4 ms·

Major inflation like we haven't seen since the 1970s. That's what the U.S. government needs. $29 trillion in debt paying $417 billion in interest per year = av

by 300bps 5y ago

Major inflation like we haven't seen since the 1970s. That's what the U.S. government needs. $29 trillion in debt paying $417 billion in interest per year = average interest of 1.43%. Now imagine average interest rate across the curve goes to 2.86% and now we're paying $834 billion in interest per year. Then it goes to 5% and we're paying $1.45 trillion in interest payments per year. That's over a third of the total tax revenue of the Federal government! More than we spend on defense! The U.S. government is so far in debt that it needs inflation to erase it. Nothing else will. So no surprise, the Federal Reserve balance sheet has grown to $8.5 trillion: https://www.federalreserve.gov/monetarypolicy/bst_recenttrends.htm https://www.federalreserve.gov/monetarypolicy/bst_recenttren... The Fed continues to buy $120 billion in bonds per month, interest rates are close to zero, we're mailing checks out to people each month, we just approved $1 trillion in stimulus a few weeks ago and on the cusp of approving almost $2 trillion more.

wbsss4412 5y ago
*1 & 2 trillion over ten years. The actual addition to the federal budget isn’t that dramatic.
- 300bps 5y ago
  Do you have any idea how much money a trillion dollars is? If you paid $1 per second, it would take you: 12 days to spend $1 million 32 years to spend $1 billion 32,000 years to spend $1 trillion Imagine spending $1 every second for 32,000 years. It's ridiculous! Yet we throw that number around like it "isn't that dramatic". We will never be able to pay off that borrowed money! And it will work until it doesn't. And then we will wish we were never so foolish.
  - wbsss4412 5y ago
    US GDP is over 23 trillion dollars on an annualized basis, what you’re saying lacks any sense of proportion. Even assuming no growth, 3 trillion dollars represents 1.3% of gdp over the same period. If you just want to throw large numbers around, why not just convert everything into cents? Imagine spending 1 cent per second for 3.2 million years! That’s a long time.
  - amalcon 5y ago
    The population of the United States was around 331 million per the 2020 census, so $1T is a little over $3000 per resident. The GDP of the United States was approximately 21 trillion in 2020 (a pandemic year) per World Bank, so a $1T loan is about 5% of gross annual income. It's not that hard for an individual or business with good credit history to get such a loan. Comparing things on the scale of the national budget of the country with the world's largest economy to things on individual scale is kind of like comparing a person's height to the radius of the moon. It's going to confuse more than it elucidates. Edit: To be clear, my comparison is bad too. Comparison to individuals is just not the type of tool that makes sense for looking at national level things, because by cherry picking the comparison you can convince it to say anything you want.
    - 300bps 5y ago
      so a $1T loan is about 5% of gross annual income No, this is not right at all. The total income of the United States government is $4 trillion per year. So a $1 trillion loan is 25% of gross annual income. The $3 trillion being added to the debt is 75% of gross annual income. GDP is not the income of the United States government. But this new debt will be debt of the United States government. The reality is that we are $29 trillion in debt now and adding to it rapidly. That is 7.25 years of gross income in debt. What would you say to someone that made $100,000 per year and was in debt $725,000?
      - amalcon 5y ago
        GDP is the gross income of the United States. The revenue of the federal government doesn't quite have an individual analogue, because it's somewhat arbitrary (it is effectively a fraction of GDP that can be unilaterally increased or decreased by Congress, though doing so has side effects). If you're trying to make a comparison with an individual, you'd need to come up with such an analogy. Gross income isn't it.
      - wbsss4412 5y ago
        Setting aside your remarks about GDP not being relevant for government financing, The government is not a household, it exists in perpetuity. The time scales with which it can service debt are completely different.
throwawaycities 5y ago
Important to note every two term president doubled the national debt (except Clinton) going back to the fiscal conservative the Right puts on a pedestal, Regan, who tripled the national debt. Congress has 1 job to balance the budget…and they have fucked it up since WW2, yet the still get unlimited terms, full pay, full benefits and full pensions.
maxerickson 5y ago
The interest rate on most government bonds is fixed, the rates don't go up like that.
dillondoyle 5y ago
This might be a dumb question... Are most of the treasuries we've already sold - e.g. I assume that's what $29 trillion in debt means - already fixed coupon rate from the govt? I know it trades on market which inverse reflects real return. Just googling I found floating rate notes, which seem to respond like an adjustable mortgage would. But they seem small and short term. But I do understand we have a deficit and have to sell more treasuries every year. Maybe that would be a driver to have a more even budget. But from my perspective Dems pass policy that a large % of the country likes. Raise taxes to pay for it. Republicans then win election and repeal and cut taxes but leave said popular policy. next Dem majority raises taxes but probably not even above the baseline before Rs cut it (e.g. the current draft reconciliation bill doesn't actually raise taxes much at all. it's crazy to me how cheap some of this stuff is when you take legit CBO scored credit for instance not handing out billions to pharma)
- missedthecue 5y ago
  Your thinking is correct, the only thing you're missing is how frequently the treasury rolls over debt into new debt. Most debt isn't 20 or 30 year bonds. Take a look at the link below and see how much of the total outstanding debt is in t-bills. These are instruments with a duration of less than a year. That means throughout the year, the treasury has to issue new debt to pay off the old debt, essentially refinancing constantly. This makes the government particularly vulnerable to interest rate risk. https://www.sifma.org/resources/research/us-treasury-securities-statistics/ https://www.sifma.org/resources/research/us-treasury-securit... During the previous admin, there was talk of issuing a 100 year bond while rates were so low in order to reduce some of this risk, but nothing ever materialized. I'm not sure if this idea is on the present administration's radar at all. https://www.reuters.com/article/us-usa-economy-mnuchin-idUSKCN1VX2SO https://www.reuters.com/article/us-usa-economy-mnuchin-idUSK...
  - dillondoyle 5y ago
    Thanks I didn't know that!

by 300bps 5y ago

wbsss4412 5y ago

*1 & 2 trillion over ten years. The actual addition to the federal budget isn’t that dramatic.

300bps 5y ago
Do you have any idea how much money a trillion dollars is? If you paid $1 per second, it would take you: 12 days to spend $1 million 32 years to spend $1 billion 32,000 years to spend $1 trillion Imagine spending $1 every second for 32,000 years. It's ridiculous! Yet we throw that number around like it "isn't that dramatic". We will never be able to pay off that borrowed money! And it will work until it doesn't. And then we will wish we were never so foolish.
- wbsss4412 5y ago
  US GDP is over 23 trillion dollars on an annualized basis, what you’re saying lacks any sense of proportion. Even assuming no growth, 3 trillion dollars represents 1.3% of gdp over the same period. If you just want to throw large numbers around, why not just convert everything into cents? Imagine spending 1 cent per second for 3.2 million years! That’s a long time.
- amalcon 5y ago
  The population of the United States was around 331 million per the 2020 census, so $1T is a little over $3000 per resident. The GDP of the United States was approximately 21 trillion in 2020 (a pandemic year) per World Bank, so a $1T loan is about 5% of gross annual income. It's not that hard for an individual or business with good credit history to get such a loan. Comparing things on the scale of the national budget of the country with the world's largest economy to things on individual scale is kind of like comparing a person's height to the radius of the moon. It's going to confuse more than it elucidates. Edit: To be clear, my comparison is bad too. Comparison to individuals is just not the type of tool that makes sense for looking at national level things, because by cherry picking the comparison you can convince it to say anything you want.
  - 300bps 5y ago
    so a $1T loan is about 5% of gross annual income No, this is not right at all. The total income of the United States government is $4 trillion per year. So a $1 trillion loan is 25% of gross annual income. The $3 trillion being added to the debt is 75% of gross annual income. GDP is not the income of the United States government. But this new debt will be debt of the United States government. The reality is that we are $29 trillion in debt now and adding to it rapidly. That is 7.25 years of gross income in debt. What would you say to someone that made $100,000 per year and was in debt $725,000?
    - amalcon 5y ago
      GDP is the gross income of the United States. The revenue of the federal government doesn't quite have an individual analogue, because it's somewhat arbitrary (it is effectively a fraction of GDP that can be unilaterally increased or decreased by Congress, though doing so has side effects). If you're trying to make a comparison with an individual, you'd need to come up with such an analogy. Gross income isn't it.
    - wbsss4412 5y ago
      Setting aside your remarks about GDP not being relevant for government financing, The government is not a household, it exists in perpetuity. The time scales with which it can service debt are completely different.

throwawaycities 5y ago

Important to note every two term president doubled the national debt (except Clinton) going back to the fiscal conservative the Right puts on a pedestal, Regan, who tripled the national debt. Congress has 1 job to balance the budget…and they have fucked it up since WW2, yet the still get unlimited terms, full pay, full benefits and full pensions.

maxerickson 5y ago

The interest rate on most government bonds is fixed, the rates don't go up like that.

dillondoyle 5y ago

This might be a dumb question... Are most of the treasuries we've already sold - e.g. I assume that's what $29 trillion in debt means - already fixed coupon rate from the govt? I know it trades on market which inverse reflects real return. Just googling I found floating rate notes, which seem to respond like an adjustable mortgage would. But they seem small and short term. But I do understand we have a deficit and have to sell more treasuries every year. Maybe that would be a driver to have a more even budget. But from my perspective Dems pass policy that a large % of the country likes. Raise taxes to pay for it. Republicans then win election and repeal and cut taxes but leave said popular policy. next Dem majority raises taxes but probably not even above the baseline before Rs cut it (e.g. the current draft reconciliation bill doesn't actually raise taxes much at all. it's crazy to me how cheap some of this stuff is when you take legit CBO scored credit for instance not handing out billions to pharma)

missedthecue 5y ago
Your thinking is correct, the only thing you're missing is how frequently the treasury rolls over debt into new debt. Most debt isn't 20 or 30 year bonds. Take a look at the link below and see how much of the total outstanding debt is in t-bills. These are instruments with a duration of less than a year. That means throughout the year, the treasury has to issue new debt to pay off the old debt, essentially refinancing constantly. This makes the government particularly vulnerable to interest rate risk. https://www.sifma.org/resources/research/us-treasury-securities-statistics/ https://www.sifma.org/resources/research/us-treasury-securit... During the previous admin, there was talk of issuing a 100 year bond while rates were so low in order to reduce some of this risk, but nothing ever materialized. I'm not sure if this idea is on the present administration's radar at all. https://www.reuters.com/article/us-usa-economy-mnuchin-idUSKCN1VX2SO https://www.reuters.com/article/us-usa-economy-mnuchin-idUSK...
- dillondoyle 5y ago
  Thanks I didn't know that!