6 ms·

Another way to look at that time series is that US debt as a percentage of GDP has doubled from 62% to 121% since 2007. https://fred.stlouisfed.org/series/GFDE

• derektank 2y ago
  My point is that our debt only grows unsustainably in response to severe crises (the great financial crisis, COVID). Our deficit is otherwise sustainable during "normal" times as our economy grows alongside it. We of course should want our debt to GDP ratio to be declining during periods of peace and prosperity (and it is evidence of political malfeasance that we haven't seen that happen since the late 90s). But our current spending is not a crisis in it's own right.
  • amrocha 2y ago
    Why should you care if the national debt goes up or down? Why is it bad if it goes up? Do you actually understand the underlying mechanics, or have you just built a lot of eloquent abstractions around the idea of “number go up is bad”?
    • derektank 2y ago
      I'm not an expert but I think I have a reasonable understanding of the situation. If the US debt to GDP ratio gets too high, purchasers of US Treasuries (bills, notes, and bonds) will lose confidence in the US government's ability to service that debt and demand a higher yield on US Treasuries at auction, which increases the cost of servicing the debt. At that point, the government has two choices; pay the higher yield which eventually results in fewer services/higher taxes and a contraction in the real economy, or to default on the debt which would result in very bad things happening (this is where I cop to ignorance on the scale and exact details of the badness). We should get ahead of that by reducing our services/raising taxes now so that we don't risk a loss of confidence that would restrict our ability to borrow in a time of crisis.
      • amrocha 2y ago
        Two things: 1. Nobody is losing confidence in the US over debt ratios. Japan’s debt ratio is over 300%, and they’ve had no issues with financing their spending or capital flight. This is a myth that has been proven false. 2. If the private market doesn’t want to purchase bonds, the central bank can do it. Either way, there is never a need to default on debt owed in your sovereign currency. This will never happen. The risk here is inflation, but that risk is always present, regardless of how spending is financed.
        • lossolo 2y ago
          This is false. 1. Japan is a net creditor nation, meaning it owns more foreign assets than it owes in debt. The U.S., on the other hand, is a net debtor nation, meaning it relies heavily on foreign investors to finance its deficits. Japan also has a high domestic savings rate, and a large portion of its debt is held by its own citizens and institutions. This reduces capital flight risks compared to the U.S., which depends more on foreign investors (e.g., China, Japan, and others buying U.S. Treasuries). The U.S. dollar is the world’s reserve currency, which gives the U.S. unique advantages, but also means its debt is held globally. A loss of confidence in U.S. debt could have larger consequences compared to Japan. 2. U.S. benefits from strong global demand for the dollar, but this is not guaranteed forever. If the Federal Reserve were to absorb all bond issuance ( basically monetizing the debt), inflation expectations would rise sharply, leading to a currency crisis or higher interest rates. Zimbabwe and Weimar Germany are extreme examples of this. U.S. essentially "exports" its debt due to its persistent trade deficits. U.S. runs large trade deficits, meaning it imports more goods than it exports. Other countries (like China and Japan) accept U.S. dollars in exchange for their goods, and then reinvest those dollars into U.S. assets, primarily Treasury bonds. This has helped finance U.S. debt at low interest rates for decades. If global confidence in U.S. debt declines, foreign demand for Treasuries could drop, leading to a weaker dollar, higher interest rates, and inflationary pressures. All of your comments in this thread are misleading.
          • amrocha 2y ago
            This creditor/debtor dichotomy is meaningless. It doesn’t change the fact that the debt is owed in dollars and can always be serviced. If foreign investors lose confidence in the US and sell off their treasuries, the central bank can just purchase them and nothing would change. In fact, that’s what Japan does, and that’s why they’re a net creditor. And no, this would not lead to inflation. Again, look at Japan for an empiric example.
    • aibot923 2y ago
      Higher relative debt = higher relative interest payments. Go high enough, interest payments consume the entire federal budget. There is no way out except revenue growth (infeasible without breakthrough productivity improvements), taxation, and printing money (equivalent to taxation). Before that point, other bad things happen such as creditors losing faith in the government, making debt more expensive and destabilizing the dollar's position as global reserve currency. Over the last few decades, debt has continued to rise as a percentage of the federal budget, and appears that trend will continue without drastic action.
      • amrocha 2y ago
        Barring massive political instability, nobody is ever going to lose confidence in the dollar, regardless of debt ratios. Japan has a debt ratio of over 300%, economists have been predicting a crash and capital flight for decades, but none of it has come to pass. At the end of the day, the Japanese market is huge and people want access to it. Same thing goes for the US. If the private market doesn’t want bonds, the central bank can purchase them. That’s not inflationary. What is inflationary is how the government then spends that money, but that’s true for any government spending, regardless of how it was financed. Either way, the debt ratios is literally meaningless.
        • mecsred 2y ago
          Hindsight is 20/20, so let's use it. How many times has the "too big to fail" hedge worked out favorably for everyone involved?
          • amrocha 2y ago
            There is no failing for a country with a sovereign currency. Fish can’t drown in the sea. A country is not a business.
            • mecsred 2y ago
              What do you mean "there's no failing for a country with a sovereign currency"? There are many, many examples of countries failing. Some of them had sovereign currencies. Sure they can't "run out of money" if they can print more. Along with many more examples of being able to adjust internal values and metrics. This is a very different thing from not being able to fail.
    • tanseydavid 2y ago
      >> Do you actually understand the underlying mechanics Do YOU actually understand the underlying mechanics? Your questions suggest that you do not.
  • nmilo 2y ago
    There’s a severe crisis every 10 years. Do you really want to be at a point where the next one topples us?
    • valiant55 2y ago
      Why not? That's the situation many Americans are living in, why not America itself?
  • thatguy0900 2y ago
    This doesn't make any sense. Crises planning should be a fundamental function of the government. Just exceptin that every crises puts us close to being ruined and eventually one will, but it's fine because with no crises were doing ok, is unacceptable
• kristjansson 2y ago
  2007 is a choice baseline… did something happen in 2008?
  • ec109685 2y ago
    Housing crisis, banks failing.