8 ms·

Debt to GDP is 130% and structurally basically guaranteed to nominally increase over the next 10 years given the epic insolvency of social security and medicare

by anm89 5y ago

Debt to GDP is 130% and structurally basically guaranteed to nominally increase over the next 10 years given the epic insolvency of social security and medicare. Anyway, imagine our current congress not running a deficit. It's never going to happen. But the record is pretty clear, there are a limited ways out of this situation. 1) Default on your debt : The US is never going to do this. It would be insane given the global position of the dollar and the fact that the fed can always buy treasuries to finance debt 2) Run persistently high inflation: This is how the US managed it's debt after WW2 : Real rates were around -15% for the better part of the decade. And at the end bond holders were screwed and the country was solvent. 3) Hyper inflate : basically off the table for the dollar given the huge structural demand for dollars and also going back to the point that the Fed doesn't want to short term implode all global capital markets. 4) Pull a japan and have no growth for a third of a century. The easy choice is # 2. We have to have inflation. The supply chain stuff is just a detail. CPI for energy is 25% percent right now. I've seen a figure for housing sales prices at around 17. Spy is up 33% year on year. Bitcoin is up I think about 600 yoy. The inflation writing is on the wall. https://www.bls.gov/charts/consumer-price-index/consumer-price-index-by-category-line-chart.htm https://www.bls.gov/charts/consumer-price-index/consumer-pri...

j7ake 5y ago
Some of the options here assume that one can dictate what will happen in the future in a top-down manner. "Pulling a Japan" and "Hyperinflating" are not choices that bureaucrats can dictate will or will not happen.
Retric 5y ago
Inflation isn’t relative to any one commodity you need to look at everything from Big Mac’s and steel to street drugs. Using the normal inflation measurements gives you a number around 5%. Which is all of 2% above the FED’s target. It’s a point of concern but no where near the double digit numbers people are talking about. As to energy costs, those always fluctuate. Oil is at 81$ today and it dipped under 20$ in 2020, except in 2008 it hit 140$ even ignoring inflation.
- mym1990 5y ago
  Your first 2 paragraphs are contradictory…the fed’s normal inflation measurement is a very limited set of goods. No one really knows what inflation is at if we “look at everything”. Oil price is also not a good gauge of inflation because it’s heavily controlled and doesn’t always reflect what you see at the pumps. When oil went to negative in 2020 you didn’t see free gas, maybe slightly cheaper, but no where near the change in crude/WTI prices.
  - Retric 5y ago
    That isn’t a contradiction, that’s the normal difference between any measurement and reality. Your speedometer isn’t accurate to 200 decimal places let alone actually correct. So yep nobody knows real inflation out to even 3 decimal places, but that’s not a big deal in practice.
simonsarris 5y ago
Note this article is about world food prices, not the United States food prices. > Debt to GDP is 130% and structurally basically guaranteed to nominally increase over the next 10 years Debt to GDP has actually been declining since Q2 2020 and sits at ~125%. There is nothing that says increases are inevitable. > CPI for energy is 25% percent right now. Yes and it was at negative 17% for April of last year and stayed negative for the whole rest of the year. Were you worried about deflation at the time? If instead of spooking yourself with rates of change, you switch your graph to Average price data and look at Gasoline, you'll see that we're still below 2014 levels. > The inflation writing is on the wall. Why don't we look at US food price staples? Eggs are nowhere near their 2015 high: https://fred.stlouisfed.org/series/APU0000708111 https://fred.stlouisfed.org/series/APU0000708111 Milk has yet to reach 2014 levels: https://fred.stlouisfed.org/series/APU0000709112 https://fred.stlouisfed.org/series/APU0000709112 Sugar has yet to reach 2012 levels: https://fred.stlouisfed.org/series/APU0000715211 https://fred.stlouisfed.org/series/APU0000715211 Pork chops spiked up hugely, almost back to 2014 levels! They're going back down now. https://fred.stlouisfed.org/series/APU0000FD3101 https://fred.stlouisfed.org/series/APU0000FD3101 Chicken too spiked higher (than ever before this time), and is now back at 2014 levels: https://fred.stlouisfed.org/series/APU0000706111 https://fred.stlouisfed.org/series/APU0000706111 Rice is still lower than it was during the 2008 recession: https://fred.stlouisfed.org/series/APU0000701312 https://fred.stlouisfed.org/series/APU0000701312 Ground beef is the only one that's surpassed 2014 levels: https://fred.stlouisfed.org/series/APU0000703112 https://fred.stlouisfed.org/series/APU0000703112
- anm89 5y ago
  Time will tell.
- WalterBright 5y ago
  > There is nothing that says increases are inevitable. Several trillion dollars in new spending proposals make it inevitable.
  - ncallaway 5y ago
    Most of those several trillion dollars of spending proposals are spread out across several to the 10 years, and many of those proposals are paired with revenue increases that will offset the spending costs. So, no, the existence of spending proposals absolutely does not make it inevitable.
paulpauper 5y ago
Or the 5th option: things continue the way they have been for the past decade of strong real GDP growth, moderate to low inflation, and rising deficits, and strong stock market, bypassing Japan stagnation. Predictions of crisis , hyperinflation, stagflation are popular but typically as far as the US is concerned, the most optimistic outcome tends to be the most probable.
- mym1990 5y ago
  Rates can only be kept so low before a real crisis comes and there are no levers to pull to soften the landing. Maybe the crisis isn’t for a while, but eventually the economy will overheat at the current pace, that’s just the business cycle.
  - throaway46546 5y ago
    Digital currency and negative rates?
    - klipt 5y ago
      Isn't that just inflation in a Halloween costume? Inflation: your cash loses real value. Negative rates: your cash loses real value and nominal value.
  - diordiderot 5y ago
    > Rates can only be kept so low before a real crisis comes Ah yes, newton's 4th law.
  - 3pt14159 5y ago
    Depends on the time frame of the debt. If most of it is in multiyear bonds then a bad year or two is not so dire, though I agree that the US has some structural challenges coming over the next two decades. Also, one of the things I don't really understand is why people in the US quote debt to GDP ratios when net debt to GDP is strictly superior.
- anm89 5y ago
m0zg 5y ago
> Hyper inflate : basically off the table This will not age well.
puzzlingcaptcha 5y ago
3): The dollar's status as the world's reserve currency should not be taken for granted. China holds 15% of US treasuries by itself. Saying that 'there is a huge structural demand for dollars' is like saying that 'the housing market is rock solid'. It is until it isn't. Also I am not sure whether the decision to hyper-inflate is in Fed's hands. If inflation continues to rise faster than anticipated (contrary to what Powell said on Wednesday) then the Fed is caught between a rock and a hard place as the only feasible course of action will be to hike rates substantially and inevitably trigger a market correction. I leave you with this little chart I like: https://i.imgur.com/dIJXesa.png https://i.imgur.com/dIJXesa.png
diordiderot 5y ago
Social security and Medicare can't go bankrupt. They're transfer programs, not savings accounts.
- mellavora 5y ago
  what happens if the transfer in is substantially less than the transfer out?
- mountainb 5y ago
  Wait 'till you hear what rich boomers are doing with Medicare avoidance trusts!
  - diordiderot 5y ago
    What!?
    - mountainb 5y ago
      Yeah, the government pays for absurd amounts of advanced health care using even advanced experimental drugs if you put all your assets in a Medicare avoidance trust. The states chip in too. My mother's a multi-millionaire who spent most of her life as a non-working investment banker's wife and she's getting Cadillac brain cancer surgery and huge amounts of incredibly expensive drugs for free from the government, thanks to the magic of paying an accountant.

by anm89 5y ago

j7ake 5y ago

Some of the options here assume that one can dictate what will happen in the future in a top-down manner. "Pulling a Japan" and "Hyperinflating" are not choices that bureaucrats can dictate will or will not happen.

Retric 5y ago

Inflation isn’t relative to any one commodity you need to look at everything from Big Mac’s and steel to street drugs. Using the normal inflation measurements gives you a number around 5%. Which is all of 2% above the FED’s target. It’s a point of concern but no where near the double digit numbers people are talking about. As to energy costs, those always fluctuate. Oil is at 81$ today and it dipped under 20$ in 2020, except in 2008 it hit 140$ even ignoring inflation.

mym1990 5y ago
Your first 2 paragraphs are contradictory…the fed’s normal inflation measurement is a very limited set of goods. No one really knows what inflation is at if we “look at everything”. Oil price is also not a good gauge of inflation because it’s heavily controlled and doesn’t always reflect what you see at the pumps. When oil went to negative in 2020 you didn’t see free gas, maybe slightly cheaper, but no where near the change in crude/WTI prices.
- Retric 5y ago
  That isn’t a contradiction, that’s the normal difference between any measurement and reality. Your speedometer isn’t accurate to 200 decimal places let alone actually correct. So yep nobody knows real inflation out to even 3 decimal places, but that’s not a big deal in practice.

simonsarris 5y ago

Note this article is about world food prices, not the United States food prices. > Debt to GDP is 130% and structurally basically guaranteed to nominally increase over the next 10 years Debt to GDP has actually been declining since Q2 2020 and sits at ~125%. There is nothing that says increases are inevitable. > CPI for energy is 25% percent right now. Yes and it was at negative 17% for April of last year and stayed negative for the whole rest of the year. Were you worried about deflation at the time? If instead of spooking yourself with rates of change, you switch your graph to Average price data and look at Gasoline, you'll see that we're still below 2014 levels. > The inflation writing is on the wall. Why don't we look at US food price staples? Eggs are nowhere near their 2015 high: https://fred.stlouisfed.org/series/APU0000708111 https://fred.stlouisfed.org/series/APU0000708111 Milk has yet to reach 2014 levels: https://fred.stlouisfed.org/series/APU0000709112 https://fred.stlouisfed.org/series/APU0000709112 Sugar has yet to reach 2012 levels: https://fred.stlouisfed.org/series/APU0000715211 https://fred.stlouisfed.org/series/APU0000715211 Pork chops spiked up hugely, almost back to 2014 levels! They're going back down now. https://fred.stlouisfed.org/series/APU0000FD3101 https://fred.stlouisfed.org/series/APU0000FD3101 Chicken too spiked higher (than ever before this time), and is now back at 2014 levels: https://fred.stlouisfed.org/series/APU0000706111 https://fred.stlouisfed.org/series/APU0000706111 Rice is still lower than it was during the 2008 recession: https://fred.stlouisfed.org/series/APU0000701312 https://fred.stlouisfed.org/series/APU0000701312 Ground beef is the only one that's surpassed 2014 levels: https://fred.stlouisfed.org/series/APU0000703112 https://fred.stlouisfed.org/series/APU0000703112

anm89 5y ago
Time will tell.
WalterBright 5y ago
> There is nothing that says increases are inevitable. Several trillion dollars in new spending proposals make it inevitable.
- ncallaway 5y ago
  Most of those several trillion dollars of spending proposals are spread out across several to the 10 years, and many of those proposals are paired with revenue increases that will offset the spending costs. So, no, the existence of spending proposals absolutely does not make it inevitable.

paulpauper 5y ago

Or the 5th option: things continue the way they have been for the past decade of strong real GDP growth, moderate to low inflation, and rising deficits, and strong stock market, bypassing Japan stagnation. Predictions of crisis , hyperinflation, stagflation are popular but typically as far as the US is concerned, the most optimistic outcome tends to be the most probable.

mym1990 5y ago
Rates can only be kept so low before a real crisis comes and there are no levers to pull to soften the landing. Maybe the crisis isn’t for a while, but eventually the economy will overheat at the current pace, that’s just the business cycle.
- throaway46546 5y ago
  Digital currency and negative rates?
  - klipt 5y ago
    Isn't that just inflation in a Halloween costume? Inflation: your cash loses real value. Negative rates: your cash loses real value and nominal value.
- diordiderot 5y ago
  > Rates can only be kept so low before a real crisis comes Ah yes, newton's 4th law.
- 3pt14159 5y ago
  Depends on the time frame of the debt. If most of it is in multiyear bonds then a bad year or two is not so dire, though I agree that the US has some structural challenges coming over the next two decades. Also, one of the things I don't really understand is why people in the US quote debt to GDP ratios when net debt to GDP is strictly superior.
anm89 5y ago

m0zg 5y ago

> Hyper inflate : basically off the table This will not age well.

puzzlingcaptcha 5y ago

3): The dollar's status as the world's reserve currency should not be taken for granted. China holds 15% of US treasuries by itself. Saying that 'there is a huge structural demand for dollars' is like saying that 'the housing market is rock solid'. It is until it isn't. Also I am not sure whether the decision to hyper-inflate is in Fed's hands. If inflation continues to rise faster than anticipated (contrary to what Powell said on Wednesday) then the Fed is caught between a rock and a hard place as the only feasible course of action will be to hike rates substantially and inevitably trigger a market correction. I leave you with this little chart I like: https://i.imgur.com/dIJXesa.png https://i.imgur.com/dIJXesa.png

diordiderot 5y ago

Social security and Medicare can't go bankrupt. They're transfer programs, not savings accounts.

mellavora 5y ago
what happens if the transfer in is substantially less than the transfer out?
mountainb 5y ago
Wait 'till you hear what rich boomers are doing with Medicare avoidance trusts!
- diordiderot 5y ago
  What!?
  - mountainb 5y ago
    Yeah, the government pays for absurd amounts of advanced health care using even advanced experimental drugs if you put all your assets in a Medicare avoidance trust. The states chip in too. My mother's a multi-millionaire who spent most of her life as a non-working investment banker's wife and she's getting Cadillac brain cancer surgery and huge amounts of incredibly expensive drugs for free from the government, thanks to the magic of paying an accountant.