7 ms·

the US government has to start paying for things again

68 points by rntn 2y ago

lumb63 2y ago
> There’s no magic number at which the debt load becomes a full-on crisis. When the US loses its AAA borrowing status and countless funds are required to sell all US Bonds, you will see that statement is incorrect.
- jandrewrogers 2y ago
  The US already lost its AAA borrowing status.
  - GenerWork 2y ago
    It lost it from one rating company, and the others still have it as AAA.
    - contagiousflow 2y ago
      3 actually. https://budget.house.gov/resources/staff-working-papers/us-debt-credit-rating-downgraded-only-second-time-in-nations-history https://budget.house.gov/resources/staff-working-papers/us-d...
      - SpaceManNabs 2y ago
        What a weird article House reps and their staffers should sign them their name to it because seeing a government website with very biased political points is odd.
        Shikadi 2y ago
        I agree authors should be listed, but I disagree that this is odd. Especially in a time where points from scientific consensus are considered biased political points, it's the norm.
- beaglesss 2y ago
  The fed can buy those bonds via QE and just pass it as inflation.
- makeworld 2y ago
  That doesn't sound like number to me.
  - BaculumMeumEst 2y ago
    Would a national debt of $0 be a point where the debt is a full-on crisis? Would a national debt of $999,999,999,999,999,999,999,999,999 be a point where the debt is a full-on crisis? If only there were some kind of conclusion we could draw from this, even if we don't have an exact number. Oh well, back to eating paste.
    - munchler 2y ago
      Disagree. If we had the ability to borrow $999,999,999,999,999,999,999,999,999 and spend it on useful projects, we’d be mining helium on the moon, colonizing Mars, terraforming Venus, building a Dyson sphere around the sun, and warping to Alpha Centuri. Our gross planetary product would probably be able to pay off the debt in a week or two.
      - lupusreal 2y ago
        That doesn't work, particularly the Venus and Dyson sphere ideas, because being able to borrow that much money doesn't actually give you access to the requisite resources and labor. Resources and labor isn't something you can just conjure out of the void as easily as adding zeros to an entry in a bank's database. If you brought such a ludicrous amount of money into existence, the amount of steel or man-hours a dollar could buy would be greatly diminished. Furthermore, you presume the money would be spent on successful and profitable projects, rather than being squandered away. If only it were so easy.
        munchler 2y ago
        Yes, but it’s an absurd number to begin with, so I think some poetic liberty is justified. To make it slightly more realistic, let’s say the Galactic Development Bank of Betelgeuse offered us that amount as a loan, along with access to their expertise and trading partners, with 1000 years to pay it off. My actual point is that in the ratio of debt to GDP, perhaps we should use projected future GDP in the denominator, rather than current GDP. This is why a hard upper limit on debt (or even debt-to-GDP ratio) is a dubious idea. It’s all about what the government does with the money.
- contagiousflow 2y ago
  I mean, that has already happened. But I think the point of that statement is there is no known number where once debt reaches, the US will be downgraded further.
- eigenspace 2y ago
  And could you remind us at which magic number it is where the USA loses it's AAA borrowing status again? /s
  - jorblumesea 2y ago
    No one knows (really, no one knows) but people will keep bringing it up
- polygotdomain 2y ago
  But why did the US lose their AAA rating? It has nothing to do with how much debt we have. It has far more to do with a non-functioning congress that simply decided it wasn't going to pay it. As has been said several times in this thread, it's political, not about the numbers themselves.
  - katzinsky 2y ago
    Ignoring sanctions the US has not defaulted on its debt since the 70s. Those periods where a new budget has not been approved resulted in the US being late to fulfill invoices but all of the coupons on the bonds still went out. If that didn't happen a lot more than just the government's credit would unwind. That's the primary reason debt is still purchased despite the obvious fact that it will never be repaid.
- deleted 2y ago
  [deleted]
2OEH8eoCRo0 2y ago
I worry that the whole US economy is bloated and fragile due to govt spending but I am not an economist. When the govt spends $7 trillion it basically goes to various Americans for various work. It's a $7 trillion injection to the economy. There are also various leeches or other businesses/work that aren't culled naturally via competition. This all worries me.
- oldpersonintx 2y ago
  [dead]
- pstrateman 2y ago
  The question is, does that $7 trillion generate real good and services? More or less than the private sector would have generated?
  - katzinsky 2y ago
    From what I've seen not only are they taking it from otherwise productive components of the economy they tend to produce and encourage economic actors that are a net loss themselves. We'd probably see much higher GDP (after a short period of readjustment) if the spending was stopped cold turkey.
  - phkahler 2y ago
    >> The question is, does that $7 trillion generate real good and services? More or less than the private sector would have generated? That's the wrong question too. It needs to generate enough economic activity such that the TAX on that activity allows repayment of the $7 trillion. AFAICT it does not. If it did we would have a declining debt, but it's going the other direction so that's the answer.
    - jjk166 2y ago
      That's the wrong question too. The government is not a for-profit enterprise, most of its activities are meant to be services that can not be (or should not be) profitably provided by the private sector. The military and benefits like Medicare and social security all fall into this category. The government needs to, over the long term, raise taxes to the point where it can cover these expenditures. However there is an economic benefit to keeping taxes low. The right question is do the short term benefits of low taxes justify the long term costs of higher debt. Further, where the government does make actual investments, those investments tend to be long term. A bridge that will stand for 100 years doesn't need to pay for itself in 10. It is entirely possible to spend money faster than you make it on profitable investments.
bigstrat2003 2y ago
I love the lack of self awareness from this author. "My generation of reporters was right to encourage the government to go into debt, but now it's different". No it's not, the consequences of the bad decisions in ~2010 are just catching up to us now. I guarantee you that there are people who want the government to deficit spend today who will say the same sort of thing 20 years from now as they get older and wiser.
- eigenspace 2y ago
  I don't really think its that simple. There can be situations where debt is a good idea, and there can be situations where debt is a bad idea. In ~2010, debt financing was incredibly cheap, so if the USA was able to take out debt at that time and use it for productive economic growth that paid more than the financing cost, it would have been a good investment. The problem in my eyes isn't really that the USA took on debt when it was cheap, the problem was that: 1. it took out so much debt that now as those debts mature, they can't be paid off without taking on newer, much more expensive debts (and instead of treating that borrowing behaviour as temporary/uncertain, the government learned to treat it as a integral part of its budget). 2. the investments the USA made with that debt might not have been very smart investments. There's a huge amount of crumbling infrastructure in the USA that should have been prime targets for replacement in the era of low-cost debt, that are now going to be incredibly painful to maintain or replace, and aren't really optional. Yes, the USA did invest in a lot of things that boosted the GDP, but it's not really clear (to me at least) that the increase of economic activity was particularly productive, useful, or sustainable.
  - uticus 2y ago
    > There can be situations where debt is a good idea, and there can be situations where debt is a bad idea. Your examples seem to be saying a “good debt” situation would involve the government being wise in playing the market. It’s arguable if the government should be playing the markets to any extent at all. To my knowledge the purpose of (American) government involves the wise use of collecting and spending. It seems to always get in trouble when going after the carrot of investing.
oldpersonintx 2y ago
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runako 2y ago
The last time an administration engineered a budget surplus, voters soundly rejected a continuation of that regime in favor of an 8-year spending binge. A substantial number of voters are planning on voting this fall for the candidate whose economic policy has contributed the most to the current debt. Generally, looking at the last 30 years or so, it is evident that voters do not care about this issue very much.
- ericmcer 2y ago
  I legitimately cant tell who you are referring too, politics is so muddled now that both sides believe wholeheartedly that their side is the one with the correct plan to fix the economy.
  - runako 2y ago
    I wrote it that way intentionally. The data are available, so it's easy enough to find out "who was president during the last budget surplus" and "who presided over the largest increase in the federal debt." Some people will be surprised by the answers and will see the data as partisan. I'm not linking to sources because people feel the need to find the sources or they don't believe them. But there are a number of graphs of the numbers available on the Internet. Suffice it to say that any adviser advising a presidential candidate to pay any attention to the deficit beyond lip service is doing that candidate a disservice, as voters have shown time and again that they simply do not care.
    - silverquiet 2y ago
      I think I first heard Biden say, "don't tell me what you believe, show me your budget and I'll tell you what you believe". He perhaps got it from Ted Kennedy who I doubt was the first person to say it, but I've just found it to be one of the simplest ways to cut through BS. Talk is cheap; doing the work is not. And as you say, when you look at the US budget deficit through the last half century, it's quite clear that the party that claims the mantle of fiscal responsibility it not on the level.
    - WalterBright 2y ago
BadHumans 2y ago
> What’s growing is spending on Social Security, Medicare, and Medicaid. As you can see in the above chart, the CBO sees spending on “major health care programs” (including Medicare, Medicaid, and Obamacare subsidies) growing from 6.3 percent of GDP in 2024 to 9.8 percent of GDP in 2054; Social Security is set to grow from 5.2 percent of GDP in 2024 to 5.9 percent of GDP in 2054. The US refuses to do many things that would save it money in the long run. Complete universal healthcare would save money and would enable more entrepreneurs as the US claims to love small business. Mitt Romney knows this and that is why Massachusetts has the best Medicaid coverage and why he wanted to take his Massachusetts plan to the federal level.
- WalterBright 2y ago
  > Complete universal healthcare would save money Health care costs were far, far lower when the US had a free market healthcare system (before WW2). The more the government took control of it, the more it cost.
  - jjk166 2y ago
    I imagine that has more to do with penicillin being the peak of medical technology at the time. Presumably you don't credit government interference with boosting life expectancy by 15 years.
    - WalterBright 2y ago
      The cost of medical interventions that the government doesn't pay for has declined over the years - like Lasik eye surgery.
  - deleted 2y ago
    [deleted]
  - throw0101d 2y ago
    > The more the government took control of it, the more it cost. The US still has a free market system, both in insurance and treatment. The government only controls VA and Medicare, and those are cheaper to run: * https://www.citizen.org/news/fact-check-medicare-for-all-would-save-the-u-s-trillions-public-option-would-leave-millions-uninsured-not-garner-savings/ https://www.citizen.org/news/fact-check-medicare-for-all-wou... And many other countries do have government-run healthcare (including just north of the border in Canada), and they spend less per capita and have better life expectancy: * https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_per_capita https://en.wikipedia.org/wiki/List_of_countries_by_total_hea... See also infant and maternal mortality rates: * https://en.wikipedia.org/wiki/List_of_countries_by_infant_and_under-five_mortality_rates https://en.wikipedia.org/wiki/List_of_countries_by_infant_an... * https://en.wikipedia.org/wiki/List_of_countries_by_maternal_mortality_ratio https://en.wikipedia.org/wiki/List_of_countries_by_maternal_...
phkahler 2y ago
>> A huge share of the US debt is held by the government itself, in vehicles like the trust funds of Social Security and Medicare. Still more was purchased by the Federal Reserve as part of its “quantitative easing” programs to fight the Great Recession and the Covid downturn. >> Thus, it’s money that the federal government owes to itself. That makes it fairly unimportant, economically; it doesn’t actually limit the resources available to the government. These are very common misunderstandings. The money borrowed from the trust funds are real debt that needs to be repaid. In particular when the boomers retire and the net flow of money is OUT of the funds rather than IN. Up until now, congress has happily spent that net inflow and now they owe it back which makes them hate social security. One politician was claiming its not "real" debt in some way and was corrected by someone at the Federal Reserve who insisted it's as real as any debt purchased by anyone else. Which brings us to the Fed - that's not the government borrowing from itself as the author says. The Fed might be OK with lending at lower rates than the treasury can get otherwise, but they aren't offering an infinite trough for congress to spend - only an emergency bandage.
pdonis 2y ago
Characterizing the problem as "debt" is misleading. The real problem is the government printing money. What we call the "national debt" is just government printed money where whoever "has" it can only draw on a portion of it (the interest) until a certain date (the maturity date of the government bond). And "paying back" the "debt" just means moving the government printed money from one account (the "bond" account) to another (the "bank account" of whoever gets the interest or sells the bond). The actual problem has nothing to do with "not being able to pay back the debt"; the government will just print more dollars (or more precisely, just move more accounting entries from the "bond" account to "bank" accounts). The actual problem is how printing money skews the economy and transfers wealth to the financial system from everyone else.
- throw0101d 2y ago
  > The real problem is the government printing money. What we call the "national debt" is just government printed money […] The vast majority of money that is in the economy is created by banks with credit creation: * https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 The government, especially in the US, hasn't had a money printer for decades.
  - pdonis 2y ago
    > The vast majority of money that is in the economy is created by banks with credit creation That's the way it's described, but banks in this respect are only acting as agents of the government. They can only "create" money under rules prescribed by the government, and the government, through the Fed, controls how much of it they can create. > The government, especially in the US, hasn't had a money printer for decades. Whether I take this literally or metaphorically, it's false. Taken literally, the government does still print bills. Taken metaphorically, even apart from what is discussed above, the government, through the Fed, has done "quantitative easing" and other things that involve direct manipulation of the money supply, recently enough to make your claim false.
polygotdomain 2y ago
This story is incredibly frustrating because it seems to throw a lot of numbers at things (which isn't a bad thing, it's just not super useful) as if that's going to change things politically. Debt is political and the fundamentals of government debt have not changed at all. Government debt is a red herring that many fiscal conservatives wave to say we're spending too much. Unfortunately those same conservatives don't actually want "fiscal responsibility", they want to cut programs they don't agree with and continue handing out lucrative military contracts that we arguably don't need. Government debt has always been about borrowing today to fund growth for tomorrow. However, that's not what we're actually doing at all. Much of our current debt is due to COVID stimulous, which was an incredibly exceptional event. Of course that was more to "keeping things going" than fund growth initiatives. That's not to say that debt was "bad" or that we shouldn't have done it, but that much of the debt we're taking on is not going to fund infrastructure, education, or health which are all things that have significant long term benefits to society. Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have. Since it is a political issue, it will be a football and a dog whistle. Cut programs for minorities from the right, and raise taxes on the rich from the left. While one party is likely to be more irresponsible with this than the other, it's still not going to go away because it's never supposed to. Government debt is all about the cost to borrow compared to growth. The challenge we're at is that the cost is no longer cheap and we haven't been truly focusing on growth as much as we should. Instead we've just had political distractions.
- eigenspace 2y ago
  > Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have. The USA's debt-to-GDP ratio has been increasing for a very long time. Every once in a while, GDP growth starts to overtake debt growth for a few years and then the debt load ratchets up further. So if the plan is to outgrow the debt, that doesn't appear to really be working so far.
WalterBright 2y ago
The end result of runaway debt will be one of: 1. the government repudiates the debt and the bonds become worthless (FDR did that partially with repudiating the gold bonds by forcibly replacing them with dollar bonds, and pocketing the difference in value). 2. simply print money to pay them off (aka Yellen's trillion dollar coin) Of course, there would be major consequences from these banana republic measures. I don't invest in T-bills because of these risks.
- arunabha 2y ago
  I'm curious as to what alternative you invest in. The received wisdom is that TBills are the closest to a 'risk free' investment on the planet. However, as you're pointing out, historically with increasing debt, some kind of debt repudiation(whether explicit or implicit) has always happened. The practical question becomes what is a safer alternative and perhaps more importantly, can we know that today.
  - spqrr 2y ago
    Gold is less risky (in the counter party risk sense) so perhaps that.
  - WalterBright 2y ago
    I invest in things that are not denoted in dollars, like stocks.
- pfannkuchen 2y ago
  (2) seems a million times more likely because currency supply increase is fairly obfuscated from its effects and the government can plausibly deny that it caused the resulting inflation. Canceling the debt outright would be far too honest.
deleted 2y ago
[deleted]
throw0101d 2y ago
Time magazine, March 1972, "Is the U.S. Going Broke?": * https://content.time.com/time/covers/0,16641,19720313,00.html https://content.time.com/time/covers/0,16641,19720313,00.htm... * https://time.com/archive/6639432/money-empty-pockets-on-a-trillion-dollars-a-year/ https://time.com/archive/6639432/money-empty-pockets-on-a-tr...
andrewjl 2y ago
Hard to reduce deficits substantially without much bigger policy changes: https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma That said, Medicare and other entitlements is where my mind went too as I was reading. Negotiating drug prices is a good step in this direction by the current administration. https://www.usatoday.com/story/news/local/2024/08/16/10-prescription-drugs-to-be-cheaper-in-2026-after-biden-renegotiation/74828938007/ https://www.usatoday.com/story/news/local/2024/08/16/10-pres...
lkrubner 2y ago
The last few years have disproven this idea that we need to stop with debt spending. We just conducted a beautiful experiment: since 2020 the USA has had more deficit spending, more economic growth, and less inflation, than the EU, which has had less deficit spending, less growth, and more inflation. A government without debt would be like a business without debt: obviously wasting good opportunities, instead of pursuing them aggressively. But even that analogy is wrong, since a business has to make money to pay its debts, so a business does face some ultimate limit on how much debt it can take on. By contrast, the USA faces no such limit. We can always print as much money as we need to pay any debt. So long as we're willing to deal with the inflation, we can print as much money as we need. But realistically, with birth rates falling, the government will have to engage in more and more stimulus spending as time goes by. We used to be able to rely on population growth to be the real engine of the economy, but we no longer have that. So to keep the economy going in the future, we will have to rely on immigration and deficit spending. And there, too, the EU offers an important counter-point: the USA has had a much easier time integrating immigrants, in part because of our deficit spending. By contrast, the EU is seeing how difficult it is to integrate immigrants in a climate of austerity. The EU is close to stalling, in that it needs immigrants to prop up economic growth but it is not printing enough money to put the immigrants to work -- a stall which could lead to a vicious downward cycle. Meanwhile the USA has pulled in millions of immigrants and also printed enough money to put them to work, resulting in strong economic growth.
- TrevorJ 2y ago
  "The last few moments have disproven this idea that ships need to stop hitting icebergs. Now, dear guests on this great ship Titanic, let us go back to enjoying our dinners!" Timeframe matters a lot when you run an experiment.
  - lkrubner 2y ago
    Your comment doesn't make any sense. If you want an analogy similar to the USA versus the EU, but involving boats, then you should say: "We just ran a beautiful experiment using the Titanic and the Californian: one sunk and one didn't. And what was the difference in their policy? One ran into an iceberg and one did not. Therefore, we can conclude that ships should not run into icebergs." We could also include that the Californian was wise to stop moving at night when it knew that icebergs were near.

68 points by rntn 2y ago

> There’s no magic number at which the debt load becomes a full-on crisis. When the US loses its AAA borrowing status and countless funds are required to sell all US Bonds, you will see that statement is incorrect.

jandrewrogers 2y ago
The US already lost its AAA borrowing status.
- GenerWork 2y ago
  It lost it from one rating company, and the others still have it as AAA.
  - contagiousflow 2y ago
    3 actually. https://budget.house.gov/resources/staff-working-papers/us-debt-credit-rating-downgraded-only-second-time-in-nations-history https://budget.house.gov/resources/staff-working-papers/us-d...
    - SpaceManNabs 2y ago
      What a weird article House reps and their staffers should sign them their name to it because seeing a government website with very biased political points is odd.
      - Shikadi 2y ago
        I agree authors should be listed, but I disagree that this is odd. Especially in a time where points from scientific consensus are considered biased political points, it's the norm.
beaglesss 2y ago
The fed can buy those bonds via QE and just pass it as inflation.
makeworld 2y ago
That doesn't sound like number to me.
- BaculumMeumEst 2y ago
  Would a national debt of $0 be a point where the debt is a full-on crisis? Would a national debt of $999,999,999,999,999,999,999,999,999 be a point where the debt is a full-on crisis? If only there were some kind of conclusion we could draw from this, even if we don't have an exact number. Oh well, back to eating paste.
  - munchler 2y ago
    Disagree. If we had the ability to borrow $999,999,999,999,999,999,999,999,999 and spend it on useful projects, we’d be mining helium on the moon, colonizing Mars, terraforming Venus, building a Dyson sphere around the sun, and warping to Alpha Centuri. Our gross planetary product would probably be able to pay off the debt in a week or two.
    - lupusreal 2y ago
      That doesn't work, particularly the Venus and Dyson sphere ideas, because being able to borrow that much money doesn't actually give you access to the requisite resources and labor. Resources and labor isn't something you can just conjure out of the void as easily as adding zeros to an entry in a bank's database. If you brought such a ludicrous amount of money into existence, the amount of steel or man-hours a dollar could buy would be greatly diminished. Furthermore, you presume the money would be spent on successful and profitable projects, rather than being squandered away. If only it were so easy.
      - munchler 2y ago
        Yes, but it’s an absurd number to begin with, so I think some poetic liberty is justified. To make it slightly more realistic, let’s say the Galactic Development Bank of Betelgeuse offered us that amount as a loan, along with access to their expertise and trading partners, with 1000 years to pay it off. My actual point is that in the ratio of debt to GDP, perhaps we should use projected future GDP in the denominator, rather than current GDP. This is why a hard upper limit on debt (or even debt-to-GDP ratio) is a dubious idea. It’s all about what the government does with the money.
contagiousflow 2y ago
I mean, that has already happened. But I think the point of that statement is there is no known number where once debt reaches, the US will be downgraded further.
eigenspace 2y ago
And could you remind us at which magic number it is where the USA loses it's AAA borrowing status again? /s
- jorblumesea 2y ago
  No one knows (really, no one knows) but people will keep bringing it up
polygotdomain 2y ago
But why did the US lose their AAA rating? It has nothing to do with how much debt we have. It has far more to do with a non-functioning congress that simply decided it wasn't going to pay it. As has been said several times in this thread, it's political, not about the numbers themselves.
- katzinsky 2y ago
  Ignoring sanctions the US has not defaulted on its debt since the 70s. Those periods where a new budget has not been approved resulted in the US being late to fulfill invoices but all of the coupons on the bonds still went out. If that didn't happen a lot more than just the government's credit would unwind. That's the primary reason debt is still purchased despite the obvious fact that it will never be repaid.
deleted 2y ago
[deleted]

2OEH8eoCRo0 2y ago

I worry that the whole US economy is bloated and fragile due to govt spending but I am not an economist. When the govt spends $7 trillion it basically goes to various Americans for various work. It's a $7 trillion injection to the economy. There are also various leeches or other businesses/work that aren't culled naturally via competition. This all worries me.

oldpersonintx 2y ago
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pstrateman 2y ago
The question is, does that $7 trillion generate real good and services? More or less than the private sector would have generated?
- katzinsky 2y ago
  From what I've seen not only are they taking it from otherwise productive components of the economy they tend to produce and encourage economic actors that are a net loss themselves. We'd probably see much higher GDP (after a short period of readjustment) if the spending was stopped cold turkey.
- phkahler 2y ago
  >> The question is, does that $7 trillion generate real good and services? More or less than the private sector would have generated? That's the wrong question too. It needs to generate enough economic activity such that the TAX on that activity allows repayment of the $7 trillion. AFAICT it does not. If it did we would have a declining debt, but it's going the other direction so that's the answer.
  - jjk166 2y ago
    That's the wrong question too. The government is not a for-profit enterprise, most of its activities are meant to be services that can not be (or should not be) profitably provided by the private sector. The military and benefits like Medicare and social security all fall into this category. The government needs to, over the long term, raise taxes to the point where it can cover these expenditures. However there is an economic benefit to keeping taxes low. The right question is do the short term benefits of low taxes justify the long term costs of higher debt. Further, where the government does make actual investments, those investments tend to be long term. A bridge that will stand for 100 years doesn't need to pay for itself in 10. It is entirely possible to spend money faster than you make it on profitable investments.

bigstrat2003 2y ago

I love the lack of self awareness from this author. "My generation of reporters was right to encourage the government to go into debt, but now it's different". No it's not, the consequences of the bad decisions in ~2010 are just catching up to us now. I guarantee you that there are people who want the government to deficit spend today who will say the same sort of thing 20 years from now as they get older and wiser.

eigenspace 2y ago
I don't really think its that simple. There can be situations where debt is a good idea, and there can be situations where debt is a bad idea. In ~2010, debt financing was incredibly cheap, so if the USA was able to take out debt at that time and use it for productive economic growth that paid more than the financing cost, it would have been a good investment. The problem in my eyes isn't really that the USA took on debt when it was cheap, the problem was that: 1. it took out so much debt that now as those debts mature, they can't be paid off without taking on newer, much more expensive debts (and instead of treating that borrowing behaviour as temporary/uncertain, the government learned to treat it as a integral part of its budget). 2. the investments the USA made with that debt might not have been very smart investments. There's a huge amount of crumbling infrastructure in the USA that should have been prime targets for replacement in the era of low-cost debt, that are now going to be incredibly painful to maintain or replace, and aren't really optional. Yes, the USA did invest in a lot of things that boosted the GDP, but it's not really clear (to me at least) that the increase of economic activity was particularly productive, useful, or sustainable.
- uticus 2y ago
  > There can be situations where debt is a good idea, and there can be situations where debt is a bad idea. Your examples seem to be saying a “good debt” situation would involve the government being wise in playing the market. It’s arguable if the government should be playing the markets to any extent at all. To my knowledge the purpose of (American) government involves the wise use of collecting and spending. It seems to always get in trouble when going after the carrot of investing.

oldpersonintx 2y ago

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runako 2y ago

The last time an administration engineered a budget surplus, voters soundly rejected a continuation of that regime in favor of an 8-year spending binge. A substantial number of voters are planning on voting this fall for the candidate whose economic policy has contributed the most to the current debt. Generally, looking at the last 30 years or so, it is evident that voters do not care about this issue very much.

ericmcer 2y ago
I legitimately cant tell who you are referring too, politics is so muddled now that both sides believe wholeheartedly that their side is the one with the correct plan to fix the economy.
- runako 2y ago
  I wrote it that way intentionally. The data are available, so it's easy enough to find out "who was president during the last budget surplus" and "who presided over the largest increase in the federal debt." Some people will be surprised by the answers and will see the data as partisan. I'm not linking to sources because people feel the need to find the sources or they don't believe them. But there are a number of graphs of the numbers available on the Internet. Suffice it to say that any adviser advising a presidential candidate to pay any attention to the deficit beyond lip service is doing that candidate a disservice, as voters have shown time and again that they simply do not care.
  - silverquiet 2y ago
    I think I first heard Biden say, "don't tell me what you believe, show me your budget and I'll tell you what you believe". He perhaps got it from Ted Kennedy who I doubt was the first person to say it, but I've just found it to be one of the simplest ways to cut through BS. Talk is cheap; doing the work is not. And as you say, when you look at the US budget deficit through the last half century, it's quite clear that the party that claims the mantle of fiscal responsibility it not on the level.
  - WalterBright 2y ago

BadHumans 2y ago

> What’s growing is spending on Social Security, Medicare, and Medicaid. As you can see in the above chart, the CBO sees spending on “major health care programs” (including Medicare, Medicaid, and Obamacare subsidies) growing from 6.3 percent of GDP in 2024 to 9.8 percent of GDP in 2054; Social Security is set to grow from 5.2 percent of GDP in 2024 to 5.9 percent of GDP in 2054. The US refuses to do many things that would save it money in the long run. Complete universal healthcare would save money and would enable more entrepreneurs as the US claims to love small business. Mitt Romney knows this and that is why Massachusetts has the best Medicaid coverage and why he wanted to take his Massachusetts plan to the federal level.

WalterBright 2y ago
> Complete universal healthcare would save money Health care costs were far, far lower when the US had a free market healthcare system (before WW2). The more the government took control of it, the more it cost.
- jjk166 2y ago
  I imagine that has more to do with penicillin being the peak of medical technology at the time. Presumably you don't credit government interference with boosting life expectancy by 15 years.
  - WalterBright 2y ago
    The cost of medical interventions that the government doesn't pay for has declined over the years - like Lasik eye surgery.
- deleted 2y ago
  [deleted]
- throw0101d 2y ago
  > The more the government took control of it, the more it cost. The US still has a free market system, both in insurance and treatment. The government only controls VA and Medicare, and those are cheaper to run: * https://www.citizen.org/news/fact-check-medicare-for-all-would-save-the-u-s-trillions-public-option-would-leave-millions-uninsured-not-garner-savings/ https://www.citizen.org/news/fact-check-medicare-for-all-wou... And many other countries do have government-run healthcare (including just north of the border in Canada), and they spend less per capita and have better life expectancy: * https://en.wikipedia.org/wiki/List_of_countries_by_total_health_expenditure_per_capita https://en.wikipedia.org/wiki/List_of_countries_by_total_hea... See also infant and maternal mortality rates: * https://en.wikipedia.org/wiki/List_of_countries_by_infant_and_under-five_mortality_rates https://en.wikipedia.org/wiki/List_of_countries_by_infant_an... * https://en.wikipedia.org/wiki/List_of_countries_by_maternal_mortality_ratio https://en.wikipedia.org/wiki/List_of_countries_by_maternal_...

phkahler 2y ago

>> A huge share of the US debt is held by the government itself, in vehicles like the trust funds of Social Security and Medicare. Still more was purchased by the Federal Reserve as part of its “quantitative easing” programs to fight the Great Recession and the Covid downturn. >> Thus, it’s money that the federal government owes to itself. That makes it fairly unimportant, economically; it doesn’t actually limit the resources available to the government. These are very common misunderstandings. The money borrowed from the trust funds are real debt that needs to be repaid. In particular when the boomers retire and the net flow of money is OUT of the funds rather than IN. Up until now, congress has happily spent that net inflow and now they owe it back which makes them hate social security. One politician was claiming its not "real" debt in some way and was corrected by someone at the Federal Reserve who insisted it's as real as any debt purchased by anyone else. Which brings us to the Fed - that's not the government borrowing from itself as the author says. The Fed might be OK with lending at lower rates than the treasury can get otherwise, but they aren't offering an infinite trough for congress to spend - only an emergency bandage.

pdonis 2y ago

Characterizing the problem as "debt" is misleading. The real problem is the government printing money. What we call the "national debt" is just government printed money where whoever "has" it can only draw on a portion of it (the interest) until a certain date (the maturity date of the government bond). And "paying back" the "debt" just means moving the government printed money from one account (the "bond" account) to another (the "bank account" of whoever gets the interest or sells the bond). The actual problem has nothing to do with "not being able to pay back the debt"; the government will just print more dollars (or more precisely, just move more accounting entries from the "bond" account to "bank" accounts). The actual problem is how printing money skews the economy and transfers wealth to the financial system from everyone else.

throw0101d 2y ago
> The real problem is the government printing money. What we call the "national debt" is just government printed money […] The vast majority of money that is in the economy is created by banks with credit creation: * https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-in-the-modern-economy-an-introduction https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m... * https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625 The government, especially in the US, hasn't had a money printer for decades.
- pdonis 2y ago
  > The vast majority of money that is in the economy is created by banks with credit creation That's the way it's described, but banks in this respect are only acting as agents of the government. They can only "create" money under rules prescribed by the government, and the government, through the Fed, controls how much of it they can create. > The government, especially in the US, hasn't had a money printer for decades. Whether I take this literally or metaphorically, it's false. Taken literally, the government does still print bills. Taken metaphorically, even apart from what is discussed above, the government, through the Fed, has done "quantitative easing" and other things that involve direct manipulation of the money supply, recently enough to make your claim false.

polygotdomain 2y ago

This story is incredibly frustrating because it seems to throw a lot of numbers at things (which isn't a bad thing, it's just not super useful) as if that's going to change things politically. Debt is political and the fundamentals of government debt have not changed at all. Government debt is a red herring that many fiscal conservatives wave to say we're spending too much. Unfortunately those same conservatives don't actually want "fiscal responsibility", they want to cut programs they don't agree with and continue handing out lucrative military contracts that we arguably don't need. Government debt has always been about borrowing today to fund growth for tomorrow. However, that's not what we're actually doing at all. Much of our current debt is due to COVID stimulous, which was an incredibly exceptional event. Of course that was more to "keeping things going" than fund growth initiatives. That's not to say that debt was "bad" or that we shouldn't have done it, but that much of the debt we're taking on is not going to fund infrastructure, education, or health which are all things that have significant long term benefits to society. Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have. Since it is a political issue, it will be a football and a dog whistle. Cut programs for minorities from the right, and raise taxes on the rich from the left. While one party is likely to be more irresponsible with this than the other, it's still not going to go away because it's never supposed to. Government debt is all about the cost to borrow compared to growth. The challenge we're at is that the cost is no longer cheap and we haven't been truly focusing on growth as much as we should. Instead we've just had political distractions.

eigenspace 2y ago
> Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have. The USA's debt-to-GDP ratio has been increasing for a very long time. Every once in a while, GDP growth starts to overtake debt growth for a few years and then the debt load ratchets up further. So if the plan is to outgrow the debt, that doesn't appear to really be working so far.

WalterBright 2y ago

The end result of runaway debt will be one of: 1. the government repudiates the debt and the bonds become worthless (FDR did that partially with repudiating the gold bonds by forcibly replacing them with dollar bonds, and pocketing the difference in value). 2. simply print money to pay them off (aka Yellen's trillion dollar coin) Of course, there would be major consequences from these banana republic measures. I don't invest in T-bills because of these risks.

arunabha 2y ago
I'm curious as to what alternative you invest in. The received wisdom is that TBills are the closest to a 'risk free' investment on the planet. However, as you're pointing out, historically with increasing debt, some kind of debt repudiation(whether explicit or implicit) has always happened. The practical question becomes what is a safer alternative and perhaps more importantly, can we know that today.
- spqrr 2y ago
  Gold is less risky (in the counter party risk sense) so perhaps that.
- WalterBright 2y ago
  I invest in things that are not denoted in dollars, like stocks.
pfannkuchen 2y ago
(2) seems a million times more likely because currency supply increase is fairly obfuscated from its effects and the government can plausibly deny that it caused the resulting inflation. Canceling the debt outright would be far too honest.

deleted 2y ago

[deleted]

throw0101d 2y ago

Time magazine, March 1972, "Is the U.S. Going Broke?": * https://content.time.com/time/covers/0,16641,19720313,00.html https://content.time.com/time/covers/0,16641,19720313,00.htm... * https://time.com/archive/6639432/money-empty-pockets-on-a-trillion-dollars-a-year/ https://time.com/archive/6639432/money-empty-pockets-on-a-tr...

andrewjl 2y ago

Hard to reduce deficits substantially without much bigger policy changes: https://en.wikipedia.org/wiki/Triffin_dilemma https://en.wikipedia.org/wiki/Triffin_dilemma That said, Medicare and other entitlements is where my mind went too as I was reading. Negotiating drug prices is a good step in this direction by the current administration. https://www.usatoday.com/story/news/local/2024/08/16/10-prescription-drugs-to-be-cheaper-in-2026-after-biden-renegotiation/74828938007/ https://www.usatoday.com/story/news/local/2024/08/16/10-pres...

lkrubner 2y ago

The last few years have disproven this idea that we need to stop with debt spending. We just conducted a beautiful experiment: since 2020 the USA has had more deficit spending, more economic growth, and less inflation, than the EU, which has had less deficit spending, less growth, and more inflation. A government without debt would be like a business without debt: obviously wasting good opportunities, instead of pursuing them aggressively. But even that analogy is wrong, since a business has to make money to pay its debts, so a business does face some ultimate limit on how much debt it can take on. By contrast, the USA faces no such limit. We can always print as much money as we need to pay any debt. So long as we're willing to deal with the inflation, we can print as much money as we need. But realistically, with birth rates falling, the government will have to engage in more and more stimulus spending as time goes by. We used to be able to rely on population growth to be the real engine of the economy, but we no longer have that. So to keep the economy going in the future, we will have to rely on immigration and deficit spending. And there, too, the EU offers an important counter-point: the USA has had a much easier time integrating immigrants, in part because of our deficit spending. By contrast, the EU is seeing how difficult it is to integrate immigrants in a climate of austerity. The EU is close to stalling, in that it needs immigrants to prop up economic growth but it is not printing enough money to put the immigrants to work -- a stall which could lead to a vicious downward cycle. Meanwhile the USA has pulled in millions of immigrants and also printed enough money to put them to work, resulting in strong economic growth.

TrevorJ 2y ago
"The last few moments have disproven this idea that ships need to stop hitting icebergs. Now, dear guests on this great ship Titanic, let us go back to enjoying our dinners!" Timeframe matters a lot when you run an experiment.
- lkrubner 2y ago
  Your comment doesn't make any sense. If you want an analogy similar to the USA versus the EU, but involving boats, then you should say: "We just ran a beautiful experiment using the Titanic and the Californian: one sunk and one didn't. And what was the difference in their policy? One ran into an iceberg and one did not. Therefore, we can conclude that ships should not run into icebergs." We could also include that the Californian was wise to stop moving at night when it knew that icebergs were near.