad. Unfortunately, we are now losing control of our ability to ignore foreign investment due to the huge trade deficit. In other words, we run the risk of becoming a Banana Republic.

If debt is created to finance investment, it can be a worthwhile tool. But this debt is financing consumption. The deficits are being run to keep consumer spending levels from falling and to finance growth in defense expenditures. These don't seem like wise investments to many.

If the debt was being used to finance public sector R&D, education, or efficiencies in health care costs, it might be another story.

O