9 ms·

When does federal debt reach unsustainable levels?

68 points by LastNevadan 3y ago

23B1 3y ago
It already happened, arguably in 1971 when they destroyed the dollar: https://wtfhappenedin1971.com https://wtfhappenedin1971.com
- ghastmaster 3y ago
  It was literally unsustainable then as it was in 1933. Unsustainability, now that it is pure fiat, has to be defined in order to answer the title question. The definition of such, may differ from person to person or entity to entity. In my opinion it is unsustainable when the inflation from printing to pay the interest or rate hike recession causes social unrest. We are arguably in the midst of that right now, though very few people realize how their lives are being impacted by the printing of money. Stable means of exchange is the single most important factor in preventing revolution. The fed is in a bind. Print and inflate or QT/rate hike and recession. They've been putting a thread through the eye of the needle. The eye is getting smaller and the thread bigger everyday. One day they won't be able to sew.
  - denton-scratch 3y ago
    > very few people realize how their lives are being impacted by the printing of money Anyone who has no income, and relies on savings, is acutely aware that printing money risks inflation, and that inflation will destroy their savings. My savings are mainly real estate, which inflates too; so I have some protection. But if inflation gets wild, the property bubble bursts. There's no fail-safe way to inflation-proof savings; when governments implement policies that they know will increase inflation, they are deliberately robbing pensioners, who can't protect themselves.
    - ghastmaster 3y ago
      > Anyone who has no income, and relies on savings, is acutely aware that printing money risks inflation, and that inflation will destroy their savings. Most whom I talk to think the president causes inflation, seemingly out of thin air. They are not able to articulate how inflation actually happens via money printing. They support the majority of the spending items, but cannot connect the dots.
- DesiLurker 3y ago
  yup, people on online communities think Reagan screwed America up but IMO the real underlying cause was abandonment of gold standard. It basically provided a decoupling of monetary policy from underlying physical inputs like energy (gold traditionally used to be a proxy for that). once money was 'freed' the politicians & elites were empowered to do whatever as they can always print more. is it any wonder all the pro-corporate/anti worker policies & prison population exploded since the 80s. Now something more controversial, in my fairytale ending I'd have expected proof-of-work type crypto currencies to have provided at least some counter balance to the fed money printer but in really bitcoin/crypto because more correlated with liquidity. I doubt that going to change ever.
- AnimalMuppet 3y ago
  For having hit unsustainable levels in 1971, it has sure held up well for the last 52 years. I would expect something unsustainable to do less sustaining. (Now, true, the federal debt was unsustainable under the Bretton Woods arrangement.)
mannyv 3y ago
If the US was an IMF country it would be way off the reservation. The amount of outstanding debt is massive, and I don't think any of the older models would be able to handle it. If anything, today's environment negates the reality of "crowding out." That said, the debt will be at an "unsustainable level" when people stop buying it.
- anon1199022 3y ago
  Which is definitely coming, not because of debt levels, but because of lack government responsibility and management. There will no future governments with responsible spending and correct calculation. This is truth in few sentences. They are addicted to spending debt like it's nothing. At any real stress, they will be back to unlimited brrrrr, sunday meeting after SV bank went down was just a small sign. Boomers panic so fast. Market knows it, all smart money knows it. Plan and act accordingly. https://home.treasury.gov/news/press-releases/jy1337 https://home.treasury.gov/news/press-releases/jy1337
  - ram4jesus 3y ago
    It would be one thing if all this debt was being spent on public works projects or universal welfare programs, but sadly it's being squandered away on unaccountable and dark military projects, cronyism, and all the worse avarice that humans are capable of. I would gladly pay more taxes for better schools, parks, cities, humane crime reduction, etc.
    - anon1199022 3y ago
      Yes and other truth USA citizens can't directly see is, how both parties agreed to raise debt level so fast. When was the last time these people agreed on something big in common? I really can't tell. Something that will directly benefit USA citizens first? https://www.bbc.com/news/world-us-canada-65736734 https://www.bbc.com/news/world-us-canada-65736734
      - refulgentis 3y ago
bullen 3y ago
The answer is: "when the world stops using the dollar". There is no spoon.
- echelon 3y ago
  Yes, but when the US uses monetary policy to control its debt, debt holders get pissed and start to hold fewer dollars. It isn't a free money printing game forever.
  - wpm 3y ago
    Those countries still need oil and that oil needs to be bought with dollars. Normally doesn’t end well for countries that try to break out of that system.
    - xtian 3y ago
      Good thing there are no major geopolitical conflicts or realignments going on between the US and major oil producers
      - killjoywashere 3y ago
        Exactly. China sees the current sale price of Russian petroleum products as just such an opportunity, and is using the Northern Sea Route to move the products (1). The Russians have recently passed a law to further assert their control of that route (2). Interestingly, the US countered by conducting what amounts to a freedom of navigation operation in the area (3). (1) https://www.bloomberg.com/news/articles/2023-07-24/russia-s-northern-sea-route-gets-busy-with-oil-traffic-to-china https://www.bloomberg.com/news/articles/2023-07-24/russia-s-... (2) https://www.belfercenter.org/publication/new-russian-law-northern-sea-route-navigation-gathering-arctic-storm-or-tempest-teapot https://www.belfercenter.org/publication/new-russian-law-nor... (3) https://thebarentsobserver.com/en/arctic/2023/10/uscg-healy-docks-tromso-after-trans-arctic-voyage https://thebarentsobserver.com/en/arctic/2023/10/uscg-healy-...
        3y ago
tiku 3y ago
It is only a problem if you can't pay the interest right? Why is that? My home has to be payed in full, interest and the base sum.
- missedthecue 3y ago
  That's the difference between a mortgage and a bond. A bond only requires interest payments until the term is up and then it is repaid in full all in one payment.
- simonsarris 3y ago
  You can actually get an interest-only mortgage, it's not super uncommon, and you could refinance every 7-10 years to keep it interest-only in perpetuity, if you wanted to.
- allisdust 3y ago
  It does get paid in full at the maturity. It's just that the governments rollover the debt by selling new debt.
  - Kranar 3y ago
    Also worth mentioning that for a period of about 8 years the U.S. government had a guaranteed buyer of U.S. debt, the Federal Reserve, who simply printed whatever amount of money was necessary to purchase U.S. bonds on the open market to the tune of what is estimated to have been 4 trillion dollars.
- HDThoreaun 3y ago
  Interest only mortgages are very common in the commercial real estate space.
- marcosdumay 3y ago
  In practice, it happens because people die. So they mostly can't get interest-only loans, as passing that loan down to another generation is way too risky. Also, that kind of loan is usually seen as predatory by finance regulators (for good reason). So people are usually required to jump through some hoops to get one. That said, as a sibling already pointed, some times it happens. And companies have a much easier time getting them.
6stringmerc 3y ago
Never it’s fiat money therefore all debt is illusory in spreadsheets predominately but nobody wants to go in and change the valuations or formulas with any efficacy… The top of the top investor class is pretty much dying off with their estates structured like a CDO inside of a CDS hidden in a tranche pinned to both LIBOR and the Japanese birth rate, divided by the number of penguins in the San Diego Zoo. After the disaster of higher education in the US getting unsustainable bloat thanks to Federal backing for debt but not ways to earn income (sorry Boomers vote their own interests and have Gen Y n Z pay for it)…it would be a great sign of financial integrity and creditworthiness as a nation to hurry up and treat that debt like prohibition - didn’t work, change it.
- ram4jesus 3y ago
  I don't like fiat money but wouldn't money tethered to an actual value store like silver or gold limit credit and future spending? Or is that some fiat-propaganda I've fallen for?
  - lazide 3y ago
    That’s literally the point, hah. Can’t over inflate something that is impossible to over inflate. That said, historically this ‘problem’ would be solved by conquering a neighbor or new land and stealing all their gold/silver, or debasing the currency bit by bit through slicing bits of metal off coins or melting impurities into them.
  - johngladtj 3y ago
    It's bullshit used to excuse and justify Fiat money. There is no reason for a dynamically expanding money supply to exist (or even an expanding money supply at all). Ultimately what actually matter is the goods and services being bought and sold, their price in whatever currency you use is irrelevant because the actual value remains the same.
    - tastyfreeze 3y ago
      > There is no reason for a dynamically expanding money supply to exist This has been known since at least Sumer. The consistency of weights of measure is vital for a fair, durable, sustainable economy. Adjusting the ruler of trade only benefits the adjuster.
mark_l_watson 3y ago
I don’t know the answer to this, but in the future, perhaps in 10 years, we will be able to look back with hindsight and better understand the wax and waning of yet another empire. I am an old man, and one thing I have learned in a long life is that if something seems unclear, then wait a few years for more data.
- throw1234651234 3y ago
  The "comforting" thought here is that Rome took centuries to collapse. While the USSR collapse was much faster, it's still being milked to this day. As another person, there is still the infrastructure (military and civilian), capital (trucks, heavy equipment, electric), domain knowledge, work & work best practices (read OSHA), culture, etc.
_uhtu 3y ago
I don't like just treating trust fund debt as if it doesn't exist. It's not so much that the government owes itself that money, it owes the American people that money via Social Security. So it's as much a public debt as any other. I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt. It's horrible from every financial perspective. What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax. The biggest problem with funding Social Security is that income inequality has ballooned, so more and more income is exempt from the tax.
- dboreham 3y ago
  Isn't the trust fund a fake concept? Benefits are always going to be paid from current year tax or borrowing. You can't actually "invest" trillions for the future if you're a government. At least that's what my Economist mother told me.
  - _uhtu 3y ago
    If that's the case, then that's my point made exactly, it's public debt as much as any other.
  - MattGaiser 3y ago
    The USA is probably too large to invest it into stuff, but Canada does invest its public pension money into stocks, bonds, airports, etc. The Canada Pension Plan is a full fledged investment firm.
  - bryanlarsen 3y ago
    Illustration: country A and B both see an upcoming demographic crisis and decide to get ahead of it. Country A ensures they don't run deficits and pay off their debts to prepare. Country B prepares by incurring a debt to build hospitals and train nurses. 20 years later the demographic crisis hits. Country A cannot build hospitals and train nurses fast enough to meet the need so the price of both skyrocket and the piles of money they "saved" is inflating away to almost nothing. Meanwhile country B is fine.
bilekas 3y ago
Every time the opposing political party is in power.
kelseyfrog 3y ago
> the moonshot model combines mathematical advances with large-scale computing to solve the “curse of dimensionality” commonly found in quantum computing problems. Had to stop reading at the point. The curse of dimensionality is, in fact, completely independent from any sense of "quantum" computing problems. Given that their understanding of the CoD is so poor, I can only assume the author has an equally poor understanding of everything else they are writing about.
- cjbgkagh 3y ago
  Well they are economists...
- NotYourLawyer 3y ago
  Gell-Mann amnesia averted.
- Katzmann1983 3y ago
  Thanks, I felt exactly the same. I would not trust them, to even understand the model they are using, nor at the correct interpretation of the border cases it produces.
ram4jesus 3y ago
Since the US exports terrorism and instability across the Global South, I support wholeheartedly a balanced budget aimed at eliminating most if not all debt because it would necessitate decreasing the military budget; having expressed that wishful statement, we all know that will never happen. With my accelerationist viewpoint, the continued debt explosion could neuter American military intervention thousands of miles off its coasts in the endgame; but that would require some sort of collapse where I probably, an unwilling funder of the American military, would also suffer - but that is ok if it means stopping the killings abroad. I think the debt explosion, assuming infinite and stable growth, is on purpose: it creates forever wars that we citizens have no say in. And as a result, the debt will continue to balloon forever.
- HDThoreaun 3y ago
  > it would necessitate decreasing the military budget I doubt it would lead to significant military cuts. Entitlements seem much more likely.
  - ram4jesus 3y ago
    I agree with you. I doubt the killings will ever stop on behalf of U.S. citizens.
- TheGigaChad 3y ago
  [dead]
matwood 3y ago
When the US no longer projects military, economic, and cultural power all around the world.
- elforce002 3y ago
  This is the most reasonable answer.
brightball 3y ago
A lot of people would argue it reached it about 10 years ago.
Kon-Peki 3y ago
If one were to accept the premise that it will eventually reach some unsustainable level, then it makes sense to start wondering what course of action an individual person/household can take to best prepare for such an event. Putting all of your money into Bitcoin/gold right now is a terrible idea for an event predicted to occur in 20 years. So what do you do now? Next year?
- mcone 3y ago
  > Putting all of your money into Bitcoin/gold right now is a terrible idea for an event predicted to occur in 20 years. How is it a worse idea than, say, putting all of your money into your 401k fund for 20 years?
  - prewett 3y ago
    As Warren Buffett says, which would you rather own, a bunch of bits [0] that are going to be the same in 20 years, or shares in a bunch of companies where other people are working day and night to increase the value of the company? [0] Buffett said "hunk of yellow metal", which unlike Bitcoin, has some intrinsic and widely recognized value
    - feoren 3y ago
      Other people are also working day and night to suck out as much value from those companies as possible. Let's not ignore the multiple tried-and-true strategies for siphoning wealth from common-stock shareholders into the pockets of CEOs and board members. That is what the CEOs of most publicly-traded companies are spending their time trying to do. Would you rather own a shiny hunk of gold, or a paper whose value is constantly under attack from smart, Harvard-educated parasites?
  - Kon-Peki 3y ago
    I'm not saying that, in this scenario, putting all of your money into a 401k fund for 20 years is a good idea either. In fact I think it should be fairly obvious that asking the question implies that "standard investment advice" must be revalidated for its applicability.
netbioserror 3y ago
In my estimation, there are two unsustainable end states, one economic, one social. Economically, it seems things will fall apart when interest payments balloon to become by far the dominating expense of the US government. At this point, the runaway cost of interest will force even faster money printing, resulting in a positive hyperinflationary feedback loop. Eventually the printing will outpace economic growth, which means inflation will be cannibalizing the actual economic output of the people. People will either stop working or find other mediums to trade in. The social endpoint can happen at any point along the way there. It's a fairly well-known historical reality that a failing elite faces the threat of replacement when new elites can obtain the blessing of the populace; otherwise the populace is hopeless. A campaign to permanently stamp down potential new leaders wherever they may arise is feasible for a limited time but eventually becomes too expensive or diverts all attention away from important material realities. Once there is a cycling of the elites, a drastic shift in policy would undoubtedly be the result. In this scenario, it's highly like that violence occurs. I'd obviously much prefer the first scenario, where people find other ways to trade peacefully before they start a revolution.
JakeAl 3y ago
US debt to GDP ratio is greater than 120%. The IMF defines that as an economic death spiral. By 2028 the loan payments we make on all that debt/money we printed will only cover the interest, no longer the principal, and the death spiral becomes irreversible with US insolvency by 2042. Historically, we are at the point where there's a depression, war, and/or a new monetary system. That's how they reset and seize more power. We need not only a balanced budget amendment, but massive spending/entitlement cuts and austerity, as well as boost in GDP/exports because we can't service our own debt and have relied on other nations to buy our bonds. They are selling our bonds and not buying these days. Markets WERE looking at a lost decade, but the past week or so have been looking at 30 year treasuries, so 30 years.
- deleted 3y ago
  [deleted]
- throw1234651234 3y ago
  I am always working under the assumption that if we "got spending under control", this trend could be reversed. Is that fair or naive?
  - topspin 3y ago
    It's fair. It's not politically feasible, however. Yes, that means we're doomed to catastrophic financial hell. We're already at the cliff's edge, watching interest rates climb while trillions of US short term debt turns over. It would only take a couple more points of interest to make all of the US Treasury spreadsheets go from the bright red they're already at to flashing red with klaxons. And they'll do what they all, always do: monetize. Blow out the currency. That's our fate, and it's inexorable at this point. The only question is when.
    - roflyear 3y ago
      "It would only take a couple more points of interest to make all of the US Treasury spreadsheets go from the bright red they're already at to flashing red with klaxons." This is hyperbole: if you increase rates by even 2x debt will still be serviceable.
phpisthebest 3y ago
Federal Debt reached unsustainable levels long before I was born..
- bregma 3y ago
  ... and it's been sustaining it at such unsustainable levels for decades now and probably will decades into the future.
- hotnfresh 3y ago
  It was manageable until we cut taxes while rushing into two incredibly expensive optional wars on the other side of the planet with the executive using those and other post-9/11-reactions to loot the treasury. While, again, cutting taxes. We never made any moves to recover from that and have had no cushion for the two big crises since then (housing in ‘08, Covid in 2020). It’s not even clear trying to recover was realistic after the two Bush terms, the budget and debt was so far gone already. Just a recipe for getting thrown out of power and having someone else who’d ignore the nigh-unsolvable problem take over.
  - phpisthebest 3y ago
    While the cost side is 100% current, you are woefully incorrect to believe that raising tax rates is a solution to the problem (or that tax cuts caused the problem) Through out the entire history of the US federal tax collections are almost flat hovering around 18% of GDP no matter the make up of tax rates, changing the tax rates changes who pays the taxes, but ultimately it is clear total revenues are pretty flat. if the government wants more revenue it has to increase GDP not simply "raise tax rates" . At the end of the day any government spending in excess of 18% of GDP is unsustainable
    - hotnfresh 3y ago
      You and the CBO disagree about whether those cuts added a significant amount to the national debt.
throw0101a 3y ago
Well, Japan (which is mentioned) has debt-to-GDP ratio that is currently at 263%: * https://en.wikipedia.org/wiki/National_debt_of_Japan https://en.wikipedia.org/wiki/National_debt_of_Japan The UK has been over 150% a number of times, as well as over 200% (nearly 250%): * https://en.wikipedia.org/wiki/File:UK_debt_as_GDP_percent.png https://en.wikipedia.org/wiki/File:UK_debt_as_GDP_percent.pn... With interst-as-GDP getting close to 10%: * https://en.wikipedia.org/wiki/United_Kingdom_national_debt#/media/File:UK_National_Debt_interest.png https://en.wikipedia.org/wiki/United_Kingdom_national_debt#/... * https://en.wikipedia.org/wiki/United_Kingdom_national_debt https://en.wikipedia.org/wiki/United_Kingdom_national_debt For the US (#5, towards bottom): > Debt service as a share of federal outlays peaked at more than 15% in the mid-1990s, but generally falling interest rates have helped hold down payments even as the dollar amount continues to grow. * https://www.pewresearch.org/short-reads/2023/02/14/facts-about-the-us-national-debt/ https://www.pewresearch.org/short-reads/2023/02/14/facts-abo...
throw0101a 3y ago
For some background on the authors' thinking, two of them previously published: Jagadeesh Gokhale and Kent Smetters, Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities, American Enterprise Institute, AEI Press: 2003. * https://www.aei.org/research-products/book/fiscal-and-generational-imbalances/ https://www.aei.org/research-products/book/fiscal-and-genera... Also from 2005, on Social Security: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=649204 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=649204 Smetters previously (1999) on models to privatize Social Security: * https://www.sciencedirect.com/science/article/pii/S1094202599900686 https://www.sciencedirect.com/science/article/pii/S109420259...
purpleblue 3y ago
According to Modern Monetary Theory, debt levels do not matter. Japan has sustained a 200% debt-to-GDP level for decades. I don't think the US has very much to worry about for a while, despite all the fearmongering.
- applied_heat 3y ago
  What if interest rates approach the levels seen in the 80’s?
supernova87a 3y ago
It seems to me that people will believe the US is good for its debts until we behave like it isn't. Japan, of course you know, has debt like 300% of GDP so clearly some kinds of countries are able to manage even ridiculous amounts. The problem though, is that the US seems to be behaving like it may not be good for its debts lately. Not that it can't outgrow them, but just that things are getting more worrisome payment-wise. You remember we used to have budget crises and shutdowns every once in a while (every few years), decades ago. But now it happens like every 2 years, and it seems like it's getting worse. And you never think that disaster will strike until it does. One of these days we're going to miss a bond payment, because some leader will want to "show everyone", and people will be shook, I think, when everyone realizes that the US is not some special country that can never default on its debt. That will be a sad day. And it's all the more likely when everything is 50:50 paralyzed -- very easy for one bad step to take us over the brink while everyone is unable to do anything. I'm no fan of the ridiculous right wing "republicans" who are playing games in Congress, but they do (by accident) have one thing right. We are really far from balancing the budget[0], and both the spending and the debt are getting worse over time with demographic pressure. Not that "balancing the budget" is a requirement in the simplistic household way that they or the public generally think. Incurring debt has its purposes for a growing sovereign nation. But the way we're doing it / reasons we're doing it for is sleepwalking our way into a big hole. Unless we're willing to behave as a country like it's not a problem, it is a problem, and growing. [0] https://www.nytimes.com/interactive/2023/03/06/upshot/balancing-budget-painful-spending-cuts.html https://www.nytimes.com/interactive/2023/03/06/upshot/balanc...
cs702 3y ago
Right near the top, the authors briefly mention their critical assumption: > As we have discussed elsewhere, government debt reduces economic activity by crowding out private capital formation ... I stopped reading at that point, because many economists disagree with that assumption. To understand why, consider: * When the US government borrows to spend on things like, say, battleships, fighter jets, satellites, AI software, etc., every dollar it spends is a dollar of revenues to a private company like Lockheed Martin, Raytheon, Amazon, Microsoft, Palantir, etc., which invests in its business, inducing private capital formation. * When the US government borrows to spend on healthcare, every dollar it spends is a dollar of revenues to a private hospital, vendor, practice, or doctor, all of whom invest in technology, facilities, training, etc., inducing private capital formation. * When the US government borrows to spend on anything, every dollar it spends is a dollar of revenues to a private entity or citizen -- who else? What matters is whether that entity or citizen invests a portion of those revenues in endeavors that induce private capital formation in the US. Things are not as simple and clear-cut as the authors would like them to be!
- feoren 3y ago
  You're ignoring interest, and to a lesser extent the effects of corruption and wealth-hoarding. When the U.S. government borrows one dollar to spend, a small amount goes outside the U.S. economy or disappears in the hundreds of billions of dollars missing from the DoD budget. The remainder is revenue for U.S. entities, some amount of which goes straight into the pockets of wealth-hoarders. Wealth-hoarders want to earn interest on this money, and buy a lot of U.S. government bonds. The government spends that money on things that go back into their pockets, and they additionally earn interest on that same money. It's a great way for the ridiculously wealthy to become the ludicrously-wealthy, but it is not nearly so good for the economy as you imply.
uoaei 3y ago
This is the wrong question. When does federal debt increase rate become unsustainable? As common wisdom states, federal debt is public surplus. It's the set of things that the federal government has invested funding in that haven't been liquidated. This includes roads, streetlights, parks, power substations, etc. The relevant question for our economy is how quickly is the federal government spending, and what is the value created from that spending?
3seashells 3y ago
When the resource that backs it, aka imperial security provided vs economic value extracedrreaches zero. So the answer is.. Global war, global collapse..
Gabriel_Martin 3y ago
I find monetary alarmism so lazy and yet I always feel compelled to comment. I’ve never heard a compelling argument to explain just how a monetary system in which all monetized debt becomes privately held wealth, can be framed as debt being a “scary, unsustainable thing” as if it’s household debt. At least this article frames it as a relationship with investors, but it still doesn’t cut to the meat of the issue, to me at least. Writing debt in an out of existence seems way more conceptually scary than it is dangerous in reality, at least for an economy where households spend on average about 5,000 dollars a month. It seems a much more important topic is monetary hegemony, than some certain debt to GDP ratio, but I never seem to see those concepts mentioned.
neilwilson 3y ago
It never does. By definition the debt exists because people want to save. If they didn't want to save they'd spend and if they spend it is taxed which closes the deficit. It's a simple geometric series. Japan has debt to GDP ratios of 268% with both interest rates and inflation near the floor. The mental model people are using is simply wrong.
exabrial 3y ago
Around 2002.

68 points by LastNevadan 3y ago

23B1 3y ago

It already happened, arguably in 1971 when they destroyed the dollar: https://wtfhappenedin1971.com https://wtfhappenedin1971.com

ghastmaster 3y ago
It was literally unsustainable then as it was in 1933. Unsustainability, now that it is pure fiat, has to be defined in order to answer the title question. The definition of such, may differ from person to person or entity to entity. In my opinion it is unsustainable when the inflation from printing to pay the interest or rate hike recession causes social unrest. We are arguably in the midst of that right now, though very few people realize how their lives are being impacted by the printing of money. Stable means of exchange is the single most important factor in preventing revolution. The fed is in a bind. Print and inflate or QT/rate hike and recession. They've been putting a thread through the eye of the needle. The eye is getting smaller and the thread bigger everyday. One day they won't be able to sew.
- denton-scratch 3y ago
  > very few people realize how their lives are being impacted by the printing of money Anyone who has no income, and relies on savings, is acutely aware that printing money risks inflation, and that inflation will destroy their savings. My savings are mainly real estate, which inflates too; so I have some protection. But if inflation gets wild, the property bubble bursts. There's no fail-safe way to inflation-proof savings; when governments implement policies that they know will increase inflation, they are deliberately robbing pensioners, who can't protect themselves.
  - ghastmaster 3y ago
    > Anyone who has no income, and relies on savings, is acutely aware that printing money risks inflation, and that inflation will destroy their savings. Most whom I talk to think the president causes inflation, seemingly out of thin air. They are not able to articulate how inflation actually happens via money printing. They support the majority of the spending items, but cannot connect the dots.
DesiLurker 3y ago
yup, people on online communities think Reagan screwed America up but IMO the real underlying cause was abandonment of gold standard. It basically provided a decoupling of monetary policy from underlying physical inputs like energy (gold traditionally used to be a proxy for that). once money was 'freed' the politicians & elites were empowered to do whatever as they can always print more. is it any wonder all the pro-corporate/anti worker policies & prison population exploded since the 80s. Now something more controversial, in my fairytale ending I'd have expected proof-of-work type crypto currencies to have provided at least some counter balance to the fed money printer but in really bitcoin/crypto because more correlated with liquidity. I doubt that going to change ever.
AnimalMuppet 3y ago
For having hit unsustainable levels in 1971, it has sure held up well for the last 52 years. I would expect something unsustainable to do less sustaining. (Now, true, the federal debt was unsustainable under the Bretton Woods arrangement.)

mannyv 3y ago

If the US was an IMF country it would be way off the reservation. The amount of outstanding debt is massive, and I don't think any of the older models would be able to handle it. If anything, today's environment negates the reality of "crowding out." That said, the debt will be at an "unsustainable level" when people stop buying it.

anon1199022 3y ago
Which is definitely coming, not because of debt levels, but because of lack government responsibility and management. There will no future governments with responsible spending and correct calculation. This is truth in few sentences. They are addicted to spending debt like it's nothing. At any real stress, they will be back to unlimited brrrrr, sunday meeting after SV bank went down was just a small sign. Boomers panic so fast. Market knows it, all smart money knows it. Plan and act accordingly. https://home.treasury.gov/news/press-releases/jy1337 https://home.treasury.gov/news/press-releases/jy1337
- ram4jesus 3y ago
  It would be one thing if all this debt was being spent on public works projects or universal welfare programs, but sadly it's being squandered away on unaccountable and dark military projects, cronyism, and all the worse avarice that humans are capable of. I would gladly pay more taxes for better schools, parks, cities, humane crime reduction, etc.
  - anon1199022 3y ago
    Yes and other truth USA citizens can't directly see is, how both parties agreed to raise debt level so fast. When was the last time these people agreed on something big in common? I really can't tell. Something that will directly benefit USA citizens first? https://www.bbc.com/news/world-us-canada-65736734 https://www.bbc.com/news/world-us-canada-65736734
    - refulgentis 3y ago

bullen 3y ago

The answer is: "when the world stops using the dollar". There is no spoon.

echelon 3y ago
Yes, but when the US uses monetary policy to control its debt, debt holders get pissed and start to hold fewer dollars. It isn't a free money printing game forever.
- wpm 3y ago
  Those countries still need oil and that oil needs to be bought with dollars. Normally doesn’t end well for countries that try to break out of that system.
  - xtian 3y ago
    Good thing there are no major geopolitical conflicts or realignments going on between the US and major oil producers
    - killjoywashere 3y ago
      Exactly. China sees the current sale price of Russian petroleum products as just such an opportunity, and is using the Northern Sea Route to move the products (1). The Russians have recently passed a law to further assert their control of that route (2). Interestingly, the US countered by conducting what amounts to a freedom of navigation operation in the area (3). (1) https://www.bloomberg.com/news/articles/2023-07-24/russia-s-northern-sea-route-gets-busy-with-oil-traffic-to-china https://www.bloomberg.com/news/articles/2023-07-24/russia-s-... (2) https://www.belfercenter.org/publication/new-russian-law-northern-sea-route-navigation-gathering-arctic-storm-or-tempest-teapot https://www.belfercenter.org/publication/new-russian-law-nor... (3) https://thebarentsobserver.com/en/arctic/2023/10/uscg-healy-docks-tromso-after-trans-arctic-voyage https://thebarentsobserver.com/en/arctic/2023/10/uscg-healy-...
      - 3y ago

tiku 3y ago

It is only a problem if you can't pay the interest right? Why is that? My home has to be payed in full, interest and the base sum.

missedthecue 3y ago
That's the difference between a mortgage and a bond. A bond only requires interest payments until the term is up and then it is repaid in full all in one payment.
simonsarris 3y ago
You can actually get an interest-only mortgage, it's not super uncommon, and you could refinance every 7-10 years to keep it interest-only in perpetuity, if you wanted to.
allisdust 3y ago
It does get paid in full at the maturity. It's just that the governments rollover the debt by selling new debt.
- Kranar 3y ago
  Also worth mentioning that for a period of about 8 years the U.S. government had a guaranteed buyer of U.S. debt, the Federal Reserve, who simply printed whatever amount of money was necessary to purchase U.S. bonds on the open market to the tune of what is estimated to have been 4 trillion dollars.
HDThoreaun 3y ago
Interest only mortgages are very common in the commercial real estate space.
marcosdumay 3y ago
In practice, it happens because people die. So they mostly can't get interest-only loans, as passing that loan down to another generation is way too risky. Also, that kind of loan is usually seen as predatory by finance regulators (for good reason). So people are usually required to jump through some hoops to get one. That said, as a sibling already pointed, some times it happens. And companies have a much easier time getting them.

6stringmerc 3y ago

Never it’s fiat money therefore all debt is illusory in spreadsheets predominately but nobody wants to go in and change the valuations or formulas with any efficacy… The top of the top investor class is pretty much dying off with their estates structured like a CDO inside of a CDS hidden in a tranche pinned to both LIBOR and the Japanese birth rate, divided by the number of penguins in the San Diego Zoo. After the disaster of higher education in the US getting unsustainable bloat thanks to Federal backing for debt but not ways to earn income (sorry Boomers vote their own interests and have Gen Y n Z pay for it)…it would be a great sign of financial integrity and creditworthiness as a nation to hurry up and treat that debt like prohibition - didn’t work, change it.

ram4jesus 3y ago
I don't like fiat money but wouldn't money tethered to an actual value store like silver or gold limit credit and future spending? Or is that some fiat-propaganda I've fallen for?
- lazide 3y ago
  That’s literally the point, hah. Can’t over inflate something that is impossible to over inflate. That said, historically this ‘problem’ would be solved by conquering a neighbor or new land and stealing all their gold/silver, or debasing the currency bit by bit through slicing bits of metal off coins or melting impurities into them.
- johngladtj 3y ago
  It's bullshit used to excuse and justify Fiat money. There is no reason for a dynamically expanding money supply to exist (or even an expanding money supply at all). Ultimately what actually matter is the goods and services being bought and sold, their price in whatever currency you use is irrelevant because the actual value remains the same.
  - tastyfreeze 3y ago
    > There is no reason for a dynamically expanding money supply to exist This has been known since at least Sumer. The consistency of weights of measure is vital for a fair, durable, sustainable economy. Adjusting the ruler of trade only benefits the adjuster.

mark_l_watson 3y ago

I don’t know the answer to this, but in the future, perhaps in 10 years, we will be able to look back with hindsight and better understand the wax and waning of yet another empire. I am an old man, and one thing I have learned in a long life is that if something seems unclear, then wait a few years for more data.

throw1234651234 3y ago
The "comforting" thought here is that Rome took centuries to collapse. While the USSR collapse was much faster, it's still being milked to this day. As another person, there is still the infrastructure (military and civilian), capital (trucks, heavy equipment, electric), domain knowledge, work & work best practices (read OSHA), culture, etc.

_uhtu 3y ago

I don't like just treating trust fund debt as if it doesn't exist. It's not so much that the government owes itself that money, it owes the American people that money via Social Security. So it's as much a public debt as any other. I especially don't like ignoring it like this because it implies the US government simply needs to ignore that obligation to the public, let millions retire with no safety net, and just default on trillions of debt. It's horrible from every financial perspective. What should be mentioned is that Social Security could easily be well in the black with even higher payments to retirees by simply raising the income limit on the social security tax. The biggest problem with funding Social Security is that income inequality has ballooned, so more and more income is exempt from the tax.

dboreham 3y ago
Isn't the trust fund a fake concept? Benefits are always going to be paid from current year tax or borrowing. You can't actually "invest" trillions for the future if you're a government. At least that's what my Economist mother told me.
- _uhtu 3y ago
  If that's the case, then that's my point made exactly, it's public debt as much as any other.
- MattGaiser 3y ago
  The USA is probably too large to invest it into stuff, but Canada does invest its public pension money into stocks, bonds, airports, etc. The Canada Pension Plan is a full fledged investment firm.
- bryanlarsen 3y ago
  Illustration: country A and B both see an upcoming demographic crisis and decide to get ahead of it. Country A ensures they don't run deficits and pay off their debts to prepare. Country B prepares by incurring a debt to build hospitals and train nurses. 20 years later the demographic crisis hits. Country A cannot build hospitals and train nurses fast enough to meet the need so the price of both skyrocket and the piles of money they "saved" is inflating away to almost nothing. Meanwhile country B is fine.

bilekas 3y ago

Every time the opposing political party is in power.

kelseyfrog 3y ago

> the moonshot model combines mathematical advances with large-scale computing to solve the “curse of dimensionality” commonly found in quantum computing problems. Had to stop reading at the point. The curse of dimensionality is, in fact, completely independent from any sense of "quantum" computing problems. Given that their understanding of the CoD is so poor, I can only assume the author has an equally poor understanding of everything else they are writing about.

cjbgkagh 3y ago
Well they are economists...
NotYourLawyer 3y ago
Gell-Mann amnesia averted.
Katzmann1983 3y ago
Thanks, I felt exactly the same. I would not trust them, to even understand the model they are using, nor at the correct interpretation of the border cases it produces.

ram4jesus 3y ago

Since the US exports terrorism and instability across the Global South, I support wholeheartedly a balanced budget aimed at eliminating most if not all debt because it would necessitate decreasing the military budget; having expressed that wishful statement, we all know that will never happen. With my accelerationist viewpoint, the continued debt explosion could neuter American military intervention thousands of miles off its coasts in the endgame; but that would require some sort of collapse where I probably, an unwilling funder of the American military, would also suffer - but that is ok if it means stopping the killings abroad. I think the debt explosion, assuming infinite and stable growth, is on purpose: it creates forever wars that we citizens have no say in. And as a result, the debt will continue to balloon forever.

HDThoreaun 3y ago
> it would necessitate decreasing the military budget I doubt it would lead to significant military cuts. Entitlements seem much more likely.
- ram4jesus 3y ago
  I agree with you. I doubt the killings will ever stop on behalf of U.S. citizens.
TheGigaChad 3y ago
[dead]

matwood 3y ago

When the US no longer projects military, economic, and cultural power all around the world.

elforce002 3y ago
This is the most reasonable answer.

brightball 3y ago

A lot of people would argue it reached it about 10 years ago.

Kon-Peki 3y ago

If one were to accept the premise that it will eventually reach some unsustainable level, then it makes sense to start wondering what course of action an individual person/household can take to best prepare for such an event. Putting all of your money into Bitcoin/gold right now is a terrible idea for an event predicted to occur in 20 years. So what do you do now? Next year?

mcone 3y ago
> Putting all of your money into Bitcoin/gold right now is a terrible idea for an event predicted to occur in 20 years. How is it a worse idea than, say, putting all of your money into your 401k fund for 20 years?
- prewett 3y ago
  As Warren Buffett says, which would you rather own, a bunch of bits [0] that are going to be the same in 20 years, or shares in a bunch of companies where other people are working day and night to increase the value of the company? [0] Buffett said "hunk of yellow metal", which unlike Bitcoin, has some intrinsic and widely recognized value
  - feoren 3y ago
    Other people are also working day and night to suck out as much value from those companies as possible. Let's not ignore the multiple tried-and-true strategies for siphoning wealth from common-stock shareholders into the pockets of CEOs and board members. That is what the CEOs of most publicly-traded companies are spending their time trying to do. Would you rather own a shiny hunk of gold, or a paper whose value is constantly under attack from smart, Harvard-educated parasites?
- Kon-Peki 3y ago
  I'm not saying that, in this scenario, putting all of your money into a 401k fund for 20 years is a good idea either. In fact I think it should be fairly obvious that asking the question implies that "standard investment advice" must be revalidated for its applicability.

netbioserror 3y ago

In my estimation, there are two unsustainable end states, one economic, one social. Economically, it seems things will fall apart when interest payments balloon to become by far the dominating expense of the US government. At this point, the runaway cost of interest will force even faster money printing, resulting in a positive hyperinflationary feedback loop. Eventually the printing will outpace economic growth, which means inflation will be cannibalizing the actual economic output of the people. People will either stop working or find other mediums to trade in. The social endpoint can happen at any point along the way there. It's a fairly well-known historical reality that a failing elite faces the threat of replacement when new elites can obtain the blessing of the populace; otherwise the populace is hopeless. A campaign to permanently stamp down potential new leaders wherever they may arise is feasible for a limited time but eventually becomes too expensive or diverts all attention away from important material realities. Once there is a cycling of the elites, a drastic shift in policy would undoubtedly be the result. In this scenario, it's highly like that violence occurs. I'd obviously much prefer the first scenario, where people find other ways to trade peacefully before they start a revolution.

JakeAl 3y ago

US debt to GDP ratio is greater than 120%. The IMF defines that as an economic death spiral. By 2028 the loan payments we make on all that debt/money we printed will only cover the interest, no longer the principal, and the death spiral becomes irreversible with US insolvency by 2042. Historically, we are at the point where there's a depression, war, and/or a new monetary system. That's how they reset and seize more power. We need not only a balanced budget amendment, but massive spending/entitlement cuts and austerity, as well as boost in GDP/exports because we can't service our own debt and have relied on other nations to buy our bonds. They are selling our bonds and not buying these days. Markets WERE looking at a lost decade, but the past week or so have been looking at 30 year treasuries, so 30 years.

deleted 3y ago
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throw1234651234 3y ago
I am always working under the assumption that if we "got spending under control", this trend could be reversed. Is that fair or naive?
- topspin 3y ago
  It's fair. It's not politically feasible, however. Yes, that means we're doomed to catastrophic financial hell. We're already at the cliff's edge, watching interest rates climb while trillions of US short term debt turns over. It would only take a couple more points of interest to make all of the US Treasury spreadsheets go from the bright red they're already at to flashing red with klaxons. And they'll do what they all, always do: monetize. Blow out the currency. That's our fate, and it's inexorable at this point. The only question is when.
  - roflyear 3y ago
    "It would only take a couple more points of interest to make all of the US Treasury spreadsheets go from the bright red they're already at to flashing red with klaxons." This is hyperbole: if you increase rates by even 2x debt will still be serviceable.

phpisthebest 3y ago

Federal Debt reached unsustainable levels long before I was born..

bregma 3y ago
... and it's been sustaining it at such unsustainable levels for decades now and probably will decades into the future.
hotnfresh 3y ago
It was manageable until we cut taxes while rushing into two incredibly expensive optional wars on the other side of the planet with the executive using those and other post-9/11-reactions to loot the treasury. While, again, cutting taxes. We never made any moves to recover from that and have had no cushion for the two big crises since then (housing in ‘08, Covid in 2020). It’s not even clear trying to recover was realistic after the two Bush terms, the budget and debt was so far gone already. Just a recipe for getting thrown out of power and having someone else who’d ignore the nigh-unsolvable problem take over.
- phpisthebest 3y ago
  While the cost side is 100% current, you are woefully incorrect to believe that raising tax rates is a solution to the problem (or that tax cuts caused the problem) Through out the entire history of the US federal tax collections are almost flat hovering around 18% of GDP no matter the make up of tax rates, changing the tax rates changes who pays the taxes, but ultimately it is clear total revenues are pretty flat. if the government wants more revenue it has to increase GDP not simply "raise tax rates" . At the end of the day any government spending in excess of 18% of GDP is unsustainable
  - hotnfresh 3y ago
    You and the CBO disagree about whether those cuts added a significant amount to the national debt.

throw0101a 3y ago

Well, Japan (which is mentioned) has debt-to-GDP ratio that is currently at 263%: * https://en.wikipedia.org/wiki/National_debt_of_Japan https://en.wikipedia.org/wiki/National_debt_of_Japan The UK has been over 150% a number of times, as well as over 200% (nearly 250%): * https://en.wikipedia.org/wiki/File:UK_debt_as_GDP_percent.png https://en.wikipedia.org/wiki/File:UK_debt_as_GDP_percent.pn... With interst-as-GDP getting close to 10%: * https://en.wikipedia.org/wiki/United_Kingdom_national_debt#/media/File:UK_National_Debt_interest.png https://en.wikipedia.org/wiki/United_Kingdom_national_debt#/... * https://en.wikipedia.org/wiki/United_Kingdom_national_debt https://en.wikipedia.org/wiki/United_Kingdom_national_debt For the US (#5, towards bottom): > Debt service as a share of federal outlays peaked at more than 15% in the mid-1990s, but generally falling interest rates have helped hold down payments even as the dollar amount continues to grow. * https://www.pewresearch.org/short-reads/2023/02/14/facts-about-the-us-national-debt/ https://www.pewresearch.org/short-reads/2023/02/14/facts-abo...

throw0101a 3y ago

For some background on the authors' thinking, two of them previously published: Jagadeesh Gokhale and Kent Smetters, Fiscal and Generational Imbalances: New Budget Measures for New Budget Priorities, American Enterprise Institute, AEI Press: 2003. * https://www.aei.org/research-products/book/fiscal-and-generational-imbalances/ https://www.aei.org/research-products/book/fiscal-and-genera... Also from 2005, on Social Security: * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=649204 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=649204 Smetters previously (1999) on models to privatize Social Security: * https://www.sciencedirect.com/science/article/pii/S1094202599900686 https://www.sciencedirect.com/science/article/pii/S109420259...

purpleblue 3y ago

According to Modern Monetary Theory, debt levels do not matter. Japan has sustained a 200% debt-to-GDP level for decades. I don't think the US has very much to worry about for a while, despite all the fearmongering.

applied_heat 3y ago
What if interest rates approach the levels seen in the 80’s?

supernova87a 3y ago

It seems to me that people will believe the US is good for its debts until we behave like it isn't. Japan, of course you know, has debt like 300% of GDP so clearly some kinds of countries are able to manage even ridiculous amounts. The problem though, is that the US seems to be behaving like it may not be good for its debts lately. Not that it can't outgrow them, but just that things are getting more worrisome payment-wise. You remember we used to have budget crises and shutdowns every once in a while (every few years), decades ago. But now it happens like every 2 years, and it seems like it's getting worse. And you never think that disaster will strike until it does. One of these days we're going to miss a bond payment, because some leader will want to "show everyone", and people will be shook, I think, when everyone realizes that the US is not some special country that can never default on its debt. That will be a sad day. And it's all the more likely when everything is 50:50 paralyzed -- very easy for one bad step to take us over the brink while everyone is unable to do anything. I'm no fan of the ridiculous right wing "republicans" who are playing games in Congress, but they do (by accident) have one thing right. We are really far from balancing the budget[0], and both the spending and the debt are getting worse over time with demographic pressure. Not that "balancing the budget" is a requirement in the simplistic household way that they or the public generally think. Incurring debt has its purposes for a growing sovereign nation. But the way we're doing it / reasons we're doing it for is sleepwalking our way into a big hole. Unless we're willing to behave as a country like it's not a problem, it is a problem, and growing. [0] https://www.nytimes.com/interactive/2023/03/06/upshot/balancing-budget-painful-spending-cuts.html https://www.nytimes.com/interactive/2023/03/06/upshot/balanc...

cs702 3y ago

Right near the top, the authors briefly mention their critical assumption: > As we have discussed elsewhere, government debt reduces economic activity by crowding out private capital formation ... I stopped reading at that point, because many economists disagree with that assumption. To understand why, consider: * When the US government borrows to spend on things like, say, battleships, fighter jets, satellites, AI software, etc., every dollar it spends is a dollar of revenues to a private company like Lockheed Martin, Raytheon, Amazon, Microsoft, Palantir, etc., which invests in its business, inducing private capital formation. * When the US government borrows to spend on healthcare, every dollar it spends is a dollar of revenues to a private hospital, vendor, practice, or doctor, all of whom invest in technology, facilities, training, etc., inducing private capital formation. * When the US government borrows to spend on anything, every dollar it spends is a dollar of revenues to a private entity or citizen -- who else? What matters is whether that entity or citizen invests a portion of those revenues in endeavors that induce private capital formation in the US. Things are not as simple and clear-cut as the authors would like them to be!

feoren 3y ago
You're ignoring interest, and to a lesser extent the effects of corruption and wealth-hoarding. When the U.S. government borrows one dollar to spend, a small amount goes outside the U.S. economy or disappears in the hundreds of billions of dollars missing from the DoD budget. The remainder is revenue for U.S. entities, some amount of which goes straight into the pockets of wealth-hoarders. Wealth-hoarders want to earn interest on this money, and buy a lot of U.S. government bonds. The government spends that money on things that go back into their pockets, and they additionally earn interest on that same money. It's a great way for the ridiculously wealthy to become the ludicrously-wealthy, but it is not nearly so good for the economy as you imply.

uoaei 3y ago

This is the wrong question. When does federal debt increase rate become unsustainable? As common wisdom states, federal debt is public surplus. It's the set of things that the federal government has invested funding in that haven't been liquidated. This includes roads, streetlights, parks, power substations, etc. The relevant question for our economy is how quickly is the federal government spending, and what is the value created from that spending?

3seashells 3y ago

When the resource that backs it, aka imperial security provided vs economic value extracedrreaches zero. So the answer is.. Global war, global collapse..

Gabriel_Martin 3y ago

I find monetary alarmism so lazy and yet I always feel compelled to comment. I’ve never heard a compelling argument to explain just how a monetary system in which all monetized debt becomes privately held wealth, can be framed as debt being a “scary, unsustainable thing” as if it’s household debt. At least this article frames it as a relationship with investors, but it still doesn’t cut to the meat of the issue, to me at least. Writing debt in an out of existence seems way more conceptually scary than it is dangerous in reality, at least for an economy where households spend on average about 5,000 dollars a month. It seems a much more important topic is monetary hegemony, than some certain debt to GDP ratio, but I never seem to see those concepts mentioned.

neilwilson 3y ago

It never does. By definition the debt exists because people want to save. If they didn't want to save they'd spend and if they spend it is taxed which closes the deficit. It's a simple geometric series. Japan has debt to GDP ratios of 268% with both interest rates and inflation near the floor. The mental model people are using is simply wrong.

exabrial 3y ago

Around 2002.