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1. You failed to address Milton Friedman’s view of the whole thing: he is basically arguing that we could be borrowing from the Chinese cheap and lending to around the world at a higher price…resulting in a net gain. This is good for the economy. For tomorrow’s children. This actually helps pay off that scary interest payments you are so worried about.

I am not saying he is right…but it is a possibility.

2. The savers you are so worried about..lets be honest…are not primarily your average joe’s. Its the very Chinese that are sending us cheap money (they represent the bulk of where we get the funding for our debt). You can worry about them if you like, but if they are more than willing to lend us cheap, I see it as irresponsible for us not to take them up on it. Especially since it helps their economy as well - our consumerism is funding a large percentage of their economic growth.

3. Regarding the interest payments - you seem to have missed my point. I am arguing that those interest payments are really really cheap right now(and likely to stay cheap for a while)…so naturally, we (should) have a larger debt than yesteryear.

4. You write, “at some point we’ll saturate the world with these dollars, foreigners will start to question whether or not we can really make good on all the promissary notes, and they will shift away from dollars” Where would they go?

Even among our current financial crisis, the world seems to believe that the USA is the safest place to store your money.

Remember Jon, the United States doesn’t have to outrun the bear…it just has to run faster than the rest of the countries, the bear will get the slowest country. The European Union, Japan, and other industrialized countries have far bigger problems than we do…and crisis’s lately only seem to reinforce that.

In the end, I don’t worry as much about our debt as you do and in some ways encourage it.

No, I don’t pay off my 0% cards. It’s good for me. But it’s bad for the overall economy. When you take a loan at 0% interest you actually increase the total money supply by 10x your loan amount due to fractional reserve banking. Where is the money that you are borrowing actually coming from? It’s actually coming from those that save money, or those that hold money, like the Chinese. When you expand the money supply you decrease the value of the currency they hold.

As banks issue less loans the money supply actually shrinks due to the same fractional reserve principle. The decrease in loans of late is part of the reason the dollar is gaining value.

I don’t have a problem with the Chinese giving me cheap clothes. But what the trade deficit means is of course we buy less than we produce. We give them currency. They give us real goods and services in reply, and they hold our currency. As they continue to hold our currency, and gain interest on it, as with our bonds, our interest payments increase. How do we make these interest payments if we don’t start turning things around? We could reach a point where we can’t tax people enough to make the interest payments, in which case we’d do what we’ve been doing for a long time. We monetize the payment (i.e. just grow the money supply to make the payment). The risk is radical inflation that could capsize us. This is the danger of the constant borrowing, deficit spending. According to such people as Ron Paul, who has proven himself accurate in many of his economic predictions, this is what has happened every time it has been tried. Unpopular wars are fought and paid for with inflation (as happened with Vietnam). The result is pressure on the currency which could cause radical problems.

We’ve been privileged to own the world reserve currency. Everyone needs dollars to engage in worldwide transactions, such as oil sales. So we’ve had the benefit of printing the dollars and sitting on our asses while everyone else does the work. But at some point we’ll saturate the world with these dollars, foreigners will start to question whether or not we can really make good on all the promissary notes, and they will shift away from dollars. Like a bad stock, this could prompt others to do the same and the rug could come out from under us.

But telling the Chinese not to rid themselves of dollars, otherwise they will hurt themselves, is like telling a person not to sell Enron or the value of Enron stock will drop. If the stock doesn’t really have the value that is perceived to exist, then the market is going to drive it down regardless. You can try and get out front of it or be stuck holding the bag. But it’s going to drop.

Russia tried to monetize their debts to sustain their empire, and the result was collapse. We need to reign in our borrowing or face the same fate. That’s my concern.

Jon- I doubt we can have that kind of savings. We would need to built new facilities to house the troops, families and equipment. Additionally, we would need more bases and training facilities that we currently have abroad. More importantly, if we are attack, we need forward operating bases to conduct offensive operations against our enemies. I also want to point out that there are lots of low level diplomatic relationships we have developed becuase of our presence. (Yes, I know, we have embassies for that but why add more government employees when we currently have our military already).

I do agree with you though that we should slash the federal budget. Let’s start with programs that the constitution does not authorize. The military should be one of the last programs to be cut unlike what Barney Frank tell us.