7 ms·

More importantly: will it ever be paid? Let's say this is a household that decides to stop accumulating debt and starts a pay off plan. How long will it take?

jl6 5y ago
First order answer: GDP is about $20tn, debt is about $30tn, so if everybody put half their income towards paying down the debt, it would be paid off in about 3 years.
- rwmj 5y ago
  Assuming you could get every American to agree to that (good luck!) the economy would be massively transformed while everyone stopped spending on every luxury and most necessities. I guess this would require enormous government intervention to prevent all the out of work shopworkers and manufacturers from starving, which might require taking on a bit more debt. (The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
  - jl6 5y ago
    Quite, hence “first order” - although every dollar paid back needs to be paid back to someone, and as the article points out, the majority of the debt is held by US taxpayers, so that money is still likely to be participating in the US economy, just flowing through different hands.
  - JackFr 5y ago
    People investing in treasuries do not want your cash. Thayer had cash and spent it on treasuries. They want cash in the future to match their future liabilities. There is a real utility to having a vehicle for investing free of credit risk.
    - rwmj 5y ago
      Pensions are another investment where you need somewhere safe to "store" the money. Government bonds are one of those safe places. A quick search says US pension funds alone invest about $32 trillion (not all in bonds of course).
- annoyingnoob 5y ago
  > if everybody put half their income towards paying down the debt You realize how unrealistic that is right?
  - Jxl180 5y ago
    Yeah, what a dummy. If everybody put 100% of their income toward paying the debt, we’d be debt free in 1.5 years!
    - 6510 5y ago
      1.5 without eating? I think people would be debt free much faster.
- sp332 5y ago
  GDP doesn't measure people's income. It measures capital expenditures and consumption. So it would be a 50% sales tax and 50% tax on capital spending.
  - jl6 5y ago
    That’s just another method for estimating the same thing: https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/nationalaccounts https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
    - sp332 5y ago
      Ok but it still includes corporate income. It's not just 50% of people's paychecks.
- stephen_g 5y ago
  That's not how it works at all though. It's not really something that is "paid off", it's a stock of bonds that eventually come due, and can be rolled over into new bonds basically forever. The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).
version_five 5y ago
As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to the size of the economy. This is true e.g. for corporate bonds as well, they are a structural part of financing operations rather than a loan to do a specific thing that then gets paid back.
- syncsynchalt 5y ago
  That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.
- lottin 5y ago
  This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.
  - ac29 5y ago
    Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
    - lottin 5y ago
      Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.
- verdagon 5y ago
  The treasuries I've seen are adjusted for inflation, so this won't happen to those. Not sure if there are also un-adjusted treasuries though. Probably?
thpint 5y ago
No, it won’t be. Society will collapse, humanity will die out, or we’ll legislate it away. Two of the three have happened before. No national debt has ever been paid off. Cheney said the quiet part out loud back in the day with “deficits don’t matter.” Debt is circular political chicanery. Humans participate in economic activity to survive. Not to enrich a minority. The idea we have to owe some random person to exist is ludicrous on its face. Aristocratic minorities are as outdated as monarchy and slavery.
rmah 5y ago
Government finance is not like household finances or even business finances. Most critically, the government controls the issuance of money. In the USA that's done via the Federal Reserve. Which while not part of the government per-se, is sorta controlled by the government. If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.
- toomanydoubts 5y ago
  You seem to have moved from "the government controls the issuance of money" to "a private organization that controls the issuance of money is sorta controlled by the government" really fast. This are most definitely not the same thing.
  - stephen_g 5y ago
    The Federal Bank is only independent from the US Government in a very symbolic way. The system only exists as set out in US Legislation, the President of the US appoints all the board members and designates which is the chair, they all have to be confirmed by the US Senate, etc. etc. The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
  - rtpg 5y ago
    Congress could, tomorrow, choose to just take control of the fed if it was being such a problem. They have done things to this effect many times in the past!
pjc50 5y ago
The US is very much not a household; long duration low interest tbills are almost a special form of high denomination currency. If the treasury stops selling them into the market and doesn't issue new ones, strange things happen, starting with the loss of control of interest rates. You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%. https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2cdde https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c... (This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)
rsj_hn 5y ago
That is a truly bizarre question to ask of a sector of the economy. In fact, it's so bizarre as to be a category error. You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing. Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue. Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts. The government is a sector of the economy that will maintain a positive debt level just as households and corporates. That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero. So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.
- BiteCode_dev 5y ago
  So why do we repay the debt at all?
  - tantalor 5y ago
    It matures, e.g. 10 year treasury note has to be paid off in 10 years
    - BiteCode_dev 5y ago
      That's like saying we must pay them because we said we will pay them, which is the definition of debt. My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?
rojeee 5y ago
Debt is money. So, if we pay off all the debt then we won't have any money other than (probably) physical notes but even then there won't be any debt for the central bank to collateralise the physical notes - physical notes are a central bank liability and therefore must be balanced with an asset (debt, usually). Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.
- Jensson 5y ago
  Do the US government pay interest to you on your dollar bills? If not I don't see how that is debt. Lots of countries has a currency without paying huge amounts of interest to support it.
  - rojeee 5y ago
    That was my point. Physical bills are not debt - everything else is! Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.

jl6 5y ago

First order answer: GDP is about $20tn, debt is about $30tn, so if everybody put half their income towards paying down the debt, it would be paid off in about 3 years.

rwmj 5y ago
Assuming you could get every American to agree to that (good luck!) the economy would be massively transformed while everyone stopped spending on every luxury and most necessities. I guess this would require enormous government intervention to prevent all the out of work shopworkers and manufacturers from starving, which might require taking on a bit more debt. (The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
- jl6 5y ago
  Quite, hence “first order” - although every dollar paid back needs to be paid back to someone, and as the article points out, the majority of the debt is held by US taxpayers, so that money is still likely to be participating in the US economy, just flowing through different hands.
- JackFr 5y ago
  People investing in treasuries do not want your cash. Thayer had cash and spent it on treasuries. They want cash in the future to match their future liabilities. There is a real utility to having a vehicle for investing free of credit risk.
  - rwmj 5y ago
    Pensions are another investment where you need somewhere safe to "store" the money. Government bonds are one of those safe places. A quick search says US pension funds alone invest about $32 trillion (not all in bonds of course).
annoyingnoob 5y ago
> if everybody put half their income towards paying down the debt You realize how unrealistic that is right?
- Jxl180 5y ago
  Yeah, what a dummy. If everybody put 100% of their income toward paying the debt, we’d be debt free in 1.5 years!
  - 6510 5y ago
    1.5 without eating? I think people would be debt free much faster.
sp332 5y ago
GDP doesn't measure people's income. It measures capital expenditures and consumption. So it would be a 50% sales tax and 50% tax on capital spending.
- jl6 5y ago
  That’s just another method for estimating the same thing: https://www.ons.gov.uk/economy/nationalaccounts/uksectoraccounts/methodologies/nationalaccounts https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
  - sp332 5y ago
    Ok but it still includes corporate income. It's not just 50% of people's paychecks.
stephen_g 5y ago
That's not how it works at all though. It's not really something that is "paid off", it's a stock of bonds that eventually come due, and can be rolled over into new bonds basically forever. The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).

version_five 5y ago

As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to the size of the economy. This is true e.g. for corporate bonds as well, they are a structural part of financing operations rather than a loan to do a specific thing that then gets paid back.

syncsynchalt 5y ago
That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.
lottin 5y ago
This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.
- ac29 5y ago
  Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years. https://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield https://www.treasury.gov/resource-center/data-chart-center/i...
  - lottin 5y ago
    Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.
verdagon 5y ago
The treasuries I've seen are adjusted for inflation, so this won't happen to those. Not sure if there are also un-adjusted treasuries though. Probably?

thpint 5y ago

No, it won’t be. Society will collapse, humanity will die out, or we’ll legislate it away. Two of the three have happened before. No national debt has ever been paid off. Cheney said the quiet part out loud back in the day with “deficits don’t matter.” Debt is circular political chicanery. Humans participate in economic activity to survive. Not to enrich a minority. The idea we have to owe some random person to exist is ludicrous on its face. Aristocratic minorities are as outdated as monarchy and slavery.

rmah 5y ago

Government finance is not like household finances or even business finances. Most critically, the government controls the issuance of money. In the USA that's done via the Federal Reserve. Which while not part of the government per-se, is sorta controlled by the government. If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.

toomanydoubts 5y ago
You seem to have moved from "the government controls the issuance of money" to "a private organization that controls the issuance of money is sorta controlled by the government" really fast. This are most definitely not the same thing.
- stephen_g 5y ago
  The Federal Bank is only independent from the US Government in a very symbolic way. The system only exists as set out in US Legislation, the President of the US appoints all the board members and designates which is the chair, they all have to be confirmed by the US Senate, etc. etc. The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
- rtpg 5y ago
  Congress could, tomorrow, choose to just take control of the fed if it was being such a problem. They have done things to this effect many times in the past!

pjc50 5y ago

The US is very much not a household; long duration low interest tbills are almost a special form of high denomination currency. If the treasury stops selling them into the market and doesn't issue new ones, strange things happen, starting with the loss of control of interest rates. You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%. https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2cdde https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c... (This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)

rsj_hn 5y ago

That is a truly bizarre question to ask of a sector of the economy. In fact, it's so bizarre as to be a category error. You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing. Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue. Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts. The government is a sector of the economy that will maintain a positive debt level just as households and corporates. That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero. So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.

BiteCode_dev 5y ago
So why do we repay the debt at all?
- tantalor 5y ago
  It matures, e.g. 10 year treasury note has to be paid off in 10 years
  - BiteCode_dev 5y ago
    That's like saying we must pay them because we said we will pay them, which is the definition of debt. My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?

rojeee 5y ago

Debt is money. So, if we pay off all the debt then we won't have any money other than (probably) physical notes but even then there won't be any debt for the central bank to collateralise the physical notes - physical notes are a central bank liability and therefore must be balanced with an asset (debt, usually). Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.

Jensson 5y ago
Do the US government pay interest to you on your dollar bills? If not I don't see how that is debt. Lots of countries has a currency without paying huge amounts of interest to support it.
- rojeee 5y ago
  That was my point. Physical bills are not debt - everything else is! Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.