7 ms·

Most 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'

by wg0 2y ago

Most 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 ago
Do 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 ago
  What causes it to collapse?
  - JKCalhoun 2y ago
    What has caused disruption in the past? Greed, I suppose.
  - afh1 2y ago
    If I knew I wouldn't tell you
  - ursuscamp 2y ago
    Persistently 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 ago
    OP 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?
    - shadowgovt 2y ago
      I don't think the story is that simple when we're talking about a country that can print the currency that be debt is demarcated in. A budget deficit means that the government has chosen not to print enough money to offset its spending. Now, the government printing its way to liquidity does have consequences, but fundamentally balancing the US federal budget is not like balancing a house budget. And because the government can print the money at any time, it really doesn't matter how fast the interest is growing. What matters is whether people keep showing up to give the government the money.
- CSMastermind 2y ago
  I'll take that bet. I don't even think we'll see an attempt at the federal government being fiscally responsible for another 15 years (though I do suspect things will get better in the late 2030s). Either way the US will be fine barring something stupid maneuver like embracing modern monetary theory.
- wg0 2y ago
  In general I mean. Governments spending more, collecting less and the difference keeps growing.
aiauthoritydev 2y ago
A lot of smaller countries get bailed out by large countries and when the small countries go down only a small % of people and next to nothing of humanity is impacted. US defaulting on its debt is likely going to be a far bigger problem than climate change or a small war. It also sets entire humanity back by decades.
- schmidtleonard 2y ago
  Last time the US soft-defaulted on its debt, it was twice as large as a fraction of the world economy.
- justin66 2y ago
  > US defaulting on its debt is likely going to be a far bigger problem than climate change or a small war. I wonder how much you think the US defaulting on its debt would cost the world. It would be fairly disastrous, yes, but as a Forbes headline said a few weeks ago: "Climate Change Will Cost Global Economy $38 Trillion Every Year Within 25 Years, Scientists Warn."
CPLX 2y ago
The U.S. is limited by the productive capacity of the nation. The government can’t command output that doesn’t exist by printing money. It can, however, crowd out private investment and redirect the country’s resources via fiscal policy. It’s been happening for many decades and there’s really no scientific or pragmatic reason to suggest it’s somehow a fundamentally different system than it was 30-40 years ago when people were, wrongly, predicting it’s imminent demise. If you think “it’s different this time” the burden is on you to prove why.
paulpauper 2y ago
A lot longer than people are probably expecting. Fears of the debt are nothing new yet the US keeps defying the odds.
- cvoss 2y ago
  It is also important to remember that the money isn't borrowed out of thin air. Other nation states, corporations, and individuals have lent all this money to the US government. Lenders lend when and where they believe they will receive a return on their investment. If and when the US approaches a position where it cannot pay the interest owed, you'd expect that to coincide with a reluctance by the lenders to continue lending. So, you could argue that the US is not defying any odds, but rather it is consistently performing at or near the odds that have been predicted by the global public.
  - Ekaros 2y ago
    On other side principal is being rolled over very regularly. If this process fails, it will all fall down. Likely it will be printed to existence, but then inflation hits and taking money and moving it to any other assets make lot more sense. Even if that is harder to use.
- paulddraper 2y ago
  s/defying the odds/making trillion dollar payments/ You can maintain massive credit card debt for a long, long, long time. Sure you'll give a lot of your wealth to creditors, but you can do it.
sethd 2y ago
> A century more? No one knows because it depends on a lot of variables that cannot be predicted in advance. The only major short term threat is that we default due purely debt ceiling debates / brinkmanship, not because of the burden of the debt itself. The debt becomes a very real problem if hegemony of the US dollar as a reserve currency is ever disrupted. I don’t see that happening anytime soon, though. > What's the future of the state as an institution? Very high tax rates, unfortunately. Although there’s worse outcomes (currency destruction). These are the possible long term consequences.
- schmidtleonard 2y ago
  If currency devaluation is so devastating, why do so many countries try so hard to do it? In moderation, of course: everything is obviously bad in the extreme. However, it's a constant source of international tension for a country to promise not to devalue their currency, devalue it anyway, and for this to make their economic neighbors upset. Often they will lay into each other without even bothering to explain why currency devaluation might be desirable, because it is such basic macroeconomic 101 / political economy 101 knowledge that is expected to be understood by everyone listening. How do these actions jibe with the idea that currency devaluation is a fate worse than death (err, very high tax rates)? Level up your macroeconomics before you catastrophize over the prospect of currency devaluation.
  - sethd 2y ago
    You need to level up your reading skills. I said destruction, not devaluation.
    - schmidtleonard 2y ago
      If you don't want me to charitably interpret your words, I don't have to, but now you have to defend them. Explain why the US will be different from the last 500 years of reserve currencies to find themselves in this situation. Excessive government debt is a problem, but it isn't a new one. Youtube thumbnails with flames and red arrows are new, but they aren't a problem.
api 2y ago
Debt to GDP is what matters and many are far worse than the US. A huge percent of US debt is domestically held too so it’s just kind of pumping money around. Not saying this is a great way to do things, just that we are nowhere near the worst off.
schmidtleonard 2y ago
This problem has happened many times before and will happen many times again. You should familiarize yourself with the playbook. https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/c... tl;dr: at some point, they will soft default. This means they stop paying high interest rates, inflation will run hot for a while, the debt will devalue, and with freshly reduced debt/GDP they they will spike interest rates to end inflation.
Retric 2y ago
It’s possible for the system to last hundreds of years or go really bad over a decade. Generally if debt is increasing but debt to GDP is decreasing then that’s no problem as the economy can out grow the debt. Much of US history falls under that umbrella. Unfortunately, slowing GDP growth associated with a developed economy has pushed us into the red more often and for longer.
ptero 2y ago
I highly recommend Lyn Alden, who spends a lot of time on analysis of the macro conditions and potential outcomes, expressing her findings and opinions in clear, engineering language.
- tazu 2y ago
  +1 for Lyn Alden. Her book, "Broken Money", significantly impacted me as a layman to economics (which is more pseudoscience than science).
  - neglesaks 2y ago
    I wouldn't say that economics is a /pseudo/science, but it and its conclusions/recommandations are heavily affected by politicized thinking. But even Adam Smith also remarked on this phenomenon, so that's hardly a new development.
    - rybosworld 2y ago
      Economics is the only "science" I can think of where the leading thinkers refuse to practice anything remotely close to the scientific method. If we ignore the obvious political aspect, then the field is entirely based on trend prediction. Trend predication is not science. It's observation. You can't have science without testable, falsifiable hypotheses. I recognize that the nature of macroeconomics makes testing hypotheses comparatively difficult. But it's not impossible, and anyone who says it is, is likely an economist. Imagine what the world would look like if physicists got together and told the rest of the world that testing hypotheses isn't possible/feasible. That's where we've been at with economics for it's entire existence as a "science".
throw0101c 2y ago
> But I wonder for how long this can be stretched? A century more? What's the future of the state as an institution? The UK not too long ago refinanced debt dating back to the South Sea Bubble (1700s), the Napoleonic wars (1800s), World War One (early 1900s): * https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed https://www.theguardian.com/business/2014/oct/31/uk-first-wo... The UK's debt-to-GDP has on multiple occasions gone over 150%, and on one occasion (WW2) almost reached 250%: * https://en.wikipedia.org/wiki/United_Kingdom_national_debt#Modern_era https://en.wikipedia.org/wiki/United_Kingdom_national_debt#M... Most of the issues that the UK has faced have generally been non-monetary (foreign enemies) or self-inflicted (Brexit). Don't know off-hand when the UK last ran surpluses and could actually pay down debt principle.
lenkite 2y ago
It can be stretched FOREVER as long as the USD is the primary international currency reserve. Effectively, the rest of the world continually sponsors the U.S. debt - and its international war industry. Once the USD stops being the primary reserve currency, then inflation will skyrocket and things become truly painful. The U.S. will feel the pinch like other nations whose economies have collapsed as a result of runaway spending.

by wg0 2y ago

ursuscamp 2y ago

Do 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 ago
What causes it to collapse?
- JKCalhoun 2y ago
  What has caused disruption in the past? Greed, I suppose.
- afh1 2y ago
  If I knew I wouldn't tell you
- ursuscamp 2y ago
  Persistently 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 ago
  OP 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?
  - shadowgovt 2y ago
    I don't think the story is that simple when we're talking about a country that can print the currency that be debt is demarcated in. A budget deficit means that the government has chosen not to print enough money to offset its spending. Now, the government printing its way to liquidity does have consequences, but fundamentally balancing the US federal budget is not like balancing a house budget. And because the government can print the money at any time, it really doesn't matter how fast the interest is growing. What matters is whether people keep showing up to give the government the money.
CSMastermind 2y ago
I'll take that bet. I don't even think we'll see an attempt at the federal government being fiscally responsible for another 15 years (though I do suspect things will get better in the late 2030s). Either way the US will be fine barring something stupid maneuver like embracing modern monetary theory.
wg0 2y ago
In general I mean. Governments spending more, collecting less and the difference keeps growing.

aiauthoritydev 2y ago

A lot of smaller countries get bailed out by large countries and when the small countries go down only a small % of people and next to nothing of humanity is impacted. US defaulting on its debt is likely going to be a far bigger problem than climate change or a small war. It also sets entire humanity back by decades.

schmidtleonard 2y ago
Last time the US soft-defaulted on its debt, it was twice as large as a fraction of the world economy.
justin66 2y ago
> US defaulting on its debt is likely going to be a far bigger problem than climate change or a small war. I wonder how much you think the US defaulting on its debt would cost the world. It would be fairly disastrous, yes, but as a Forbes headline said a few weeks ago: "Climate Change Will Cost Global Economy $38 Trillion Every Year Within 25 Years, Scientists Warn."

CPLX 2y ago

The U.S. is limited by the productive capacity of the nation. The government can’t command output that doesn’t exist by printing money. It can, however, crowd out private investment and redirect the country’s resources via fiscal policy. It’s been happening for many decades and there’s really no scientific or pragmatic reason to suggest it’s somehow a fundamentally different system than it was 30-40 years ago when people were, wrongly, predicting it’s imminent demise. If you think “it’s different this time” the burden is on you to prove why.

paulpauper 2y ago

A lot longer than people are probably expecting. Fears of the debt are nothing new yet the US keeps defying the odds.

cvoss 2y ago
It is also important to remember that the money isn't borrowed out of thin air. Other nation states, corporations, and individuals have lent all this money to the US government. Lenders lend when and where they believe they will receive a return on their investment. If and when the US approaches a position where it cannot pay the interest owed, you'd expect that to coincide with a reluctance by the lenders to continue lending. So, you could argue that the US is not defying any odds, but rather it is consistently performing at or near the odds that have been predicted by the global public.
- Ekaros 2y ago
  On other side principal is being rolled over very regularly. If this process fails, it will all fall down. Likely it will be printed to existence, but then inflation hits and taking money and moving it to any other assets make lot more sense. Even if that is harder to use.
paulddraper 2y ago
s/defying the odds/making trillion dollar payments/ You can maintain massive credit card debt for a long, long, long time. Sure you'll give a lot of your wealth to creditors, but you can do it.

sethd 2y ago

> A century more? No one knows because it depends on a lot of variables that cannot be predicted in advance. The only major short term threat is that we default due purely debt ceiling debates / brinkmanship, not because of the burden of the debt itself. The debt becomes a very real problem if hegemony of the US dollar as a reserve currency is ever disrupted. I don’t see that happening anytime soon, though. > What's the future of the state as an institution? Very high tax rates, unfortunately. Although there’s worse outcomes (currency destruction). These are the possible long term consequences.

schmidtleonard 2y ago
If currency devaluation is so devastating, why do so many countries try so hard to do it? In moderation, of course: everything is obviously bad in the extreme. However, it's a constant source of international tension for a country to promise not to devalue their currency, devalue it anyway, and for this to make their economic neighbors upset. Often they will lay into each other without even bothering to explain why currency devaluation might be desirable, because it is such basic macroeconomic 101 / political economy 101 knowledge that is expected to be understood by everyone listening. How do these actions jibe with the idea that currency devaluation is a fate worse than death (err, very high tax rates)? Level up your macroeconomics before you catastrophize over the prospect of currency devaluation.
- sethd 2y ago
  You need to level up your reading skills. I said destruction, not devaluation.
  - schmidtleonard 2y ago
    If you don't want me to charitably interpret your words, I don't have to, but now you have to defend them. Explain why the US will be different from the last 500 years of reserve currencies to find themselves in this situation. Excessive government debt is a problem, but it isn't a new one. Youtube thumbnails with flames and red arrows are new, but they aren't a problem.

api 2y ago

Debt to GDP is what matters and many are far worse than the US. A huge percent of US debt is domestically held too so it’s just kind of pumping money around. Not saying this is a great way to do things, just that we are nowhere near the worst off.

schmidtleonard 2y ago

This problem has happened many times before and will happen many times again. You should familiarize yourself with the playbook. https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/crbs.pdf https://www.imf.org/external/np/seminars/eng/2011/res2/pdf/c... tl;dr: at some point, they will soft default. This means they stop paying high interest rates, inflation will run hot for a while, the debt will devalue, and with freshly reduced debt/GDP they they will spike interest rates to end inflation.

Retric 2y ago

It’s possible for the system to last hundreds of years or go really bad over a decade. Generally if debt is increasing but debt to GDP is decreasing then that’s no problem as the economy can out grow the debt. Much of US history falls under that umbrella. Unfortunately, slowing GDP growth associated with a developed economy has pushed us into the red more often and for longer.

ptero 2y ago

I highly recommend Lyn Alden, who spends a lot of time on analysis of the macro conditions and potential outcomes, expressing her findings and opinions in clear, engineering language.

tazu 2y ago
+1 for Lyn Alden. Her book, "Broken Money", significantly impacted me as a layman to economics (which is more pseudoscience than science).
- neglesaks 2y ago
  I wouldn't say that economics is a /pseudo/science, but it and its conclusions/recommandations are heavily affected by politicized thinking. But even Adam Smith also remarked on this phenomenon, so that's hardly a new development.
  - rybosworld 2y ago
    Economics is the only "science" I can think of where the leading thinkers refuse to practice anything remotely close to the scientific method. If we ignore the obvious political aspect, then the field is entirely based on trend prediction. Trend predication is not science. It's observation. You can't have science without testable, falsifiable hypotheses. I recognize that the nature of macroeconomics makes testing hypotheses comparatively difficult. But it's not impossible, and anyone who says it is, is likely an economist. Imagine what the world would look like if physicists got together and told the rest of the world that testing hypotheses isn't possible/feasible. That's where we've been at with economics for it's entire existence as a "science".

throw0101c 2y ago

> But I wonder for how long this can be stretched? A century more? What's the future of the state as an institution? The UK not too long ago refinanced debt dating back to the South Sea Bubble (1700s), the Napoleonic wars (1800s), World War One (early 1900s): * https://www.theguardian.com/business/2014/oct/31/uk-first-world-war-bonds-redeemed https://www.theguardian.com/business/2014/oct/31/uk-first-wo... The UK's debt-to-GDP has on multiple occasions gone over 150%, and on one occasion (WW2) almost reached 250%: * https://en.wikipedia.org/wiki/United_Kingdom_national_debt#Modern_era https://en.wikipedia.org/wiki/United_Kingdom_national_debt#M... Most of the issues that the UK has faced have generally been non-monetary (foreign enemies) or self-inflicted (Brexit). Don't know off-hand when the UK last ran surpluses and could actually pay down debt principle.

lenkite 2y ago

It can be stretched FOREVER as long as the USD is the primary international currency reserve. Effectively, the rest of the world continually sponsors the U.S. debt - and its international war industry. Once the USD stops being the primary reserve currency, then inflation will skyrocket and things become truly painful. The U.S. will feel the pinch like other nations whose economies have collapsed as a result of runaway spending.