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Well, just to inject a little bit of perspective here -- high absolute or (or even) relative debt levels are not necessarily a hugely bad thing. For example, J

Well, just to inject a little bit of perspective here -- high absolute or (or even) relative debt levels are not necessarily a hugely bad thing. For example, Japan has 2x or more the per-capita debt that we in the US do. Their debt is 2X their GDP! [1] But Japan has a pretty high likelihood of repaying it, so it's not a problem. We also are highly likely to repay our US backed debt (and we have the hidden but dangerous capability to devalue our currency). And add to that the notion that we've been getting debt issued at highly favorable interest rates, so we borrowed for cheap. With that said, however, as with one's household debt (this is one aspect where comparing with a household is not wildly stupid) -- did we spend it on things that were worthwhile? Are we getting a lot for having borrowed this money or stimulus? Did we spend for future potential in our economy? Just because we got it cheap doesn't mean it was a good expenditure. I am inclined to say no. Our borrowing in this last year was pissed away on unsustainable tax cuts, frivolous give backs, and a brute force cutting for the symbolic gesture based on mostly fallacious logic. And when the recession comes, our ammo will have been already spent. I mean borrowed. And the kids will pay of course, for our midlife crisis Camaro. [1] https://www.marketwatch.com/story/heres-a-lesson-from-japan-about-the-threat-of-a-us-debt-crisis-2018-05-14 https://www.marketwatch.com/story/heres-a-lesson-from-japan-...

cperciva 7y ago
And the kids will pay of course And that's the big problem here. The policy of "run large deficits funded by residents buying government bonds" effects a large wealth transfer from millennials and post-millennials to baby boomers.
- AmericanChopper 7y ago
  That’s really not how it works at all. Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. It will also never (and should never) be paid down. Because growing the GDP is the same thing as paying down debt. The GDP will continue to grow, so even if its 50T by the time kids today are grown up, that’s fine as long as the GDP has kept up. Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. It would be a problem if debt was $0, because that would mean the government had paid an enormous opportunity cost at the expense of growing the economy.
  - AnthonyMouse 7y ago
    > Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. The debt to GDP ratio has also been increasing since the end of the Cold War. > Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. Never paying down the principal doesn't get you out of paying the interest for your whole life. Recapitalizing the interest doesn't do that either, because that's an opportunity cost which could otherwise have allowed for spending or tax relief at the same level of outstanding debt.
    - josho 7y ago
      > The debt to GDP ratio has also been increasing since the end of the Cold War. Think about how crazy that is. We were in a multi decade arms race with a super power and after ‘winning’ we never bothered to slow down our military spending.
    - AmericanChopper 7y ago
      > The debt to GDP ratio has also been increasing since the end of the Cold War. And if government spending was perfectly optimal, it will continue to increase to the most productive level possible. > The debt to GDP ratio has also been increasing since the end of the Cold War. The principal and the interest are continually repaid and reissued. Every dollar of public debt is immediately put to use in the economy. Public debt is also incredibly cheap to service. Ideally public debt would always be as high as you could possibly make it, and would be put to the most productive (growth stimulating) use possible. It’s very easy for the government to spend money in a way that offsets the cost of its debt. Now, you could debate how good the government actually is at spending money, but that’s a seperate argument to the economic utility of public debt.
- pytester 7y ago
  Except those large deficits are largely funded by baby boomers buying bonds, not millenials. And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). And those yield bearing instruments are then left to the boomers' children when they die. Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. If you want to look for intergenerational wealth transfers this isn't the place to look.
  - AnthonyMouse 7y ago
    > Except those large deficits are largely funded by baby boomers buying bonds, not millenials. Lending someone money doesn't cost you money, it earns you interest. They still have all of that money and generally expect to get it back (to spend it down during their retirement) before they die. > And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). That may be true, but the interest payments are still flowing in a specific direction. One side has a risk-free place to park their money until they want to spend it while not having it eroded by inflation, the other side has to pay the inflation. > And those yield bearing instruments are then left to the boomers' children when they die. That is increasingly not happening because people are living longer and consequently having less left over in the end. There has also been an increase in predatory financial instruments like reverse mortgages that prevent that from happening in practice. > Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare.
    - pytester 7y ago
      >Lending someone money doesn't cost you money, it earns you interest. In the case of government bonds, barely. >That may be true, but the interest payments are still flowing in a specific direction. Sub-inflation interest payments mean that wealth flows in the opposite direction. >That is increasingly not happening because people are living longer Life expectancy has dropped for the 3rd year in a row. >Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare. I think you misspelled pointless wars, but yes, it would be better if it was spent on infrastructure instead...
- skybrian 7y ago
  Oddly, it's the bondholders' money that's funding government spending as they buy bonds. But treasuries are so close to cash that they're almost considered equivalent, so they get to keep the money too. Apparently, increases in government debt effectively create new money, plus an income stream paying very low interest. So you might say any inflationary pressure from increasing the money supply should have already happened? The question is whether to reduce the money supply and income stream by paying off the bonds, keep it going by rolling them over, or remove the interest payment stream while keeping the money supply almost the same by monetizing the debt.
poooogles 7y ago
>For example, Japan... I'm not sure a country that's essentially stagnated for the past 20 years (in economic growth terms) is a country that you want to emulate.
throwaway07Ju19 7y ago
IIRC when Japan hit that "2X" mark circa 1991 it lead to an economic stall that appears to be permanent. Their economy has been stalled / zero-growth for almost 30 years now. They are cautionary example not an aspirational one.
- ianai 7y ago
  Their story highlights the importance of a far greater influence upon a market than debt: population growth. Negative population growth is bad.
  - kzrdude 7y ago
    We need to find a way to live with negative growth in such things, because we'll quickly meet the limits of this planet if we try to continue exponential growth in people and resource usage.
    - tonyedgecombe 7y ago
      Negative growth and debt don’t go well together.
      - kzrdude 7y ago
        I'm afraid that negative growth and generosity won't go well together.
    - ianai 7y ago
      So I kind of agree with you very deeply and kind of don’t. I do think we need to figure out a “closed system”. Meaning having a throwaway economy isn’t sustainable with a finite earth. Further, it doesn’t seem right to expect every person to have the wits to figure that out, agree with it, and how to properly execute a sustainable life. Ant colonies are clearly not ran by that model. But I also see the resources of space being quite impressive and offering pretty big growth opportunities through just being huge and containing other places for us to setup and live. Though the resources there are definitely prohibitively sparse so they still should be used wisely. Edit-I also can’t help but wonder where we would be if money value was clearly tied to energy. Oil effectively adds wealth to the economy by literally fueling it. Basing a currency on gold, for instance, sets the pace of monetary growth at the rate of gold extraction. I think oil is similarly pressing upon USD.
jeffdavis 7y ago
The problem is not that we can't repay the debt. The problem is that we are so dependent on increasing our debt with deficit spending. If we inflate our currency to get out, then new debt will be at a higher interest rate and so will all debt we roll over into new debt. Then, all of a sudden we are in a spiral of high interest rates. It's like we are hooked on debt, and that's fine as long as it's free and keeps coming. But when the party is over it will be very painful to see that federal spending has to fall by a third overnight.
readams 7y ago
Specifically on devaluing the currency: this doesn't really work like people imagine it would since the US continually turns over its debt by paying older bonds and issuing new ones. If it started to look like the US was devaluing its currency we'd quickly find ourselves unable to issue new bonds, and it basically turns into the mother of all margin calls.
jammygit 7y ago
We should judge governments at least a little bit the way we judge people. If people have debt, why do they have it? Are they even trying to pay it off? Are they counting on dying before somebody tries to collect, leaving it to your kids to deal with?

cperciva 7y ago

And the kids will pay of course And that's the big problem here. The policy of "run large deficits funded by residents buying government bonds" effects a large wealth transfer from millennials and post-millennials to baby boomers.

AmericanChopper 7y ago
That’s really not how it works at all. Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. It will also never (and should never) be paid down. Because growing the GDP is the same thing as paying down debt. The GDP will continue to grow, so even if its 50T by the time kids today are grown up, that’s fine as long as the GDP has kept up. Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. It would be a problem if debt was $0, because that would mean the government had paid an enormous opportunity cost at the expense of growing the economy.
- AnthonyMouse 7y ago
  > Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. The debt to GDP ratio has also been increasing since the end of the Cold War. > Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. Never paying down the principal doesn't get you out of paying the interest for your whole life. Recapitalizing the interest doesn't do that either, because that's an opportunity cost which could otherwise have allowed for spending or tax relief at the same level of outstanding debt.
  - josho 7y ago
    > The debt to GDP ratio has also been increasing since the end of the Cold War. Think about how crazy that is. We were in a multi decade arms race with a super power and after ‘winning’ we never bothered to slow down our military spending.
  - AmericanChopper 7y ago
    > The debt to GDP ratio has also been increasing since the end of the Cold War. And if government spending was perfectly optimal, it will continue to increase to the most productive level possible. > The debt to GDP ratio has also been increasing since the end of the Cold War. The principal and the interest are continually repaid and reissued. Every dollar of public debt is immediately put to use in the economy. Public debt is also incredibly cheap to service. Ideally public debt would always be as high as you could possibly make it, and would be put to the most productive (growth stimulating) use possible. It’s very easy for the government to spend money in a way that offsets the cost of its debt. Now, you could debate how good the government actually is at spending money, but that’s a seperate argument to the economic utility of public debt.
pytester 7y ago
Except those large deficits are largely funded by baby boomers buying bonds, not millenials. And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). And those yield bearing instruments are then left to the boomers' children when they die. Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. If you want to look for intergenerational wealth transfers this isn't the place to look.
- AnthonyMouse 7y ago
  > Except those large deficits are largely funded by baby boomers buying bonds, not millenials. Lending someone money doesn't cost you money, it earns you interest. They still have all of that money and generally expect to get it back (to spend it down during their retirement) before they die. > And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher). That may be true, but the interest payments are still flowing in a specific direction. One side has a risk-free place to park their money until they want to spend it while not having it eroded by inflation, the other side has to pay the inflation. > And those yield bearing instruments are then left to the boomers' children when they die. That is increasingly not happening because people are living longer and consequently having less left over in the end. There has also been an increase in predatory financial instruments like reverse mortgages that prevent that from happening in practice. > Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that. Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare.
  - pytester 7y ago
    >Lending someone money doesn't cost you money, it earns you interest. In the case of government bonds, barely. >That may be true, but the interest payments are still flowing in a specific direction. Sub-inflation interest payments mean that wealth flows in the opposite direction. >That is increasingly not happening because people are living longer Life expectancy has dropped for the 3rd year in a row. >Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare. I think you misspelled pointless wars, but yes, it would be better if it was spent on infrastructure instead...
skybrian 7y ago
Oddly, it's the bondholders' money that's funding government spending as they buy bonds. But treasuries are so close to cash that they're almost considered equivalent, so they get to keep the money too. Apparently, increases in government debt effectively create new money, plus an income stream paying very low interest. So you might say any inflationary pressure from increasing the money supply should have already happened? The question is whether to reduce the money supply and income stream by paying off the bonds, keep it going by rolling them over, or remove the interest payment stream while keeping the money supply almost the same by monetizing the debt.

poooogles 7y ago

>For example, Japan... I'm not sure a country that's essentially stagnated for the past 20 years (in economic growth terms) is a country that you want to emulate.

throwaway07Ju19 7y ago

IIRC when Japan hit that "2X" mark circa 1991 it lead to an economic stall that appears to be permanent. Their economy has been stalled / zero-growth for almost 30 years now. They are cautionary example not an aspirational one.

ianai 7y ago
Their story highlights the importance of a far greater influence upon a market than debt: population growth. Negative population growth is bad.
- kzrdude 7y ago
  We need to find a way to live with negative growth in such things, because we'll quickly meet the limits of this planet if we try to continue exponential growth in people and resource usage.
  - tonyedgecombe 7y ago
    Negative growth and debt don’t go well together.
    - kzrdude 7y ago
      I'm afraid that negative growth and generosity won't go well together.
  - ianai 7y ago
    So I kind of agree with you very deeply and kind of don’t. I do think we need to figure out a “closed system”. Meaning having a throwaway economy isn’t sustainable with a finite earth. Further, it doesn’t seem right to expect every person to have the wits to figure that out, agree with it, and how to properly execute a sustainable life. Ant colonies are clearly not ran by that model. But I also see the resources of space being quite impressive and offering pretty big growth opportunities through just being huge and containing other places for us to setup and live. Though the resources there are definitely prohibitively sparse so they still should be used wisely. Edit-I also can’t help but wonder where we would be if money value was clearly tied to energy. Oil effectively adds wealth to the economy by literally fueling it. Basing a currency on gold, for instance, sets the pace of monetary growth at the rate of gold extraction. I think oil is similarly pressing upon USD.

jeffdavis 7y ago

The problem is not that we can't repay the debt. The problem is that we are so dependent on increasing our debt with deficit spending. If we inflate our currency to get out, then new debt will be at a higher interest rate and so will all debt we roll over into new debt. Then, all of a sudden we are in a spiral of high interest rates. It's like we are hooked on debt, and that's fine as long as it's free and keeps coming. But when the party is over it will be very painful to see that federal spending has to fall by a third overnight.

readams 7y ago

Specifically on devaluing the currency: this doesn't really work like people imagine it would since the US continually turns over its debt by paying older bonds and issuing new ones. If it started to look like the US was devaluing its currency we'd quickly find ourselves unable to issue new bonds, and it basically turns into the mother of all margin calls.

jammygit 7y ago

We should judge governments at least a little bit the way we judge people. If people have debt, why do they have it? Are they even trying to pay it off? Are they counting on dying before somebody tries to collect, leaving it to your kids to deal with?