6 ms·

What does this have to do with anything? The problem with too much US debt is that we have to make interest payments on that debt, which now makes up ~10% of th

What does this have to do with anything? The problem with too much US debt is that we have to make interest payments on that debt, which now makes up ~10% of the annual budget (or about $400B/yr). That's expensive and going to get worse if we continue borrowing at unsustainable rates. It's also going to get a lot worse if investors start to worry the US might default on its debts and demand higher yields on return. I'm not sure why you think it matters whether China or Europe is holding the debt.

phil248 7y ago
A friend may work with you to negotiate terms, even at their own expense. A rival may use it against you in pursuit of their own benefit.
arcticbull 7y ago
> What does this have to do with anything? The problem with too much US debt is that we have to make interest payments on that debt, which now makes up ~10% of the annual budget (or about $400B/yr). That may matter to you as an individual but governments get to print money. It's like if I issued IOUs denominated in Steve's Funbucks that I'm the sole issuer of, and those IOU holders lived across the ocean and also I had half the world's armed forces at my disposal. Then when things went sideways I fired up the Epson and paid you off. As it turns out inflation is not directly connected to the issuance of new money, although it does contribute. Balancing a federal checkbook isn't the same as your home finances. I'm not saying you should go to town and print a ton of money and that nothing would happen, I'm saying it can play a role and isn't directly equatable to small-scale finance. (Edit) further, borrowing to create economic activity is not zero sum. If you borrow 100K and create a business worth $1M, and reap the tax returns, it doesn’t matter how much you owe. If I borrow $1T and create a $5T economy, I doubt the kids will mind. This is in part why the money supply increases over time — to reflect the new scope of the economy. The only material risk of taking on debt is that you need to create returns in excess of your interest payments.
- perl4ever 7y ago
  It seems to me that "half the world's armed forces" is a result of being able to print money, not a cause.
  - arcticbull 7y ago
    That could absolutely be true, but what difference does it make? I’m asking genuinely. To me that’s the how we got here, not what we do next.
  - SimbaOnSteroids 7y ago
    Chicken or the egg right? Pre WWII we were hit with a massive depression like everyone else. As the war effort ramped up and the rest of the industrialized world was taking it on the chin we conveniently got to reap the economic benefits of having a totally mobilized workforce, without, y'know, all our manufacturing hubs getting Dresden'd. Surprise suprise, we win the war and don't incur heavy infrastructure damage AND get the benefit of a suddenly energized economy, so we do what we do and keep the party going. Stick our noses in Korea, get in a massive arms race with the Soviet Union, fight a couple proxy wars with the Soviets. Well turns out the Soviets are light weights and can't hold their liquor and bow out early. Now we're the only ones with a ginormous army and can subsequently print our own money. We got away with it because everyone that we kept close were highly incentivized not to call us on it, on account of the soviet's nasty habit of rollin up to a place and makin it the quality of life equivalent of an Andy Dick comedy special.
    - selimthegrim 7y ago
      Andy Dick got clocked by some random guy on Bourbon St the other day who calmly picked up his water bottle he’d put down on the way out - a clear sign of SVR training
- dmix 7y ago
  Why should the US be borrowing for economic activity? What business does a government have choosing winners in the marketplace. The US already has one of the most efficient capital markets in the world. The government should on being the best administrator of markets possible. They should never be taking part unless there's a ton of evidence it'd be the best option compared to alternatives or simply a moral obligation, like health care and (more so in the past, before parcels) the postal service. Otherwise they need to go away and focus on bettering and updating the regulatory and tax regime. Not "bringing jobs" or generating economic activity, or w/e else via directly putting money and management themselves. The former is the only way they can really improve the economy. By letting the millions of highly capable do what they are already doing, while efficiently dealing with externalities that the markets and courts can't handle.
JMTQp8lwXL 7y ago
If negative rates hit the U.S., wouldn't that further incentivize the government to issue debt, since investors would be paying the government for the privilege to hold their money?
- basementcat 7y ago
  Not only would it incentivize the government to issue debt, it would also incentivize basementcat to also borrow lots and lots of money (assuming I can get 0% interest rate)
panarky 7y ago
> if investors start to worry the US might default on its debts If investors are willing to lend to the US for 30 years at 2%, doesn't seem like they see much risk of default.
- outside1234 7y ago
  We were lending at 5% to people with no income right before the 2008 financial crisis too.
- runeks 7y ago
  If the alternative is getting 0% yield on USD, why wouldn’t they trade the USD for a bond? And before you say “just buy EUR/gold/stocks” that just means someone else (the seller of EUR/stocks/gold) would now be in the above situation. Buying US Treasuries for USD has little to do with absolute risk of the bond, and everything to do with the non-existence difference in risk between the bond (US Treasury) and the currency (USD) it’s denominated in.
ngold 7y ago
The entire point of the United States is protecting the dollar as the defacto currency for the world's trade. As long as that holds true the amount of created money is largely integers on a screen that get added and subtracted with little consequence. So far.
legulere 7y ago
The alternative is to use public private partnerships for doing projects. The costs are higher interest rates that companies have to pay for getting a loan and having a part of the project money set aside for the profit of the companies.
navigatesol 7y ago
>What does this have to do with anything? The problem with too much US debt is that we have to make interest payments on that debt, which now makes up ~10% of the annual budget Where are those debt repayments going? The majority go to US citizens. That's the point. Government debt are assets (read: wealth) to the owners of the bond. It's astonishing to me how many times people fail to look at both sides of an economic transaction. It's like Ray Dalio talking about China weaponizing their treasury holdings yesterday. Yeah, China is going to "hurt" the US by selling bonds it bought for $1000 to someone else for $700. Who does that hurt again? Not the US; the debt repayment remains the same, no matter the holder. >It's also going to get a lot worse if investors start to worry the US might default on its debts and demand higher yields on return. You're missing a part of the logic here: interest rates are low because there is high demand for these instruments. It's easy to talk about some hypothetical scenario where people "demand" higher returns[1], but in reality, people the world over are lining up for US debt and many other investments that pay far less than treasuries (speculative equity, for example). Creditors don't get to choose their returns; they are at the mercy of those putting the capital to work. [1] I'm sure you, as do I, want higher returns right now. How do you intend to demand this?

phil248 7y ago

A friend may work with you to negotiate terms, even at their own expense. A rival may use it against you in pursuit of their own benefit.

arcticbull 7y ago

> What does this have to do with anything? The problem with too much US debt is that we have to make interest payments on that debt, which now makes up ~10% of the annual budget (or about $400B/yr). That may matter to you as an individual but governments get to print money. It's like if I issued IOUs denominated in Steve's Funbucks that I'm the sole issuer of, and those IOU holders lived across the ocean and also I had half the world's armed forces at my disposal. Then when things went sideways I fired up the Epson and paid you off. As it turns out inflation is not directly connected to the issuance of new money, although it does contribute. Balancing a federal checkbook isn't the same as your home finances. I'm not saying you should go to town and print a ton of money and that nothing would happen, I'm saying it can play a role and isn't directly equatable to small-scale finance. (Edit) further, borrowing to create economic activity is not zero sum. If you borrow 100K and create a business worth $1M, and reap the tax returns, it doesn’t matter how much you owe. If I borrow $1T and create a $5T economy, I doubt the kids will mind. This is in part why the money supply increases over time — to reflect the new scope of the economy. The only material risk of taking on debt is that you need to create returns in excess of your interest payments.

perl4ever 7y ago
It seems to me that "half the world's armed forces" is a result of being able to print money, not a cause.
- arcticbull 7y ago
  That could absolutely be true, but what difference does it make? I’m asking genuinely. To me that’s the how we got here, not what we do next.
- SimbaOnSteroids 7y ago
  Chicken or the egg right? Pre WWII we were hit with a massive depression like everyone else. As the war effort ramped up and the rest of the industrialized world was taking it on the chin we conveniently got to reap the economic benefits of having a totally mobilized workforce, without, y'know, all our manufacturing hubs getting Dresden'd. Surprise suprise, we win the war and don't incur heavy infrastructure damage AND get the benefit of a suddenly energized economy, so we do what we do and keep the party going. Stick our noses in Korea, get in a massive arms race with the Soviet Union, fight a couple proxy wars with the Soviets. Well turns out the Soviets are light weights and can't hold their liquor and bow out early. Now we're the only ones with a ginormous army and can subsequently print our own money. We got away with it because everyone that we kept close were highly incentivized not to call us on it, on account of the soviet's nasty habit of rollin up to a place and makin it the quality of life equivalent of an Andy Dick comedy special.
  - selimthegrim 7y ago
    Andy Dick got clocked by some random guy on Bourbon St the other day who calmly picked up his water bottle he’d put down on the way out - a clear sign of SVR training
dmix 7y ago
Why should the US be borrowing for economic activity? What business does a government have choosing winners in the marketplace. The US already has one of the most efficient capital markets in the world. The government should on being the best administrator of markets possible. They should never be taking part unless there's a ton of evidence it'd be the best option compared to alternatives or simply a moral obligation, like health care and (more so in the past, before parcels) the postal service. Otherwise they need to go away and focus on bettering and updating the regulatory and tax regime. Not "bringing jobs" or generating economic activity, or w/e else via directly putting money and management themselves. The former is the only way they can really improve the economy. By letting the millions of highly capable do what they are already doing, while efficiently dealing with externalities that the markets and courts can't handle.

JMTQp8lwXL 7y ago

If negative rates hit the U.S., wouldn't that further incentivize the government to issue debt, since investors would be paying the government for the privilege to hold their money?

basementcat 7y ago
Not only would it incentivize the government to issue debt, it would also incentivize basementcat to also borrow lots and lots of money (assuming I can get 0% interest rate)

panarky 7y ago

> if investors start to worry the US might default on its debts If investors are willing to lend to the US for 30 years at 2%, doesn't seem like they see much risk of default.

outside1234 7y ago
We were lending at 5% to people with no income right before the 2008 financial crisis too.
runeks 7y ago
If the alternative is getting 0% yield on USD, why wouldn’t they trade the USD for a bond? And before you say “just buy EUR/gold/stocks” that just means someone else (the seller of EUR/stocks/gold) would now be in the above situation. Buying US Treasuries for USD has little to do with absolute risk of the bond, and everything to do with the non-existence difference in risk between the bond (US Treasury) and the currency (USD) it’s denominated in.

ngold 7y ago

The entire point of the United States is protecting the dollar as the defacto currency for the world's trade. As long as that holds true the amount of created money is largely integers on a screen that get added and subtracted with little consequence. So far.

legulere 7y ago

The alternative is to use public private partnerships for doing projects. The costs are higher interest rates that companies have to pay for getting a loan and having a part of the project money set aside for the profit of the companies.

navigatesol 7y ago

>What does this have to do with anything? The problem with too much US debt is that we have to make interest payments on that debt, which now makes up ~10% of the annual budget Where are those debt repayments going? The majority go to US citizens. That's the point. Government debt are assets (read: wealth) to the owners of the bond. It's astonishing to me how many times people fail to look at both sides of an economic transaction. It's like Ray Dalio talking about China weaponizing their treasury holdings yesterday. Yeah, China is going to "hurt" the US by selling bonds it bought for $1000 to someone else for $700. Who does that hurt again? Not the US; the debt repayment remains the same, no matter the holder. >It's also going to get a lot worse if investors start to worry the US might default on its debts and demand higher yields on return. You're missing a part of the logic here: interest rates are low because there is high demand for these instruments. It's easy to talk about some hypothetical scenario where people "demand" higher returns[1], but in reality, people the world over are lining up for US debt and many other investments that pay far less than treasuries (speculative equity, for example). Creditors don't get to choose their returns; they are at the mercy of those putting the capital to work. [1] I'm sure you, as do I, want higher returns right now. How do you intend to demand this?