7 ms·

It seems pretty clear that this debt will never be repaid, and will just keep growing - how big can it grow before it just doesn't get to grow any more?

Four_Star 8y ago
Judging by Japan's example, a lot more. Though you never really know. It's like trying to predict just how much snow will cause an avalanche. All you can really do is look at it and say 'that looks dangerous.'
- tonyedgecombe 8y ago
  Japan is unusual in that most of its debt is owned by its own population. This makes it difficult to inflate away.
pcurve 8y ago
There is upper limit. Cost of servicing debt cannot exceed tax revenue. But that's in theory. The U.S. spent $450 billion in interest payment to its debt, on tax revenue of about $2.5 trillion That's 18% of revenue. Can it go to 30%? Sure, but there will be cuts made to services. Japan gets panned for overspending, but they're in line with what the U.S. spends in debt servicing cost in relation to revenue. https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS?locations=JP-US&view=chart https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS?locat...
Armisael16 8y ago
First: that debt will be repaid. The people who own those T-bonds will redeem them and get their money. This is an important distinction; you buy T-bonds because you know they’ll be paid back. The total value of the debt is an almost meaningless number. As long as people keep buying US debt, we’ll have the money to pay the debt off. (Strictly the US could just print the money it needs to pay the debt right now - the question is whether the resulting inflation would be worth it). The rest cost of the debt is interest payments. As long as those stay at a manageable fraction of GDP the US is just fine. If GDP increase 10% but debt servicing only increases 5% then the servicing payments are effectively 4.5% smaller. In the next decade our problem is less likely to be total quantity of debt than increasing interest rates (which are very low right now).
- NTDF9 8y ago
  Let's just say something breaks and we're in a recession (declining GDP, declining immigrants, declining production, declining population). What happens then?
  - tonyedgecombe 8y ago
    Turn on the printing press. As long as the debt is in your own currency it isn’t a problem. If you don’t control your currency (think of Greece in the Euro) then it’s another matter. The same if you borrow in a foreign currency.
    - faileddev 8y ago
      >Turn on the printing press This is nothing more than a form of taxation.

Four_Star 8y ago

Judging by Japan's example, a lot more. Though you never really know. It's like trying to predict just how much snow will cause an avalanche. All you can really do is look at it and say 'that looks dangerous.'

tonyedgecombe 8y ago
Japan is unusual in that most of its debt is owned by its own population. This makes it difficult to inflate away.

pcurve 8y ago

There is upper limit. Cost of servicing debt cannot exceed tax revenue. But that's in theory. The U.S. spent $450 billion in interest payment to its debt, on tax revenue of about $2.5 trillion That's 18% of revenue. Can it go to 30%? Sure, but there will be cuts made to services. Japan gets panned for overspending, but they're in line with what the U.S. spends in debt servicing cost in relation to revenue. https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS?locations=JP-US&view=chart https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS?locat...

Armisael16 8y ago

First: that debt will be repaid. The people who own those T-bonds will redeem them and get their money. This is an important distinction; you buy T-bonds because you know they’ll be paid back. The total value of the debt is an almost meaningless number. As long as people keep buying US debt, we’ll have the money to pay the debt off. (Strictly the US could just print the money it needs to pay the debt right now - the question is whether the resulting inflation would be worth it). The rest cost of the debt is interest payments. As long as those stay at a manageable fraction of GDP the US is just fine. If GDP increase 10% but debt servicing only increases 5% then the servicing payments are effectively 4.5% smaller. In the next decade our problem is less likely to be total quantity of debt than increasing interest rates (which are very low right now).

NTDF9 8y ago
Let's just say something breaks and we're in a recession (declining GDP, declining immigrants, declining production, declining population). What happens then?
- tonyedgecombe 8y ago
  Turn on the printing press. As long as the debt is in your own currency it isn’t a problem. If you don’t control your currency (think of Greece in the Euro) then it’s another matter. The same if you borrow in a foreign currency.
  - faileddev 8y ago
    >Turn on the printing press This is nothing more than a form of taxation.