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The US having lots of national debt does not mean that we don't have money to spend. The large amount of debt we have is much more of an indication that people

The US having lots of national debt does not mean that we don't have money to spend. The large amount of debt we have is much more of an indication that people believe the US will be around for a very long time than an indication that we've over drawn or will have trouble raising more funds.

ianai 9y ago
This also makes me wonder if the forces against our debt aren’t rooted in foreign lobbying/corruption or the government.
- XR0CSWV3h3kZWg 9y ago
  Honestly it's a pretty easy jump to make given how individuals interact with debt. I wouldn't attribute it to malice or subversion unless there was stronger evidence.
wpietri 9y ago
Large amounts of debt definitely make it more likely that we'll have trouble raising more funds, because greater debt means greater risk of default, which means a higher risk premium. And right now we're near historic highs: https://tradingeconomics.com/united-states/government-debt-to-gdp https://tradingeconomics.com/united-states/government-debt-t... This will surely be made worse in that a) we're moving out of a US-centric era and toward a more multipolar world, and b) recent US politics would make any serious lender wonder how likely they are to get paid back.
- fineline 9y ago
  If that "debt" is denominated in USD, the US cannot default. Really what is national debt in a nation with soft (non-exchangeable for gold) sovereign currency and limited foreign-denominated debt other than an increase in the money supply - or a commitment to make such increase when bonds mature?
  - wpietri 9y ago
    The US can absolutely default. You're correct that they also can inflate away the debt. But it's perfectly plausible that nativists would tell foreign lenders to fuck off. Note the increasing willingness of the US right to inch up close to a debt default: https://qz.com/1062153/will-trump-actually-default-on-the-us-governments-debt/ https://qz.com/1062153/will-trump-actually-default-on-the-us...
    - fineline 9y ago
      OK I am not an economist, but here's my 2c (of my own currency...) You're right, I phrased it incorrectly - the US could indeed default on its "debt" if it chose too - and maybe the current administration is more inclined to consider doing so - but it would be a choice - it never has to, if it chooses not to. One thing the US can't and won't ever do is pay down all that debt. The associated contraction in the money supply would be economically devastating, and is basically inconceivable. To quote the last line of your linked article "As far as the debt limit is concerned, the government really shouldn’t be run like a business." Sometimes this concept is bandied around, that a government is like a household or a business and needs to balance its budget. This is wrong, a government (of a country with sovereign currency and limited foreign-denominated debt) is a government, and should govern, adjusting the money supply to help balance the economy, letting off steam (by running a surplus, taxing more than it spends and taking money out of the economy) when the economy is running "hot" and opening the throttle (by running a deficit, spending more than it taxes and putting money into the economy) when the economy is running below capacity - excess unemployment and underemployment, productive capital laying idle etc. (The devil is of course in the detail, with different regions and sectors performing very differently, and lots of purely political distortions.) Over time an economy that grows will naturally require more money to operate, so the default state of public finance should be deficit. It is somewhat inappropriate and unfortunate that we characterise this as "debt".
      - wpietri 9y ago
        Sure, I agree that the US defaulting on its debt would at this point be a choice. If we got into Japan levels of debt, it's not so clear; inflating away that level of debt means massive inflation, which could be economically devastating. I disagree that the US couldn't pay off its debt. Back when Greenspan was running the Fed, this looked like a possible outcome. People were worried that it would be problematic if the US stopped selling T-bills, as so much is benchmarked to them. The easy solution was to keep on doing some borrowing at the same time as running a surplus elsewhere, so that the US did have some debt, but was not a net debtor. But I don't recall anybody saying it would be devastating.
- TheSpiceIsLife 9y ago
  Despite nearing historic highs, and despite US poltical antics, people keep buying US Treasury Bonds, which is an indicator of faith. But you're right because: people have faith right up until they don't.
  - fineline 9y ago
    Warren Mosler mentions within this short book how he made a lot of money realising that Italian bonds could never default: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf Now they're on the Euro things may well be different. Never give away sovereignty over your currency.
- XR0CSWV3h3kZWg 9y ago
  Warning signs for when people stop trusting the US govt with debt would be when the interest rate starts climbing significantly beyond inflation. https://fred.stlouisfed.org/series/DFII5 https://fred.stlouisfed.org/series/DFII5 It looks like it's trending up recently, but still well below 1% adjusted for inflation.

ianai 9y ago

This also makes me wonder if the forces against our debt aren’t rooted in foreign lobbying/corruption or the government.

XR0CSWV3h3kZWg 9y ago
Honestly it's a pretty easy jump to make given how individuals interact with debt. I wouldn't attribute it to malice or subversion unless there was stronger evidence.

wpietri 9y ago

Large amounts of debt definitely make it more likely that we'll have trouble raising more funds, because greater debt means greater risk of default, which means a higher risk premium. And right now we're near historic highs: https://tradingeconomics.com/united-states/government-debt-to-gdp https://tradingeconomics.com/united-states/government-debt-t... This will surely be made worse in that a) we're moving out of a US-centric era and toward a more multipolar world, and b) recent US politics would make any serious lender wonder how likely they are to get paid back.

fineline 9y ago
If that "debt" is denominated in USD, the US cannot default. Really what is national debt in a nation with soft (non-exchangeable for gold) sovereign currency and limited foreign-denominated debt other than an increase in the money supply - or a commitment to make such increase when bonds mature?
- wpietri 9y ago
  The US can absolutely default. You're correct that they also can inflate away the debt. But it's perfectly plausible that nativists would tell foreign lenders to fuck off. Note the increasing willingness of the US right to inch up close to a debt default: https://qz.com/1062153/will-trump-actually-default-on-the-us-governments-debt/ https://qz.com/1062153/will-trump-actually-default-on-the-us...
  - fineline 9y ago
    OK I am not an economist, but here's my 2c (of my own currency...) You're right, I phrased it incorrectly - the US could indeed default on its "debt" if it chose too - and maybe the current administration is more inclined to consider doing so - but it would be a choice - it never has to, if it chooses not to. One thing the US can't and won't ever do is pay down all that debt. The associated contraction in the money supply would be economically devastating, and is basically inconceivable. To quote the last line of your linked article "As far as the debt limit is concerned, the government really shouldn’t be run like a business." Sometimes this concept is bandied around, that a government is like a household or a business and needs to balance its budget. This is wrong, a government (of a country with sovereign currency and limited foreign-denominated debt) is a government, and should govern, adjusting the money supply to help balance the economy, letting off steam (by running a surplus, taxing more than it spends and taking money out of the economy) when the economy is running "hot" and opening the throttle (by running a deficit, spending more than it taxes and putting money into the economy) when the economy is running below capacity - excess unemployment and underemployment, productive capital laying idle etc. (The devil is of course in the detail, with different regions and sectors performing very differently, and lots of purely political distortions.) Over time an economy that grows will naturally require more money to operate, so the default state of public finance should be deficit. It is somewhat inappropriate and unfortunate that we characterise this as "debt".
    - wpietri 9y ago
      Sure, I agree that the US defaulting on its debt would at this point be a choice. If we got into Japan levels of debt, it's not so clear; inflating away that level of debt means massive inflation, which could be economically devastating. I disagree that the US couldn't pay off its debt. Back when Greenspan was running the Fed, this looked like a possible outcome. People were worried that it would be problematic if the US stopped selling T-bills, as so much is benchmarked to them. The easy solution was to keep on doing some borrowing at the same time as running a surplus elsewhere, so that the US did have some debt, but was not a net debtor. But I don't recall anybody saying it would be devastating.
TheSpiceIsLife 9y ago
Despite nearing historic highs, and despite US poltical antics, people keep buying US Treasury Bonds, which is an indicator of faith. But you're right because: people have faith right up until they don't.
- fineline 9y ago
  Warren Mosler mentions within this short book how he made a lot of money realising that Italian bonds could never default: http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf http://moslereconomics.com/wp-content/powerpoints/7DIF.pdf Now they're on the Euro things may well be different. Never give away sovereignty over your currency.
XR0CSWV3h3kZWg 9y ago
Warning signs for when people stop trusting the US govt with debt would be when the interest rate starts climbing significantly beyond inflation. https://fred.stlouisfed.org/series/DFII5 https://fred.stlouisfed.org/series/DFII5 It looks like it's trending up recently, but still well below 1% adjusted for inflation.