Quote from: nostrum on July 26, 2011, 10:55:12 AM

For example the US's foreign creditors are mainly China and Japan, but the biggest part comes from the Fed itself where the debt is tied to intergovernmental holdings like social security (very bad idea IMO).

Mathmaticly, one department of the federal government owing money to another department of the federal government is comparable to your left pocket owing money taken from your right pocket. For all practial purposes, that money is a fiction even when one doesn't consider the underlying fiat currency to, itself, be a fiction. There is no SS trust fund, as all FICA taxes collected for SS that are not immediately sent back out to pay current beneficiaries is used to buy US Treasury Notes. Which is then used to pay the current bills of the federal government. Thus, when the day comes that the cost of beneficiaries of SS exceed the revenue from FICA taxes, congress must raise taxes on the working population to pay for the differences. And they will no longer have the ability to finance current government largess on SS future payouts. Thus, SS is, by definition, the largest Ponzi scheme in the history of this country. Maybe the world. By the time that this happens, the cost of refinancing the federal debt will have become so burdensome as to make the option of raising taxes to pay for SS beneficiaries a practical and political impossibility. So the only options that will exist for congress is to either default and repudiate all or part of the federal debt, or simply inflate the currency to the point that the SS checks (which cannot practically maintain cost of living increases at the same time) are worth less then the new revenue provided by FICA taxes. Of course, such inflation rates tend to be a vicious cycle unto themselves.