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There’s no political will to raise taxes and cut government spending. One or the other may happen but not both. Both are required to get us out of this mess. We

There’s no political will to raise taxes and cut government spending. One or the other may happen but not both. Both are required to get us out of this mess. We don’t have politicians that think long term. As a consequence, the Fed will be forced to lower interest rates as low as possible again so the government can escape crushing interest payments and let inflation inflate away government debt. Expect long term inflation, asset prices, and commodity prices that keeps rising as a consequence.

toomuchtodo 2y ago
One would think a rating agency might call time on debt growing beyond what a declining population pyramid can support (through ratings downgrades). Even if the Fed lowers rates, investors might not have appetite for declining quality sovereign debt that will never be paid back. But maybe Japan and the BOJ show this is immaterial.
- DANmode 2y ago
  https://www.cnbc.com/2023/08/08/moodys-cuts-ratings-of-10-us-banks-and-puts-some-big-names-on-downgrade-watch.html https://www.cnbc.com/2023/08/08/moodys-cuts-ratings-of-10-us...
  - toomuchtodo 2y ago
    These are banks, I’m referring to sovereign debt. As a nation state, when you issue sovereign debt, that is a promise to repay that debt in the future. Who will be paying that debt back? Workers generating output that will be taxed in some way, with taxes servicing and retiring future debt obligations. What will there be less of in the future? Workers (structural demographics, total fertility rate rapidly declining globally, etc). The collateral (future worker aggregate productivity) doesn’t exist at the forward curve with the promises to repay in the future, therefore the debt should be rated as higher risk and less likely to be paid back. This would force interest rates higher on issued debt (more risk demands higher yields), but whether the market has an appetite for debt issued with more realistic fundamental expectations remains to be seen.
    - snowwrestler 2y ago
      We think we know the approximate trajectory of future population growth. We might be wrong though. We definitely don’t know the future trajectory of productivity growth. There might be inflection points that more than compensate for slowing worker growth. This is in fact the basis for investor excitement about clean energy, robotics, artificial intelligence, new health care technologies, etc.
      - toomuchtodo 2y ago
        How wild that these bonds are both considered incredibly safe but also highly speculative, a bet on future aggregate productivity.
    - ganeshkrishnan 2y ago
      Sovereign Debts are the Treasury Bonds. There is no chance in hell, it will have a lower rating. The debt will always be paid off, at the cost of higher yields for the future. Its an extremely unpleasant situation but inflation and higher taxes are first in line before even any possibility of Treasuries defaulting.
linotype 2y ago
Why would they think long term? They’re all about to die according to actuary tables.
- JKCalhoun 2y ago
  Come on, they have kids, grandkids like everyone else. The answer is that long term doesn't sell. We all know that.
JumpCrisscross 2y ago
> no political will to raise taxes and cut government spending. One or the other may happen but not both. Both are required to get us out of this mess Did we read the same article?
- jameslk 2y ago
  My point is that there is no political will that leads to the long term fiscal adjustments proposed in TFA
OscarCunningham 2y ago
Why do people suggest inflating away debt rather than just defaulting on it? I'd guess that the debt markets would punish the two options equally, because bonds would lose the same amount of real value either way. But inflation also screws up your economy as a side effect.
- heisenbit 2y ago
  Default impact is spread more unevenly compared with inflation.
- dragontamer 2y ago
  Because defaulting means that Social Security Trust Fund fails to get paid. A huge amount of debt is to Americans, American institutions and the states.
- randerson 2y ago
  Defaulting on debt is the fastest way to turn the US into a third world country. Banks would fail, since they invest our deposits in long-term assets including treasuries. Companies typically store their cash in treasuries and money markets, so companies would go under (or have to issue more shares under duress), crashing the stock market. Retirees would stop receiving Social Security payments, and retirees' nest eggs are normally mostly bonds. The US would piss off other countries who lent us money, who'd come knocking with a country-scale baseball bat demanding their money. But two thirds of that $35T is owed to Americans. There'd be a good chance of either a civil war or global war. We'd likely lose our status as the world's reserve currency, devaluing the dollar and leading to inflation. Nobody would trust the government enough to lend them money, so they'd have no choice but to print money to pay expenses at this point. So, we'd have inflation either way.
  - ianhawes 2y ago
    Sounds promising, let's do it.
- deleted 2y ago
  [deleted]
DataDive 2y ago
There is plenty of political will of every kind. We, the population, vote for the persons with specific political wills. We choose what to enact.
- JKCalhoun 2y ago
  Then OP is essentially saying that we appear not to choose politicians that are prescribing bitter medicine.
  - tastyfreeze 2y ago
    That is true. We have mostly elected politicians that promise to bring as much federal tax dollars home as possible. When you have promised the moon, telling your constituents that the rocket needs to be dismantled and sold off is political suicide.
  - elcritch 2y ago
    It's similar to when folks say "big corporations" or "oil companies" are responsible for climate change. No Karen, you are the reason those companies can and do sell their products. It's a method of diverting personal responsibility, IMHO.
    - impossiblefork 2y ago
      No, it is the oil companies and that oil is permitted to be used. When something is permitted, it becomes mandatory to somebody, and oil is used widely. Personally choosing to avoid products that used oil in their manufacturing would basically relegate you to having to farm your own food by hand. That is not feasible in a society with competition.
      - dukeyukey 2y ago
        And equally, not permitting oil to be used would create a multi-continental scale famine with hundreds of millions dying.
cjbillington 2y ago
The Fed is expected to cut soon regardless, not to bail out the government but because inflation is falling. I imagine that will be the resolution to this. Perhaps rates won't go as low as you're suggesting, but they are expected to be decently lower than they are now.
MuffinFlavored 2y ago
> We don’t have politicians that think long term. They wouldn't get voted in. You said it yourself. What kind of platform is "let me cut your benefits/raise your taxes for temporary pain now so that hopefully in 10 years some good thing (that you might not even notice) will happen if everything goes according to plan"?
- AlgorithmicTime 2y ago
  [dead]
anonym29 2y ago
>Both are required to get us out of this mess. Disagree on multiple counts. First - you don't need both - if you cut Social Security and Medicaid altogether, and use the surplus to start paying down debt, that solves 100% of the deficit and starts chipping away at the debt, while this would actually reduce taxes rather than raising them. I'm not asserting that the political will exists to do this (it doesn't), but the idea that you can't balance the budget without raising taxes is obviously false - taxes are nonzero, but you could reduce spending to zero. Second - you don't actually need either - if you hyperinflate the currency, the value of the existing debt becomes negligible. To wit, I fundamentally agree with the message of the remainder of your post.
- AnimalMuppet 2y ago
  The whole point of "getting out of this mess" is so that you don't hyperinflate the currency, with all the economic and political damage that causes. "Don't bother doing either, just hyperinflate" is therefore not doing anything at all, just resigning yourself (and the country) to your fate.
  - anonym29 2y ago
    Hyperinflation is a different mess from unsustainable debt. I took "getting out of this mess" literally, rather than meaning "getting out of this mess while avoiding getting into any other messes in the process".
- mikewarot 2y ago
  > if you cut Social Security and Medicaid altogether, and use the surplus to start paying down debt How is making me and almost everyone over 60 homeless going to result in a surplus? There would be all the dead lawmakers to bury, and so much security to try to protect the rest. That's a "let them eat cake" level of breaking the social contract you're considering
  - anonym29 2y ago
    I already noted that this is a political impossibility, we're talking about strict hypotheticals from a budget analysis perspective, not serious proposals. I'm sympathetic to your struggles if OASI is the difference between you being homeless and not 60+ years into your life. Just know that your benefits are slated to be reduced by a minimum of 21%, automatically starting in 2033 when the trust fund is depleted, per laws already on the books. Social Security and Medicare are, fundamentally, classic pyramid schemes. They rely on an infinitely increasing number of people to remain fiscally viable. We're at the end of that road now though, U.S. TFR is down ~1.6. These programs are going to crack soon, and anyone under the age of 40 today will never see a penny from either of these programs despite paying in for their entire lives. I understand that ripping away benefits you already paid for is unfair to your generation, but being forced to fund benefits we'll never receive is also unfair to my generation, to say nothing of all the generations after mine.
TurkishPoptart 2y ago
Why should we raise taxes?
- eitau_1 2y ago
  to put public finances on sustainable path, keep inflation low and make interest rates lower long term?
Log_out_ 2y ago
The world pays its taxes to the world police with devaluing reserves.

toomuchtodo 2y ago

One would think a rating agency might call time on debt growing beyond what a declining population pyramid can support (through ratings downgrades). Even if the Fed lowers rates, investors might not have appetite for declining quality sovereign debt that will never be paid back. But maybe Japan and the BOJ show this is immaterial.

DANmode 2y ago
https://www.cnbc.com/2023/08/08/moodys-cuts-ratings-of-10-us-banks-and-puts-some-big-names-on-downgrade-watch.html https://www.cnbc.com/2023/08/08/moodys-cuts-ratings-of-10-us...
- toomuchtodo 2y ago
  These are banks, I’m referring to sovereign debt. As a nation state, when you issue sovereign debt, that is a promise to repay that debt in the future. Who will be paying that debt back? Workers generating output that will be taxed in some way, with taxes servicing and retiring future debt obligations. What will there be less of in the future? Workers (structural demographics, total fertility rate rapidly declining globally, etc). The collateral (future worker aggregate productivity) doesn’t exist at the forward curve with the promises to repay in the future, therefore the debt should be rated as higher risk and less likely to be paid back. This would force interest rates higher on issued debt (more risk demands higher yields), but whether the market has an appetite for debt issued with more realistic fundamental expectations remains to be seen.
  - snowwrestler 2y ago
    We think we know the approximate trajectory of future population growth. We might be wrong though. We definitely don’t know the future trajectory of productivity growth. There might be inflection points that more than compensate for slowing worker growth. This is in fact the basis for investor excitement about clean energy, robotics, artificial intelligence, new health care technologies, etc.
    - toomuchtodo 2y ago
      How wild that these bonds are both considered incredibly safe but also highly speculative, a bet on future aggregate productivity.
  - ganeshkrishnan 2y ago
    Sovereign Debts are the Treasury Bonds. There is no chance in hell, it will have a lower rating. The debt will always be paid off, at the cost of higher yields for the future. Its an extremely unpleasant situation but inflation and higher taxes are first in line before even any possibility of Treasuries defaulting.

linotype 2y ago

Why would they think long term? They’re all about to die according to actuary tables.

JKCalhoun 2y ago
Come on, they have kids, grandkids like everyone else. The answer is that long term doesn't sell. We all know that.

JumpCrisscross 2y ago

> no political will to raise taxes and cut government spending. One or the other may happen but not both. Both are required to get us out of this mess Did we read the same article?

jameslk 2y ago
My point is that there is no political will that leads to the long term fiscal adjustments proposed in TFA

OscarCunningham 2y ago

Why do people suggest inflating away debt rather than just defaulting on it? I'd guess that the debt markets would punish the two options equally, because bonds would lose the same amount of real value either way. But inflation also screws up your economy as a side effect.

heisenbit 2y ago
Default impact is spread more unevenly compared with inflation.
dragontamer 2y ago
Because defaulting means that Social Security Trust Fund fails to get paid. A huge amount of debt is to Americans, American institutions and the states.
randerson 2y ago
Defaulting on debt is the fastest way to turn the US into a third world country. Banks would fail, since they invest our deposits in long-term assets including treasuries. Companies typically store their cash in treasuries and money markets, so companies would go under (or have to issue more shares under duress), crashing the stock market. Retirees would stop receiving Social Security payments, and retirees' nest eggs are normally mostly bonds. The US would piss off other countries who lent us money, who'd come knocking with a country-scale baseball bat demanding their money. But two thirds of that $35T is owed to Americans. There'd be a good chance of either a civil war or global war. We'd likely lose our status as the world's reserve currency, devaluing the dollar and leading to inflation. Nobody would trust the government enough to lend them money, so they'd have no choice but to print money to pay expenses at this point. So, we'd have inflation either way.
- ianhawes 2y ago
  Sounds promising, let's do it.
deleted 2y ago
[deleted]

DataDive 2y ago

There is plenty of political will of every kind. We, the population, vote for the persons with specific political wills. We choose what to enact.

JKCalhoun 2y ago
Then OP is essentially saying that we appear not to choose politicians that are prescribing bitter medicine.
- tastyfreeze 2y ago
  That is true. We have mostly elected politicians that promise to bring as much federal tax dollars home as possible. When you have promised the moon, telling your constituents that the rocket needs to be dismantled and sold off is political suicide.
- elcritch 2y ago
  It's similar to when folks say "big corporations" or "oil companies" are responsible for climate change. No Karen, you are the reason those companies can and do sell their products. It's a method of diverting personal responsibility, IMHO.
  - impossiblefork 2y ago
    No, it is the oil companies and that oil is permitted to be used. When something is permitted, it becomes mandatory to somebody, and oil is used widely. Personally choosing to avoid products that used oil in their manufacturing would basically relegate you to having to farm your own food by hand. That is not feasible in a society with competition.
    - dukeyukey 2y ago
      And equally, not permitting oil to be used would create a multi-continental scale famine with hundreds of millions dying.

cjbillington 2y ago

The Fed is expected to cut soon regardless, not to bail out the government but because inflation is falling. I imagine that will be the resolution to this. Perhaps rates won't go as low as you're suggesting, but they are expected to be decently lower than they are now.

MuffinFlavored 2y ago

> We don’t have politicians that think long term. They wouldn't get voted in. You said it yourself. What kind of platform is "let me cut your benefits/raise your taxes for temporary pain now so that hopefully in 10 years some good thing (that you might not even notice) will happen if everything goes according to plan"?

AlgorithmicTime 2y ago
[dead]

anonym29 2y ago

>Both are required to get us out of this mess. Disagree on multiple counts. First - you don't need both - if you cut Social Security and Medicaid altogether, and use the surplus to start paying down debt, that solves 100% of the deficit and starts chipping away at the debt, while this would actually reduce taxes rather than raising them. I'm not asserting that the political will exists to do this (it doesn't), but the idea that you can't balance the budget without raising taxes is obviously false - taxes are nonzero, but you could reduce spending to zero. Second - you don't actually need either - if you hyperinflate the currency, the value of the existing debt becomes negligible. To wit, I fundamentally agree with the message of the remainder of your post.

AnimalMuppet 2y ago
The whole point of "getting out of this mess" is so that you don't hyperinflate the currency, with all the economic and political damage that causes. "Don't bother doing either, just hyperinflate" is therefore not doing anything at all, just resigning yourself (and the country) to your fate.
- anonym29 2y ago
  Hyperinflation is a different mess from unsustainable debt. I took "getting out of this mess" literally, rather than meaning "getting out of this mess while avoiding getting into any other messes in the process".
mikewarot 2y ago
> if you cut Social Security and Medicaid altogether, and use the surplus to start paying down debt How is making me and almost everyone over 60 homeless going to result in a surplus? There would be all the dead lawmakers to bury, and so much security to try to protect the rest. That's a "let them eat cake" level of breaking the social contract you're considering
- anonym29 2y ago
  I already noted that this is a political impossibility, we're talking about strict hypotheticals from a budget analysis perspective, not serious proposals. I'm sympathetic to your struggles if OASI is the difference between you being homeless and not 60+ years into your life. Just know that your benefits are slated to be reduced by a minimum of 21%, automatically starting in 2033 when the trust fund is depleted, per laws already on the books. Social Security and Medicare are, fundamentally, classic pyramid schemes. They rely on an infinitely increasing number of people to remain fiscally viable. We're at the end of that road now though, U.S. TFR is down ~1.6. These programs are going to crack soon, and anyone under the age of 40 today will never see a penny from either of these programs despite paying in for their entire lives. I understand that ripping away benefits you already paid for is unfair to your generation, but being forced to fund benefits we'll never receive is also unfair to my generation, to say nothing of all the generations after mine.

TurkishPoptart 2y ago

Why should we raise taxes?

eitau_1 2y ago
to put public finances on sustainable path, keep inflation low and make interest rates lower long term?

Log_out_ 2y ago

The world pays its taxes to the world police with devaluing reserves.