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U.S. Debt and Leveraging

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jaredsmith posted on Tue, Nov 27 2012 11:38 PM

So I'm sitting at lunch with my uncle and we're talking about the National Debt. I say something along the lines of, "we're borrowing too much, inflation's bad blah - blah - blah - and something about Obama and 6 trillion dollars." My uncle counters by saying almost all of that money can be traced back to Bush's regime and the debt can be used by way of leveraging (weren't his exact words).

I'm not even clost to being an expert on econ. so can anyone explain to be the Austrian perspective on leveraging (within context to the National Debt)? And what it is really...

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“We’re going to go bankrupt as a nation,” Biden said.

“Well, people - when I say that - look at me and say, ‘What are you talking about? You’re telling me we have to go spend money to keep from going bankrupt?’” Biden said. “The answer is yes, I’m telling you.”
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idol replied on Tue, Nov 27 2012 11:54 PM

Bush added about 6 trillion to the debt. Obama has also added about 6 trillion but obviously he's done it in half the time so that isn't good. Debt is basically issued US Treasury bonds. We pay interest on the issued debt to bond holders, which comes out to a couple hundred billion a year (a big drop in the bucket). If that interest rate goes up a couple percentage points, we will have a much bigger deficit and that alone would cause a currency crisis because we would either need to default on our debt (significantly hurting the value of the dollar) or hyper inflate (destroying the value of the dollar; think Germany after the first world war). If by leverage he means we go into debt in order to spend more, sure but I wouldn't argue that that is a good thing...

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In context of private property, debt can be used to increase leverage, which is amplification of both profits and losses. For an entity that consistently loses money increasing leverage is a bad idea. Imagine you are bad at playing poker. Would it be wise to try and counter your lack of skill by borrowing money for bets?

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