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It still amazes me how governments manage to keep borrowing money while being in constant growing deficit. Is there such thing as a real trust in the future pos

It still amazes me how governments manage to keep borrowing money while being in constant growing deficit. Is there such thing as a real trust in the future possibility of paying the debt back? Or is it a hope of taking as much money as possible while there are inflation opportunities? - then generating more and more inflation. The first option is interesting, the second one quite scary and I can't help thinking Ponzi. Anyone with a better understanding of economics could help seeing a little bit better through this?

MarkMc 9y ago
The US government has a long history of repaying it's debts. I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.
- im3w1l 9y ago
  USG have a long history of servicing it's debts by taking on more debt. Not that there is anything unusual with that pattern.
- Feniks 9y ago
  The US never pays back, they re finance the debts. Ad infinitum. I mean does anyone think that at this point the US could STOP the deficit? Let alone turn it into a surplus and start buying back debt? US is too big to fail and rich people have to put their money somewhere. At least with US Treasury bonds you get a small but reliable return. So the train keeps going.
  - fencepost 9y ago
    It happened under Clinton, admittedly with the advantage of a roaring economy. I won't rule out completely out, though from today's viewpoint it certainly doesn't look promising.
    - Feniks 9y ago
      Well my country DOES try to balance the budget because otherwise the interest rates on the bonds we put out has to increase. But the US is special, it is virtually exempt from the normal laws of economics due to its superpower status.
- hn_throwaway_99 9y ago
  > I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable. What's the quote about "To believe you can have infinite exponential growth in a finite world means you are either crazy, or an economist."
  - ryanwaggoner 9y ago
    Infinite != indefinite :)
  - MarkMc 9y ago
    Actually my statement doesn't depend on exponential growth. If in future GDP were to switch from exponential to logarithmic growth, debt would still be serviceable as long as it also switched to logarithmic growth.
    - hn_throwaway_99 9y ago
      Come on, that's silly. At some point, for all intents and purposes in the real world, logarithmic growth would essentially mean "no growth". Splitting hairs between the continuous math and the math to a reasonable level of precision doesn't add clarity to your statement.
      - MarkMc 9y ago
        OK maybe over hundreds of years US GDP will go from exponential growth to linear growth, to logarithmic growth, to eventually "no growth". If total debt mirrors this trajectory, can't the US government continue repaying its debts over this period, even at the "no growth" stage?
tootie 9y ago
All of our debt is paid and almost of it gets paid within 10 years and it probably always will be. That's how we do it.
- Gustomaximus 9y ago
  It gets recycled and increased. That is no reason to believe it can continue ongoing.
  - Laforet 9y ago
    It's been going since the days of FDR. Whilst I don't claim it will go on forever, the US is in a mich better position to do thos than any other country so it's hard not to.
  - im_down_w_otp 9y ago
    Modern Monetary Theory (aka Neo-Chartalism) is a reason to believe it can probably keep on going. I ended up staying in tech instead of pursuing doctoral studies in Economics, but had life broken a different direction my thesis would have been (loosely speaking) related to assessing how governments could leverage MMT differently depending on whether or not they're an issuer of one of the common global reserve currencies. I was ultimately turned onto the underlying theories after breaking from Neo-Keynesian theories in the wake of QE1 & QE2, but before QE3 was in full swing.
    - JumpCrisscross 9y ago
      MMT assumes a sovereign can never default. That is not a politically realistic. At a certain debt level, American politicians would default. That ignored threshold, in turn, makes MMT’s suggestions dangerous.
      - im_down_w_otp 9y ago
        I don't think it has much to do with politicians. It has to do with currency counterparties and economic value created therein. Hence my desire to study where I think MMT can make the biggest net impact. Which is likely in currency issuers who are Too Big To Default™. All money is just an agreed upon fiction by multiple counterparties, and when there's a lot invested in that fiction it becomes fairly undesirable to be the one(s) to pierce the suspension of disbelief.
axau 9y ago
If the % required to service it was growing significantly, that'd be a problem. The debt outstanding growing, on its own, doesn't matter. The government is not a human who better pay off their debt by 65 or they're screwed. The government'll keep receiving income "forever", in a pretty predictable way. So there is no reason to ever stop borrowing; it'd be leaving money on the table (utility of a dollar now > utility of a dollar later).
- tbronchain 9y ago
  Does that validate the guess #1, that there is a trust from lenders in the future of [US] economy, as you're saying that $1 now < value of that $ tomorrow? In other words, it's ok to lend 1$ today because tomorrow that $, even if devaluated, will help people getting more services and maybe getting more $. That is very interesting. It sounds like we manage to magically create some unlimited resources that is creating the world's wealth and strength. It sounds magical. What's the catch? What's the limitation of creating more wealth, faster? Is today's dollar value simply based on the value that it can potentially have tomorrow? - From a non-economist point of view, it's quite hard to picture.
rayiner 9y ago
The federal government’s debt to income ratio is roughly 4:1. Private entities get loans with that level of debt all the time.
- poof131 9y ago
  How do you get 4:1? Wikipedia pegs the GDP to debt ratio at less than one.[1] So the US owes more than 100% of it’s income. Servicing the debt is approaching 7% of federal spending.[2] Are you using numbers other than GDP and National Debt for your ratio? [1] https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St... [2] http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-about-the-national-debt-what-you-should-know/ http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-abou...
  - deleted 9y ago
    [deleted]
  - bryondowd 9y ago
    At least for personal loans, debt to income doesn't use your total debt, it uses your monthly payments made on debts against your monthly income. So I assume you would have to compare the yearly payments on the national debt to total federal revenue.
  - gok 9y ago
    Think OP is talking about public debt (~$15 trillion) not intergovernmental debt (~$20 trillion). GDP has little to do with federal revenue; the federal government doesn’t tax 100% of all exchanged money. Federal revenue is about $3.6 trillion.
  - daveFNbuck 9y ago
    A 4:1 debt to income ratio means that you owe 400% of your income.
  - rayiner 9y ago
    The US government’s revenue is not 100% of GDP. It could never tax anywhere near that.
dustingetz 9y ago
this podcast says its because the usd is the dominant world reserve currency (a lot of trade is priced in usd, critically oil due to USA alliance with saudi arabia) so there is high foreign demand for usd. they allege that keeping it this way - keeping demand for usd high - is why USA occupies the middle east. it also says that the usd is dying and that the USA's free lunch (ability to borrow endlessly without consequences) is now ending or already ended, though the politicians will deny it. they also say that if you are russia or china, the obvious move is to hire a bunch of blockchain engineers, try to unload your usd treasury bonds (forcing a financial crisis in the USA in the 2020s when the USA politicians don't realize they can't borrow anymore), and then simply wait, and when the dollar dies you can step in and "save the world" from the dying dollar with their new cryptocurrency. obviously, russia famously had meetings with Vitalek (ethereum founder) and there is a huge amount of blockchain investment happening in China right now. https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-end-game-part-1-of-5 https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-en...
- sseveran 9y ago
  The reason oil is priced in dollars has nothing to do with Saudi Arabia or any US involvement there. The US has always (since the 1800s) been a major player in oil markets. The NYMEX futures contract for physical oil is the real reason oil is priced in dollars. OTC physical trades often reference the NYMEX (now CME) price. So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars. I am not sure what blockchain engineers have to do with selling treasury bonds. The larger issue for China is that they have to do something with their dollars. It's not feasible just to dump them. Unfortunately (or fortunately depending on your perspective) the USAs ability to continue to borrow does not appear to be ending. It is true that so long as others will lend to you in your own reserve currency you can basically just keep borrowing. I didn't think that the US could borrow $20T but maybe we can borrow $50T or even more. It seems for the time being the sky is the limit.
  - indubitable 9y ago
    This is false. The entire story of the petrodollar is lengthy and involves an understanding of economic arrangements in times past, how they worked, how they collapsed, and the details in between. Rather than try to write this all out here, I think an excellent post that does a very good job of summing up these intricacies is available here: https://www.quora.com/Why-is-oil-priced-and-traded-in-U-S-dollars/answer/Robert-Parker-115 https://www.quora.com/Why-is-oil-priced-and-traded-in-U-S-do... The fact that oil is settled to this day primarily in USD has everything to do with the US and Saudi Arabia. Understanding this system also helps one appreciate the relevance of very contemporary issues like China attempting to push oil producing nations to settle their contracts in yuan. It's not about the short micro level effects, which would essentially just be a currency conversion, but about the macro level effects and implications of what currency the most in demand import in the world is offered in. If China succeeds with their goal, the economic consequences for the US could not be overstated.
jganetsk 9y ago
That's because the government's deficit is the people's surplus, by simple accounting identity. Paying off the debt would be catastrophic. Andrew Jackson did it, and 1 year later we had a financial crisis. Clinton gave us a surplus, which led to a financial crisis. It's very simple: either the government is in debt to the people, or the people are in debt to the governmet. The latter is a perverse situation. Please read about Modern Money Theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...

MarkMc 9y ago

The US government has a long history of repaying it's debts. I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.

im3w1l 9y ago
USG have a long history of servicing it's debts by taking on more debt. Not that there is anything unusual with that pattern.
Feniks 9y ago
The US never pays back, they re finance the debts. Ad infinitum. I mean does anyone think that at this point the US could STOP the deficit? Let alone turn it into a surplus and start buying back debt? US is too big to fail and rich people have to put their money somewhere. At least with US Treasury bonds you get a small but reliable return. So the train keeps going.
- fencepost 9y ago
  It happened under Clinton, admittedly with the advantage of a roaring economy. I won't rule out completely out, though from today's viewpoint it certainly doesn't look promising.
  - Feniks 9y ago
    Well my country DOES try to balance the budget because otherwise the interest rates on the bonds we put out has to increase. But the US is special, it is virtually exempt from the normal laws of economics due to its superpower status.
hn_throwaway_99 9y ago
> I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable. What's the quote about "To believe you can have infinite exponential growth in a finite world means you are either crazy, or an economist."
- ryanwaggoner 9y ago
  Infinite != indefinite :)
- MarkMc 9y ago
  Actually my statement doesn't depend on exponential growth. If in future GDP were to switch from exponential to logarithmic growth, debt would still be serviceable as long as it also switched to logarithmic growth.
  - hn_throwaway_99 9y ago
    Come on, that's silly. At some point, for all intents and purposes in the real world, logarithmic growth would essentially mean "no growth". Splitting hairs between the continuous math and the math to a reasonable level of precision doesn't add clarity to your statement.
    - MarkMc 9y ago
      OK maybe over hundreds of years US GDP will go from exponential growth to linear growth, to logarithmic growth, to eventually "no growth". If total debt mirrors this trajectory, can't the US government continue repaying its debts over this period, even at the "no growth" stage?

tootie 9y ago

All of our debt is paid and almost of it gets paid within 10 years and it probably always will be. That's how we do it.

Gustomaximus 9y ago
It gets recycled and increased. That is no reason to believe it can continue ongoing.
- Laforet 9y ago
  It's been going since the days of FDR. Whilst I don't claim it will go on forever, the US is in a mich better position to do thos than any other country so it's hard not to.
- im_down_w_otp 9y ago
  Modern Monetary Theory (aka Neo-Chartalism) is a reason to believe it can probably keep on going. I ended up staying in tech instead of pursuing doctoral studies in Economics, but had life broken a different direction my thesis would have been (loosely speaking) related to assessing how governments could leverage MMT differently depending on whether or not they're an issuer of one of the common global reserve currencies. I was ultimately turned onto the underlying theories after breaking from Neo-Keynesian theories in the wake of QE1 & QE2, but before QE3 was in full swing.
  - JumpCrisscross 9y ago
    MMT assumes a sovereign can never default. That is not a politically realistic. At a certain debt level, American politicians would default. That ignored threshold, in turn, makes MMT’s suggestions dangerous.
    - im_down_w_otp 9y ago
      I don't think it has much to do with politicians. It has to do with currency counterparties and economic value created therein. Hence my desire to study where I think MMT can make the biggest net impact. Which is likely in currency issuers who are Too Big To Default™. All money is just an agreed upon fiction by multiple counterparties, and when there's a lot invested in that fiction it becomes fairly undesirable to be the one(s) to pierce the suspension of disbelief.

axau 9y ago

If the % required to service it was growing significantly, that'd be a problem. The debt outstanding growing, on its own, doesn't matter. The government is not a human who better pay off their debt by 65 or they're screwed. The government'll keep receiving income "forever", in a pretty predictable way. So there is no reason to ever stop borrowing; it'd be leaving money on the table (utility of a dollar now > utility of a dollar later).

tbronchain 9y ago
Does that validate the guess #1, that there is a trust from lenders in the future of [US] economy, as you're saying that $1 now < value of that $ tomorrow? In other words, it's ok to lend 1$ today because tomorrow that $, even if devaluated, will help people getting more services and maybe getting more $. That is very interesting. It sounds like we manage to magically create some unlimited resources that is creating the world's wealth and strength. It sounds magical. What's the catch? What's the limitation of creating more wealth, faster? Is today's dollar value simply based on the value that it can potentially have tomorrow? - From a non-economist point of view, it's quite hard to picture.

rayiner 9y ago

The federal government’s debt to income ratio is roughly 4:1. Private entities get loans with that level of debt all the time.

poof131 9y ago
How do you get 4:1? Wikipedia pegs the GDP to debt ratio at less than one.[1] So the US owes more than 100% of it’s income. Servicing the debt is approaching 7% of federal spending.[2] Are you using numbers other than GDP and National Debt for your ratio? [1] https://en.wikipedia.org/wiki/National_debt_of_the_United_States https://en.wikipedia.org/wiki/National_debt_of_the_United_St... [2] http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-about-the-national-debt-what-you-should-know/ http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-abou...
- deleted 9y ago
  [deleted]
- bryondowd 9y ago
  At least for personal loans, debt to income doesn't use your total debt, it uses your monthly payments made on debts against your monthly income. So I assume you would have to compare the yearly payments on the national debt to total federal revenue.
- gok 9y ago
  Think OP is talking about public debt (~$15 trillion) not intergovernmental debt (~$20 trillion). GDP has little to do with federal revenue; the federal government doesn’t tax 100% of all exchanged money. Federal revenue is about $3.6 trillion.
- daveFNbuck 9y ago
  A 4:1 debt to income ratio means that you owe 400% of your income.
- rayiner 9y ago
  The US government’s revenue is not 100% of GDP. It could never tax anywhere near that.

dustingetz 9y ago

this podcast says its because the usd is the dominant world reserve currency (a lot of trade is priced in usd, critically oil due to USA alliance with saudi arabia) so there is high foreign demand for usd. they allege that keeping it this way - keeping demand for usd high - is why USA occupies the middle east. it also says that the usd is dying and that the USA's free lunch (ability to borrow endlessly without consequences) is now ending or already ended, though the politicians will deny it. they also say that if you are russia or china, the obvious move is to hire a bunch of blockchain engineers, try to unload your usd treasury bonds (forcing a financial crisis in the USA in the 2020s when the USA politicians don't realize they can't borrow anymore), and then simply wait, and when the dollar dies you can step in and "save the world" from the dying dollar with their new cryptocurrency. obviously, russia famously had meetings with Vitalek (ethereum founder) and there is a huge amount of blockchain investment happening in China right now. https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-end-game-part-1-of-5 https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-en...

sseveran 9y ago
The reason oil is priced in dollars has nothing to do with Saudi Arabia or any US involvement there. The US has always (since the 1800s) been a major player in oil markets. The NYMEX futures contract for physical oil is the real reason oil is priced in dollars. OTC physical trades often reference the NYMEX (now CME) price. So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars. I am not sure what blockchain engineers have to do with selling treasury bonds. The larger issue for China is that they have to do something with their dollars. It's not feasible just to dump them. Unfortunately (or fortunately depending on your perspective) the USAs ability to continue to borrow does not appear to be ending. It is true that so long as others will lend to you in your own reserve currency you can basically just keep borrowing. I didn't think that the US could borrow $20T but maybe we can borrow $50T or even more. It seems for the time being the sky is the limit.
- indubitable 9y ago
  This is false. The entire story of the petrodollar is lengthy and involves an understanding of economic arrangements in times past, how they worked, how they collapsed, and the details in between. Rather than try to write this all out here, I think an excellent post that does a very good job of summing up these intricacies is available here: https://www.quora.com/Why-is-oil-priced-and-traded-in-U-S-dollars/answer/Robert-Parker-115 https://www.quora.com/Why-is-oil-priced-and-traded-in-U-S-do... The fact that oil is settled to this day primarily in USD has everything to do with the US and Saudi Arabia. Understanding this system also helps one appreciate the relevance of very contemporary issues like China attempting to push oil producing nations to settle their contracts in yuan. It's not about the short micro level effects, which would essentially just be a currency conversion, but about the macro level effects and implications of what currency the most in demand import in the world is offered in. If China succeeds with their goal, the economic consequences for the US could not be overstated.

jganetsk 9y ago

That's because the government's deficit is the people's surplus, by simple accounting identity. Paying off the debt would be catastrophic. Andrew Jackson did it, and 1 year later we had a financial crisis. Clinton gave us a surplus, which led to a financial crisis. It's very simple: either the government is in debt to the people, or the people are in debt to the governmet. The latter is a perverse situation. Please read about Modern Money Theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...