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U.S. Government Now Spends More on Debt Interest than National Defense
- toomuchtodo 2y agoTaxes go up? Eventually I suppose.
- yieldcrv 2y agoIt does have an unlimited right to tax. Investors know that there is more than enough private wealth and assets here to pay off everything if we ever got around to it. The needful.
- zdragnar 2y agoInvestors also know they'll be among the first the government calls upon to foot the bill. Capital gains and unrealized gains taxes are among the increases the current administration is pitching (the unrealized gains is technically more of an advance than an increase, but because it is owed before it is realized, it will feel like an increase). Add to that the perennial desire to increase corporate taxes (again, directly affecting investors) and it's probably safe to say that if you're an investor, you are the last person to feel good about the prospect of a fire sale shoring up the government.
- toomuchtodo 2y agoThose poor investors. Sad! /s Tax rates are incredibly low. Investors should be happy the free for all lasted as long as it did.
- wonderwonder 2y agoTotal wealth held by US billionaires is only 4.5 trillion. US owes like 34 trillion. Not sure sending the billionaires to 0 and the resulting economic collapse gets us where we need to go.
- yieldcrv 2y agoAnd US real estate holdings by everyone (all entities) are $119 trillion there is a lot of privately held notional value here. we can go back to doing in-kind tax payments, cattle and land, and to the tax authority, if it came to that. some austerity measure in the future. a lot of countries don't have this quirk where the government owns a lot, earns a lot, has natural resources, as well as privately held holdings that eclipse all of it
- neglesaks 2y agoMay I humbly suggest that we start taxing the land value?
- wonderwonder 2y agoHow about we just cut spending? We already do tax the land value, we pay property taxes.
- ursuscamp 2y agoProbably, but by far the most likely scenario is a decade or more of persistently high inflation as bondholders (i.e. your pensions and retirement accounts) and normal people are pick-pocketed to bring down the nominal debt load.
- bombcar 2y agoInflation just is another form of tax that’s almost uniformly flat. (Actually it affects those who hold cash and cash-nominated things more than those who mainly hold debt)
- ursuscamp 2y agoIt definitely hurts those who hold debt. Maybe you're thinking of borrowers? Certainly debt holders are very damaged by inflation, too. Especially long term debt holders (such as the previously mentioned pensions/retirement accounts). If you have a 30 year bond paying 2% and inflation goes up to 4%, you're making -2% on your bond. Sure, that's not as bad as -4% for cash holders. But it's not good at all if you're planning to retire someday as the compounding effects of inflation over the decades wipe out your retirement benefits.
- Ekaros 2y agoAlso the impact could be more immediate if you need the principal. As now your debt is worth lot less if you sell it. See the last years bank failures...
- bombcar 2y agoI should have worded that better - by "hold debt" I mean people who are paying the debts, especially things like fixed rate mortgages. If you borrowed $500k to buy your house at 3% and we hit 10% inflation, you look like a financial wizard pretty fast. If you bought non-TIPS bonds during that time to finance your retirement, you may end up nearly destitute.
- jimmyed 2y ago[dead]
- jarbus 2y agoI suspect our financial system will finally collapse when the United States government is no longer capable of borrowing fast enough to pay off/refinance all our debts and eventually defaults due to lack of available manpower
- vundercind 2y agoLikely be a while. Several countries with worse public-debt-to-gdp ratios and their financial systems haven’t collapsed. Wouldn’t be surprised if we see nuclear war before it happens so it kinda becomes moot.
- ochoseis 2y agoLuckily we can print the currency the debt is borrowed in.
- chii 2y agoand that will really turn on the hyperinflation tap.
- torstenvl 2y agoWe can't. The Federal Government can. We and the Federal Government have exactly opposite incentives on this issue.
- ein0p 2y agoAnd getting people to buy into this Ponzi scheme is getting more and more expensive. Hence the ballooning interest payments. As debt reaches maturity, more and more of it will have to be refinanced at a higher “apr”, since nobody is even contemplating drawing down the principal. This could further drive up the rates.
- arrosenberg 2y agoThe US money supply is property of the US Treasury. Congress just needs to call those puppies home by increasing taxes and aggressively pursuing illicit and off-shored wealth.
- Retric 2y agoThis is misleading. Owe 35T and pay off 100% the interest and next year you nominally owe the same amount, but it’s a smaller burden every year. Similarly it’s possible for the nominal debt increase while things are getting better. What matters is how the debt burden is changing over time and critically if borrowers are requiring higher interest rates on new debt. Understanding the impact of national debt is a lot more complicated than a single number, though obviously what’s actually happening is unsustainable it’s not as simple as how much a single number changes over time.
- dgfitz 2y ago> This is misleading. Owe 35T and pay off 100% the interest and next year you nominally owe the same amount, but it’s a smaller burden every year. This is actually misleading. You’re only right if the US stops spending. Biden has already said he wants to increase taxes to increase spending.
- JKCalhoun 2y agoUnless of course the increase in tax revenue is greater than increase in spending. Further, if that spending goes into the economy it can lead to more people paying even more in taxes thereby increasing tax revenue even more....
- dgfitz 2y agoShow me any time in the past 50 years where taxes went up and the deficit went down.
- Terr_ 2y agoWere you around for the late 90s?
- dragonwriter 2y agoThat’s looking back 20+ years longer than is necessary.
- wg0 2y agoMost modern states operate on debts and run deficits for decades, US isn't the only one. But I wonder for how long this can be stretched? A century more? What's the future of the state as an institution?
- ursuscamp 2y agoDo you mean how long this system can last for the world, or for the US? I would be surprised if this system lasted 15 more years in the US.
- shadowgovt 2y agoWhat causes it to collapse?
- JKCalhoun 2y agoWhat has caused disruption in the past? Greed, I suppose.
- afh1 2y agoIf I knew I wouldn't tell you
- ursuscamp 2y agoPersistently high inflation and economic decline, plus geopolitical blunders, leading toward US treasuries beginning to lose their status as global reserve asset and precipitating a US debt crisis.
- webninja 2y agoOP here. Spending more than you take in tax revenue leads to a budget deficit. Budget deficits have to be made up with borrowed money, which in practical terms are treasury bonds. Interest on the borrowed money starts out low. But with the power of compound interest, it will eventually swallow and consume everything if left unchecked because it grows exponentially. The way this is fixed is by balancing the budget and leaving a little budget surplus to pay down the debt. All of the money that would’ve been going towards the military, the schools, the electric grid, the roads, job training & placement for unemployed people, food stamps (snap), social security, medicare, agriculture storage, and the various 3-letter departments must go to interest on the debt first and none of the money is left over to go to programs for The People anymore. What would you do as a congressman if for every $4.5 Trillion you brought in from taxes, you saw $6.2 trillion being spent and were left with a $1.7 Trillion budget deficit? $870 Billion of the money spent (14%) is the interest growing on the total government debt which is at 34 Trillion now. These are all the real numbers. What would you do as a congressman whom has the power to make changes and balance the budget?
- xyst 2y agoIf billionaires and multi trillion dollar companies paid their fair share; AND USA reduces spend in “defense”. We might actually see the daylight. But we all know that will never happen
- wonderwonder 2y agoTotal wealth of all US billionaires is 4.8 trillion. Tax it at 100% and the US still owes 30 trillion. US accrued over 2 trillion in debt just in 2023. So give it 2 years and all the billionaires are destitute, companies and employment collapses because owners had to dump all of their shares on the market and the US still owes the same or more. Then what? The US has a spending problem, not an income problem.
- s1artibartfast 2y agoIt is amazing how pervasive the misinformation around the wealthy and their share of income is. I have smart friends who think every worker could take home >100k/yr if we simply taxed the rich and redistributed the money. They are shocked when I explain total GDP per capita is 76k/yr, the government takes 30k of that in taxes, and then borrows another 11k.
- ein0p 2y agoIf you look at FRED data, even complete confiscation of all wealth from the top 0.1% is about $20T. IOW about 7 years of deficit spending at the current rate, if that, at the cost of decimating the underlying tax base - a lot of that $20T are productive assets which you can’t really sell on the open market in the absence of buyers, all of which you’ve just stripped of capital
- shadowgovt 2y agoIn the modern global economy, debt interest is national defense. People are much less likely to go to war with someone who owes them money; it guarantees they won't get paid.
- tines 2y agoWhat an interesting thought.
- webninja 2y agoI like your optimism but because bonds can be resold on the open bond market, the bond holding adversary will still receive their money. Holding your opponent’s debt or currency opens the door for currency wars. Flooding the market with bonds of your opponent will simultaneously raise money for your military and hurt your opponent’s ability to raise funds for their military defense —- making it an issue of national security. Because bond buyers prefer stability, seeing bond interest rate changes spooks individual bond holders to sell even more. This is known as “shaking the tree” as a strategy to collapse prices even more.
- deleted 2y ago[deleted]
- mrbluecoat 2y ago> interest costs are expected to exceed Medicare spending this year, making interest on the national debt the second largest line item in the FY 2024 federal budget, behind only Social Security I wonder when it will exceed Social Security?
- zdragnar 2y ago2051, assuming nothing changes. That's probably not a good assumption to make, though.
- karaterobot 2y agoWithout defending debt spending at all, this claim is misleading because it has the defense budget too low. It's just listing the ~$820 billion Defense Department budget, and not counting things like Veterans Affairs, which by itself is another ~$350 billion. You never get the actual total for defense-related spending, because it's spread across different areas of the budget. This is a comment about how defense spending is always higher than people claim it is.
- deleted 2y ago[deleted]
- mensetmanusman 2y agoBut this is also misleading because we don’t agree on what counts as defense, so we call everything defense. The armies of theoretical physicist working on new optical devices to study fusion could fall under the defense department if their work has some slight application for nuclear weapons, even though the economy benefits much more having a skilled workforce With strong science backgrounds.
- smegsicle 2y agocorn subsidies is national defense spending
- karaterobot 2y agoSure, but that defense spending number only gets higher the more we add on to it. The point is that it's not going to be lower than the debt interest no matter what. I don't think it's misleading to say that we aren't being told the upper bound of defense spending.
- deleted 2y ago[deleted]
- Eddy_Viscosity2 2y agoIts easy to parse this though. If the funding for these physicists comes from a defense source like DARPA or one of the many other places where defense funds research, then it counts in the defense budget.
- qzw 2y agoI’m old enough to remember reading articles during the Clinton presidency that were handwringing over what would happen if the U.S. paid off all national debt and there were no more treasury bonds to purchase. Seems like a parallel timeline now.
- vundercind 2y agoThe -stein timeline was so much better. I miss it.
- deleted 2y ago[deleted]
- jellicle 2y agoSaying that the USA is in trouble because of US-dollar-denominated debt is like saying that Dwight Schrute is in trouble because he owes too many Schrute-Bucks. https://www.youtube.com/watch?v=vPeRElll3Hw https://www.youtube.com/watch?v=vPeRElll3Hw
- paulddraper 2y agoIf all of Dwight's economic interactions run on Shrute-Bucks and he owes too many of them, then yes it's exactly like that.
- jellicle 2y agoHow can he owe too many of a thing he creates himself in unlimited quantities?
- paulddraper 2y agoDwight can, but not without consequence. If the thing he uses for all his economic transactions becomes worthless, that's a problem. --- Look no further than the steeply rising cost of living in the US in recent years.
- webninja 2y agoIt’s a huge issue because the USD is the global reserve currency. This gives many implications.
- standardUser 2y agoTo be fair, a lot of that debt has come from foreign wars and veterans benefits. When you look holistically at defense/war spending and its follow-on effects, its far and away the largest outlay of the US budget across several generations. In fact, it's hard to think of anything at all over the last 100+ years that has been as well-funded as the US military-industrial complex, especially if you include nuclear and space spending.
- smitty1e 2y ago...and there is precisely shag-all discussion of fiscal sanity since the Tea Party uprising some 15 years ago. Congress is as useful as a tattered prophylactic when it comes to pretty much anything, but especially its job of budgeting. Would that some of the Sustainability Chorus could shift fire to pressing near-term issues.
- temporarely 2y agoWho are we paying this interest to? US fiat is accepted worldwide because of Petrodollar and US Navy. What do private banks have to back their money printing machines? Why isn't the US Goverment printing its own money out of thin air? Why is that privilige given to private banks?