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55% of the US National Debt Is the Result of Repaying Debt with More Debt

47 points by Four_Star 8y ago

arcbyte 8y ago
There's a lot of talk about how the Federal Gov't isn't like a household or business. It is different, but not to extent that people who preach that like to pretend. That aside, I wonder what opportunities and paradigm shifts we are missing out on by being ok with all this debt, good or not. The American gov't is so far in the hole that it doesn't have ANY wealth! What if we built up a Sovereign Wealth Fund such that we could completely eliminate taxes and fund all government activities from the interest? What would that world look like?
- UncleMeat 8y ago
  Funding the government on interest is going to require more than 100T in capital.
  - arcbyte 8y ago
    US GDP is 18T, which means we only need 5 years worth of GDP. If we saved/invested a surplus each year equal to the amount we reduced the public debt under Clinton in the year 2000 - $230 billion and assumed the 4% annualized returns - the same rate you're requiring for your 100T figure - for 75 years, we'd have 100T.
- zzzzzzzza 8y ago
  sovereign wealth funds underperform the market. They are the best solution out of a field of very bad solutions for what to do when your country has been struck by the resource curse. If you were an individual it would be like winning the lottery (lots of people's lives go totally down the shitter after winning the lottery). Setting a goal for your government of setting up a sovereign welath fund would be kind of like the average individual who hasn't won the lottery making a goal of setting up a trust fund, and getting the money to do so by working at mcdonalds instead of going to college (or some other more valuable alternative). The significant difference between this individual example and the government is the government is a worse decision maker than the individual since it can only make decisions by committee (or in a dictatorship by one uninformed individual who can't possibly be aware of everything going on in his/her country). Therefore the government should stick to the happy path (taking on college debt or equivalently funding basic social services/national defense/regulatory oversight through debt instruments).
- damptowel 8y ago
  The government should just run deficits for financing projects and use tax for redistribution and inflation control, like it does today. The issue today is excessive private sector money creation and lack of federal deficits to offset the debt overhang created by private finance.
yuhong 8y ago
This reminds me of selling Bitcoin in order to pay off debt.
- readhn 8y ago
  more like paying off one credit card with another that has higher APR. Next big crisis might be a sovereign debt crisis on a global scale. The only question is how long this can continue...until SHTF.
  - unit91 8y ago
    Sadly, if world history is any guide, the problem will be "solved" on the battlefield.
  - amsheehan 8y ago
    I don't think you read it correctly. What we're doing, indeed what we've done since 2008, was borrow at a historically low interest rate to pay back interest and debt bought at a higher interest rate.
  - ebikelaw 8y ago
    The USA enjoys a unique position with respect to sovereign debt, since it is denominated in our own currency. Also, a great deal of it is owed to ourselves and it has always been the plan of political parties to just stiff future generations. Debt crises might happen but probably not the biggest problem faced by USA. It is odd to focus on borrowing when our country faces numerous acute problems at the moment.
- sp332 8y ago
  I don't quite get your comment... do you think BTC will be worth a lot more in the near future?
  - yuhong 8y ago
    The point is that the dollars used to buy BTC has to come from somewhere.
hcurtiss 8y ago
And it breaks my heart that both parties are to blame.
- ebikelaw 8y ago
  Yes, a real heart-breaker. http://zfacts.com/p/318.html http://zfacts.com/p/318.html
_bxg1 8y ago
I was much more sad when I initially thought this was talking about the debts of individuals.
- readhn 8y ago
  Consumer debt is at all time high as well. https://www.newyorkfed.org/microeconomics/hhdc.html https://www.newyorkfed.org/microeconomics/hhdc.html
  - seanmcdirmid 8y ago
    With inflation, GDP growth, and population growth, that is generally true at any time.
    - graedus 8y ago
      I briefly searched for inflation-adjusted debt per capita but couldn't find it. There is the federal debt to GDP ratio, which is 105%. This is at least a 50-year high[0]. FRED's household debt to GDP data doesn't go back very far, but we can see it's off the highs off 2008[1]. (edit: added household debt to GDP) [0] https://fred.stlouisfed.org/series/gfdegdq188S https://fred.stlouisfed.org/series/gfdegdq188S [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N
      - JumpCrisscross 8y ago
        > I briefly searched for inflation-adjusted debt per capita but couldn't find it You're looking for household debt to GDP [1]. It is a real (versus nominal) statistic because it's a ratio between two nominal terms. It also communicates financial health better than a per-capita term, since it measures against production. [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N
        graedus 8y ago
        I managed to find that - thanks! A few other interesting angles: Household Debt Service Payments as a Percent of Disposable Personal Income[0] (10.3%, near 40-year lows), Consumer Debt Service Payments as a Percent of Disposable Personal Income[1] (5.9%, near 40-year average), Personal Saving Rate[2] (3.2%, near 50-year lows). [0] https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP [1] https://fred.stlouisfed.org/series/CDSP https://fred.stlouisfed.org/series/CDSP [2] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT
sp332 8y ago
It's an interesting point and something that we should talk about. But the article doesn't really make the case that this is a waste of money. If it was advantageous to take on the debt in the first place, it might also be worthwhile to keep the debt on the books now. Presumably there is an interest rate at which it will stop being worth servicing the debt, but I don't really know where that point is.
- readhn 8y ago
  well the game will continue until you cant service your debt payments anymore. Then you default. Crisis, pain, recession. Rinse then repeat. https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises
  - sp332 8y ago
    There's an alternative to defaulting on debt and that is to pay it off. Is there even a case to be made that we are in or near a crisis?
    - jsoc815 8y ago
      > There's an alternative to defaulting on debt and that is to pay it off. I think it's in one of my CFA books -- definitely in other materials I have or have viewed--, but I think the point of the game is to trade as much intrinsically worthless fiat for extrinsically valuable stuff as possible. If and/or when one exhausts one's ability to trade the fiat, then one is supposed to walk away a winner, so to speak. This sort of came yesterday in a C-Span program, when a caller essentially asked what backs the USD.[1] [1] https://www.c-span.org/video/?448590-3/washington-journal-chris-condon-discusses-federal-reserve-us-economy&start=1699 https://www.c-span.org/video/?448590-3/washington-journal-ch...
- awinder 8y ago
  Amen. You have to compare assets vs debt, and then you have to compare asset growth projections vs debt growth projections, as any responsible finance thinking would go. Even then US debt provides a market function, so debt on a governmental level is quite different than say household or corporate debt. To wit, US assets value in something like the 240 trillion dollar range, though I’m sure you could find wide variance to such measurements given the complexity of the US asset holdings.
swebs 8y ago
Where are these interest payments going to? Who profits off the US being perpetually in debt?
- koverda 8y ago
  I believe it is those who own US Treasury Securities. These are the foreign holdings: http://ticdata.treasury.gov/Publish/mfh.txt http://ticdata.treasury.gov/Publish/mfh.txt From what I understand, the rest are citizens & US based funds.
- Robotbeat 8y ago
  Everyone who buys bonds, so like every retirement account.
- ebikelaw 8y ago
  Obviously the people who enjoyed the benefits of the borrowed money. Which might have been road users and university students, but actually turned out to be hundreds of thousands of dead Iraqis.
- sp332 8y ago
  The treasury has a one-page breakdown of the kinds of debt. https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opds062018.pdf https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opd... It's not a deep dive but I thought it was a great overview for fitting on one page. (edit: more recent link)
  - 5874-4b22-a4e0 8y ago
    19k could be paid off by a single person, has this increased in the last two years?
    - sp332 8y ago
      In tiny print above that: (Millions of dollars)
    - bannable 8y ago
koverda 8y ago
What happens if the US inflates away the national debt?
- logfromblammo 8y ago
  The interest rates go up on the new debt instruments issued to make payments on the old debts.
- damptowel 8y ago
  Weimar :)
tiatia123 8y ago
"Debt Is the Result of Repaying Debt with More Debt" Actually, you can pay debt only with more debt. This is fundamental to capitalism and reason for it's dynamic and future downfall. "In order to pay back debt with interest, it is necessary to have economic growth, and financial growth and growth in fossil fuel use are very closely tied." https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...
stephen_g 8y ago
I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business. This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and they're not constrained by artificial limitations like commodity convertibility or fixed exchange rates, it's just an interesting fact that doesn't actually really matter much. The real killers are excessive private sector debt, and even worse, debt denominated in a foreign currency.
- yuhong 8y ago
  That is partly because of the petrodollar BTW.
  - jsoc815 8y ago
    As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...
  - JumpCrisscross 8y ago
    > That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.
    - yuhong 8y ago
      Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.
TheSpiceIsLife 8y ago
A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend, which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern. 4. If you believe the good times are going to keep rolling, and any bad times will, on average, pass relatively swiftly (people do have a tendency to persevere), then not borrowing money results in a lost opportunity cost. I'm sure someone can respond with some equally convincing reasons as to why nation-states shouldn't run a deficit. Go!
- JumpCrisscross 8y ago
  > Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern It's a pragmatic concern inasmuch as the lenders's "faith in [the government's] ability to service the debt" in step 2 is not infinite. If you lose that faith, you have to (a) raise rates, (b) impose capital controls, (c) raise taxes and/or (d) force your central bank to monetize the debt. Each of these do bad things to the economy. The national debt isn't like household debt because the government is immortal, but that doesn't mean it's meaningless.
  - tialaramex 8y ago
    It's true that _government debt_ is not meaningless, but the 55% ratio is meaningless. Suppose you have a really nice condition Jackson Model C, and, because you're a crazy person you've been driving that damn thing every day since you bought it last century. Unsurprisingly the Jackson is not very reliable, and so you sometimes drive it to the garage where it can be repaired. Now alas the dry batteries in your Jackson are its weak spot, and you find they must be replaced every 100 miles or so. The garage is two miles away. After you've driven 2000 miles in your Jackson Model C, much of that time with antique car enthusiasts yelling at you that it belongs in a museum, you have replaced the battery about 20 times, each trip to do taking four miles (there and back) and so 80 miles. I observe that you've used 80% of the life of a battery just on driving to and from the garage to replace the batteries. Like this 55% of national debt statistic, my observation is at once true and completely meaningless.
teslabox 8y ago
This is an inevitable consequence of basing the money supply on debt. The Federal Reserve banks are responsible for making money and loaning it out into circulation. There is never enough money to pay back the interest on the loans, so the federal reserve loans out a little bit more every year. A solution to this quandary was figured out in 2011. Due to a quirk in the laws, the US Government has the ability to issue platinum coins of any value. These 'coins' never have to be paid back. The U.S.'s national debt could be retired by minting a couple "trillion dollar coins": https://en.wikipedia.org/wiki/Trillion_dollar_coin https://en.wikipedia.org/wiki/Trillion_dollar_coin The Federal Reserve does a decent job at keeping the money supply growing at less than a hyper-inflationary rate, but the value of our money has collapsed since I was a kid, since we all were kids...
- JumpCrisscross 8y ago
  > This is an inevitable consequence of basing the money supply on debt Not really. The U.S. government ran surpluses in the nineties. This led to hand-wringing as banks imagined a world without Treasuries, which would make collateralisation quite complicated. (We had the same "not enough safe assets" conversation after the financial crisis.) The U.S. government could wipe out its debt. The Federal Reserve couldn't, as every dollar bill is technically a Federal Reserve note, but that's a different beast.
  - teslabox 8y ago
    I'm saying that under the Federal Reserve system, the total indebtedness of the U.S. economy must always increase. If the government starts to pay off its debt, the private sector must increase its debt levels. If the economy doesn't keep borrowing money, the money supply would rapidly collapse, leading to a deflationary spiral. The only money that never has to be paid back are coins. Do you have an alternate understanding of our monetary system?
justsomedude43 8y ago
If you lend money to yourself, why not just write the debt off?
- nybble41 8y ago
  Because we're not actually borrowing from ourselves, we're borrowing from future generations. That said, there is no plan (or will) to ever pay back the debt, so the difference is academic. The politicians will just keep borrowing (i.e. spending; it makes zero difference whether the funds come from loans or inflating the currency supply) until there is no capital left to consume.
  - justsomedude43 8y ago
    How can there be no capital left to consume if the borrowed money has no support to back it up? You're saying we're borrowing from future generations which is like saying we're borrowing money from air. If we're borrowing money from non-existent source then there is an endless supply of the money, isn't there? And if there's no plan to pay it off, then why not just write it off? It makes no difference, the whole effect is psychological.
    - nybble41 8y ago
      Money per se is irrelevant; it's what you can buy with it that counts. Normally, to get money you have to produce something; when you spend that money you're claiming your share of what has been produced. If you buy on credit (with intent to repay) then you're committing your own future production capacity towards paying off the loan, with interest. If we want to hand our descendents a world at least as good as the one we received from our ancestors then we need to produce at least as much as we consume—more, actually, since some of that production will need to be dedicated toward the preservation and maintenance of capital (production capacity). If we borrow without any intention of ever paying down that debt, or (equivalently) introduce new money out of thin air in order to fund consumption, then the equation is unbalanced; there is no production to offset that consumption. That implies a reduction in capital investment (again: production capacity), which means goods will be harder to produce and thus more scarce in the future, which means a poorer quality of life for future generations. > And if there's no plan to pay it off, then why not just write it off? It makes no difference, the whole effect is psychological. On that point I agree with you. However, I am arguing that we should plan to pay it off, and thus do our part to maintain and improve this world before handing it off to our children.
thetaclear 8y ago
This reminded me of a documentary I watched quite a while ago: The Money Masters - https://www.youtube.com/watch?v=HBk5XV1ExoQ https://www.youtube.com/watch?v=HBk5XV1ExoQ I always wondered which parts are an accurate description of the current monetary system and which are unfounded conspiracy theories.
bubbleRefuge 8y ago
Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here. When a treasury security expires or is redeemed, they merely changes numbers in a spreadsheet. 99% of the time those "funds" are moved back into a new treasury security. There will always be demand for interest bearing risk free government debt. go read http://neweconomicperspectives.org/ http://neweconomicperspectives.org/ its all there.
- JumpCrisscross 8y ago
  > Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fiscal policy (i.e. not including the Federal Reserve's debt, which technically includes every dollar bill) has real consequences in constraining the government's taxing and spending power without tripping up inflation.
  - bubbleRefuge 8y ago
    No . But you are getting there. Yes fiscal policy is the lever that determines the amount ( quantity) of money ( or demand ) driving the economy . Monetary policy is interest rates or the price of money. And ,there is mounting evidence that hight interest rates actually have the opposite of the intended effect . That is, that higher interest rates lead to higher net income to the private sector which is a bit inflationary.
    - lrajlich 8y ago
      > higher interest rates lead to higher net income to the private sector which is a bit inflationary. There a paper for this? low interest rates tend to be associated with poor economic conditions, in the extreme liquidity trap or secular stagnation, so this conclusion makes sense though the causal effect is the opposite of what is suggested by your comment... As an example, interest rates (ex fed funds) were really low during the great depression!
rdiddly 8y ago
"This interest includes repaying principal." Stop right there. Something's fishy with the terminology/math/reasoning then, no? If the "interest" includes principal, then what is the interest? It's like saying "Use one cup of flour and water" or "The size of my penis is 6 feet including my height." Here's what let's do: subtract the principal from the interest. That should leave you with the interest only. Therefore I - P = I Subtract I from both sides... -P = 0 Divide by -P... 1 = 0 This is the axiom of Black Math.
- Four_Star 8y ago
  That's the way reporting on the repayment of the national debt is done. The point of the article is unchanged. Those familiar with Treasuries will understand If I run a deficit of 100 dollars, borrow 100 dollars and I repay the loan by borrowing 100 dollars and the interest on both is 10 dollars, than I owe 220 dollars but I only got 100 dollars of real spending. That is what the article is saying. of the $21.4 trillion in debt, only $14 trillion funded deficits and half of those deficits were the results of rolling debt over. No funny math at all
  - rdiddly 8y ago
    My point is that it's bad terminology, which I show by proving it leads to bad math. I notice at no point do you refer to the $10 as including part of the $100 in either case, so apparently you agree.
- nerdponx 8y ago
  s/This interest includes/These payments include
ToFab123 8y ago
From whom do the borrow all that money? Who "owns" America?
- bjl 8y ago
  A sizeable majority of US Treasuries are owned by American citizens.

47 points by Four_Star 8y ago

There's a lot of talk about how the Federal Gov't isn't like a household or business. It is different, but not to extent that people who preach that like to pretend. That aside, I wonder what opportunities and paradigm shifts we are missing out on by being ok with all this debt, good or not. The American gov't is so far in the hole that it doesn't have ANY wealth! What if we built up a Sovereign Wealth Fund such that we could completely eliminate taxes and fund all government activities from the interest? What would that world look like?

UncleMeat 8y ago
Funding the government on interest is going to require more than 100T in capital.
- arcbyte 8y ago
  US GDP is 18T, which means we only need 5 years worth of GDP. If we saved/invested a surplus each year equal to the amount we reduced the public debt under Clinton in the year 2000 - $230 billion and assumed the 4% annualized returns - the same rate you're requiring for your 100T figure - for 75 years, we'd have 100T.
zzzzzzzza 8y ago
sovereign wealth funds underperform the market. They are the best solution out of a field of very bad solutions for what to do when your country has been struck by the resource curse. If you were an individual it would be like winning the lottery (lots of people's lives go totally down the shitter after winning the lottery). Setting a goal for your government of setting up a sovereign welath fund would be kind of like the average individual who hasn't won the lottery making a goal of setting up a trust fund, and getting the money to do so by working at mcdonalds instead of going to college (or some other more valuable alternative). The significant difference between this individual example and the government is the government is a worse decision maker than the individual since it can only make decisions by committee (or in a dictatorship by one uninformed individual who can't possibly be aware of everything going on in his/her country). Therefore the government should stick to the happy path (taking on college debt or equivalently funding basic social services/national defense/regulatory oversight through debt instruments).
damptowel 8y ago
The government should just run deficits for financing projects and use tax for redistribution and inflation control, like it does today. The issue today is excessive private sector money creation and lack of federal deficits to offset the debt overhang created by private finance.

yuhong 8y ago

This reminds me of selling Bitcoin in order to pay off debt.

readhn 8y ago
more like paying off one credit card with another that has higher APR. Next big crisis might be a sovereign debt crisis on a global scale. The only question is how long this can continue...until SHTF.
- unit91 8y ago
  Sadly, if world history is any guide, the problem will be "solved" on the battlefield.
- amsheehan 8y ago
  I don't think you read it correctly. What we're doing, indeed what we've done since 2008, was borrow at a historically low interest rate to pay back interest and debt bought at a higher interest rate.
- ebikelaw 8y ago
  The USA enjoys a unique position with respect to sovereign debt, since it is denominated in our own currency. Also, a great deal of it is owed to ourselves and it has always been the plan of political parties to just stiff future generations. Debt crises might happen but probably not the biggest problem faced by USA. It is odd to focus on borrowing when our country faces numerous acute problems at the moment.
sp332 8y ago
I don't quite get your comment... do you think BTC will be worth a lot more in the near future?
- yuhong 8y ago
  The point is that the dollars used to buy BTC has to come from somewhere.

hcurtiss 8y ago

And it breaks my heart that both parties are to blame.

ebikelaw 8y ago
Yes, a real heart-breaker. http://zfacts.com/p/318.html http://zfacts.com/p/318.html

_bxg1 8y ago

I was much more sad when I initially thought this was talking about the debts of individuals.

readhn 8y ago
Consumer debt is at all time high as well. https://www.newyorkfed.org/microeconomics/hhdc.html https://www.newyorkfed.org/microeconomics/hhdc.html
- seanmcdirmid 8y ago
  With inflation, GDP growth, and population growth, that is generally true at any time.
  - graedus 8y ago
    I briefly searched for inflation-adjusted debt per capita but couldn't find it. There is the federal debt to GDP ratio, which is 105%. This is at least a 50-year high[0]. FRED's household debt to GDP data doesn't go back very far, but we can see it's off the highs off 2008[1]. (edit: added household debt to GDP) [0] https://fred.stlouisfed.org/series/gfdegdq188S https://fred.stlouisfed.org/series/gfdegdq188S [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N
    - JumpCrisscross 8y ago
      > I briefly searched for inflation-adjusted debt per capita but couldn't find it You're looking for household debt to GDP [1]. It is a real (versus nominal) statistic because it's a ratio between two nominal terms. It also communicates financial health better than a per-capita term, since it measures against production. [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N https://fred.stlouisfed.org/series/HDTGPDUSQ163N
      - graedus 8y ago
        I managed to find that - thanks! A few other interesting angles: Household Debt Service Payments as a Percent of Disposable Personal Income[0] (10.3%, near 40-year lows), Consumer Debt Service Payments as a Percent of Disposable Personal Income[1] (5.9%, near 40-year average), Personal Saving Rate[2] (3.2%, near 50-year lows). [0] https://fred.stlouisfed.org/series/TDSP https://fred.stlouisfed.org/series/TDSP [1] https://fred.stlouisfed.org/series/CDSP https://fred.stlouisfed.org/series/CDSP [2] https://fred.stlouisfed.org/series/PSAVERT https://fred.stlouisfed.org/series/PSAVERT

sp332 8y ago

It's an interesting point and something that we should talk about. But the article doesn't really make the case that this is a waste of money. If it was advantageous to take on the debt in the first place, it might also be worthwhile to keep the debt on the books now. Presumably there is an interest rate at which it will stop being worth servicing the debt, but I don't really know where that point is.

readhn 8y ago
well the game will continue until you cant service your debt payments anymore. Then you default. Crisis, pain, recession. Rinse then repeat. https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises
- sp332 8y ago
  There's an alternative to defaulting on debt and that is to pay it off. Is there even a case to be made that we are in or near a crisis?
  - jsoc815 8y ago
    > There's an alternative to defaulting on debt and that is to pay it off. I think it's in one of my CFA books -- definitely in other materials I have or have viewed--, but I think the point of the game is to trade as much intrinsically worthless fiat for extrinsically valuable stuff as possible. If and/or when one exhausts one's ability to trade the fiat, then one is supposed to walk away a winner, so to speak. This sort of came yesterday in a C-Span program, when a caller essentially asked what backs the USD.[1] [1] https://www.c-span.org/video/?448590-3/washington-journal-chris-condon-discusses-federal-reserve-us-economy&start=1699 https://www.c-span.org/video/?448590-3/washington-journal-ch...
awinder 8y ago
Amen. You have to compare assets vs debt, and then you have to compare asset growth projections vs debt growth projections, as any responsible finance thinking would go. Even then US debt provides a market function, so debt on a governmental level is quite different than say household or corporate debt. To wit, US assets value in something like the 240 trillion dollar range, though I’m sure you could find wide variance to such measurements given the complexity of the US asset holdings.

swebs 8y ago

Where are these interest payments going to? Who profits off the US being perpetually in debt?

koverda 8y ago
I believe it is those who own US Treasury Securities. These are the foreign holdings: http://ticdata.treasury.gov/Publish/mfh.txt http://ticdata.treasury.gov/Publish/mfh.txt From what I understand, the rest are citizens & US based funds.
Robotbeat 8y ago
Everyone who buys bonds, so like every retirement account.
ebikelaw 8y ago
Obviously the people who enjoyed the benefits of the borrowed money. Which might have been road users and university students, but actually turned out to be hundreds of thousands of dead Iraqis.
sp332 8y ago
The treasury has a one-page breakdown of the kinds of debt. https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opds062018.pdf https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opd... It's not a deep dive but I thought it was a great overview for fitting on one page. (edit: more recent link)
- 5874-4b22-a4e0 8y ago
  19k could be paid off by a single person, has this increased in the last two years?
  - sp332 8y ago
    In tiny print above that: (Millions of dollars)
  - bannable 8y ago

koverda 8y ago

What happens if the US inflates away the national debt?

logfromblammo 8y ago
The interest rates go up on the new debt instruments issued to make payments on the old debts.
damptowel 8y ago
Weimar :)

tiatia123 8y ago

"Debt Is the Result of Repaying Debt with More Debt" Actually, you can pay debt only with more debt. This is fundamental to capitalism and reason for it's dynamic and future downfall. "In order to pay back debt with interest, it is necessary to have economic growth, and financial growth and growth in fossil fuel use are very closely tied." https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-economy-except-at-a-very-basic-level/ https://ourfiniteworld.com/2011/02/21/there-is-no-steady-sta...

stephen_g 8y ago

I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business. This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and they're not constrained by artificial limitations like commodity convertibility or fixed exchange rates, it's just an interesting fact that doesn't actually really matter much. The real killers are excessive private sector debt, and even worse, debt denominated in a foreign currency.

yuhong 8y ago
That is partly because of the petrodollar BTW.
- jsoc815 8y ago
  As I understand it, the USD's strength is a function of the petrodollar. The petrodollar is supposedly a function of the U.S. military power. IIRC a old PBS doc about Saudi Arabia explained that the Saudi's were made and offer that [they] couldn't refuse to 1) price in and accept USD; and 2) supply @ at price levels deemed reasonable by the U.S. Obviously, they've lost some ability to control price w/the advent of the technology and the futures exchanges, but still...
- JumpCrisscross 8y ago
  > That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.
  - yuhong 8y ago
    Well, it dates back to when the gold standard ended in 1971, and then there was the oil crisis in 1973 etc.

TheSpiceIsLife 8y ago

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend, which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern. 4. If you believe the good times are going to keep rolling, and any bad times will, on average, pass relatively swiftly (people do have a tendency to persevere), then not borrowing money results in a lost opportunity cost. I'm sure someone can respond with some equally convincing reasons as to why nation-states shouldn't run a deficit. Go!

JumpCrisscross 8y ago
> Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern It's a pragmatic concern inasmuch as the lenders's "faith in [the government's] ability to service the debt" in step 2 is not infinite. If you lose that faith, you have to (a) raise rates, (b) impose capital controls, (c) raise taxes and/or (d) force your central bank to monetize the debt. Each of these do bad things to the economy. The national debt isn't like household debt because the government is immortal, but that doesn't mean it's meaningless.
- tialaramex 8y ago
  It's true that _government debt_ is not meaningless, but the 55% ratio is meaningless. Suppose you have a really nice condition Jackson Model C, and, because you're a crazy person you've been driving that damn thing every day since you bought it last century. Unsurprisingly the Jackson is not very reliable, and so you sometimes drive it to the garage where it can be repaired. Now alas the dry batteries in your Jackson are its weak spot, and you find they must be replaced every 100 miles or so. The garage is two miles away. After you've driven 2000 miles in your Jackson Model C, much of that time with antique car enthusiasts yelling at you that it belongs in a museum, you have replaced the battery about 20 times, each trip to do taking four miles (there and back) and so 80 miles. I observe that you've used 80% of the life of a battery just on driving to and from the garage to replace the batteries. Like this 55% of national debt statistic, my observation is at once true and completely meaningless.

teslabox 8y ago

This is an inevitable consequence of basing the money supply on debt. The Federal Reserve banks are responsible for making money and loaning it out into circulation. There is never enough money to pay back the interest on the loans, so the federal reserve loans out a little bit more every year. A solution to this quandary was figured out in 2011. Due to a quirk in the laws, the US Government has the ability to issue platinum coins of any value. These 'coins' never have to be paid back. The U.S.'s national debt could be retired by minting a couple "trillion dollar coins": https://en.wikipedia.org/wiki/Trillion_dollar_coin https://en.wikipedia.org/wiki/Trillion_dollar_coin The Federal Reserve does a decent job at keeping the money supply growing at less than a hyper-inflationary rate, but the value of our money has collapsed since I was a kid, since we all were kids...

JumpCrisscross 8y ago
> This is an inevitable consequence of basing the money supply on debt Not really. The U.S. government ran surpluses in the nineties. This led to hand-wringing as banks imagined a world without Treasuries, which would make collateralisation quite complicated. (We had the same "not enough safe assets" conversation after the financial crisis.) The U.S. government could wipe out its debt. The Federal Reserve couldn't, as every dollar bill is technically a Federal Reserve note, but that's a different beast.
- teslabox 8y ago
  I'm saying that under the Federal Reserve system, the total indebtedness of the U.S. economy must always increase. If the government starts to pay off its debt, the private sector must increase its debt levels. If the economy doesn't keep borrowing money, the money supply would rapidly collapse, leading to a deflationary spiral. The only money that never has to be paid back are coins. Do you have an alternate understanding of our monetary system?

justsomedude43 8y ago

If you lend money to yourself, why not just write the debt off?

nybble41 8y ago
Because we're not actually borrowing from ourselves, we're borrowing from future generations. That said, there is no plan (or will) to ever pay back the debt, so the difference is academic. The politicians will just keep borrowing (i.e. spending; it makes zero difference whether the funds come from loans or inflating the currency supply) until there is no capital left to consume.
- justsomedude43 8y ago
  How can there be no capital left to consume if the borrowed money has no support to back it up? You're saying we're borrowing from future generations which is like saying we're borrowing money from air. If we're borrowing money from non-existent source then there is an endless supply of the money, isn't there? And if there's no plan to pay it off, then why not just write it off? It makes no difference, the whole effect is psychological.
  - nybble41 8y ago
    Money per se is irrelevant; it's what you can buy with it that counts. Normally, to get money you have to produce something; when you spend that money you're claiming your share of what has been produced. If you buy on credit (with intent to repay) then you're committing your own future production capacity towards paying off the loan, with interest. If we want to hand our descendents a world at least as good as the one we received from our ancestors then we need to produce at least as much as we consume—more, actually, since some of that production will need to be dedicated toward the preservation and maintenance of capital (production capacity). If we borrow without any intention of ever paying down that debt, or (equivalently) introduce new money out of thin air in order to fund consumption, then the equation is unbalanced; there is no production to offset that consumption. That implies a reduction in capital investment (again: production capacity), which means goods will be harder to produce and thus more scarce in the future, which means a poorer quality of life for future generations. > And if there's no plan to pay it off, then why not just write it off? It makes no difference, the whole effect is psychological. On that point I agree with you. However, I am arguing that we should plan to pay it off, and thus do our part to maintain and improve this world before handing it off to our children.

thetaclear 8y ago

This reminded me of a documentary I watched quite a while ago: The Money Masters - https://www.youtube.com/watch?v=HBk5XV1ExoQ https://www.youtube.com/watch?v=HBk5XV1ExoQ I always wondered which parts are an accurate description of the current monetary system and which are unfounded conspiracy theories.

bubbleRefuge 8y ago

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here. When a treasury security expires or is redeemed, they merely changes numbers in a spreadsheet. 99% of the time those "funds" are moved back into a new treasury security. There will always be demand for interest bearing risk free government debt. go read http://neweconomicperspectives.org/ http://neweconomicperspectives.org/ its all there.

JumpCrisscross 8y ago
> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fiscal policy (i.e. not including the Federal Reserve's debt, which technically includes every dollar bill) has real consequences in constraining the government's taxing and spending power without tripping up inflation.
- bubbleRefuge 8y ago
  No . But you are getting there. Yes fiscal policy is the lever that determines the amount ( quantity) of money ( or demand ) driving the economy . Monetary policy is interest rates or the price of money. And ,there is mounting evidence that hight interest rates actually have the opposite of the intended effect . That is, that higher interest rates lead to higher net income to the private sector which is a bit inflationary.
  - lrajlich 8y ago
    > higher interest rates lead to higher net income to the private sector which is a bit inflationary. There a paper for this? low interest rates tend to be associated with poor economic conditions, in the extreme liquidity trap or secular stagnation, so this conclusion makes sense though the causal effect is the opposite of what is suggested by your comment... As an example, interest rates (ex fed funds) were really low during the great depression!

rdiddly 8y ago

"This interest includes repaying principal." Stop right there. Something's fishy with the terminology/math/reasoning then, no? If the "interest" includes principal, then what is the interest? It's like saying "Use one cup of flour and water" or "The size of my penis is 6 feet including my height." Here's what let's do: subtract the principal from the interest. That should leave you with the interest only. Therefore I - P = I Subtract I from both sides... -P = 0 Divide by -P... 1 = 0 This is the axiom of Black Math.

Four_Star 8y ago
That's the way reporting on the repayment of the national debt is done. The point of the article is unchanged. Those familiar with Treasuries will understand If I run a deficit of 100 dollars, borrow 100 dollars and I repay the loan by borrowing 100 dollars and the interest on both is 10 dollars, than I owe 220 dollars but I only got 100 dollars of real spending. That is what the article is saying. of the $21.4 trillion in debt, only $14 trillion funded deficits and half of those deficits were the results of rolling debt over. No funny math at all
- rdiddly 8y ago
  My point is that it's bad terminology, which I show by proving it leads to bad math. I notice at no point do you refer to the $10 as including part of the $100 in either case, so apparently you agree.
nerdponx 8y ago
s/This interest includes/These payments include

ToFab123 8y ago

From whom do the borrow all that money? Who "owns" America?

bjl 8y ago
A sizeable majority of US Treasuries are owned by American citizens.