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Higher relative debt = higher relative interest payments. Go high enough, interest payments consume the entire federal budget. There is no way out except reven

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.
      - amrocha 2y ago
        I’ll be clearer. The failure mode that you’re talking about, where debt ratios are so high that a country isn’t able to service its debt, is economically speaking impossible. This isn’t “too big to fail”, it’s the system working as intended.
        mecsred 2y ago
        I'm not sure why you think that's what I'm talking about, because I never brought that up. In fact I agree with that point. The apparatus will never report a failure because it has an incentive not to. The whole system is built and described in a way to make failure seem impossible because confidence is necessary for it to work. But when numbers and reality don't match, reality wins.
        amrocha 2y ago
        That’s not what I said at all! There’s no failure being hidden, public deficits are a normal feature of fiat currencies.
        mecsred 2y ago
        Again, I'm not making any comment on the deficit. Literally never brought it up. I'm talking about people losing confidence in the dollar.
    - tanseydavid 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. So, a country is not a business but it is comparable to fish? Are you seriously claiming that there is no precedent?
- aibot923 2y ago
  The interest still needs to be paid. That requires revenue growth, taxes, or printing money. Taxes and printing money makes everyone poorer - the IOUs of yesterday coming due. Japan has had many challenges over the past few decades.
  - amrocha 2y ago
    Money creation is necessary in a healthy economy. It makes all of us richer when the government spends money on infrastructure.
    - tartuffe78 2y ago
      We're not spending money on infrastructure, we're spending it on entitlements.
- pcloadlett3r 2y ago
  > If the private market doesn't want bonds, the central bank can purchase them. That's not inflationary. Central bank buying bonds and increasing money supply absolutely is inflationary. That is precisely how FOMOs work, with the end goal being increasing or decreasing money supply depending on inflation and labour market. So if you already have stubborn inflation and you have a fiscal crisis then unmooring inflation expectations by lowering rates is exactly what you don't want to do (risk becoming a banana republic that inflates away it's debt). I don't think this will happen in the near future but it is absolutely a risk and you'd be foolish as a central banker not to consider it.

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.
    - amrocha 2y ago
      I’ll be clearer. The failure mode that you’re talking about, where debt ratios are so high that a country isn’t able to service its debt, is economically speaking impossible. This isn’t “too big to fail”, it’s the system working as intended.
      - mecsred 2y ago
        I'm not sure why you think that's what I'm talking about, because I never brought that up. In fact I agree with that point. The apparatus will never report a failure because it has an incentive not to. The whole system is built and described in a way to make failure seem impossible because confidence is necessary for it to work. But when numbers and reality don't match, reality wins.
        amrocha 2y ago
        That’s not what I said at all! There’s no failure being hidden, public deficits are a normal feature of fiat currencies.
        mecsred 2y ago
        Again, I'm not making any comment on the deficit. Literally never brought it up. I'm talking about people losing confidence in the dollar.
  - tanseydavid 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. So, a country is not a business but it is comparable to fish? Are you seriously claiming that there is no precedent?
aibot923 2y ago
The interest still needs to be paid. That requires revenue growth, taxes, or printing money. Taxes and printing money makes everyone poorer - the IOUs of yesterday coming due. Japan has had many challenges over the past few decades.
- amrocha 2y ago
  Money creation is necessary in a healthy economy. It makes all of us richer when the government spends money on infrastructure.
  - tartuffe78 2y ago
    We're not spending money on infrastructure, we're spending it on entitlements.
pcloadlett3r 2y ago
> If the private market doesn't want bonds, the central bank can purchase them. That's not inflationary. Central bank buying bonds and increasing money supply absolutely is inflationary. That is precisely how FOMOs work, with the end goal being increasing or decreasing money supply depending on inflation and labour market. So if you already have stubborn inflation and you have a fiscal crisis then unmooring inflation expectations by lowering rates is exactly what you don't want to do (risk becoming a banana republic that inflates away it's debt). I don't think this will happen in the near future but it is absolutely a risk and you'd be foolish as a central banker not to consider it.