8 ms·

Wait until they find out that the United States has way more debt that it can service over the coming decades, and that the way out is persistent inflation comb

Wait until they find out that the United States has way more debt that it can service over the coming decades, and that the way out is persistent inflation combined with gaming the inflation metric used for Social Security cost-of-living increases.

PaulDavisThe1st 4y ago
The US can service essentially any level of debt, and has far lower levels of debt than, most notably, Japan, which continues to function entirely normally.
- LastNevadan 4y ago
  Certainly, there are countries in a worse place than the United States. Japan or Italy are the first to be likely to blow up in a big way. Greece is a good candidate for blowing up first, but it is small enough to be backstopped by the ECB. Italy is too big to be backstopped. The USA may fall, but it probably won't be the first major economy to do so. Historically, governments have been prone to currency crises when their debt-to-GDP ratio exceeds 100%. The USA is just slightly above that now, and interest rates have remained low here (and in other countries) because central banks are monetizing the debt. But that can't be sustained forever.
  - zeroonetwothree 4y ago
    Many countries have been above 100% for a while now without any apparent issues
    - Ekaros 4y ago
      Central banks are only recently been making things harder. Previous 10 or so years were quite easy on government debt. Even in some cases being negative.
      - landemva 4y ago
        Central bank zero interest rates decimated pension and annuity earnings.
    - LastNevadan 4y ago
      It's not a hard-and-fast rule. The problem is this: once you have a high level of debt, you become sensitive to interest rate changes. Your debt rises, so you have to increase interest rates to lure investors to buy the bonds. The high interest rate forces to you run a bigger deficit, do you have to borrow even more money. Then investors demand an even high risk premium. That's the cycle. Once that process takes hold, the only way out is some combination of lower living standards, higher taxes, higher inflation and currency devaluation. You're right that it hasn't happened yet in the modern era. But it will. Remember where you heard it first.
      - ProjectArcturis 4y ago
        >Remember where you heard it first. I first heard it in a book written in 1986. It showed debt growing exponentially and forecast hyperinflation and economic collapse. People have been crying about that particular wolf for quite a long time.
  - digitaltrees 4y ago
    Only if you assume that the US economy will stop growing, and with it the tax base. The US government’s ability to pay debt isn’t just its ability to print money. It’s also the ability to collect tax revenues and given how stable economic growth in the US has been for hundreds of years, it’s reasonable to assume that it can easily pay debts well over 100% of gdp.
- ashwagary 4y ago
  It's true that the country will be fine for a while but savers are getting decimated in the process. That $1M nestegg will feel like $250k in a few years.
  - brap 4y ago
    If you invest in real assets, such as stocks or real estate, your savings should be more or less safe from inflation.
    - klipklop 4y ago
      So far in 2022 this has not been true. Compare the 1 year of VOO to inflation. USD inflation, no idea but like +8-12% depending on what you are trying to buy? VOO -20%. Ouch. Personally this year I have had better results holding cash than investing it to hedge.
      - brap 4y ago
        There are always exceptions. Fundamentally, when both prices and wages go up, there’s no reason to expect companies to lose real value. AFAIK in 2022 we’re seeing cost-push inflation and wages haven’t really gone up, which could partially explain why companies are having difficulties producing and selling.
  - PaulDavisThe1st 4y ago
    Inflation is headed down. It's not a completely clear picture yet, but I think this is the only reasonable conclusion from the current statistics. Things could change, but right now the arrows all point in the right direction.
    - voisin 4y ago
      The pace of growth has slowed, but it is still growing in absolute terms at multi-decade highs.
      - 4y ago
- elzbardico 4y ago
  Not for long. Just as long as the Dollar is the world reserve currency. Something that seems to be coming to an end in the next one or two decades.
  - PaulDavisThe1st 4y ago
    If the US's debtors wish to have their debts converted into a 2nd rate (i.e. non-reserve) currency, then by all means, let's see it happen. It will be easier to pay off the debt if that happens (just harder to accumulate more).
    - dragonwriter 4y ago
      > If the US's debtors I think you mean creditors. Debtors is the opposite.
      - sokoloff 4y ago
        The way I read it, debtor makes more sense to their point.
    - elzbardico 4y ago
      They don't need to sell their bonds in US Dollars. Just buying less is enough to play havoc with the American economy, given the gargantuan trade deficit it runs every year.

PaulDavisThe1st 4y ago

The US can service essentially any level of debt, and has far lower levels of debt than, most notably, Japan, which continues to function entirely normally.

LastNevadan 4y ago
Certainly, there are countries in a worse place than the United States. Japan or Italy are the first to be likely to blow up in a big way. Greece is a good candidate for blowing up first, but it is small enough to be backstopped by the ECB. Italy is too big to be backstopped. The USA may fall, but it probably won't be the first major economy to do so. Historically, governments have been prone to currency crises when their debt-to-GDP ratio exceeds 100%. The USA is just slightly above that now, and interest rates have remained low here (and in other countries) because central banks are monetizing the debt. But that can't be sustained forever.
- zeroonetwothree 4y ago
  Many countries have been above 100% for a while now without any apparent issues
  - Ekaros 4y ago
    Central banks are only recently been making things harder. Previous 10 or so years were quite easy on government debt. Even in some cases being negative.
    - landemva 4y ago
      Central bank zero interest rates decimated pension and annuity earnings.
  - LastNevadan 4y ago
    It's not a hard-and-fast rule. The problem is this: once you have a high level of debt, you become sensitive to interest rate changes. Your debt rises, so you have to increase interest rates to lure investors to buy the bonds. The high interest rate forces to you run a bigger deficit, do you have to borrow even more money. Then investors demand an even high risk premium. That's the cycle. Once that process takes hold, the only way out is some combination of lower living standards, higher taxes, higher inflation and currency devaluation. You're right that it hasn't happened yet in the modern era. But it will. Remember where you heard it first.
    - ProjectArcturis 4y ago
      >Remember where you heard it first. I first heard it in a book written in 1986. It showed debt growing exponentially and forecast hyperinflation and economic collapse. People have been crying about that particular wolf for quite a long time.
- digitaltrees 4y ago
  Only if you assume that the US economy will stop growing, and with it the tax base. The US government’s ability to pay debt isn’t just its ability to print money. It’s also the ability to collect tax revenues and given how stable economic growth in the US has been for hundreds of years, it’s reasonable to assume that it can easily pay debts well over 100% of gdp.
ashwagary 4y ago
It's true that the country will be fine for a while but savers are getting decimated in the process. That $1M nestegg will feel like $250k in a few years.
- brap 4y ago
  If you invest in real assets, such as stocks or real estate, your savings should be more or less safe from inflation.
  - klipklop 4y ago
    So far in 2022 this has not been true. Compare the 1 year of VOO to inflation. USD inflation, no idea but like +8-12% depending on what you are trying to buy? VOO -20%. Ouch. Personally this year I have had better results holding cash than investing it to hedge.
    - brap 4y ago
      There are always exceptions. Fundamentally, when both prices and wages go up, there’s no reason to expect companies to lose real value. AFAIK in 2022 we’re seeing cost-push inflation and wages haven’t really gone up, which could partially explain why companies are having difficulties producing and selling.
- PaulDavisThe1st 4y ago
  Inflation is headed down. It's not a completely clear picture yet, but I think this is the only reasonable conclusion from the current statistics. Things could change, but right now the arrows all point in the right direction.
  - voisin 4y ago
    The pace of growth has slowed, but it is still growing in absolute terms at multi-decade highs.
    - 4y ago
elzbardico 4y ago
Not for long. Just as long as the Dollar is the world reserve currency. Something that seems to be coming to an end in the next one or two decades.
- PaulDavisThe1st 4y ago
  If the US's debtors wish to have their debts converted into a 2nd rate (i.e. non-reserve) currency, then by all means, let's see it happen. It will be easier to pay off the debt if that happens (just harder to accumulate more).
  - dragonwriter 4y ago
    > If the US's debtors I think you mean creditors. Debtors is the opposite.
    - sokoloff 4y ago
      The way I read it, debtor makes more sense to their point.
  - elzbardico 4y ago
    They don't need to sell their bonds in US Dollars. Just buying less is enough to play havoc with the American economy, given the gargantuan trade deficit it runs every year.