19 ms·

Will America's debt doom us?

117 points by spking 7y ago

whatshisface 7y ago
The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causing high inflation.
- NTDF9 7y ago
  There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs. The govt will have to make a choice between cutting services vs paying the debt.
  - maxerickson 7y ago
    The government "prints money" when it sells treasuries on the public market. The Fed creates most of the money, but it isn't the only mechanism.
  - raphaelj 7y ago
    The Fed might be independent in the law, but the govt makes the law.
  - ikeboy 7y ago
    The Fed can't directly influence real interest rates, only nominal. What exactly are you claiming interest rates are "artificially low" compared to? The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt jobs.
  - QuesnayJr 7y ago
    The government can overrule the Fed, if it really wants to.
  - danharaj 7y ago
    The Treasury can mint new money at the behest of the Executive.
  - pjc50 7y ago
    The normal management of inflation by raising interest rates works by slowing economic growth. There's no reason to raise rates in a recession.
    - NTDF9 7y ago
      In a recession: People lose jobs Govt pays out more social security benefits Govt earns lesser tax revenue Govt interest payments on bonds are still at pre recession levels So, govt has to issue more bonds Nobody has the money to pay for those bonds Thus, interest rates would naturally rise. The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline. This is how the deficits have out the fed between a rock and a hard place.
      - pjc50 7y ago
        True up to "nobody has the money to pay for those bonds": there's often a flight to safety in recessions of people moving money out of the stock market. Plus all the big international investors. Shortage of buyers is a risk but not one we've been close to so far. One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.
        NTDF9 7y ago
        > One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation. You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.
      - AnimalMuppet 7y ago
        Historically, recessions have not played out the way you describe. (Never, IIRC.) So I think your theory is flawed.
        7y ago
  - cthalupa 7y ago
    >The govt doesn't have this ability to print money and pay debt. The Fed does. The Federal Reserve is part of the government. The Board of Governors is an independent government agency, with members appointed by the President. The individual banks are set up more like private corporations, but it's the Board of Governors that set the orders for new money being minted. Saying that it isn't the government that has the ability to print money and pay debt when this is the case is a little obtuse.
- ikeboy 7y ago
  This is wrong. The risk free rate is equal to the real risk free rate plus expected inflation. If there's a significant risk of excess inflation, then the yields on treasuries will rise correspondingly.
crusso 7y ago
Like the housing bubble, our debt hasn't been a problem and it's not going to be a problem right up until it is a problem. It will be a black swan event and afterward everyone will claim that they saw it coming and "the other guy" ignored it.
- throwaway66920 7y ago
  This is a strange opinion to me because there’s many, many people see it coming so it wouldn’t be especially incorrect for people to say this
- MuffinFlavored 7y ago
  In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?
  - deleted 7y ago
    [deleted]
  - maxerickson 7y ago
    There were budget surpluses from 1998 through 2001. One thing you aren't accounting for is tax receipts going up because the economy grows. It's usually the case that spending goes up at the same time, but it doesn't have to go up.
    - MuffinFlavored 7y ago
      > It's usually the case that spending goes up at the same time, but it doesn't have to go up. I just know I read a lot of headlines about how government programs are underfunded. I feel like the base of a lot of Democratic candidate campaigns is about wanting to spend more money for people who need it (impoverished people, etc.)
      - kevin_thibedeau 7y ago
pjc50 7y ago
Betteridge's law says no. Less glibly, this article presents a good set of arguments for why not. The doomsayers need to be clearer with exactly how their proposed doom would come about - and why there would be no effective government response, and how this could happen without the rest of the world economy also getting into trouble and fleeing to the safety of the US dollar.
yasp 7y ago
What amount of debt would doom us, Mr. Fisher?
_edo 7y ago
> Because debt-to-GDP is apples-to-nonsense. No it's not. Debt is measured in dollars. GDP is dollars per year. Debt/GDP is $/($/yr)=yr This ratio converts debt, a number it's hard to have intuition for, to years. It tells us how many years of productivity we owe. For those of us who don't manage $30 billion in assets years of productivity probably carries more meaning than big numbers with 12 zeros.
- QuesnayJr 7y ago
  This is a very clear explanation.
- JimboOmega 7y ago
  It does, but the author's point, I think, is that dividing by GDP isn't particularly meaningful. They argue that the cost of additional borrowing is a better measure - will people loan you more or are they getting nervous they won't get their money back? You could divide by other numbers - an example the author gives is hard assets- and come up with a different percentage.
- platz 7y ago
  so, 103 years of productivity for the US?
  - bb123 7y ago
    Isn't it 1.03 years?
    - hollerith 7y ago
      Yes.
      - deleted 7y ago
        [deleted]
- dustingetz 7y ago
  The book "Looting Greece" by progressive economist Jack Rasmus explains in technical detail the "twin deficit" strategy budget deficit is balanced by trade deficit, which hints at why USA has aircraft carriers stationed around the world, projecting power that tilts the free markets in its favor which is what makes this strategy work. Here is an excerpt: http://www.dustingetz.com/:rasmus-usa-twin-deficit/ http://www.dustingetz.com/:rasmus-usa-twin-deficit/
dandare 7y ago
“If something cannot go on forever, it will stop.” [Herbert Stein] Every dollar we spend on interest is not spent on investment.
- wefarrell 7y ago
  When interest rates are lower than inflation you're not spending money on interest.
- glofish 7y ago
  How would you know where the money earned as interest is spent?
- viburnum 7y ago
  That’s not actually true. There more demand for liquidity than there are actual investments. That’s why government debt helps the economy. Same way poker chips help a casino.
JackFr 7y ago
> But that's misleading. The federal government itself owns more than a quarter of U.S. debt, money the government essentially owes itself. It’s an accounting entry. As an asset and a liability, it effectively cancels out. Well, no. These bonds are held in the Social Security Trust Fund, and while yes in one sense they are both an asset and a liability, they are also funding a future liability (although not all of it). So you can cancel them out against the future liability or the current one, but not both. (As to Social Security being underfunded, I had an econ professor explain Social Security could be fully funded immediately if the Treasury could just issue a new class of bonds which cost a penny and are redeemed for a trillion dollars in ten years, and sell them to the Trust Fund.)
- ThrustVectoring 7y ago
  You cancel them out against the current liabilities. Retiree spending is entirely funded by current production; the only real question is whether it's through taxation or savings (savings is, after all, current production that is sold and not consumed. This is essentially a tax.) Social Security's funding level is completely irrelevant - what matters is primarily how wealthy society is when current workers retire, and secondarily how much future workers will be willing to save and pay taxes.
rrggrr 7y ago
https://carnegieendowment.org/chinafinancialmarkets/78304 https://carnegieendowment.org/chinafinancialmarkets/78304 ... the U.S. current account deficit and the country’s high level of income inequality distort the structure and amount of American savings.
Apes 7y ago
It's always great to see an extremely intelligent person try to rationalize a core belief that's at direct odds with the cold, hard, and unforgiving reality they live in. The amount of mental gymnastics done here are Olympian, and this guy deserves a gold medal. However, even the fanciest mental tricks are never going to change the fundamental laws of reality. In the entire article he dances around second order effects and demonstrates why they're meaningless. Great, but there's one measure that actually matters: the percentage of our annual budget spent servicing existing debt. Right now that number is at 6%, and there's some share under 100% where it will cause our country to effectively go bankrupt. The closer we get to 100%, the exponentially higher the chance of bankruptcy. Right now there's two things which make me scared this number is going to go up considerably: One, US tax revenue is going up around 2% a year, but our outstanding debt is going up around 20% a year. The debt is rapidly outpacing economic and tax revenue growth. If nothing changes, paying off the debt will be 25% of our national budget in around 20 years, and 50% in 40 years. That's well within most our lifetimes, and is well in the extreme bankruptcy risk area. Two, the US has access to unprecedented low rates of interest right now. The average rate on it's 23 trillion in debt is 1%. If that were to go up to a more historical 3%, interest repayment would jump to 24%. Due to the length of government debt, this transition would probably take around 20 years to fully happen. Now combine the two into a nightmare scenario: debt continues to rise over the next 20 years at its current rate, and interest rates return to their historical 3%; and within 20 years repaying debt will explode to 75% of our budget. There is your potential black swan event. Hopefully action is taken before any of this happens, but something has to give from where we are now, and pretending that there's no troubled waters on the horizon is absolutely insane and irresponsible.
- zarro 7y ago
  +1 rep
- istjohn 7y ago
  On the other hand, top marginal tax rates are a fraction of what they were at their peak last century. We could double tax revenue at the drop of a hat, paying down our debt and ameliorating toxic wealth inequality simultaneously.
EGreg 7y ago
After Bretton-Woods, there is a lot of demand for US dollars as a reserve currency. And due to the petrodollar, US dollars are also needed to buy oil. The US is in a unique situation that lets it print a lot more money than other countries. At the end of the day, we will end this debt by printing money. Anyone buying bonds has to factor in the possibility that the US dollar the coupons are paid in will be devalued. It's not a "risk-free asset". It just depends on when and how the US will start printing money, and where that money will go. We did quantitative easing for years, but the banks didn't increase lending very much. A good economy is when we should have been raising taxes and paying down our debt. But instead, the Trump administration presides over the biggest debt, deficit and trade deficit in our country's history. So it seems to me that the next Bernie administration will absolutely need to do large infra projects a la FDR, Green New Deal etc. because the recession may be severe.
- tabtab 7y ago
  Re: At the end of the day, we will end this debt by printing money. Normally this risks runaway inflation, but inflation has been subpar of late such that some "printing" may not hurt. However, it's a bad habit to get into. To force discipline, we need something similar to a balanced budget amendment that allows Keynesian stimulus when warranted. However, it will probably have to have a "timer clause" to kick in several years away and gradually, because the side-effects could be a dampening of the economy, hurting current law-maker's reelection. Spreading the bitter medicine out over time may make it more politically acceptable.
dpc_pw 7y ago
Low rates are a result of boomeres all over the world saving for retirement (+ CB manipulation). As soon as they start using that savings, instead of accumulating them both inflation and yields will tend to naturally raise again. More people to care for, less people to do the work -> inflation. Inflation expectation -> higher yields. That $175T wealth figure is measured at the peak of everything bubble in the US. Real estate, stock market, bonds - everything is at the all time highs, after debt and low yields fueled decade. And yet still, according to the article government would have to confiscate 10% of all wealth in the America to pay the debt. And that's just the official debt. What about unfounded liabilities, which are many, many times higher? https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pension-is-a-lie-theres-210-trillion-of-liabilities-our-government-cant-fulfill/#10169e2d65b1 https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pen... So basically optimists here say, that to pay the debt the government will need confiscate more than a half of all the total wealth in US, at its peak, without causing economic slowdown and without causing inflation (and thus yields) to spike. And that assuming the government doesn't accrue any new debt as it is running a balanced budget. And considering that fiscal spending is an important part of keeping this struggling economy going ... that balanced budget would have to come from the tax... like you would never seen before (basically double?). And again... all these taxation without crippling the economy. And all that inflation and taxation, without people noticing and trying to counteract to preserve their wealth (tax avoidance, running into PM, crypto, foreign assets, whatever.) Yeah... whatever keeps you sleep well at night. :D
- plantain 7y ago
  >Low rates are a result of boomeres all over the world saving for retirement [citation needed] How did you come to that conclusion?
  - dpc_pw 7y ago
    There is 70M of Boomers in US. (Generally) about to end a decade or two of their most productive years: highest skills, highest level jobs, house paid off, kids out, etc. - trying to save and invest enough to give themselves a good retirement. Just yesterday I was listening to some YT podcast and boomers own ~74% of all US economical activity. Many of them accepted low salaries, for the promise of pensions and so on. Paid taxes but were promised medicare and other benefits that they expect to eventually get. They are (in great part) the savings glut: https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savings-glut/ https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-a... How else would your explain negative interest rates? That have not happened in the recorded history before and doesn't really make sense. There is a certain CB manipulation involved, sure, but generally - it's the result of many people competing to preserve and invest their savings. This trend will reverse - and then... wow... these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.
simplecomplex 7y ago
Some say debt to GDP does not matter, because we can print dollars. My question to them is: Would a 1000% matter? 100000%? At some point people will start demanding the government provide everything because they’ve been told debt doesn’t matter and we can print money. It looks like we’re reaching that point because “Main Street” seeemingly realized in 2008 that there was no limit. That it’s a game of chicken with the Fed. Let’s give everyone $2000 / mo and free healthcare and education. Why have any limit on government spending? The Fed will monetize it after all! Yang might not win this time around, but Yang #2 will be more popular and have bigger demands. Especially when another downtown and another bailout occurs. It’s getting very hard to convince Joe Sixpack that the printing press should only be used for the banks. Yang is the canary in the coal mine.
- deleted 7y ago
  [deleted]
glofish 7y ago
As the joke goes: If you owe someone 100K and you cannot pay - you are in deep trouble. If you owe someone 1 trillion and cannot pay - they are in deep trouble.
PeterStuer 7y ago
What stands between the USD and the Zimbabwean Dollar is the worlds largest military/intelligence power not just prepared but using it's full strength to enforce the petrodollar.
- PeterStuer 7y ago
  I don't mind the downvotes, but I would rather see rebuttals that would change my mind.
  - Corazoor 7y ago
    Since you specifically asked for it: What really stands between the USD and the Zimbabwean Dollar is printing press funded spending. The Fed is doing something similar with quantitative easing, but at a by far smaller scale, and the money mostly goes to banks anyway. It's injecting printed money into the real economy that spells trouble, and that is currently not happening in the US. Also, while the military is definitely a boon to the US economy, most of that is indirect via guaranteed jobs and income, not via projected force. Plus, in case of a hyperinflation, the military would become unmaintainable very quickly, exactly because of it's size. All that said, your comment had basically nothing to do with the topic (debt), so there is where the downvotes come from.
Mikeb85 7y ago
Of course it won't. Worst case scenario, if the economy tumbles, the government prints money to pay debt, inflation happens, confidence is shaken and the economy slows. But at the end of the day, an economy is characterised by its ability to produce things and keep people busy (working). Money is simply the value of labour and production shifting hands. The nominal value doesn't matter as much as the real value (ie. the shit that's actually being produced).
- Ambele 7y ago
  If you believe that inflating the debt away is a viable strategy then I have a 100 Trillion Zimbabwe dollar note to sell you for 40 cents. The Zimbabwe government tried that and look at what happened to their dollar! Also, I have a loaf of bread to sell you for $1,000. Nowadays, America's largest export isn't soybeans or corn, it's the American Dollar. See this link for more info on the Petrodollar: https://www.thebalance.com/what-is-a-petrodollar-3306358 https://www.thebalance.com/what-is-a-petrodollar-3306358
throwaway156503 7y ago
I no longer know how to view these concerns. The only mechanism I now know of that creates money in modern economies in order to purchase goods and services directly, without obtaining funds from circulation from other businesses, is debt created from financial institutions. In order to have healthy economies and create money and move capital, you must therefore have debt. How did western economies function prior to this? I wish I was educated on the matter. I've not found good reading for this topic outside of the enclave of academia.
- Mikeb85 7y ago
  Land is a type of capital, landowners could produce agricultural products, accrue wealth, and debt was a thing back in the day as well. Often projects would be bank-rolled by wealthy landowners or even royalty (who accrued their wealth by taxing others). Labour also used to be extraordinarily cheap (or free). Go back far enough, everything was produced by individual labour, and things were simply traded for other things.
burke_holland 7y ago
This is some SERIOUS misrepresentation of the facts. Just as an example: "One-third of the debt is money the government owes to itself". To itself? And whom might that be? Oh right, THAT'S US. That money is owed to the people, and they're probably doing to need it. Especially considering that Social Security, Medicare, and Medicaid account for 36% of the federal budget - which is....let me do the math - one third. https://www.thebalance.com/u-s-federal-budget-breakdown-3305789 https://www.thebalance.com/u-s-federal-budget-breakdown-3305...
- AnimalMuppet 7y ago
  And they're probably going to need it? Well, when is Social Security projected to run out of money? I think they're going to need all of it by then. (Yeah, I know, some is Medicare. It's also projected to run out of money, just a bit later.)
mylons 7y ago
i read some speech from a chinese community party member who's in charge of some aspect of financial planning, and they're basically counting on this happening. the speaker said the debt was more or less impossible to recover from, and it's just a matter of time and patience.
SomeOldThrow 7y ago
The only real problem is resource distribution. While we have the resources we’re gonna be fine. So power adjusts and America has less. As long as I’m eating I don’t care. If the government won’t feed its people, well, that leaves something truly magical in the air.
neilwilson 7y ago
The US debt is a problem in the same way that the earth constantly falling into the sun is a problem. You've missed a velocity vector in your analysis. Ask yourself this: if you get dollars for your maturing Treasury, where do those dollars end up in aggregate? They are either taxed away due to them circulating past tax points as they are spent and respent, which eliminates the need for a bond, or they are saved which increases the demand for a new bond from the individual, the deposit holding bank and the central bank (on the same dollar due to the hierarchy of money). Where's the problem?
- Apes 7y ago
  Your analogs are poor fits: The solar system is an extremely stable system, while our economic system is not at all stable. Your proposed money cycle is based on the concept of a closed system, which the US economy is definitely not. If the US government starts having to pay an unbearable amount of debt, money is going to outflow to other countries and make it harder for the US to issue new debt. If the US just issues enough money to pay the debt off, then interest rates are going to go through the roof and overcompensate for what just happened, making the situation even worse. The US economy would probably collapse.
  - neilwilson 7y ago
    The dollar economy is a closed system. Dollars cannot be converted. They are always exchanged. So where do they go and what do people do with them? A paper dollar is just a receipt for a liability entry in the US treasury - wherever you are in the world. For interest rates to go up, bond prices have to go down. If the Fed just buys up bonds that drop below par with new dollars, how can interest rates go up?
- AnimalMuppet 7y ago
  If your velocity enables you to stay in orbit, there's no problem. If not, then you're just falling, which is also fine... until you hit the ground. As for your analysis of what happens when you receive payment for a bond, you seem to be saying that the government gets the money back, either by taxing spending or by you buying a new bond. I don't buy that analysis, for two reasons. First, I could receive payment for a Treasury, and buy some other investment with it. And second, your analysis would remain unchanged even if the result was hyperinflation (that's "hitting the ground" in my first paragraph).
deleted 7y ago
[deleted]
cryptica 7y ago
It seems like the whole financial system depends on the time delay between people agreeing to get a certain salary/price and then actually getting paid and spending it. By the time they actually get paid, the money is actually worth less than what they had originally agreed to. It seems that large corporations should be able to make a profit on that delay alone, even if they produce nothing of actual value. I guess it explains why huge powerful corporations like Apple and Amazon always ask for money up-front and then delay payment to suppliers for as long as possible. Seems like a vulnerability in the system.
- maneesh 7y ago
  Fascinating. What brought you to this conclusion?
- ikeboy 7y ago
  Every company tries to accelerate revenue and delay expenses. Nothing wrong with that, and if everyone knows about it it's hardly misleading anyone. They all take it into account.
- big_chungus 7y ago
  Our government does the same thing. "Tax witholding" means that I lose out many months of arbitrage. I could have invested that money, saved it an gotten interest, done any number of things. Tax day is once a year; no one ought to pay before then. It's a nasty trick to hide just how much people are paying from those who can't afford fancy financial advisors.
  - esoterica 7y ago
    Why do you think you are entitled to not pay a cent before tax day?
    - bin0 7y ago
      It's my money, why do you think the gov't should get it early? You're coming at this from the wrong perspective.
turk73 7y ago
I know we're doomed because regular people talk in terms of $20, $50, still count their change, while the government used $100M as a round off. We're in very big trouble.
munk-a 7y ago
Oh darn, we're talking about the debt again? I guess it's time for Democrats to be elected, be blamed for letting the debt run away, and cobble together a half-assed fix that the next Republican presindent blows away.
bobby444 7y ago
The debt to GDP ratio has been a major concern for years. That's why I recently moved me and my family to Texas. Texas is a no income tax state and I need to keep more of my money and then reinvest it in gold. Maybe I am a little paranoid but also now have all of my info going to a PO box like a company, https://physicaladdress.com https://physicaladdress.com just in case gov goes crazing with trying to take more and more of my hard-earned income.
jeffdavis 7y ago
I don't see the point of talking about the $23T number, which doesn't account for unfunded liabilities. I guess the thinking goes that we can it's easier to renegotiate social security and medicare benefits than to renegotiate the interest payments on a bond. Not sure that's true -- it seems like inflation is the only reasonable solution to either of those problems.
omani 7y ago
dont know why people would want to pay back debt. without debt there is no money. the art is to not inflate too much too quick.
ur-whale 7y ago
Legend has it Picasso used to pay as much as he could using checks [1] TLDR: not many of these were cashed, because people loved the idea of having his signature on a piece of paper and kept the checks. So, effectively, every time he paid with a check, he essentially got products and services for free. Now, if you take the dollar - essentially a fed IOU - and in theory ultimately redeemable against some sort of tangible piece of American property (real estate, infrastructure, intellectual property, etc ...), it is very tempting to draw a parallel, namely; As long as the dollar is the world's currency reserve and people stockpile it, greenbacks are just like Picasso's checks: the IOU never gets exercised. And America can keep on issuing debt for ever ... [1] https://www.fool.com/investing/small-cap/2004/12/08/picassos-checks.aspx https://www.fool.com/investing/small-cap/2004/12/08/picassos...
boyadjian 7y ago
Yes, of course. Every Ponzi scheme has an end. It is just a question of time.
Ambele 7y ago
Yes this will doom us if it is not taken care of but I expect the American people will get smart and elect congressional leaders that will care of the growing national debt before we default. 9.8% of all of our government's revenues (tax dollars) are wasted on paying interest on the $22 trillion dollars of national debt(1)(2). 1) https://www.cbo.gov/publication/55342 https://www.cbo.gov/publication/55342 2) https://www.usdebtclock.org/ https://www.usdebtclock.org/
- Sumaso 7y ago
  Please read the article.
dusrus 7y ago
For most households bankruptcy happens slowly, then quickly. I think we need to be more mindful of our debt. Most people I talk to are like, "It's not a problem yet." Which implies we will deal with it when it is a problem... which is dumb.
WalterBright 7y ago
If the GDP grows faster than the debt, there's no need to ever pay it off. Similarly, if you borrow money and invest it, and the investment pays more than the interest on the debt, there's no particular reason to ever pay back the debt.
TimPC 7y ago
The big difference between debt taking 18% of budget at historically high interest and 8% of budget at very low interest is that if the low interest ever becomes very high again (say around 9x what it is now, which has happened historically) you're talking about interest taking 72% of budget which would be catastrophic. 18% at the historic high would require 4X the historic high (an 80%+ interest rate, which we have good reasons for believing won't happen in the US).
rnernento 7y ago
This is not a well written or useful article. First it says debt as a percentage of GDP used to be higher so it should have been scarier. Then it says current interest rates are low but doesn't give anywhere near the weight to that statement they should. Even in the article they state 8% interest was normal 30 years ago but then go on to say sustained 8% interest going forward is crazy talk. WHY? Why wouldn't interest rates go up? They certainly can't go much lower... If they did go up our debt would take a much higher percentage of the budget than the 18% of the 80's and 90s. This is a very real problem.
coliveira 7y ago
The end of the American empire is determined by the fact that the USA won't be able to pay for the expenses of maintaining its military force. The US is already wasting more than half of its discretionary spending on the military. These military expenses already account for 89% of the federal government deficit, which will be $1.101T in 2020 [1]. These expenses are going up faster than GDP growth, and are not expected to go down, since this administration refuses to close the 20-years old wars on Afghanistan and Iraq, and is now actively operating in other fronts of the general war on the Middle East. The US also has to maintain more than 800 military basis in 70 countries. It takes huge amounts of money to keep a military force of this kind, especially when the country is under severe deficits, which is the current situation of the US government. It seems that it will take a few years for the shoe finally drop, but all the bravado of the Trump era is moving the US into a situation in which it cannot afford to maintain its empire. [1] https://www.thebalance.com/u-s-federal-budget-breakdown-3305789 https://www.thebalance.com/u-s-federal-budget-breakdown-3305...
zarro 7y ago
crypto will save us

117 points by spking 7y ago

The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causing high inflation.

NTDF9 7y ago
There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs. The govt will have to make a choice between cutting services vs paying the debt.
- maxerickson 7y ago
  The government "prints money" when it sells treasuries on the public market. The Fed creates most of the money, but it isn't the only mechanism.
- raphaelj 7y ago
  The Fed might be independent in the law, but the govt makes the law.
- ikeboy 7y ago
  The Fed can't directly influence real interest rates, only nominal. What exactly are you claiming interest rates are "artificially low" compared to? The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt jobs.
- QuesnayJr 7y ago
  The government can overrule the Fed, if it really wants to.
- danharaj 7y ago
  The Treasury can mint new money at the behest of the Executive.
- pjc50 7y ago
  The normal management of inflation by raising interest rates works by slowing economic growth. There's no reason to raise rates in a recession.
  - NTDF9 7y ago
    In a recession: People lose jobs Govt pays out more social security benefits Govt earns lesser tax revenue Govt interest payments on bonds are still at pre recession levels So, govt has to issue more bonds Nobody has the money to pay for those bonds Thus, interest rates would naturally rise. The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline. This is how the deficits have out the fed between a rock and a hard place.
    - pjc50 7y ago
      True up to "nobody has the money to pay for those bonds": there's often a flight to safety in recessions of people moving money out of the stock market. Plus all the big international investors. Shortage of buyers is a risk but not one we've been close to so far. One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.
      - NTDF9 7y ago
        > One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation. You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.
    - AnimalMuppet 7y ago
      Historically, recessions have not played out the way you describe. (Never, IIRC.) So I think your theory is flawed.
      - 7y ago
- cthalupa 7y ago
  >The govt doesn't have this ability to print money and pay debt. The Fed does. The Federal Reserve is part of the government. The Board of Governors is an independent government agency, with members appointed by the President. The individual banks are set up more like private corporations, but it's the Board of Governors that set the orders for new money being minted. Saying that it isn't the government that has the ability to print money and pay debt when this is the case is a little obtuse.
ikeboy 7y ago
This is wrong. The risk free rate is equal to the real risk free rate plus expected inflation. If there's a significant risk of excess inflation, then the yields on treasuries will rise correspondingly.

crusso 7y ago

Like the housing bubble, our debt hasn't been a problem and it's not going to be a problem right up until it is a problem. It will be a black swan event and afterward everyone will claim that they saw it coming and "the other guy" ignored it.

throwaway66920 7y ago
This is a strange opinion to me because there’s many, many people see it coming so it wouldn’t be especially incorrect for people to say this
MuffinFlavored 7y ago
In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?
- deleted 7y ago
  [deleted]
- maxerickson 7y ago
  There were budget surpluses from 1998 through 2001. One thing you aren't accounting for is tax receipts going up because the economy grows. It's usually the case that spending goes up at the same time, but it doesn't have to go up.
  - MuffinFlavored 7y ago
    > It's usually the case that spending goes up at the same time, but it doesn't have to go up. I just know I read a lot of headlines about how government programs are underfunded. I feel like the base of a lot of Democratic candidate campaigns is about wanting to spend more money for people who need it (impoverished people, etc.)
    - kevin_thibedeau 7y ago

pjc50 7y ago

Betteridge's law says no. Less glibly, this article presents a good set of arguments for why not. The doomsayers need to be clearer with exactly how their proposed doom would come about - and why there would be no effective government response, and how this could happen without the rest of the world economy also getting into trouble and fleeing to the safety of the US dollar.

yasp 7y ago

What amount of debt would doom us, Mr. Fisher?

_edo 7y ago

> Because debt-to-GDP is apples-to-nonsense. No it's not. Debt is measured in dollars. GDP is dollars per year. Debt/GDP is $/($/yr)=yr This ratio converts debt, a number it's hard to have intuition for, to years. It tells us how many years of productivity we owe. For those of us who don't manage $30 billion in assets years of productivity probably carries more meaning than big numbers with 12 zeros.

QuesnayJr 7y ago
This is a very clear explanation.
JimboOmega 7y ago
It does, but the author's point, I think, is that dividing by GDP isn't particularly meaningful. They argue that the cost of additional borrowing is a better measure - will people loan you more or are they getting nervous they won't get their money back? You could divide by other numbers - an example the author gives is hard assets- and come up with a different percentage.
platz 7y ago
so, 103 years of productivity for the US?
- bb123 7y ago
  Isn't it 1.03 years?
  - hollerith 7y ago
    Yes.
    - deleted 7y ago
      [deleted]
dustingetz 7y ago
The book "Looting Greece" by progressive economist Jack Rasmus explains in technical detail the "twin deficit" strategy budget deficit is balanced by trade deficit, which hints at why USA has aircraft carriers stationed around the world, projecting power that tilts the free markets in its favor which is what makes this strategy work. Here is an excerpt: http://www.dustingetz.com/:rasmus-usa-twin-deficit/ http://www.dustingetz.com/:rasmus-usa-twin-deficit/

dandare 7y ago

“If something cannot go on forever, it will stop.” [Herbert Stein] Every dollar we spend on interest is not spent on investment.

wefarrell 7y ago
When interest rates are lower than inflation you're not spending money on interest.
glofish 7y ago
How would you know where the money earned as interest is spent?
viburnum 7y ago
That’s not actually true. There more demand for liquidity than there are actual investments. That’s why government debt helps the economy. Same way poker chips help a casino.

JackFr 7y ago

> But that's misleading. The federal government itself owns more than a quarter of U.S. debt, money the government essentially owes itself. It’s an accounting entry. As an asset and a liability, it effectively cancels out. Well, no. These bonds are held in the Social Security Trust Fund, and while yes in one sense they are both an asset and a liability, they are also funding a future liability (although not all of it). So you can cancel them out against the future liability or the current one, but not both. (As to Social Security being underfunded, I had an econ professor explain Social Security could be fully funded immediately if the Treasury could just issue a new class of bonds which cost a penny and are redeemed for a trillion dollars in ten years, and sell them to the Trust Fund.)

ThrustVectoring 7y ago
You cancel them out against the current liabilities. Retiree spending is entirely funded by current production; the only real question is whether it's through taxation or savings (savings is, after all, current production that is sold and not consumed. This is essentially a tax.) Social Security's funding level is completely irrelevant - what matters is primarily how wealthy society is when current workers retire, and secondarily how much future workers will be willing to save and pay taxes.

rrggrr 7y ago

https://carnegieendowment.org/chinafinancialmarkets/78304 https://carnegieendowment.org/chinafinancialmarkets/78304 ... the U.S. current account deficit and the country’s high level of income inequality distort the structure and amount of American savings.

Apes 7y ago

It's always great to see an extremely intelligent person try to rationalize a core belief that's at direct odds with the cold, hard, and unforgiving reality they live in. The amount of mental gymnastics done here are Olympian, and this guy deserves a gold medal. However, even the fanciest mental tricks are never going to change the fundamental laws of reality. In the entire article he dances around second order effects and demonstrates why they're meaningless. Great, but there's one measure that actually matters: the percentage of our annual budget spent servicing existing debt. Right now that number is at 6%, and there's some share under 100% where it will cause our country to effectively go bankrupt. The closer we get to 100%, the exponentially higher the chance of bankruptcy. Right now there's two things which make me scared this number is going to go up considerably: One, US tax revenue is going up around 2% a year, but our outstanding debt is going up around 20% a year. The debt is rapidly outpacing economic and tax revenue growth. If nothing changes, paying off the debt will be 25% of our national budget in around 20 years, and 50% in 40 years. That's well within most our lifetimes, and is well in the extreme bankruptcy risk area. Two, the US has access to unprecedented low rates of interest right now. The average rate on it's 23 trillion in debt is 1%. If that were to go up to a more historical 3%, interest repayment would jump to 24%. Due to the length of government debt, this transition would probably take around 20 years to fully happen. Now combine the two into a nightmare scenario: debt continues to rise over the next 20 years at its current rate, and interest rates return to their historical 3%; and within 20 years repaying debt will explode to 75% of our budget. There is your potential black swan event. Hopefully action is taken before any of this happens, but something has to give from where we are now, and pretending that there's no troubled waters on the horizon is absolutely insane and irresponsible.

zarro 7y ago
+1 rep
istjohn 7y ago
On the other hand, top marginal tax rates are a fraction of what they were at their peak last century. We could double tax revenue at the drop of a hat, paying down our debt and ameliorating toxic wealth inequality simultaneously.

EGreg 7y ago

After Bretton-Woods, there is a lot of demand for US dollars as a reserve currency. And due to the petrodollar, US dollars are also needed to buy oil. The US is in a unique situation that lets it print a lot more money than other countries. At the end of the day, we will end this debt by printing money. Anyone buying bonds has to factor in the possibility that the US dollar the coupons are paid in will be devalued. It's not a "risk-free asset". It just depends on when and how the US will start printing money, and where that money will go. We did quantitative easing for years, but the banks didn't increase lending very much. A good economy is when we should have been raising taxes and paying down our debt. But instead, the Trump administration presides over the biggest debt, deficit and trade deficit in our country's history. So it seems to me that the next Bernie administration will absolutely need to do large infra projects a la FDR, Green New Deal etc. because the recession may be severe.

tabtab 7y ago
Re: At the end of the day, we will end this debt by printing money. Normally this risks runaway inflation, but inflation has been subpar of late such that some "printing" may not hurt. However, it's a bad habit to get into. To force discipline, we need something similar to a balanced budget amendment that allows Keynesian stimulus when warranted. However, it will probably have to have a "timer clause" to kick in several years away and gradually, because the side-effects could be a dampening of the economy, hurting current law-maker's reelection. Spreading the bitter medicine out over time may make it more politically acceptable.

dpc_pw 7y ago

Low rates are a result of boomeres all over the world saving for retirement (+ CB manipulation). As soon as they start using that savings, instead of accumulating them both inflation and yields will tend to naturally raise again. More people to care for, less people to do the work -> inflation. Inflation expectation -> higher yields. That $175T wealth figure is measured at the peak of everything bubble in the US. Real estate, stock market, bonds - everything is at the all time highs, after debt and low yields fueled decade. And yet still, according to the article government would have to confiscate 10% of all wealth in the America to pay the debt. And that's just the official debt. What about unfounded liabilities, which are many, many times higher? https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pension-is-a-lie-theres-210-trillion-of-liabilities-our-government-cant-fulfill/#10169e2d65b1 https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pen... So basically optimists here say, that to pay the debt the government will need confiscate more than a half of all the total wealth in US, at its peak, without causing economic slowdown and without causing inflation (and thus yields) to spike. And that assuming the government doesn't accrue any new debt as it is running a balanced budget. And considering that fiscal spending is an important part of keeping this struggling economy going ... that balanced budget would have to come from the tax... like you would never seen before (basically double?). And again... all these taxation without crippling the economy. And all that inflation and taxation, without people noticing and trying to counteract to preserve their wealth (tax avoidance, running into PM, crypto, foreign assets, whatever.) Yeah... whatever keeps you sleep well at night. :D

plantain 7y ago
>Low rates are a result of boomeres all over the world saving for retirement [citation needed] How did you come to that conclusion?
- dpc_pw 7y ago
  There is 70M of Boomers in US. (Generally) about to end a decade or two of their most productive years: highest skills, highest level jobs, house paid off, kids out, etc. - trying to save and invest enough to give themselves a good retirement. Just yesterday I was listening to some YT podcast and boomers own ~74% of all US economical activity. Many of them accepted low salaries, for the promise of pensions and so on. Paid taxes but were promised medicare and other benefits that they expect to eventually get. They are (in great part) the savings glut: https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-are-interest-rates-so-low-part-3-the-global-savings-glut/ https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-a... How else would your explain negative interest rates? That have not happened in the recorded history before and doesn't really make sense. There is a certain CB manipulation involved, sure, but generally - it's the result of many people competing to preserve and invest their savings. This trend will reverse - and then... wow... these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.

simplecomplex 7y ago

Some say debt to GDP does not matter, because we can print dollars. My question to them is: Would a 1000% matter? 100000%? At some point people will start demanding the government provide everything because they’ve been told debt doesn’t matter and we can print money. It looks like we’re reaching that point because “Main Street” seeemingly realized in 2008 that there was no limit. That it’s a game of chicken with the Fed. Let’s give everyone $2000 / mo and free healthcare and education. Why have any limit on government spending? The Fed will monetize it after all! Yang might not win this time around, but Yang #2 will be more popular and have bigger demands. Especially when another downtown and another bailout occurs. It’s getting very hard to convince Joe Sixpack that the printing press should only be used for the banks. Yang is the canary in the coal mine.

deleted 7y ago
[deleted]

glofish 7y ago

As the joke goes: If you owe someone 100K and you cannot pay - you are in deep trouble. If you owe someone 1 trillion and cannot pay - they are in deep trouble.

PeterStuer 7y ago

What stands between the USD and the Zimbabwean Dollar is the worlds largest military/intelligence power not just prepared but using it's full strength to enforce the petrodollar.

PeterStuer 7y ago
I don't mind the downvotes, but I would rather see rebuttals that would change my mind.
- Corazoor 7y ago
  Since you specifically asked for it: What really stands between the USD and the Zimbabwean Dollar is printing press funded spending. The Fed is doing something similar with quantitative easing, but at a by far smaller scale, and the money mostly goes to banks anyway. It's injecting printed money into the real economy that spells trouble, and that is currently not happening in the US. Also, while the military is definitely a boon to the US economy, most of that is indirect via guaranteed jobs and income, not via projected force. Plus, in case of a hyperinflation, the military would become unmaintainable very quickly, exactly because of it's size. All that said, your comment had basically nothing to do with the topic (debt), so there is where the downvotes come from.

Mikeb85 7y ago

Of course it won't. Worst case scenario, if the economy tumbles, the government prints money to pay debt, inflation happens, confidence is shaken and the economy slows. But at the end of the day, an economy is characterised by its ability to produce things and keep people busy (working). Money is simply the value of labour and production shifting hands. The nominal value doesn't matter as much as the real value (ie. the shit that's actually being produced).

Ambele 7y ago
If you believe that inflating the debt away is a viable strategy then I have a 100 Trillion Zimbabwe dollar note to sell you for 40 cents. The Zimbabwe government tried that and look at what happened to their dollar! Also, I have a loaf of bread to sell you for $1,000. Nowadays, America's largest export isn't soybeans or corn, it's the American Dollar. See this link for more info on the Petrodollar: https://www.thebalance.com/what-is-a-petrodollar-3306358 https://www.thebalance.com/what-is-a-petrodollar-3306358

throwaway156503 7y ago

I no longer know how to view these concerns. The only mechanism I now know of that creates money in modern economies in order to purchase goods and services directly, without obtaining funds from circulation from other businesses, is debt created from financial institutions. In order to have healthy economies and create money and move capital, you must therefore have debt. How did western economies function prior to this? I wish I was educated on the matter. I've not found good reading for this topic outside of the enclave of academia.

Mikeb85 7y ago
Land is a type of capital, landowners could produce agricultural products, accrue wealth, and debt was a thing back in the day as well. Often projects would be bank-rolled by wealthy landowners or even royalty (who accrued their wealth by taxing others). Labour also used to be extraordinarily cheap (or free). Go back far enough, everything was produced by individual labour, and things were simply traded for other things.

burke_holland 7y ago

This is some SERIOUS misrepresentation of the facts. Just as an example: "One-third of the debt is money the government owes to itself". To itself? And whom might that be? Oh right, THAT'S US. That money is owed to the people, and they're probably doing to need it. Especially considering that Social Security, Medicare, and Medicaid account for 36% of the federal budget - which is....let me do the math - one third. https://www.thebalance.com/u-s-federal-budget-breakdown-3305789 https://www.thebalance.com/u-s-federal-budget-breakdown-3305...

AnimalMuppet 7y ago
And they're probably going to need it? Well, when is Social Security projected to run out of money? I think they're going to need all of it by then. (Yeah, I know, some is Medicare. It's also projected to run out of money, just a bit later.)

mylons 7y ago

i read some speech from a chinese community party member who's in charge of some aspect of financial planning, and they're basically counting on this happening. the speaker said the debt was more or less impossible to recover from, and it's just a matter of time and patience.

SomeOldThrow 7y ago

The only real problem is resource distribution. While we have the resources we’re gonna be fine. So power adjusts and America has less. As long as I’m eating I don’t care. If the government won’t feed its people, well, that leaves something truly magical in the air.

neilwilson 7y ago

The US debt is a problem in the same way that the earth constantly falling into the sun is a problem. You've missed a velocity vector in your analysis. Ask yourself this: if you get dollars for your maturing Treasury, where do those dollars end up in aggregate? They are either taxed away due to them circulating past tax points as they are spent and respent, which eliminates the need for a bond, or they are saved which increases the demand for a new bond from the individual, the deposit holding bank and the central bank (on the same dollar due to the hierarchy of money). Where's the problem?

Apes 7y ago
Your analogs are poor fits: The solar system is an extremely stable system, while our economic system is not at all stable. Your proposed money cycle is based on the concept of a closed system, which the US economy is definitely not. If the US government starts having to pay an unbearable amount of debt, money is going to outflow to other countries and make it harder for the US to issue new debt. If the US just issues enough money to pay the debt off, then interest rates are going to go through the roof and overcompensate for what just happened, making the situation even worse. The US economy would probably collapse.
- neilwilson 7y ago
  The dollar economy is a closed system. Dollars cannot be converted. They are always exchanged. So where do they go and what do people do with them? A paper dollar is just a receipt for a liability entry in the US treasury - wherever you are in the world. For interest rates to go up, bond prices have to go down. If the Fed just buys up bonds that drop below par with new dollars, how can interest rates go up?
AnimalMuppet 7y ago
If your velocity enables you to stay in orbit, there's no problem. If not, then you're just falling, which is also fine... until you hit the ground. As for your analysis of what happens when you receive payment for a bond, you seem to be saying that the government gets the money back, either by taxing spending or by you buying a new bond. I don't buy that analysis, for two reasons. First, I could receive payment for a Treasury, and buy some other investment with it. And second, your analysis would remain unchanged even if the result was hyperinflation (that's "hitting the ground" in my first paragraph).

deleted 7y ago

[deleted]

cryptica 7y ago

It seems like the whole financial system depends on the time delay between people agreeing to get a certain salary/price and then actually getting paid and spending it. By the time they actually get paid, the money is actually worth less than what they had originally agreed to. It seems that large corporations should be able to make a profit on that delay alone, even if they produce nothing of actual value. I guess it explains why huge powerful corporations like Apple and Amazon always ask for money up-front and then delay payment to suppliers for as long as possible. Seems like a vulnerability in the system.

maneesh 7y ago
Fascinating. What brought you to this conclusion?
ikeboy 7y ago
Every company tries to accelerate revenue and delay expenses. Nothing wrong with that, and if everyone knows about it it's hardly misleading anyone. They all take it into account.
big_chungus 7y ago
Our government does the same thing. "Tax witholding" means that I lose out many months of arbitrage. I could have invested that money, saved it an gotten interest, done any number of things. Tax day is once a year; no one ought to pay before then. It's a nasty trick to hide just how much people are paying from those who can't afford fancy financial advisors.
- esoterica 7y ago
  Why do you think you are entitled to not pay a cent before tax day?
  - bin0 7y ago
    It's my money, why do you think the gov't should get it early? You're coming at this from the wrong perspective.

turk73 7y ago

I know we're doomed because regular people talk in terms of $20, $50, still count their change, while the government used $100M as a round off. We're in very big trouble.

munk-a 7y ago

Oh darn, we're talking about the debt again? I guess it's time for Democrats to be elected, be blamed for letting the debt run away, and cobble together a half-assed fix that the next Republican presindent blows away.

bobby444 7y ago

The debt to GDP ratio has been a major concern for years. That's why I recently moved me and my family to Texas. Texas is a no income tax state and I need to keep more of my money and then reinvest it in gold. Maybe I am a little paranoid but also now have all of my info going to a PO box like a company, https://physicaladdress.com https://physicaladdress.com just in case gov goes crazing with trying to take more and more of my hard-earned income.

jeffdavis 7y ago

I don't see the point of talking about the $23T number, which doesn't account for unfunded liabilities. I guess the thinking goes that we can it's easier to renegotiate social security and medicare benefits than to renegotiate the interest payments on a bond. Not sure that's true -- it seems like inflation is the only reasonable solution to either of those problems.

omani 7y ago

dont know why people would want to pay back debt. without debt there is no money. the art is to not inflate too much too quick.

ur-whale 7y ago

Legend has it Picasso used to pay as much as he could using checks [1] TLDR: not many of these were cashed, because people loved the idea of having his signature on a piece of paper and kept the checks. So, effectively, every time he paid with a check, he essentially got products and services for free. Now, if you take the dollar - essentially a fed IOU - and in theory ultimately redeemable against some sort of tangible piece of American property (real estate, infrastructure, intellectual property, etc ...), it is very tempting to draw a parallel, namely; As long as the dollar is the world's currency reserve and people stockpile it, greenbacks are just like Picasso's checks: the IOU never gets exercised. And America can keep on issuing debt for ever ... [1] https://www.fool.com/investing/small-cap/2004/12/08/picassos-checks.aspx https://www.fool.com/investing/small-cap/2004/12/08/picassos...

boyadjian 7y ago

Yes, of course. Every Ponzi scheme has an end. It is just a question of time.

Ambele 7y ago

Yes this will doom us if it is not taken care of but I expect the American people will get smart and elect congressional leaders that will care of the growing national debt before we default. 9.8% of all of our government's revenues (tax dollars) are wasted on paying interest on the $22 trillion dollars of national debt(1)(2). 1) https://www.cbo.gov/publication/55342 https://www.cbo.gov/publication/55342 2) https://www.usdebtclock.org/ https://www.usdebtclock.org/

Sumaso 7y ago
Please read the article.

dusrus 7y ago

For most households bankruptcy happens slowly, then quickly. I think we need to be more mindful of our debt. Most people I talk to are like, "It's not a problem yet." Which implies we will deal with it when it is a problem... which is dumb.

WalterBright 7y ago

If the GDP grows faster than the debt, there's no need to ever pay it off. Similarly, if you borrow money and invest it, and the investment pays more than the interest on the debt, there's no particular reason to ever pay back the debt.

TimPC 7y ago

The big difference between debt taking 18% of budget at historically high interest and 8% of budget at very low interest is that if the low interest ever becomes very high again (say around 9x what it is now, which has happened historically) you're talking about interest taking 72% of budget which would be catastrophic. 18% at the historic high would require 4X the historic high (an 80%+ interest rate, which we have good reasons for believing won't happen in the US).

rnernento 7y ago

This is not a well written or useful article. First it says debt as a percentage of GDP used to be higher so it should have been scarier. Then it says current interest rates are low but doesn't give anywhere near the weight to that statement they should. Even in the article they state 8% interest was normal 30 years ago but then go on to say sustained 8% interest going forward is crazy talk. WHY? Why wouldn't interest rates go up? They certainly can't go much lower... If they did go up our debt would take a much higher percentage of the budget than the 18% of the 80's and 90s. This is a very real problem.

coliveira 7y ago

The end of the American empire is determined by the fact that the USA won't be able to pay for the expenses of maintaining its military force. The US is already wasting more than half of its discretionary spending on the military. These military expenses already account for 89% of the federal government deficit, which will be $1.101T in 2020 [1]. These expenses are going up faster than GDP growth, and are not expected to go down, since this administration refuses to close the 20-years old wars on Afghanistan and Iraq, and is now actively operating in other fronts of the general war on the Middle East. The US also has to maintain more than 800 military basis in 70 countries. It takes huge amounts of money to keep a military force of this kind, especially when the country is under severe deficits, which is the current situation of the US government. It seems that it will take a few years for the shoe finally drop, but all the bravado of the Trump era is moving the US into a situation in which it cannot afford to maintain its empire. [1] https://www.thebalance.com/u-s-federal-budget-breakdown-3305789 https://www.thebalance.com/u-s-federal-budget-breakdown-3305...

zarro 7y ago

crypto will save us