7 ms·

His proposed alternate metric, interest as a percentage of tax revenue is also deeply flawed- it misses the obligation to pay the principal, which has tripled s

His proposed alternate metric, interest as a percentage of tax revenue is also deeply flawed- it misses the obligation to pay the principal, which has tripled since the low point in the early 2000s. I like the finance wonks word for debt- leverage. Taking on debt is like going out further on a lever- the debter is more exposed to swings in the overall economy. While it's worked out fine so far, a high debt to gdp ratio exposes the US to higher risk on the downside.

pjc50 7y ago
But so long as the debt rollover remains straightforward, the principal never has to be repaid. Large parts of the economy probably couldn't survive repayment of all outstanding treasury bonds, they're too useful. They behave more like huge denomination bills with a tiny coupon.
JackFr 7y ago
> it misses the obligation to pay the principal But you never really have to do that. You can just keep rolling them. If we could keep the debt at the same absolute level inflation and productivity increases would drive it into insignificance. Of course the idea of keeping it at the same level is a fantasy.
- mrfredward 7y ago
  While the government will almost certainly never pay down it's debt completely, looking at the effort needed to pay off the debt is a useful way to ground the discussion of debt when future interest rates are unknown. In the last 40 years, the 30 year treasury bond has gone for rates of less than 2% and more than 14%. The interest as a percent of tax revenue metric would have predicted the death of America in the 1980s, while oppositely making it look like things will be forever rosy today. Neither of those perspectives accurately characterizes the debt burden.
- abecedarius 7y ago
  I wonder how people reconcile how it's OK to rely on progress to grow our way out of a debt burden but also incredibly irresponsible to expect progress to cope with our carbon problem. Both seem defensible to me but like they kind of need an adaptor to fit in the same worldview.
  - electricviolet 7y ago
    Maybe it's because of the difference in what's at stake: If the USA falls into a debt crisis the result will be global economic disruption. If the world falls into runaway climate change the result will be the extinction of the human race and possibly all life on earth. Personally I'm more comfortable with the possibility of the first than of the second.
    - marcosdumay 7y ago
      There may not be much difference. Extinction of the human race is an exaggerated prediction, but more importantly, what do you expect the consequences of global economic disruption (to the level of taking the US down) to be? Take a look at history if you may.
      - deleted 7y ago
        [deleted]
      - electricviolet 7y ago
        Not trying to minimize the human cost of global economic disruption, but it's almost certainly less than total extinction.
        marcosdumay 7y ago
        A global nuclear winter is very likely much more impacting than global warming.
    - TeMPOraL 7y ago
      The second actually involves the first, and this is the point we lose. If we could have runaway climate change somehow not disrupt global economy, we could eventually tech our way out of it. But the game over point is when the economy stops, and humanity no longer has capability to slow down and mitigate the effects of warming. At that point there isn't much left of humanity anyway.
- Someone 7y ago
  ”You can just keep rolling them” Only if you can find people or institutions willing to buy the new bonds. _if_ those cannot be found, the ‘easy’ (easy because all it’s debts are in US dollars) way out for the USA is to print money, but a country that has to print money because nobody wants to lend it money will find it hard to buy stuff from other countries.
  - ethbro 7y ago
    I think the zero sum nature is what trips up most people about state finance. Ultimately, what is and isn't possible for a state to do stems from the vagaries of what all other states are currently doing. It's somewhat rooted in economic output, but there are a lot of other independent variables in the pot.

pjc50 7y ago

But so long as the debt rollover remains straightforward, the principal never has to be repaid. Large parts of the economy probably couldn't survive repayment of all outstanding treasury bonds, they're too useful. They behave more like huge denomination bills with a tiny coupon.

JackFr 7y ago

> it misses the obligation to pay the principal But you never really have to do that. You can just keep rolling them. If we could keep the debt at the same absolute level inflation and productivity increases would drive it into insignificance. Of course the idea of keeping it at the same level is a fantasy.

mrfredward 7y ago
While the government will almost certainly never pay down it's debt completely, looking at the effort needed to pay off the debt is a useful way to ground the discussion of debt when future interest rates are unknown. In the last 40 years, the 30 year treasury bond has gone for rates of less than 2% and more than 14%. The interest as a percent of tax revenue metric would have predicted the death of America in the 1980s, while oppositely making it look like things will be forever rosy today. Neither of those perspectives accurately characterizes the debt burden.
abecedarius 7y ago
I wonder how people reconcile how it's OK to rely on progress to grow our way out of a debt burden but also incredibly irresponsible to expect progress to cope with our carbon problem. Both seem defensible to me but like they kind of need an adaptor to fit in the same worldview.
- electricviolet 7y ago
  Maybe it's because of the difference in what's at stake: If the USA falls into a debt crisis the result will be global economic disruption. If the world falls into runaway climate change the result will be the extinction of the human race and possibly all life on earth. Personally I'm more comfortable with the possibility of the first than of the second.
  - marcosdumay 7y ago
    There may not be much difference. Extinction of the human race is an exaggerated prediction, but more importantly, what do you expect the consequences of global economic disruption (to the level of taking the US down) to be? Take a look at history if you may.
    - deleted 7y ago
      [deleted]
    - electricviolet 7y ago
      Not trying to minimize the human cost of global economic disruption, but it's almost certainly less than total extinction.
      - marcosdumay 7y ago
        A global nuclear winter is very likely much more impacting than global warming.
  - TeMPOraL 7y ago
    The second actually involves the first, and this is the point we lose. If we could have runaway climate change somehow not disrupt global economy, we could eventually tech our way out of it. But the game over point is when the economy stops, and humanity no longer has capability to slow down and mitigate the effects of warming. At that point there isn't much left of humanity anyway.
Someone 7y ago
”You can just keep rolling them” Only if you can find people or institutions willing to buy the new bonds. _if_ those cannot be found, the ‘easy’ (easy because all it’s debts are in US dollars) way out for the USA is to print money, but a country that has to print money because nobody wants to lend it money will find it hard to buy stuff from other countries.
- ethbro 7y ago
  I think the zero sum nature is what trips up most people about state finance. Ultimately, what is and isn't possible for a state to do stems from the vagaries of what all other states are currently doing. It's somewhat rooted in economic output, but there are a lot of other independent variables in the pot.