11 ms·

As far as insight for how this looks for the US economy, one of the few people I respect when it comes to predictions is Ray Dalio, he says the US debt will sta

As far as insight for how this looks for the US economy, one of the few people I respect when it comes to predictions is Ray Dalio, he says the US debt will start becoming an issue soon. Within 10 years the majority of the US federal budget will go to paying INTEREST on our debt, requiring us to borrow more to pay for the rest which will result in exponentially rising debt and inflation as the government prints money. Dalio also talks about Thucydides Trap and Paul Kennedy's book on the decline of great powers. He doesn't say it but he seems fairly confident in China surpassing the US as the dominant global power in the near future. The only issue I have is that he seems to think China's high debt is fine compared to the US based on vague reasoning. The US and the West in general need to wake the fuck up or we're going to be under China's thumb. We've become complacent and assume our status on top of the global hierarchy is guaranteed. China is playing to win and doesn't care about breaking the rules to win

smsm42 8y ago
> he says the US debt will start becoming an issue soon Which makes sense, but - I've been hearing this for couple of decades, and it doesn't seem to happen. I am not sure I understand why it doesn't happen and why people seem to care about the mountain of US debt much less than I think they should - but this looks like what is happening for a while. I still think this will become an issue sometime in the future, but I have no idea how one can predict how soon it would be. > he seems fairly confident in China surpassing the US as the dominant global power in the near future That depends a lot of what you mean by "dominant" and "near future", I guess. If you pick your criteria well enough, you could both claim China is already dominant (I mean, look at where all the stuff is manufactured! And their population numbers! And their GDP growth!) or that they are hopelessly behind (I mean, look at their GDP per capita - it's on part with Iraq! Nobody thinks Iraq is dominant... Or look at the immigration patterns - are a lot of people from other developed countries dream to go to China, or vice versa? How dominant can be the country where their own population rather live somewhere else?) So you could make either claim without too much effort.
- stephen_g 8y ago
  Modern monetary theory is the only one that can adequately explain why it's not a problem in my opinion. The kind of people who say that the US's debt is totally going to be a problem any year now have generally being saying that for years, as well as saying that about Japan's since the early 90's. But MMT proposes that a monetarily sovereign currency issuer (like the US, UK, Japan, Australia, New Zealand, etc. but not Euro-using countries, or anybody with a gold standard, fixed exchange rates etc.) actually have the ability to service any debt denominated in their own currencies, and analysis to pretty confidently say that it would not be inflationary to just pay them out (i.e by money creation). The inflation risk was at the time when the spending of the bond money happened, so paying them out with new money is asset neutral - the only difference is it just gives the bond-holder a more liquid asset. Then there are other useful tools like sectoral balances, etc. that help explain the links between one of the things that really matters (private debt) and how it relates to Government spending and trade surplus/deficit. A few of the twelve or so people who accurately described the great recession a few years before it happened used this method at the core (e.g. Keen, Godley). It flies pretty hard in the face of conventional economic wisdom, but I haven't yet found an economic theory that holds up so strongly to real world observation, i.e. in explaining why Greece has huge debt problems but not Germany (Eurozone, but trade surplus) or the US (monetarily sovereign), and why Venezuela and Zimbwabe have their problems (debt denominated in foreign currencies, supply shocks, etc.) vs. Japan (monetarily sovereign) while they seem to do similar things, etc.
  - mikekchar 8y ago
    The thing is that Japan is actually in a deflationary period. You can easily pay debt with increased money supply in that scenario. Similarly, in Japan the debt is owned by the people of Japan and a big question is whether or not that debt ever comes due. There is an ageing population (which means people will want their money back), but there is also no exemption on inheritance tax. Anybody who dies with money in the post office (which lends all its assets to the government) is essentially forgiving the debt for 30% of that money. Japan has also historically had very low taxes (for example very low value added tax) and this is slowly being corrected. It's placing itself in a better position to pay back debt (at the expense of the economy). Given that, I'm not really sure that Japan is a good example. The US, as well, is in a weird space. China has been quite keen to buy up US debt. This is propping up the US dollar, which I think is an important strategy for Chinese growth. However, I expect the other shoe to drop at some point. Once the Chinese economy is strong enough that they don't want to be the "cheap manufacturing country for the world" (see Japan and South Korea for other examples of this), I suspect they will drop US debt like a hot potato, favouring strong buying power over strong selling power. If the shift their economy and compete head to head with the US in the "value add" sector, I think that debt may cause significant problems. But this is complicated stuff and I really don't know what I'm talking about :-) It's fun to speculate, though.
guelo 8y ago
Also worth noting that Republicans/Trump decided to goose the economy with their huge deficit-financed tax cuts at a time when the economy is already strong and heading towards the end of a business cycle. This is the opposite of Keynesian theory which says you should run surplusses during boom times and deficit-financed stimulus during recessions. OTOH, the bond markets don't seem to care about our current debt load. And the full faith and credit of the US Treasury still backs the world economy.
- hueving 8y ago
  Nearing the end of a business cycle, possibly. But the economy wasn't particularly strong, it just wasn't terrible. GDP was okay, but employment still wasn't great, inflation was weak, and wages stagnant. It really feels like the chickens are going to come home to roost on the next downturn due to the massive stimulus preventing the last one from being fully realized while simultaneously putting massive debt onto the US balance sheet.
  - beginningguava 8y ago
    yeah, capitalism doesn't work if the government picks winners and losers. A recession is often a good thing, kind of like how natural forest fires clear things out. This time the government intervened and simply kicked the can down the road.
  - polotics 8y ago
    Right: unemployment is so low, some people have two or three jobs! Wages tell the real story.
    - hueving 8y ago
      I don't think you understand what the term unemployment means. AOC made the same mistake.
- AnthonyMouse 8y ago
  > This is the opposite of Keynesian theory which says you should run surplusses during boom times and deficit-financed stimulus during recessions. What this theory has failed to do over time is to prevent the amount of outstanding public and private debt from perpetually expanding. During boom times, people are inclined to borrow (i.e. create money) to take advantage of the economic opportunities. What the theory says is that we can/should then adopt policies to pay back debt (i.e. destroy money) at the same time, which can then be done without causing deflation. So that's fine, when times are good the amount of debt will expand less than it might have, though it still expands some because slight inflation is so much better than any deflation. Then when times are bad, we lower interest rates and engage in deficit spending to stimulate the economy. Debts expand a lot. Notice that neither of these involves the level of debt ever going down, but one of them involves it going up a lot. Advance a few decades and the level of public and private debt is out of control and the interest payments are becoming a large problem. So how do we get out of this? At some point the level of debt has to go down, but that destroys money, which causes deflation, which is an unmitigated catastrophe that hyper-regressively increases the real value of everyone's huge outstanding debts. What we need is a way to create money to offset the currency destruction of debt-reduction without just recreating the debt somewhere else. But we know how to do that -- the government can print money. Then raise bank loan interest rates so that people have the incentive to pay down their debts, while at the same time using the money you're printing to lower taxes without cutting services so that people have that money to use to pay down their debts with. But printing money has a bad name. Failing countries do it a lot, and people think it will cause inflation. Which it does, of course, but that's the point -- inflation to offset the deflation of reducing debts. So they're apparently being stealthy about it, because there's a back door into this. Instead of having Congress print money, you have them pass a budget with a huge deficit. Then the Fed creates money to buy the debt. Different accounting, same result. Debt held by the Fed "doesn't count" because the treasury pays "itself" when the bond matures. The issue now is that the Fed needs to get the rates calibrated right. They needed to be raised from zero to get people to actually start paying down debts, but too much and borrowers start to destroy money faster than Congress is creating it through deficit spending. And a little bit of higher interest rates goes a long way when the amount of outstanding private debt is as high as it is. So now the Fed is trying to hit its inflation target in the face of all this, resulting in some uncertainty about what rates are going to be in a few years.
hueving 8y ago
>which will result in exponentially rising debt and inflation as the government prints money. This analysis is missing something because inflation is a good thing for country debt denominated in it's own currency. Inflating away the outstanding debt is one of the ways to deal with outstanding debt. If you get a hot economy that results in both high tax receipts and higher levels of inflation (not hyperinflation), outstanding debt can be worn down pretty quickly.
- mirimir 8y ago
  I've been assuming, for many years, that it will eventually go down this way. China, the Saudis, etc will not be happy. But hey.
JamesBarney 8y ago
The u.s. in 2017 spent 6.8% on interest Payments why does he think that will grow 800% in the next 10 years. That seems like a pretty extraordinary claim.
- beginningguava 8y ago
  Might be just discretionary spending which doesn't include stuff like social security. Tax cuts ballooned the deficit and Fed increasing interest rates also doesn't help. https://www.nytimes.com/2018/09/25/business/economy/us-government-debt-interest.html https://www.nytimes.com/2018/09/25/business/economy/us-gover...
justinclift 8y ago
> ... and doesn't care about breaking the rules to win Oh. There are rules which countries should be following, even if it's to their advantage not too? ;)
- ryanmarsh 8y ago
  Corruption?! ... Corruption, is WHY WE WIN! – Syriana
ironic_ali 8y ago
Martin Armstrong's computer Socrates has China surpassing the US by 2032. Armstrongeconomics.com & ask-socrates.com
TomMckenny 8y ago
The US is at the center of a vast network of multilateral international relations which, even as its individual position diminishes, would continue to exert considerable world influence. Just as did the British long after their empire and with declining GDP. Of course if the US were to destroy its international network, that would change. As for "waking up", it appears at the moment the decline is not creating a call for clear thinkers and rational solutions but for charismatic leaders who make Ghost Dance variety promises.
gammateam 8y ago
> Within 10 years the majority of the US federal budget will go to paying INTEREST on our debt All the Federal Reserve has to do is buy US treasures on the open market at higher and higher prices. A premium on a bond pushes the yield lower. Yields at 0% means that the US will not be paying interest on its [new] debt. Yields at negative means that investors will be paying the US. People and entities buying US treasury bonds is why they yield 2-ish percent right now at all, instead of say 5%. Regarding 0% rates, the Bank of Japan has already done this with Japanese government treasuries, for a very long time Regarding negative rates, the European Central Bank has already done this with its constituent country's government bonds, for several years. Primarily German bonds. The US can do this with more efficacy than those economies, whenever it chooses to do so. Right now, the US Central Bank chooses to raise rates and the US Treasury continues to issue more debt at the higher rates for reasons unrelated to its budget, to be honest just because the market can bear it. The Federal Reserve chooses to have less dubious assets on its balance sheet. Everything is done in a form of moderation, but the US has a lot of tools to deal with its debt.
- narrator 8y ago
  We could go China style and just get rid of the fed and have the government print its own money. That would be way too easy though. Edit: The difference is when China bails out its banks it doesn't loan the money into existence to do it. The U.S government must borrow the money from the fed and the interest rate is paid back by the taxpayers. Yes, the interest paid back to the fed goes back to the government, minus expenses. However, those with very large amounts of money, trillions in aggregate, can piggyback on this system and earn enormous risk free returns where they would otherwise have to carefully invest in non-risk free instruments. These risk free assets are unavailable to chinese investors forcing these large savings into various productive (or non-productive based on their investing skill) investments in the economy. They can't go into T-Bills either because of strict currency controls. In the U.S the risk-free trillions invested are guaranteed by the power of taxation of the rest of the productive economy. This austerity to pay the bondholders and ensuing liquidation is what trashes the rest of the economy on a regular basis in Western economies. This doesn't happen in China because the banks get bailed out with printed money and they keep on lending without putting the government in debt or requiring taxes to be raised or austerity. That China has not had a Japanese style prolonged credit bust even though it has been predicted by "The Economist" and other supposedly learned publications on a regular basis for the last 30 years is a sublime mystery that defines explanation because there is a stubborn refusal to objectively understand and analyze the Chinese financial system. I'd say it's a new paradigm in human organization that really defies western understanding because our financial system is so enormously politically protected by all that trillions in passive capital that gets risk free returns.
hyperpallium 8y ago
When you owe a million dollars to someone, you have a problem. When you owe a trillion dollars to someone, they have a problem.
- landryraccoon 8y ago
  Only if money is their primary concern. The US went to war with Iraq and it cost trillions. If China wanted to undermine the US economy and it only costs a few trillion in bad debt it's a bargain if it achieves that goal.
  - jjeaff 8y ago
    But they don't have a few trillion of our debt. They have about a trillion and that isn't even 7% of the total debt. US citizens and institutions own most of the US debt.
wbl 8y ago
The US has a lot of unused taxing authority, historically low inflation and low interest rates. Investors don't see this as a real possibility.
jorblumesea 8y ago
This is absurdly alarmist. While we can all agree debt isn't a good thing, there are a plethora of tools the Fed and the US Govt has at its disposal. It could: Buy higher than market prices, such as how the BOJ or Eurozone manages its yield curve Cut social spending programs such as Medicare/Medicaid/Social Security Cut defense spending Increase taxes Inflation cuts existing debt amounts Or any combination of these. Realistically, most of these. This yield curve inversion has long been expected and isn't some kind of harbinger of doom. China meanwhile has its own set of precarious economic issues and isn't guaranteed anything.
nopinsight 8y ago
> The only issue I have is that he seems to think China's high debt is fine compared to the US based on vague reasoning. Do you have a source that lets us see his quotes? I would venture a guess that China's much higher saving rate has something to do with it. Their infrastructure investments are probably wasted at times but it seems much of them do help support further urbanization and economic development.
- nostrademons 8y ago
  He self-published a book recently, available as a free PDF or E-book if you're willing to give up your e-mail address: https://www.principles.com/big-debt-crises/ https://www.principles.com/big-debt-crises/
dd36 8y ago
The government doesn’t print money.
village-idiot 8y ago
Both the US and China hide a ton of unfunded debt in local municipalities. The question is whose will blow up first, because the survivor will reap the rewards.
rorykoehler 8y ago
What does "being under China's thumb" mean in practical terms?
User9991 8y ago
As far as insight for how this looks for the US economy, one of the few people I respect when it comes to predictions is Ray Dalio, he says the US debt will start becoming an issue soon. Within 10 years the majority of the US federal budget will go to paying INTEREST on our debt Why don't you do the math instead of listening to Ray Dalio spout nonsense? A 1% rise in interest rates is equal to a ~$15 Billion rise in interest rate payments based on the amount of treasuries that actually roll over annually. Meanwhile, tax receipts are rising at ~$100 Billion annually. So, how, exactly, will we be spending the majority of the US budget, which is almost $4.0 TRILLION, on interest payments within 10 years?
acct1771 8y ago
He thinks China's high debt is fine because they're the new capitalistic kid on the block, and they have at least half as long as the US did before people start to call the bluff, so to speak. Everyone wants to grab hold of the horns of the charging Chinese bull.

smsm42 8y ago

> he says the US debt will start becoming an issue soon Which makes sense, but - I've been hearing this for couple of decades, and it doesn't seem to happen. I am not sure I understand why it doesn't happen and why people seem to care about the mountain of US debt much less than I think they should - but this looks like what is happening for a while. I still think this will become an issue sometime in the future, but I have no idea how one can predict how soon it would be. > he seems fairly confident in China surpassing the US as the dominant global power in the near future That depends a lot of what you mean by "dominant" and "near future", I guess. If you pick your criteria well enough, you could both claim China is already dominant (I mean, look at where all the stuff is manufactured! And their population numbers! And their GDP growth!) or that they are hopelessly behind (I mean, look at their GDP per capita - it's on part with Iraq! Nobody thinks Iraq is dominant... Or look at the immigration patterns - are a lot of people from other developed countries dream to go to China, or vice versa? How dominant can be the country where their own population rather live somewhere else?) So you could make either claim without too much effort.

stephen_g 8y ago
Modern monetary theory is the only one that can adequately explain why it's not a problem in my opinion. The kind of people who say that the US's debt is totally going to be a problem any year now have generally being saying that for years, as well as saying that about Japan's since the early 90's. But MMT proposes that a monetarily sovereign currency issuer (like the US, UK, Japan, Australia, New Zealand, etc. but not Euro-using countries, or anybody with a gold standard, fixed exchange rates etc.) actually have the ability to service any debt denominated in their own currencies, and analysis to pretty confidently say that it would not be inflationary to just pay them out (i.e by money creation). The inflation risk was at the time when the spending of the bond money happened, so paying them out with new money is asset neutral - the only difference is it just gives the bond-holder a more liquid asset. Then there are other useful tools like sectoral balances, etc. that help explain the links between one of the things that really matters (private debt) and how it relates to Government spending and trade surplus/deficit. A few of the twelve or so people who accurately described the great recession a few years before it happened used this method at the core (e.g. Keen, Godley). It flies pretty hard in the face of conventional economic wisdom, but I haven't yet found an economic theory that holds up so strongly to real world observation, i.e. in explaining why Greece has huge debt problems but not Germany (Eurozone, but trade surplus) or the US (monetarily sovereign), and why Venezuela and Zimbwabe have their problems (debt denominated in foreign currencies, supply shocks, etc.) vs. Japan (monetarily sovereign) while they seem to do similar things, etc.
- mikekchar 8y ago
  The thing is that Japan is actually in a deflationary period. You can easily pay debt with increased money supply in that scenario. Similarly, in Japan the debt is owned by the people of Japan and a big question is whether or not that debt ever comes due. There is an ageing population (which means people will want their money back), but there is also no exemption on inheritance tax. Anybody who dies with money in the post office (which lends all its assets to the government) is essentially forgiving the debt for 30% of that money. Japan has also historically had very low taxes (for example very low value added tax) and this is slowly being corrected. It's placing itself in a better position to pay back debt (at the expense of the economy). Given that, I'm not really sure that Japan is a good example. The US, as well, is in a weird space. China has been quite keen to buy up US debt. This is propping up the US dollar, which I think is an important strategy for Chinese growth. However, I expect the other shoe to drop at some point. Once the Chinese economy is strong enough that they don't want to be the "cheap manufacturing country for the world" (see Japan and South Korea for other examples of this), I suspect they will drop US debt like a hot potato, favouring strong buying power over strong selling power. If the shift their economy and compete head to head with the US in the "value add" sector, I think that debt may cause significant problems. But this is complicated stuff and I really don't know what I'm talking about :-) It's fun to speculate, though.

guelo 8y ago

Also worth noting that Republicans/Trump decided to goose the economy with their huge deficit-financed tax cuts at a time when the economy is already strong and heading towards the end of a business cycle. This is the opposite of Keynesian theory which says you should run surplusses during boom times and deficit-financed stimulus during recessions. OTOH, the bond markets don't seem to care about our current debt load. And the full faith and credit of the US Treasury still backs the world economy.

hueving 8y ago
Nearing the end of a business cycle, possibly. But the economy wasn't particularly strong, it just wasn't terrible. GDP was okay, but employment still wasn't great, inflation was weak, and wages stagnant. It really feels like the chickens are going to come home to roost on the next downturn due to the massive stimulus preventing the last one from being fully realized while simultaneously putting massive debt onto the US balance sheet.
- beginningguava 8y ago
  yeah, capitalism doesn't work if the government picks winners and losers. A recession is often a good thing, kind of like how natural forest fires clear things out. This time the government intervened and simply kicked the can down the road.
- polotics 8y ago
  Right: unemployment is so low, some people have two or three jobs! Wages tell the real story.
  - hueving 8y ago
    I don't think you understand what the term unemployment means. AOC made the same mistake.
AnthonyMouse 8y ago
> This is the opposite of Keynesian theory which says you should run surplusses during boom times and deficit-financed stimulus during recessions. What this theory has failed to do over time is to prevent the amount of outstanding public and private debt from perpetually expanding. During boom times, people are inclined to borrow (i.e. create money) to take advantage of the economic opportunities. What the theory says is that we can/should then adopt policies to pay back debt (i.e. destroy money) at the same time, which can then be done without causing deflation. So that's fine, when times are good the amount of debt will expand less than it might have, though it still expands some because slight inflation is so much better than any deflation. Then when times are bad, we lower interest rates and engage in deficit spending to stimulate the economy. Debts expand a lot. Notice that neither of these involves the level of debt ever going down, but one of them involves it going up a lot. Advance a few decades and the level of public and private debt is out of control and the interest payments are becoming a large problem. So how do we get out of this? At some point the level of debt has to go down, but that destroys money, which causes deflation, which is an unmitigated catastrophe that hyper-regressively increases the real value of everyone's huge outstanding debts. What we need is a way to create money to offset the currency destruction of debt-reduction without just recreating the debt somewhere else. But we know how to do that -- the government can print money. Then raise bank loan interest rates so that people have the incentive to pay down their debts, while at the same time using the money you're printing to lower taxes without cutting services so that people have that money to use to pay down their debts with. But printing money has a bad name. Failing countries do it a lot, and people think it will cause inflation. Which it does, of course, but that's the point -- inflation to offset the deflation of reducing debts. So they're apparently being stealthy about it, because there's a back door into this. Instead of having Congress print money, you have them pass a budget with a huge deficit. Then the Fed creates money to buy the debt. Different accounting, same result. Debt held by the Fed "doesn't count" because the treasury pays "itself" when the bond matures. The issue now is that the Fed needs to get the rates calibrated right. They needed to be raised from zero to get people to actually start paying down debts, but too much and borrowers start to destroy money faster than Congress is creating it through deficit spending. And a little bit of higher interest rates goes a long way when the amount of outstanding private debt is as high as it is. So now the Fed is trying to hit its inflation target in the face of all this, resulting in some uncertainty about what rates are going to be in a few years.

hueving 8y ago

>which will result in exponentially rising debt and inflation as the government prints money. This analysis is missing something because inflation is a good thing for country debt denominated in it's own currency. Inflating away the outstanding debt is one of the ways to deal with outstanding debt. If you get a hot economy that results in both high tax receipts and higher levels of inflation (not hyperinflation), outstanding debt can be worn down pretty quickly.

mirimir 8y ago
I've been assuming, for many years, that it will eventually go down this way. China, the Saudis, etc will not be happy. But hey.

JamesBarney 8y ago

The u.s. in 2017 spent 6.8% on interest Payments why does he think that will grow 800% in the next 10 years. That seems like a pretty extraordinary claim.

beginningguava 8y ago
Might be just discretionary spending which doesn't include stuff like social security. Tax cuts ballooned the deficit and Fed increasing interest rates also doesn't help. https://www.nytimes.com/2018/09/25/business/economy/us-government-debt-interest.html https://www.nytimes.com/2018/09/25/business/economy/us-gover...

justinclift 8y ago

> ... and doesn't care about breaking the rules to win Oh. There are rules which countries should be following, even if it's to their advantage not too? ;)

ryanmarsh 8y ago
Corruption?! ... Corruption, is WHY WE WIN! – Syriana

ironic_ali 8y ago

Martin Armstrong's computer Socrates has China surpassing the US by 2032. Armstrongeconomics.com & ask-socrates.com

TomMckenny 8y ago

The US is at the center of a vast network of multilateral international relations which, even as its individual position diminishes, would continue to exert considerable world influence. Just as did the British long after their empire and with declining GDP. Of course if the US were to destroy its international network, that would change. As for "waking up", it appears at the moment the decline is not creating a call for clear thinkers and rational solutions but for charismatic leaders who make Ghost Dance variety promises.

gammateam 8y ago

> Within 10 years the majority of the US federal budget will go to paying INTEREST on our debt All the Federal Reserve has to do is buy US treasures on the open market at higher and higher prices. A premium on a bond pushes the yield lower. Yields at 0% means that the US will not be paying interest on its [new] debt. Yields at negative means that investors will be paying the US. People and entities buying US treasury bonds is why they yield 2-ish percent right now at all, instead of say 5%. Regarding 0% rates, the Bank of Japan has already done this with Japanese government treasuries, for a very long time Regarding negative rates, the European Central Bank has already done this with its constituent country's government bonds, for several years. Primarily German bonds. The US can do this with more efficacy than those economies, whenever it chooses to do so. Right now, the US Central Bank chooses to raise rates and the US Treasury continues to issue more debt at the higher rates for reasons unrelated to its budget, to be honest just because the market can bear it. The Federal Reserve chooses to have less dubious assets on its balance sheet. Everything is done in a form of moderation, but the US has a lot of tools to deal with its debt.

narrator 8y ago
We could go China style and just get rid of the fed and have the government print its own money. That would be way too easy though. Edit: The difference is when China bails out its banks it doesn't loan the money into existence to do it. The U.S government must borrow the money from the fed and the interest rate is paid back by the taxpayers. Yes, the interest paid back to the fed goes back to the government, minus expenses. However, those with very large amounts of money, trillions in aggregate, can piggyback on this system and earn enormous risk free returns where they would otherwise have to carefully invest in non-risk free instruments. These risk free assets are unavailable to chinese investors forcing these large savings into various productive (or non-productive based on their investing skill) investments in the economy. They can't go into T-Bills either because of strict currency controls. In the U.S the risk-free trillions invested are guaranteed by the power of taxation of the rest of the productive economy. This austerity to pay the bondholders and ensuing liquidation is what trashes the rest of the economy on a regular basis in Western economies. This doesn't happen in China because the banks get bailed out with printed money and they keep on lending without putting the government in debt or requiring taxes to be raised or austerity. That China has not had a Japanese style prolonged credit bust even though it has been predicted by "The Economist" and other supposedly learned publications on a regular basis for the last 30 years is a sublime mystery that defines explanation because there is a stubborn refusal to objectively understand and analyze the Chinese financial system. I'd say it's a new paradigm in human organization that really defies western understanding because our financial system is so enormously politically protected by all that trillions in passive capital that gets risk free returns.

hyperpallium 8y ago

When you owe a million dollars to someone, you have a problem. When you owe a trillion dollars to someone, they have a problem.

landryraccoon 8y ago
Only if money is their primary concern. The US went to war with Iraq and it cost trillions. If China wanted to undermine the US economy and it only costs a few trillion in bad debt it's a bargain if it achieves that goal.
- jjeaff 8y ago
  But they don't have a few trillion of our debt. They have about a trillion and that isn't even 7% of the total debt. US citizens and institutions own most of the US debt.

wbl 8y ago

The US has a lot of unused taxing authority, historically low inflation and low interest rates. Investors don't see this as a real possibility.

jorblumesea 8y ago

This is absurdly alarmist. While we can all agree debt isn't a good thing, there are a plethora of tools the Fed and the US Govt has at its disposal. It could: Buy higher than market prices, such as how the BOJ or Eurozone manages its yield curve Cut social spending programs such as Medicare/Medicaid/Social Security Cut defense spending Increase taxes Inflation cuts existing debt amounts Or any combination of these. Realistically, most of these. This yield curve inversion has long been expected and isn't some kind of harbinger of doom. China meanwhile has its own set of precarious economic issues and isn't guaranteed anything.

nopinsight 8y ago

> The only issue I have is that he seems to think China's high debt is fine compared to the US based on vague reasoning. Do you have a source that lets us see his quotes? I would venture a guess that China's much higher saving rate has something to do with it. Their infrastructure investments are probably wasted at times but it seems much of them do help support further urbanization and economic development.

nostrademons 8y ago
He self-published a book recently, available as a free PDF or E-book if you're willing to give up your e-mail address: https://www.principles.com/big-debt-crises/ https://www.principles.com/big-debt-crises/

dd36 8y ago

The government doesn’t print money.

village-idiot 8y ago

Both the US and China hide a ton of unfunded debt in local municipalities. The question is whose will blow up first, because the survivor will reap the rewards.

rorykoehler 8y ago

What does "being under China's thumb" mean in practical terms?

User9991 8y ago

acct1771 8y ago

He thinks China's high debt is fine because they're the new capitalistic kid on the block, and they have at least half as long as the US did before people start to call the bluff, so to speak. Everyone wants to grab hold of the horns of the charging Chinese bull.