On passing debts to the next generation.

[OldWiseGuy]

Aren't we passing all the assets on as well.

When my brother died he still carried a balance on his home mortgage. His son inherited the house, but had to pay off the mortgage to take title. From his cash inheritance he did, retiring a balance of $60K on a home valued at $200K. Not bad for getting 'stuck' with his father's debts.

The next generation will inherit all the assets of America as well as her debts; all the infrastructure, military assets, lands and waters, etc. Pretty good deal I'd say.

 

[Thunder Peel]

$19 trillion in debt, a sluggish economy and a reduced military hardly qualify as assets.

 

[Murby]

retiring a balance of $60K on a home valued at $200K. Not bad for getting 'stuck' with his father's debts.

Now imagine if your brother had taken out a second mortgage bringing his debt up to $190K and the house was approaching the end of its prime life cycle (50 years old?).. Tack on some student loan, credit cards, etc..
Not such a good deal anymore eh?

But the example is a poor one in the context of what we're talking about. A much better example would be to use a corporation because then we can take into consideration both financial debt and intrinsic valuation.

I'm somewhat of a day trader.. you know, one of those guy who has multiple computer screens will all kinds of graphs and charts spread across them in their home office.. LOL...

When you valuate an equity (stock) of any company, there are two basic major things you must consider.. The numbers on the proverbial books such as income, assets, debts, etc etc.. and another category best described as intrinsic value..

Here's an example.. Take a corporation like Ambarella (AMBA), this is a company that specializes in making tiny lightweight cameras for drones.
The potential applications and market for drones is off the proverbial charts because they can be used for virtually anything and they all require camera's.. and not just any camera, it has to be specialized.

So lets say the company (AMBA) takes on a lot of debt while expanding.. There's no way their current income could pay off that debt.. but a banker lending money thinks that the drone market is going to go ballistic and they company will be producing many more cameras in the next few year than it currently makes. The company also has patents and proprietary technology that always seems to be at least 3 to 5 years ahead of their competition. This would sort of cement their position in the industry. This is called "intrinsic value" and its pretty much the entire thing the stock market is based on. As soon as another company shows up with a technologically equal product, the intrinsic value of AMBA falls because of market share.

Beyond the normal financial numbers that get people in an uproar, the intrinsic valuation must also be considered..

 

[stamperben]

Was the house in disrepair? Was the plumbing leaking, the stairway crumbling, the garage door stuck shut? That's what the next generation is seeing as their inheritance of this nation and they're not too happy about it.

 

[TheNorwegian]

Aren't we passing all the assets on as well.

When my brother died he still carried a balance on his home mortgage. His son inherited the house, but had to pay off the mortgage to take title. From his cash inheritance he did, retiring a balance of $60K on a home valued at $200K. Not bad for getting 'stuck' with his father's debts.

The next generation will inherit all the assets of America as well as her debts; all the infrastructure, military assets, lands and waters, etc. Pretty good deal I'd say.

True, there are many assets. The total value of those assets are higher than total debt. However, in worst case you need to sell some of your assets to cover you debt payments. Which of those assets would you like to sell to China in order to cover the debts? Would you sell them US land, infrastructure, or maybe the military?

 

[The Cadet]

a sluggish economy

I am constantly given the impression that conservatives live in an entirely different reality. The USA is an international powerhouse. Unemployment is relatively low, GDP has been on the rise, the stock market is booming, oil is cheaper than it has been in a decade, and consumption is up. This is not a "great depression" economy. This isn't even a "great recession" economy. We're well on track to "normal" again.

However, in worst case you need to sell some of your assets to cover you debt payments.

This "worst case" would only happen if people refused to buy US debt. But here's the thing - people love US debt. It's selling with no problems at extremely low interest rates (and the fact that the fed is hiking those rates is truly bizarre). So why should we imagine that this worst case could come to pass?

 

[Murby]

I am constantly given the impression that conservatives live in an entirely different reality. The USA is an international powerhouse. Unemployment is relatively low, GDP has been on the rise, the stock market is booming, oil is cheaper than it has been in a decade, and consumption is up. This is not a "great depression" economy. This isn't even a "great recession" economy. We're well on track to "normal" again.

This "worst case" would only happen if people refused to buy US debt. But here's the thing - people love US debt. It's selling with no problems at extremely low interest rates (and the fact that the fed is hiking those rates is truly bizarre). So why should we imagine that this worst case could come to pass?

Are you aware that China is about to surpass us? our educational system is failing, our health care system is a joke compared to others, I could go on and on.
Your view that the USA is an international powerhouse applies only to our military.. We are becoming the bully down the street who has big muscles but no brains.

 

[The Cadet]

Are you aware that China is about to surpass us?

What, the country with a billion people that has absolutely no environmental regulations (to the point where it's really dangerous to breathe the air in Beijing most of the time) or workplace regulations (I imagine if we paid people dollars a day for 12-hour shifts, we could get productivity way up there too) is set to surpass us in terms of overall economic output? Why, exactly, is this surprising to anyone? Why are we measuring our success against them? They have every advantage except time, and all we have is, y'know, basic human decency and human rights. That one is definitely gonna slow ya down. :/ And as Stamperben points out, these problems are going to become serious issues to China's continued growth, as is the massive inequality, lack of basic freedoms, et cetera.

our educational system is failing

I wouldn't call a first-world education, even a mediocre one, "failing". The USA is still a major scientific powerhouse, and more importantly, it's not like this an intractable problem. We don't have to have our education systems suck.

our health care system is a joke compared to others

Again, see education. This is not unfixable.

Your view that the USA is an international powerhouse applies only to our military..

Well, there's also just diplomacy in general. The USA wields a lot of power on the world stage, and even if that's waning somewhat, there's no reason to think that the USA is ever going to end up leaving G8 at any point in the near future.

 

[stamperben]

Are you aware that China is about to surpass us?

As China’s economy unravels

 

[Murby]

China's "impending doom" is most likely just overblown media attention.

Every equity has its ups and downs.. even the USA.

 

[The Cadet]

China's "impending doom" is most likely just overblown media attention.

Every equity has its ups and downs.. even the USA.

Then I'm not sure what we're worrying about.

 

[essentialsaltes]

Aren't we passing all the assets on as well.

As they say, you can't take it with you.

The next generation will inherit all the assets of America as well as her debts; all the infrastructure, military assets, lands and waters, etc. Pretty good deal I'd say.

If we spent more on infrastructure, it would be a better deal. Some military assets, like bombs, will not be left behind. We're buying them on credit card, blowing them up, and the only thing we leave behind is the bill and a quickly dissipating whiff of explosive smoke. About the same as buying a house and burning it down.

It's all a matter of balancing out who gets the benefit and who gets the bill.

 

[TheNorwegian]

I am constantly given the impression that conservatives live in an entirely different reality. The USA is an international powerhouse. Unemployment is relatively low, GDP has been on the rise, the stock market is booming, oil is cheaper than it has been in a decade, and consumption is up. This is not a "great depression" economy. This isn't even a "great recession" economy. We're well on track to "normal" again.

This "worst case" would only happen if people refused to buy US debt. But here's the thing - people love US debt. It's selling with no problems at extremely low interest rates (and the fact that the fed is hiking those rates is truly bizarre). So why should we imagine that this worst case could come to pass?

I do not belive "worst case" will happen. I was just explaining what may happen with too much debt.

However, there is a marked turn away form US dollars to other currencies taking place. This is a development that will take decades, but it is definitely taking place. The low interest rates are all over the place, not just in US dollars

 

[cow451]

Are you aware that China is about to surpass us? our educational system is failing, our health care system is a joke compared to others, I could go on and on.
Your view that the USA is an international powerhouse applies only to our military.. We are becoming the bully down the street who has big muscles but no brains.

I know well two people that have lived in China most of the past two years. They would belly-laugh at your contention. They have polluted the air terribly in many urban areas, so they will definitely need universal health care to address their lung ailments.

That is not to sat the US is without major problems, including health care. But the US and China are so entangled economically that armed conflict is for video games.

 

[OldWiseGuy]

$19 trillion in debt, a sluggish economy and a reduced military hardly qualify as assets.

Assets to some, liabilites to others.

Now imagine if your brother had taken out a second mortgage bringing his debt up to $190K and the house was approaching the end of its prime life cycle (50 years old?).. Tack on some student loan, credit cards, etc..
Not such a good deal anymore eh?

But the example is a poor one in the context of what we're talking about. A much better example would be to use a corporation because then we can take into consideration both financial debt and intrinsic valuation.

I'm somewhat of a day trader.. you know, one of those guy who has multiple computer screens will all kinds of graphs and charts spread across them in their home office.. LOL...

When you valuate an equity (stock) of any company, there are two basic major things you must consider.. The numbers on the proverbial books such as income, assets, debts, etc etc.. and another category best described as intrinsic value..

Here's an example.. Take a corporation like Ambarella (AMBA), this is a company that specializes in making tiny lightweight cameras for drones.
The potential applications and market for drones is off the proverbial charts because they can be used for virtually anything and they all require camera's.. and not just any camera, it has to be specialized.

So lets say the company (AMBA) takes on a lot of debt while expanding.. There's no way their current income could pay off that debt.. but a banker lending money thinks that the drone market is going to go ballistic and they company will be producing many more cameras in the next few year than it currently makes. The company also has patents and proprietary technology that always seems to be at least 3 to 5 years ahead of their competition. This would sort of cement their position in the industry. This is called "intrinsic value" and its pretty much the entire thing the stock market is based on. As soon as another company shows up with a technologically equal product, the intrinsic value of AMBA falls because of market share.

Beyond the normal financial numbers that get people in an uproar, the intrinsic valuation must also be considered..

I'm talking about public debt, not private debt. Wall Street doesn't own our military, national parks, highway system, etc.

 

[OldWiseGuy]

As they say, you can't take it with you.



If we spent more on infrastructure, it would be a better deal. Some military assets, like bombs, will not be left behind. We're buying them on credit card, blowing them up, and the only thing we leave behind is the bill and a quickly dissipating whiff of explosive smoke. About the same as buying a house and burning it down.

It's all a matter of balancing out who gets the benefit and who gets the bill.

It's all a pyramid scheme. Which works well if you don't outsource the base of the pyramid.

 

[OldWiseGuy]

True, there are many assets. The total value of those assets are higher than total debt. However, in worst case you need to sell some of your assets to cover you debt payments. Which of those assets would you like to sell to China in order to cover the debts? Would you sell them US land, infrastructure, or maybe the military?

No need to sell to foreigners, there are plenty of domestic buyers. Developers would love to get their hands on our state and national parks and forests. Besides it's illegal to sell our land to foreign countries.

China buys our bonds to protect their holdings of our currency, so in their case the lender is slave to the borrower.

 

[TheNorwegian]

China buys our bonds to protect their holdings of our currency, so in their case the lender is slave to the borrower.

I know China is "bound" to keep buying US debt. But I am sure China does not want it to continue that way, and so they are actively seeking alternative investments. China is very active in buying resources and companies in Africa, Europe and North America. That way they will slowly untangle themselves from the bind. This will of course take time, but it must surely be an important goal for China

 

[cow451]

I know China is "bound" to keep buying US debt. But I am sure China does not want it to continue that way, and so they are actively seeking alternative investments. China is very active in buying resources and companies in Africa, Europe and North America. That way they will slowly untangle themselves from the bind. This will of course take time, but it must surely be an important goal for China

Hey! Maybe we can sucker China into fighting Boko Haram and the ISIS-type terrorist groups in Africa.