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basically, I'm wondering if we'd go into a recession immediately if the government was forced to cut spending to sustainable levels. The debt is finally hitting

basically, I'm wondering if we'd go into a recession immediately if the government was forced to cut spending to sustainable levels. The debt is finally hitting a point of no return where we have to cut, next year we'll spend more on debt interest payments than our military the main argument that the economy is doing well is that "the labor market is strong" and unemployment is low, but how many jobs are tied to government deficit spending via contracts or direct employment? If that spending is cut back, I'd imagine the jobs numbers will quickly start to decline

mwbajor 3y ago
Imagine how much it will "grow" when we get involved in 2+ simultaneous wars.
- GiorgioG 3y ago
  It will likely "grow" into 1 large war.
  - barkerja 3y ago
    I think they were referring to the two wars we spent decades in that increased spending. OIF and OEF.
nofinator 3y ago
The government has been reducing spending since all the COVID support in 2020 and 2021. At its peak, government spending was over $7 trillion, which was over 30% of GDP in 2020. It appears to be trending back to the pre-COVID ratio: ~20% of the GDP is government spending. https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/#spending-trends-over-time-and-the-us-economy https://fiscaldata.treasury.gov/americas-finance-guide/feder...
- jonhohle 3y ago
  But at the same time has the largest non-COVID deficit ever. `22 and `23 defectors are trending higher, not lower.[0] 0 - https://www.reuters.com/world/us/us-budget-deficit-jumps-23-nearly-17-trillion-social-security-health-costs-rise-2023-10-20/ https://www.reuters.com/world/us/us-budget-deficit-jumps-23-...
criddell 3y ago
> sustainable levels That's really the key thing. What level is sustainable? I've come around to the idea that the main danger of deficit spending is inflation (because of the idea that government debt is private sector wealth). The big levers the government have access to are spending and taxes. The first adds wealth, the second subtracts. In this way, government debt is really nothing like household debt that you and I have.
- xedrac 3y ago
  Inflation is their primary lever actually. Why bother paying down the debt when you can simply make it worth less? It's fiscally irresponsible, but that's how it works.
- jonhohle 3y ago
  You seem to agree with Keynes. Assuming you’re in the lower 99%, are you wealthier in proportion to increases costs over the past quarter? I personally don’t buy it. When other country’s start divesting from US treasury ties, the party will be over. Already prices are rising faster than income. What did Germany, Zimbabwe, and Argentina, Venezuela, etc. do wrong, that the US is doing right?
  - criddell 3y ago
    A better question is to ask what is Japan doing right since they are a lot farther down this path. Their debt to GDP ratio is something like 230% which is almost 2x the US ratio.
    - seanmcdirmid 3y ago
      The answer is that Japan isn't doing it right. People struggle, taxes are high and pay is generally low (but for tourists, Japan is incredibly affordable). They still do OK, but we shouldn't see Japan as a model of how to do things.
      - criddell 3y ago
Certhas 3y ago
The money is coming from somewhere. If it wasn't lent to the government, it would be spent in other ways. So the only reason that it should cause a recession is if the government is spending it in better ways to grow the economy than the private sector would/could (e.g. because the best investments are infrastructure related). But if it's actually providing a boost to economic growth, it also means the debt isn't actually unsustainable. If you boost economic growth this year by 0.1%, and afterward it returns to previous growth rates, then the economy will stay 0.1% larger than it otherwise would have been perpetually. If your interest rates are comparable to the base line economic growth (true now, last decade they have been lower), and you take a twenty-year view, then taking on 5% of GDP in debt to generate a one off 1% growth boost to the economy is a no-brainer. The real issue is to understand when the government (vis a vis the private sector) actually can spend money to generate genuine extra growth, and when it cannot (e.g. if it only shifts growth that would happen anyway forward you would expect growth to dip after the initial boost, but that would be true whether the deficit spending stops or not). The argument against debt is often not based in economic sense or sound science (remember the debacle when a widely cited study on the problems with high debt turned out to be based on an Excel mistake?). In my view, it's based on an aversion to the government having too much spending power. After all, a version of the argument, above was used by conservatives to sell tax cuts that were supposed to pay for themselves. They didn't because the tax cuts did not actually generate growth, they merely redistributed wealth to the top. For deficit spending, the evidence that it can boost economic growth is much more robust. The real debt crisis will hit once countries start to seriously shrink...
- fuoqi 3y ago
  >it would be spent in other ways Or it would've been placed in the reverse REPO facility at delicious interest rates paid straight from the printing press. A lot of COVID spending was sanitized this way, without it inflation would've been much higher. And this money has started to get back into the economy.

mwbajor 3y ago

Imagine how much it will "grow" when we get involved in 2+ simultaneous wars.

GiorgioG 3y ago
It will likely "grow" into 1 large war.
- barkerja 3y ago
  I think they were referring to the two wars we spent decades in that increased spending. OIF and OEF.

nofinator 3y ago

The government has been reducing spending since all the COVID support in 2020 and 2021. At its peak, government spending was over $7 trillion, which was over 30% of GDP in 2020. It appears to be trending back to the pre-COVID ratio: ~20% of the GDP is government spending. https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/#spending-trends-over-time-and-the-us-economy https://fiscaldata.treasury.gov/americas-finance-guide/feder...

jonhohle 3y ago
But at the same time has the largest non-COVID deficit ever. `22 and `23 defectors are trending higher, not lower.[0] 0 - https://www.reuters.com/world/us/us-budget-deficit-jumps-23-nearly-17-trillion-social-security-health-costs-rise-2023-10-20/ https://www.reuters.com/world/us/us-budget-deficit-jumps-23-...

criddell 3y ago

> sustainable levels That's really the key thing. What level is sustainable? I've come around to the idea that the main danger of deficit spending is inflation (because of the idea that government debt is private sector wealth). The big levers the government have access to are spending and taxes. The first adds wealth, the second subtracts. In this way, government debt is really nothing like household debt that you and I have.

xedrac 3y ago
Inflation is their primary lever actually. Why bother paying down the debt when you can simply make it worth less? It's fiscally irresponsible, but that's how it works.
jonhohle 3y ago
You seem to agree with Keynes. Assuming you’re in the lower 99%, are you wealthier in proportion to increases costs over the past quarter? I personally don’t buy it. When other country’s start divesting from US treasury ties, the party will be over. Already prices are rising faster than income. What did Germany, Zimbabwe, and Argentina, Venezuela, etc. do wrong, that the US is doing right?
- criddell 3y ago
  A better question is to ask what is Japan doing right since they are a lot farther down this path. Their debt to GDP ratio is something like 230% which is almost 2x the US ratio.
  - seanmcdirmid 3y ago
    The answer is that Japan isn't doing it right. People struggle, taxes are high and pay is generally low (but for tourists, Japan is incredibly affordable). They still do OK, but we shouldn't see Japan as a model of how to do things.
    - criddell 3y ago

Certhas 3y ago

The money is coming from somewhere. If it wasn't lent to the government, it would be spent in other ways. So the only reason that it should cause a recession is if the government is spending it in better ways to grow the economy than the private sector would/could (e.g. because the best investments are infrastructure related). But if it's actually providing a boost to economic growth, it also means the debt isn't actually unsustainable. If you boost economic growth this year by 0.1%, and afterward it returns to previous growth rates, then the economy will stay 0.1% larger than it otherwise would have been perpetually. If your interest rates are comparable to the base line economic growth (true now, last decade they have been lower), and you take a twenty-year view, then taking on 5% of GDP in debt to generate a one off 1% growth boost to the economy is a no-brainer. The real issue is to understand when the government (vis a vis the private sector) actually can spend money to generate genuine extra growth, and when it cannot (e.g. if it only shifts growth that would happen anyway forward you would expect growth to dip after the initial boost, but that would be true whether the deficit spending stops or not). The argument against debt is often not based in economic sense or sound science (remember the debacle when a widely cited study on the problems with high debt turned out to be based on an Excel mistake?). In my view, it's based on an aversion to the government having too much spending power. After all, a version of the argument, above was used by conservatives to sell tax cuts that were supposed to pay for themselves. They didn't because the tax cuts did not actually generate growth, they merely redistributed wealth to the top. For deficit spending, the evidence that it can boost economic growth is much more robust. The real debt crisis will hit once countries start to seriously shrink...

fuoqi 3y ago
>it would be spent in other ways Or it would've been placed in the reverse REPO facility at delicious interest rates paid straight from the printing press. A lot of COVID spending was sanitized this way, without it inflation would've been much higher. And this money has started to get back into the economy.