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I don't see anyone mentioning that the United States needs to manage its massive national debt, currently in the trillions, by issuing Treasury securities. Thes

I don't see anyone mentioning that the United States needs to manage its massive national debt, currently in the trillions, by issuing Treasury securities. These securities mature at varying intervals and require continuous "rolling" or refinancing to pay off old debt with new borrowing. Significant rollovers are expected from April through September 2025, with additional short-term maturities due by June. Higher interest rates significantly complicate US' ability to refinance. The cost of servicing this debt — paying interest rather than reducing principal — is already a major budget item, surpassing Medicare, approaching Defense and Social Security levels. If rates don't come down soon it locks in higher costs for years. The country is at risk of a debt spiral. How can rates come down? The present uncertainty around tariffs and a potential crisis could create conditions that pressure interest rates downward before those Treasury securities mature, by influencing Federal Reserve policy. Treasuries are considered safe during such crisis. Increased demand for Treasuries pushes their prices up and yields down, effectively lowering interest rates. What are the flaws in this thinking?

sathackr 2y ago
"If the fed won't lower the interest rate I'll tank the economy until they do!"
zerreh50 2y ago
An economic crisis will reduce tax income though, reducing the ability of government to pay even if the interest is lower
- thworp 2y ago
  In the long term, yes. In the medium term, companies and people liquidating their assets and paying capital gains tax actually gives the state a windfall.
- WXLCKNO 2y ago
  If the goal of Putin is to destroy the US through illogical fiscal policies by means of using his Puppet, it all makes sense.
papercrane 2y ago
A plan like that could backfire, as one of the primary things that the Fed looks at when setting interest rates is inflation. Increasing the costs of imports across the board will likely increase inflation, which would make a rate cut less likely. But in general, I think this is too complicated. The simpler explanation for all this is the Executive branch is currently held by isolationist.
rthomas6 2y ago
The flaw I see is centered around this paragraph. > How can rates come down? The present uncertainty around tariffs and a potential crisis could create conditions that pressure interest rates downward before those Treasury securities mature, by influencing Federal Reserve policy. Rising prices due to tariffs won't pressure the Fed to lower interest rates. It will increase inflation and worries of inflation, which will actually pressure the Fed to RAISE interest rates. A slowing economy won't stop inflation... We are likely entering into a period of "stagflation". The way out last time was very high interest rates and short term economic hardship.
- timr 2y ago
  Prices rising due to tariffs isn't "inflation" in any traditional sense. It's not driven by consumer demand, and therefore the logic for raising rates (i.e. slowing economic growth by reducing money in the market) doesn't apply.
  - sandworm101 2y ago
    >> rising due to tariffs isn't "inflation" in any traditional sense. Perhaps not in an academic sense, but the vast majority of people understand inflation as a rise in the cost of living, no matter the root cause.
    - rayiner 2y ago
      Yes, but the point being made above is about the reaction of the bond market vis a vis refinancing the debt, not consumers.
      - mattnewton 2y ago
        You can’t isolate these things, the Fed’s charter is to try and reduce inflation for consumers not regulate the bond market for the US debt, but their interest rates and repo actions move the bond market.
  - ethbr1 2y ago
throw__away7391 2y ago
> What are the flaws in this thinking? -> Treasuries are considered safe during such crisis. Is that truly still the case? Does the world consider the US stable right now? I am astonished at how effectively the administration has blown up every pillar upholding the US economy, short, medium, and long term. The damage done here is incalculable. In all of human history never has so much wealth been destroyed so quickly.
- belter 2y ago
  > I am astonished at how effectively the administration has blown up every pillar upholding the US economy, short, medium, and long term. They are only 73 days In.... "France’s Macron Urges EU Companies to Pause US Investments" - https://www.bloomberg.com/news/articles/2025-04-03/france-s-macron-urges-companies-to-pause-us-investments https://www.bloomberg.com/news/articles/2025-04-03/france-s-...
- Propelloni 2y ago
  Doesn't anybody remember Liz Truss? She took only 45 days to almost sink the UK.
abvdasker 2y ago
If the Trump admin's goal were to reduce the national debt it would make way more sense to use fiscal policy (increase taxes) rather than some roundabout way to force the Fed's hand on monetary policy. The tariffs do basically function as a massive regressive tax increase in the form of a sales tax, but that comes with truly immense risks on the demand side of the economy. Guess what happens to tax revenue during a recession.
- TehCorwiz 2y ago
  There likely won't be any tax revenue. https://finance.yahoo.com/news/trump-wants-eliminate-income-taxes-120134965.html https://finance.yahoo.com/news/trump-wants-eliminate-income-...
  - throwway120385 2y ago
    I'll believe it when I see a bill pass the House. But this adminstration loves to make bold claims about what it's going to accomplish without gathering the necessary votes in the House, where it could most certainly push a bill through. News articles don't count.
  - Zamaamiro 2y ago
    Actually very unlikely unless Congress passes a bill.
- TaurenHunter 2y ago
  Trump is already increasing taxes (tariff is a tax on consumption of imported goods). A recession is inevitable if you need interest rates to go down.
  - Zamaamiro 2y ago
    ... while simultaneously adding trillions to the deficit to finance tax cuts for the rich.
pjc50 2y ago
Tariffs increase prices. This tends to cause a wage-price spiral, and indeed that's one of the stated objectives (increase US wages by onshoring manufacturing). The increase in prices and wages is inflation. This will cause the Treasury to raise rates to force contraction. Now, so far rates have indeed spiked downwards, but not a huge amount: https://tradingeconomics.com/united-states/government-bond-yield https://tradingeconomics.com/united-states/government-bond-y... The next consideration is: what is the budget actually going to look like? Is it going to cut spending and leave taxes where they are, resulting in debt paid down, or is it going to be a huge tax giveaway to the top few % while increasing the deficit? (personally I'd bet on the latter) Then the consideration: other players also get a move. What do the retaliatory tariffs look like? Does cutting off the ability of other countries to earn dollars negatively impact US exports? Devaluing the dollar against other currencies will also force up rates by the arbitrage principle. S&P down 4% so far today. Do we think that indicates the measures are good or bad for US industries?
- SideQuark 2y ago
  Tariffs don’t increase jobs. Pretty much all Econ lit shows it lowering jobs, the same way it did during Trump I term and same as Smoot Hawley. It also moves manufacturing offshore for the same reasons Harley Davidson moved them to Europe last time - expensive materials here means expensive goods. Next, since more expensive goods means less sales (see Ford last time), less is sold, so less workers are needed. Last Trump tariffs led to record farmer bankruptcies for a good economy, it led to ~300k manufacturing jobs loss compared to not having the tariffs, and MI had entered a manufacturing recession right before COVID hit. If tariffs did even a fraction of the good Trump claims, they be used extensively by every country, by every state, by every manufacturer, etc. Playing in a 21st century economy with long discredited 15th century tools will end as expected.
motorest 2y ago
> I don't see anyone mentioning that the United States needs to manage its massive national debt, currently in the trillions, by issuing Treasury securities. It's very hard to even assume that's a concern of the current US administration, based on not only the fundamentalist goal of radically cutting taxes and regulations, coupled with the fact that it's purposely pushing a recessive economic policy that defies any logic or reason. The very least that you'd expect is a progressive tax policy that didn't excluded corporations and mega-rich. You're not seeing any of that.
- Yeul 2y ago
  The whining about how social security payouts was going to sink America while at the same time handing out tax cuts for corporations hints at a ideologically driven agenda.
- kurthr 2y ago
  Put clowns in charge and you'll get a circus. Öküz saraya çıkınca kral olmaz. Ama saray ahır olur.
  - ben_w 2y ago
    > Öküz saraya çıkınca kral olmaz. Ama saray ahır olur. I like the saying, but why Turkish? It's known in English also.
    - kurthr 2y ago
      I'm sure it has a lot of sources, but it was popularized more recently as a mistranslated Circassian proverb, which caused a Turkish journalist to go to jail and then was picked up by various English news outlets.
  - oersted 2y ago
    Translation: When the ox goes to the palace, he does not become a king. But the palace becomes a barn.
  - leptoniscool 2y ago
kogus 2y ago
I agree with you. To just offer a counterpoint, I sometimes see quotes like this one: But plenty of economists looked at the economic hole left by the 2008 financial crisis, and concluded the stimulus policies on the table weren't nearly big enough to fill it. The size of the hole is all that matters. Whatever level of deficit spending is required to fill it is the right level of deficit spending.[1] or this one: We need the government to be out there borrowing money because of the long-term investments it's making in our economy[2] The line of reasoning seems to be 1) The government is special because it can go to extreme measures to repay loans if necessary (i.e., print more money or raise taxes) 2) The reliability of the government means that it can borrow at a low rate (say, 3%) and make investments that are worth far more than that (say, 10%). Put those together, and the government's borrowing amounts to a net benefit to society. This argument reminds me of the 'then a miracle occurs' comic [3]. It doesn't hold water because 1) The extreme measures are very harmful - they cause high inflation and hardship amongst taxpayers. 2) Even if we accept that government investment makes a good return (a highly questionable assertion), that return does not go to the government. If the government borrows money to build a new road, then there is no doubt some economic benefit, but the government does not receive that benefit, and they are on the hook for the repayment anyway. So government spending does represent a pure cost - not an "investment". And in any case, interest payments represent investment that can no longer happen. I would also point out that back when we ran briefly ran a surplus in the late 1990s, economists were not exclaiming about how terrible this was, or how paying off the debt represented a missed opportunity or a catastophe in the making. Everyone agreed at that time that surpluses were good, and that paying down the debt was good. The current "this is fine" thinking smacks of economists who have a predisposition to accept and justify the status quo, whether it is objectively good or not. So all of that is to say that I'm with you - government debt is bad. We are in danger of some combination of insolvency, default, or very high inflation. And once we enter that spiral it will be impossible to get out of it without permanent damage to the economy and the global standing of the US (such as it is). [1] https://theweek.com/articles/618419/why-americas-gigantic-national-debt-good-thing https://theweek.com/articles/618419/why-americas-gigantic-na... [2] https://markets.businessinsider.com/news/bonds/us-debt-economy-outlook-government-spending-deficit-bond-market-treasuries-2023-9?op=1 https://markets.businessinsider.com/news/bonds/us-debt-econo... [3] https://duckduckgo.com/?q=Sidney+Harris+comic+miracle+occurs&iax=images&ia=images https://duckduckgo.com/?q=Sidney+Harris+comic+miracle+occurs...
TomK32 2y ago
How about a higher income tax or 1% wealth tax?
- sroussey 2y ago
  Wealth tax is a nice idea but non-starter in implementation. It works in real estate (property taxes are wealth taxes) because the land can’t move. One way to tax the super rich is to tax loans against assets. They don’t sell assets to buy a yacht, but borrow against them to avoid paying taxes and keep future gains. Tax those loans as if they sold assets.
  - ElevenLathe 2y ago
    We're clearly throwing all pre-Trump orthodoxy out the window at this point, so maybe we'll see PRC-style capital controls, though with essentially no white collar crime being prosecuted for the foreseeable future, enforcement might be tough. OTOH the threat of being "deported" to El Salvador can be a powerful motivator to stay in line.
no_wizard 2y ago
I know there is a crowd that talks about debt alot and these are all legitimate concerns However they could also raise taxes on capital gains and top end income brackets - which are at ludicrously low levels for folks of significant wealth - which would go a very long way here. Some estimates suggest it could put the US back in a surplus quite quickly edit: I'm saying there is an argument for raising taxes. I don't think its off the table like some people suggest. I know it may not be popular with some but we could discuss the merits. Cutting fundamental government services feels wrong too
- generalpf 2y ago
  It's been argued a lot that such a move would cause a good portion of American billionaires to just pack up and move to another country. Rich people are mobile in a way that poor people are not.
  - pjc50 2y ago
    The US is unique in levying taxes on its nationals wherever they are in the world. Although you've just made an argument for capital controls. We could call them "dollar export tariffs".
    - Yeul 2y ago
      Believe it or not but there are Americans who relinquish their passport precisely because of this reason. Patriotism is automatically assumed but we live in a globalised world.
      - axus 2y ago
        That seems very likely, but I'd like the names of a few billionaires to verify.
      - AlotOfReading 2y ago
        The US is fairly unique in imposing an "expatriation" tax precisely to avoid this situation. The IRS taxes all of their assets as if sold on the day before expatriation. Of course collecting taxes internationally is difficult, but anyone wealthy enough to meet the criteria will probably need to visit the US at some point.
wat10000 2y ago
The flaw is that it's like setting your house on fire because it's cold outside. It may well achieve your goal in the short term, but it won't last, and it's just going to make things much worse in the longer term.
- robertlagrant 2y ago
  I don't think it's helpful to reply to a specific, well-phrased question with a general analogy. Why is it like that? It's like when the media would interview Robert de Niro on Trump, and all he would say is variants of "Well, he's an asshole!"
  - wat10000 2y ago
    It is like that indeed. It should be apparent to anyone who has listened to Trump that he is indeed a conplete asshole. There shouldn’t be any need to go into details. Likewise, it should be apparent to anyone with a cursory understanding of economics that tariffs are bad for the economy, and imposing mindless tariffs on the entire world is really bad for the economy. “Crash the economy to address the national debt” is a bad plan.
    - robertlagrant 2y ago
      > Likewise, it should be apparent to anyone with a cursory understanding of economics Can you explain why countries have tariffs if tariffs are bad for their economies as a general principle? I'm assuming you're not the standard sort who thinks Trump invented tariffs.
      - wat10000 2y ago
        Because people largely believe what they want to believe, and people are flawed, especially politicians. Is that sufficient or do I need to go into detail? Trump didn’t invent tariffs nor did he invent being an idiotic leader enacting policies that hurt his country.
      - ipaddr 2y ago
boringg 2y ago
Many critical flaws. Your getting lost confusing the forest for the trees. For starters you are focusing on the % on the interest payments which is a line item. However when all of your allies stop buying your goods and services you run into bigger problems. Bonus problem: If one of your internal metrics is that you want to have a trade deficit but nobody to sell to because you have created a hostile environment for trade.
- locallost 2y ago
  Not all of your allies, EVERYBODY.
misja111 2y ago
The flaw is that the USD is massively dropping because of the tarifs. This will push up interest rates on US bonds, because bond holders want compensation for the value loss of their bond.
- lxgr 2y ago
  > The flaw is that the USD is massively dropping because of the tarifs. That's all but certain. Currently it's dropping, but long-term it might as well rise, as the demand for foreign currencies from US importers (and by extension consumers) will go down. > This will push up interest rates on US bonds, because bond holders want compensation for the value loss of their bond. How do existing bondholders get to demand anything? They may want compensation for a reduced market value, but nobody owes them that. Fluctuating market values are part of the deal of buying bonds.
  - misja111 2y ago
    Existing bondholders can't demand anything of course. But the bond price is determined by buyers and sellers. With dropping USD, buyers will pay a lower price for the bonds, i.e. the yield will go up.
    - lxgr 2y ago
      Your model is missing the Fed, which can buy an almost infinite number of bonds to bring the effective interest rate down to whatever it wants.
      - misja111 2y ago
        You mean, by printing money. Well, if they would do that, the USD would sink even more and thus also the US bonds.
alabastervlog 2y ago
I don't see any way the actions we've already seen haven't moved up drastic action on the US debt by at least a decade. And it's only been a very-few months. We were probably screwed when we cut taxes going into two crushingly-expensive wars, and certainly were when we cut taxes again, but now we're rushing toward crisis instead of trying to at least delay it.
tim333 2y ago
>The country is at risk of a debt spiral. The US owes US dollars and can also issue US dollars. There are complications but it's not like you run up a credit card and can't pay.
- greenavocado 2y ago
  Exactly. The Zimbabwe model
  - ben_w 2y ago
    Can totally happen when the people in charge are economically illiterate and surrounded by sycophants or crooks (I'm not sure which Mugabe was), demanding a wealth transfer that can't be funded by the actual economy. Inflation can also happen when production goes down, not just when money supply goes up. Now I don't claim to be an expert at economics, I'm just a software nerd like most here and may be wrong so take with a pinch of salt, but the things I've heard that are associated with stagflation include de-globalisation and supply chain shocks (e.g. a trade war with major partners), tariffs, and shrinking labor force (aging population not helped by a combination of low immigration and aggressive deportation).
    - greenavocado 2y ago
      To even begin to understand Mugabe you have to understand his very long and strong relationship with the Chinese military and the reasons why they invested so heavily in his posse.
- TaurenHunter 2y ago
  Yes, but if they let get into a debt spiral, the only solution becomes devaluation of the dollar to the point of hyperinflation. Only then debt is reduced, but it would be terrible for everybody except a few.
  - robertlagrant 2y ago
    Devaluing the dollar would do wonders for post-tariff prices, and prop up exports. I say it in jest, but I can't spot the problem with it because I'm not an economist.
scotty79 2y ago
> Treasuries are considered safe during such crisis. No. Not during such crisis. It's already visible in prices of traditional safe havens (those based on US credibility) that this crisis isn't like the others. They are dropping like flies. Only gold remains.
nzealand 2y ago
> the United States needs to manage its massive national debt, > The present uncertainty around tariffs and a potential crisis could create conditions that pressure interest rates downward before those Treasury securities mature, by influencing Federal Reserve policy. > What are the flaws in this thinking? Flaw #1: Massive treasury rollovers isn't new. 22% of all Treasuries have a duration of 1 year or less. The only new thing is that rates have gone up. Uncertainty is a short term solution to a long term problem. Flaw #2: Economic uncertainty and supply side shocks risks a recession. Recessions usually increase national debt. Flaw #3: The right answer to reducing national debt is to ensure incomes exceed outgoings. The current administration is so focused on extending trillion dollar tax cuts, no amount of tariffs or government efficiency is going to lower the national debt. Flaw #4: Treasuries only really go down during a recession. Recessions are bad, not good. If you think finding a tech job is hard now, or that your RSUs are hurting, wait until you see a serious recession.
- leptoniscool 2y ago
  it's true.. the S&P 500 declined ~57% from Oct 2007 to Mar 2009
lenerdenator 2y ago
> I don't see anyone mentioning that the United States needs to manage its massive national debt, currently in the trillions, by issuing Treasury securities. These securities mature at varying intervals and require continuous "rolling" or refinancing to pay off old debt with new borrowing. No one is mentioning this because no one cares, least of all the guy who just signed massive tariffs. What you're describing is the end result of 30-ish years of Republicans implementing "Read my lips: no new taxes" and this country refusing to have to a mature conversation about revenues. Also, over that period, wages remained stagnant, meaning more people look to the government for assistance, which then costs money in the form of deficit spending. The numerous expensive wars didn't help, either. There's no good fix to this other than some serious revenue raising through taxes on people who can afford it. Of course, those people are of the opinion that they're entitled to net worths that measure as a significant portion of a trillion dollars, and will simply push the costs onto consumers in order to maintain share prices since that's what most of the net worth sits in. You have to break those people of that idea. Talk of interest rates, Treasury securities, Federal Reserve policy, it's all just noise. The money going in must be a larger portion of the money going out, and significantly burdening the average American with more tax debt isn't going to solve the problem before causing social upheaval.
- myroon5 2y ago
  > revenue raising through taxes on people who can afford it. Of course, those people are of the opinion that they're entitled to net worths that measure as a significant portion of a trillion dollars millionaires collectively have more than an order of magnitude more wealth than all billionaires: https://forum.effectivealtruism.org/posts/4zjnFxGWYkEF4nqMi/how-could-we-have-avoided-this?commentId=cy8TPNhMetsvaEpoC https://forum.effectivealtruism.org/posts/4zjnFxGWYkEF4nqMi/...
svara 2y ago
The trade deficit is balanced by USD flows, which are ultimately reinvested with leverage into American capital markets. In many ways the US trade deficit combined with the USD reserve currency status is thus what enables the high budget deficit in the first place.
- skeeter2020 2y ago
  this SHOULD be really obvious to those in charge, but I think is too subtle for them, or they're willfully ignoring it for the "trade deficit" narrative. I don't see how the end result is not a decline in the global role of the US and a whole bunch of pain for everybody as this all unwinds. All for the hubris of an old man...
ck2 2y ago
The F-35 jet will cost over $1.5 Trillion, doesn't work and won't be used Cancel it and stop making everyone's daily life absolute hell by doubling the prices of groceries, car payments, etc. every month National Debt is not a problem for a country that will be around for 1000+ years unless you know of something that is going to greatly shorten that. There are nearly 1,000 BILLIONAIRES in the US, the debt is their problem, they can pay more taxes until it's down to a number you like.
- kacesensitive 2y ago
  A progressive wealth tax starting at 2% on net worth from $50 million to $250 million and increasing to 8% for wealth over $10 billion is projected to raise $4.35 trillion over 10 years. Seems like a great start to me. Alas, I'll never understand people who make average wages defending billionaire wealth hoarding.
- ge96 2y ago
  > doesn't work I don't understand, they're being flown all over
- dingaling 2y ago
  > The F-35 jet will cost over $1.5 Trillion, doesn't work and won't be used Over 1,100 of them have been built so far and they seem to be working quite well.
- mrguyorama 2y ago
  >The F-35 jet will cost over $1.5 Trillion, doesn't work and won't be used You've bought literal Russian propaganda hook, line, and sinker. The F35 is an incredible piece of technology. Do you remember infamous articles saying it couldn't dogfight? Not only were those stupid propaganda (you can't dogfight at 100km engagement ranges), all the people repeating them seemed to miss the comment by the older aircraft pilot that the radar assisted gunsight on their gen 4 fighter could not track the F35!, not even at knife fighting range. Go lookup how good gunnery was in WW2 if you want to understand how hilariously bad that is for gen 4 fighters. The F35 is pricey to run, $40k an hour, but so was the F14, which is correctly understood to be a high tech masterpiece, a tech platform, and one of the best aircraft ever made. We've already built 1000s of them, and they are already being used today. Israel's attack on Iran that showed just how impotent soviet era air defenses are was conducted with f35s. "Israel used more than 100 aircraft, carrying fewer than 100 munitions, and with no aircraft getting within 100 miles of the target in the first wave, and that took down nearly the entirety of Iran's air-defense system," It's a very impressive machine, that everyone wants, and China is really rushing to build something competitive. >There are nearly 1,000 BILLIONAIRES in the US, the debt is their problem, they can pay more taxes until it's down to a number you like. 150% correct. The USA is stupidly wealthy on the world stage. We don't have to play pretend poverty, if we would tax the people who have hoarded all that wealth.
pyrale 2y ago
> Increased demand for Treasuries pushes their prices up and yields down, effectively lowering interest rates. > What are the flaws in this thinking? Not sure why international investors would want to buy more t-bonds when the country issuing them is starting a trade war and their money could effectively be locked abroad.
comte7092 2y ago
>Treasuries are considered safe during such crisis. This isn’t a law of nature. The behavior the admin is displaying is exactly the type of thing that leads to your statement not being true anymore.
jagjit 2y ago
One thing I am not sure about is how much reluctance foreign holders of US treasuries will have to buy more treasuries. My guess is both foreign government and commercial holdings will edge down quite a bit, even without any reciprocal activity. Just because they will have reduced US reserves, and in effect need for treasuries. God knows what happens if reciprocal activity starts towards using another currency also for global trade.
bhouston 2y ago
Trump is a wildcard, but I could see the US defaulting on its debt, probably in some way that focuses the default burden on foreign countries holding US debt with some relief for domestic holders. I would definitely not be holding it over the coming few years.
- SideQuark 2y ago
  Defaulting on the US debt would send the US into hyperinflation and likely the end of the US. The US sells debt to US and world investors, at good rates (a few percent), and continually rolls over past debt with new issues. The US spends around 11% of budget on interest on this debt. A default means the world stops lending at low rates. Triple rates triples the interest payments to 33% of the budget. There’s no possible way the govt will collect that much more, especially as the economy craters, and no group would likely cut all the benefits, since they’d simply get in-elected. So we’d do what countless other countries did throughout history: we’d print money to pay the bills. Of course this devalues each dollar, so this accelerates, and there would be a massive implosion as the US gets cannibalized by whomever can extract value the quickest. Default would be incredibly bad.
niklasbuschmann 2y ago
This is just delusional. Everybody is looking for some reason that makes this less stupid than it looks, but there is none. Intentionally causing a recession to lower the debt burden makes no sense, neither politically nor economically. Besides that the US is not some third world country that issues debt in a currency they have no sovereignty over.
regularization 2y ago
> The cost of servicing this debt — paying interest rather than reducing principal — is already a major budget item, surpassing Medicare, approaching Defense and Social Security levels. Military ("defense") expenditures are always understated. Over $180 billion in veteran's benefits were paid last year. This is not counted as military expenditures. Also the debt you talk about is to not only pay for the money sent to Israel and the Ukraine last year, but still for the adventures in Afghanistan, Iraq etc. That just becomes generic debt in the skewed analysis, alienated from its past military adventures. The military budget is higher than stated.
partiallypro 2y ago
Tax receipts drop during recessions, generally governments have to issue even -more- debt during them.
hnthrowaway0315 2y ago
The key, IMHO, is to maintain the status quo of the USD as the safe haven which also has the ability to destroy other safe havens. As long as the USD is the primary safe have the amount of debt is irrelevant.
DrNosferatu 2y ago
» The country is at risk of a debt spiral. This is impossible by definition: The U.S. dollar is the world's dominant reserve currency.
- svachalek 2y ago
  And as history shows, printing money is a super fantastic way to get out of debt spirals. [Narrator voice: No, it's not.]
  - DrNosferatu 2y ago
    The "printing money" quip misunderstands how modern monetary systems operate. The Fed doesn't just "print money" - it has only two real tools: buying and selling assets, and raising/lowering interest rates.
  - DrNosferatu 2y ago
    Instead of throwing around historically illiterate analogies, let's talk about the real issues: What are the actual inflationary risks right now given the state of the economy? What are the costs of not spending (i.e., austerity)? Because history also shows – very clearly – that austerity imposed due to debt panic in countries that could have afforded to spend is often way more damaging than the debt itself.
tootie 2y ago
Fed rate influences treasury rates, but it's not a direct impact. If creditors lose faith in our fiscal situation, rates will rise no matter what the Fed does.
mywittyname 2y ago
> What are the flaws in this thinking? That the national debt matters. A) The Fed & Treasury have the ability to buy back the securities at any time if they wanted, since they can basically poof the currency into existence. And t-bonds are as good as cash anyways, so that money is basically already in the economy. B) The country's national debt is also our citizens' savings accounts. Every major company in the country (and the gov't itself) holds an absurd amount of t-bonds because its the best place to store billions of dollars for safe keeping. Paying off the debt means this capital needs to go somewhere. Should it go to China? The EU? Canada? American real estate? The national debt is probably the most misunderstood concept in the country. It's denominated in USD, unlike other countries, whose debt is borrowed in currencies they don't control. And "paying off" the national debt risks capital flight and/or asset bubbles - both of which are detrimental to the economy. The system we have in place is a good one. Thought experiment: consider what would happen if the US Treasury decided interest rates are negative. That is, you pay $10,000 for a bond and receive back $9,900 after 10 years. What do you think this would do to the economy? Now ratchet up that negative rate to 100%, that is, you pay $10k for a t-bond and eventually it's worth $0 after 10 years. That's pretty much what paying off the national debt would do (in fact, that's probably how the national debt would be paid off, if ordered to do so, the fed would purchase these bonds and the treasury would use the proceeds to buy existing bonds off the open market). It's two sides to the same coin, but instead of prohibiting the purchase of t-bonds, you just disincentivize it.
- jay_kyburz 2y ago
  All I know about this issue is what you wrote above, but it sounds to me like the US taxpayer is paying interest on bonds so that bond holders can earn interest. I think its perfectly reasonable for the taxpayer to say they would rather not pay interest on those loans. The bond holder could lend the money somebody else instead. In fact, I think its really unfair that one generation of people can leave debt behind for future generations to pay with higher taxes.
dughnut 2y ago
I think what’s happening backstage in this magic show are desperate moves to recapitalize the country. Foreign and domestic investors are pledging to spend trillions, probably under duress. Stocks are being crashed to create a flight to treasuries. Dollars are partially anchored to crypto by so-called stable coins. Federal assets are getting dumped and operating costs cut. Maybe we will get out of this without having to survive on cat food, but I’m not holding my breath.

sathackr 2y ago

"If the fed won't lower the interest rate I'll tank the economy until they do!"

zerreh50 2y ago

An economic crisis will reduce tax income though, reducing the ability of government to pay even if the interest is lower

thworp 2y ago
In the long term, yes. In the medium term, companies and people liquidating their assets and paying capital gains tax actually gives the state a windfall.
WXLCKNO 2y ago
If the goal of Putin is to destroy the US through illogical fiscal policies by means of using his Puppet, it all makes sense.

papercrane 2y ago

A plan like that could backfire, as one of the primary things that the Fed looks at when setting interest rates is inflation. Increasing the costs of imports across the board will likely increase inflation, which would make a rate cut less likely. But in general, I think this is too complicated. The simpler explanation for all this is the Executive branch is currently held by isolationist.

rthomas6 2y ago

The flaw I see is centered around this paragraph. > How can rates come down? The present uncertainty around tariffs and a potential crisis could create conditions that pressure interest rates downward before those Treasury securities mature, by influencing Federal Reserve policy. Rising prices due to tariffs won't pressure the Fed to lower interest rates. It will increase inflation and worries of inflation, which will actually pressure the Fed to RAISE interest rates. A slowing economy won't stop inflation... We are likely entering into a period of "stagflation". The way out last time was very high interest rates and short term economic hardship.

timr 2y ago
Prices rising due to tariffs isn't "inflation" in any traditional sense. It's not driven by consumer demand, and therefore the logic for raising rates (i.e. slowing economic growth by reducing money in the market) doesn't apply.
- sandworm101 2y ago
  >> rising due to tariffs isn't "inflation" in any traditional sense. Perhaps not in an academic sense, but the vast majority of people understand inflation as a rise in the cost of living, no matter the root cause.
  - rayiner 2y ago
    Yes, but the point being made above is about the reaction of the bond market vis a vis refinancing the debt, not consumers.
    - mattnewton 2y ago
      You can’t isolate these things, the Fed’s charter is to try and reduce inflation for consumers not regulate the bond market for the US debt, but their interest rates and repo actions move the bond market.
- ethbr1 2y ago

throw__away7391 2y ago

> What are the flaws in this thinking? -> Treasuries are considered safe during such crisis. Is that truly still the case? Does the world consider the US stable right now? I am astonished at how effectively the administration has blown up every pillar upholding the US economy, short, medium, and long term. The damage done here is incalculable. In all of human history never has so much wealth been destroyed so quickly.

belter 2y ago
> I am astonished at how effectively the administration has blown up every pillar upholding the US economy, short, medium, and long term. They are only 73 days In.... "France’s Macron Urges EU Companies to Pause US Investments" - https://www.bloomberg.com/news/articles/2025-04-03/france-s-macron-urges-companies-to-pause-us-investments https://www.bloomberg.com/news/articles/2025-04-03/france-s-...
Propelloni 2y ago
Doesn't anybody remember Liz Truss? She took only 45 days to almost sink the UK.

abvdasker 2y ago

If the Trump admin's goal were to reduce the national debt it would make way more sense to use fiscal policy (increase taxes) rather than some roundabout way to force the Fed's hand on monetary policy. The tariffs do basically function as a massive regressive tax increase in the form of a sales tax, but that comes with truly immense risks on the demand side of the economy. Guess what happens to tax revenue during a recession.

TehCorwiz 2y ago
There likely won't be any tax revenue. https://finance.yahoo.com/news/trump-wants-eliminate-income-taxes-120134965.html https://finance.yahoo.com/news/trump-wants-eliminate-income-...
- throwway120385 2y ago
  I'll believe it when I see a bill pass the House. But this adminstration loves to make bold claims about what it's going to accomplish without gathering the necessary votes in the House, where it could most certainly push a bill through. News articles don't count.
- Zamaamiro 2y ago
  Actually very unlikely unless Congress passes a bill.
TaurenHunter 2y ago
Trump is already increasing taxes (tariff is a tax on consumption of imported goods). A recession is inevitable if you need interest rates to go down.
- Zamaamiro 2y ago
  ... while simultaneously adding trillions to the deficit to finance tax cuts for the rich.

pjc50 2y ago

Tariffs increase prices. This tends to cause a wage-price spiral, and indeed that's one of the stated objectives (increase US wages by onshoring manufacturing). The increase in prices and wages is inflation. This will cause the Treasury to raise rates to force contraction. Now, so far rates have indeed spiked downwards, but not a huge amount: https://tradingeconomics.com/united-states/government-bond-yield https://tradingeconomics.com/united-states/government-bond-y... The next consideration is: what is the budget actually going to look like? Is it going to cut spending and leave taxes where they are, resulting in debt paid down, or is it going to be a huge tax giveaway to the top few % while increasing the deficit? (personally I'd bet on the latter) Then the consideration: other players also get a move. What do the retaliatory tariffs look like? Does cutting off the ability of other countries to earn dollars negatively impact US exports? Devaluing the dollar against other currencies will also force up rates by the arbitrage principle. S&P down 4% so far today. Do we think that indicates the measures are good or bad for US industries?

SideQuark 2y ago
Tariffs don’t increase jobs. Pretty much all Econ lit shows it lowering jobs, the same way it did during Trump I term and same as Smoot Hawley. It also moves manufacturing offshore for the same reasons Harley Davidson moved them to Europe last time - expensive materials here means expensive goods. Next, since more expensive goods means less sales (see Ford last time), less is sold, so less workers are needed. Last Trump tariffs led to record farmer bankruptcies for a good economy, it led to ~300k manufacturing jobs loss compared to not having the tariffs, and MI had entered a manufacturing recession right before COVID hit. If tariffs did even a fraction of the good Trump claims, they be used extensively by every country, by every state, by every manufacturer, etc. Playing in a 21st century economy with long discredited 15th century tools will end as expected.

motorest 2y ago

> I don't see anyone mentioning that the United States needs to manage its massive national debt, currently in the trillions, by issuing Treasury securities. It's very hard to even assume that's a concern of the current US administration, based on not only the fundamentalist goal of radically cutting taxes and regulations, coupled with the fact that it's purposely pushing a recessive economic policy that defies any logic or reason. The very least that you'd expect is a progressive tax policy that didn't excluded corporations and mega-rich. You're not seeing any of that.

Yeul 2y ago
The whining about how social security payouts was going to sink America while at the same time handing out tax cuts for corporations hints at a ideologically driven agenda.
kurthr 2y ago
Put clowns in charge and you'll get a circus. Öküz saraya çıkınca kral olmaz. Ama saray ahır olur.
- ben_w 2y ago
  > Öküz saraya çıkınca kral olmaz. Ama saray ahır olur. I like the saying, but why Turkish? It's known in English also.
  - kurthr 2y ago
    I'm sure it has a lot of sources, but it was popularized more recently as a mistranslated Circassian proverb, which caused a Turkish journalist to go to jail and then was picked up by various English news outlets.
- oersted 2y ago
  Translation: When the ox goes to the palace, he does not become a king. But the palace becomes a barn.
- leptoniscool 2y ago

kogus 2y ago

I agree with you. To just offer a counterpoint, I sometimes see quotes like this one: But plenty of economists looked at the economic hole left by the 2008 financial crisis, and concluded the stimulus policies on the table weren't nearly big enough to fill it. The size of the hole is all that matters. Whatever level of deficit spending is required to fill it is the right level of deficit spending.[1] or this one: We need the government to be out there borrowing money because of the long-term investments it's making in our economy[2] The line of reasoning seems to be 1) The government is special because it can go to extreme measures to repay loans if necessary (i.e., print more money or raise taxes) 2) The reliability of the government means that it can borrow at a low rate (say, 3%) and make investments that are worth far more than that (say, 10%). Put those together, and the government's borrowing amounts to a net benefit to society. This argument reminds me of the 'then a miracle occurs' comic [3]. It doesn't hold water because 1) The extreme measures are very harmful - they cause high inflation and hardship amongst taxpayers. 2) Even if we accept that government investment makes a good return (a highly questionable assertion), that return does not go to the government. If the government borrows money to build a new road, then there is no doubt some economic benefit, but the government does not receive that benefit, and they are on the hook for the repayment anyway. So government spending does represent a pure cost - not an "investment". And in any case, interest payments represent investment that can no longer happen. I would also point out that back when we ran briefly ran a surplus in the late 1990s, economists were not exclaiming about how terrible this was, or how paying off the debt represented a missed opportunity or a catastophe in the making. Everyone agreed at that time that surpluses were good, and that paying down the debt was good. The current "this is fine" thinking smacks of economists who have a predisposition to accept and justify the status quo, whether it is objectively good or not. So all of that is to say that I'm with you - government debt is bad. We are in danger of some combination of insolvency, default, or very high inflation. And once we enter that spiral it will be impossible to get out of it without permanent damage to the economy and the global standing of the US (such as it is). [1] https://theweek.com/articles/618419/why-americas-gigantic-national-debt-good-thing https://theweek.com/articles/618419/why-americas-gigantic-na... [2] https://markets.businessinsider.com/news/bonds/us-debt-economy-outlook-government-spending-deficit-bond-market-treasuries-2023-9?op=1 https://markets.businessinsider.com/news/bonds/us-debt-econo... [3] https://duckduckgo.com/?q=Sidney+Harris+comic+miracle+occurs&iax=images&ia=images https://duckduckgo.com/?q=Sidney+Harris+comic+miracle+occurs...

TomK32 2y ago

How about a higher income tax or 1% wealth tax?

sroussey 2y ago
Wealth tax is a nice idea but non-starter in implementation. It works in real estate (property taxes are wealth taxes) because the land can’t move. One way to tax the super rich is to tax loans against assets. They don’t sell assets to buy a yacht, but borrow against them to avoid paying taxes and keep future gains. Tax those loans as if they sold assets.
- ElevenLathe 2y ago
  We're clearly throwing all pre-Trump orthodoxy out the window at this point, so maybe we'll see PRC-style capital controls, though with essentially no white collar crime being prosecuted for the foreseeable future, enforcement might be tough. OTOH the threat of being "deported" to El Salvador can be a powerful motivator to stay in line.

no_wizard 2y ago

I know there is a crowd that talks about debt alot and these are all legitimate concerns However they could also raise taxes on capital gains and top end income brackets - which are at ludicrously low levels for folks of significant wealth - which would go a very long way here. Some estimates suggest it could put the US back in a surplus quite quickly edit: I'm saying there is an argument for raising taxes. I don't think its off the table like some people suggest. I know it may not be popular with some but we could discuss the merits. Cutting fundamental government services feels wrong too

generalpf 2y ago
It's been argued a lot that such a move would cause a good portion of American billionaires to just pack up and move to another country. Rich people are mobile in a way that poor people are not.
- pjc50 2y ago
  The US is unique in levying taxes on its nationals wherever they are in the world. Although you've just made an argument for capital controls. We could call them "dollar export tariffs".
  - Yeul 2y ago
    Believe it or not but there are Americans who relinquish their passport precisely because of this reason. Patriotism is automatically assumed but we live in a globalised world.
    - axus 2y ago
      That seems very likely, but I'd like the names of a few billionaires to verify.
    - AlotOfReading 2y ago
      The US is fairly unique in imposing an "expatriation" tax precisely to avoid this situation. The IRS taxes all of their assets as if sold on the day before expatriation. Of course collecting taxes internationally is difficult, but anyone wealthy enough to meet the criteria will probably need to visit the US at some point.

wat10000 2y ago

The flaw is that it's like setting your house on fire because it's cold outside. It may well achieve your goal in the short term, but it won't last, and it's just going to make things much worse in the longer term.

robertlagrant 2y ago
I don't think it's helpful to reply to a specific, well-phrased question with a general analogy. Why is it like that? It's like when the media would interview Robert de Niro on Trump, and all he would say is variants of "Well, he's an asshole!"
- wat10000 2y ago
  It is like that indeed. It should be apparent to anyone who has listened to Trump that he is indeed a conplete asshole. There shouldn’t be any need to go into details. Likewise, it should be apparent to anyone with a cursory understanding of economics that tariffs are bad for the economy, and imposing mindless tariffs on the entire world is really bad for the economy. “Crash the economy to address the national debt” is a bad plan.
  - robertlagrant 2y ago
    > Likewise, it should be apparent to anyone with a cursory understanding of economics Can you explain why countries have tariffs if tariffs are bad for their economies as a general principle? I'm assuming you're not the standard sort who thinks Trump invented tariffs.
    - wat10000 2y ago
      Because people largely believe what they want to believe, and people are flawed, especially politicians. Is that sufficient or do I need to go into detail? Trump didn’t invent tariffs nor did he invent being an idiotic leader enacting policies that hurt his country.
    - ipaddr 2y ago

boringg 2y ago

Many critical flaws. Your getting lost confusing the forest for the trees. For starters you are focusing on the % on the interest payments which is a line item. However when all of your allies stop buying your goods and services you run into bigger problems. Bonus problem: If one of your internal metrics is that you want to have a trade deficit but nobody to sell to because you have created a hostile environment for trade.

locallost 2y ago
Not all of your allies, EVERYBODY.

misja111 2y ago

The flaw is that the USD is massively dropping because of the tarifs. This will push up interest rates on US bonds, because bond holders want compensation for the value loss of their bond.

lxgr 2y ago
> The flaw is that the USD is massively dropping because of the tarifs. That's all but certain. Currently it's dropping, but long-term it might as well rise, as the demand for foreign currencies from US importers (and by extension consumers) will go down. > This will push up interest rates on US bonds, because bond holders want compensation for the value loss of their bond. How do existing bondholders get to demand anything? They may want compensation for a reduced market value, but nobody owes them that. Fluctuating market values are part of the deal of buying bonds.
- misja111 2y ago
  Existing bondholders can't demand anything of course. But the bond price is determined by buyers and sellers. With dropping USD, buyers will pay a lower price for the bonds, i.e. the yield will go up.
  - lxgr 2y ago
    Your model is missing the Fed, which can buy an almost infinite number of bonds to bring the effective interest rate down to whatever it wants.
    - misja111 2y ago
      You mean, by printing money. Well, if they would do that, the USD would sink even more and thus also the US bonds.

alabastervlog 2y ago

I don't see any way the actions we've already seen haven't moved up drastic action on the US debt by at least a decade. And it's only been a very-few months. We were probably screwed when we cut taxes going into two crushingly-expensive wars, and certainly were when we cut taxes again, but now we're rushing toward crisis instead of trying to at least delay it.

tim333 2y ago

>The country is at risk of a debt spiral. The US owes US dollars and can also issue US dollars. There are complications but it's not like you run up a credit card and can't pay.

greenavocado 2y ago
Exactly. The Zimbabwe model
- ben_w 2y ago
  Can totally happen when the people in charge are economically illiterate and surrounded by sycophants or crooks (I'm not sure which Mugabe was), demanding a wealth transfer that can't be funded by the actual economy. Inflation can also happen when production goes down, not just when money supply goes up. Now I don't claim to be an expert at economics, I'm just a software nerd like most here and may be wrong so take with a pinch of salt, but the things I've heard that are associated with stagflation include de-globalisation and supply chain shocks (e.g. a trade war with major partners), tariffs, and shrinking labor force (aging population not helped by a combination of low immigration and aggressive deportation).
  - greenavocado 2y ago
    To even begin to understand Mugabe you have to understand his very long and strong relationship with the Chinese military and the reasons why they invested so heavily in his posse.
TaurenHunter 2y ago
Yes, but if they let get into a debt spiral, the only solution becomes devaluation of the dollar to the point of hyperinflation. Only then debt is reduced, but it would be terrible for everybody except a few.
- robertlagrant 2y ago
  Devaluing the dollar would do wonders for post-tariff prices, and prop up exports. I say it in jest, but I can't spot the problem with it because I'm not an economist.

scotty79 2y ago

> Treasuries are considered safe during such crisis. No. Not during such crisis. It's already visible in prices of traditional safe havens (those based on US credibility) that this crisis isn't like the others. They are dropping like flies. Only gold remains.

nzealand 2y ago

> the United States needs to manage its massive national debt, > The present uncertainty around tariffs and a potential crisis could create conditions that pressure interest rates downward before those Treasury securities mature, by influencing Federal Reserve policy. > What are the flaws in this thinking? Flaw #1: Massive treasury rollovers isn't new. 22% of all Treasuries have a duration of 1 year or less. The only new thing is that rates have gone up. Uncertainty is a short term solution to a long term problem. Flaw #2: Economic uncertainty and supply side shocks risks a recession. Recessions usually increase national debt. Flaw #3: The right answer to reducing national debt is to ensure incomes exceed outgoings. The current administration is so focused on extending trillion dollar tax cuts, no amount of tariffs or government efficiency is going to lower the national debt. Flaw #4: Treasuries only really go down during a recession. Recessions are bad, not good. If you think finding a tech job is hard now, or that your RSUs are hurting, wait until you see a serious recession.

leptoniscool 2y ago
it's true.. the S&P 500 declined ~57% from Oct 2007 to Mar 2009

lenerdenator 2y ago

> I don't see anyone mentioning that the United States needs to manage its massive national debt, currently in the trillions, by issuing Treasury securities. These securities mature at varying intervals and require continuous "rolling" or refinancing to pay off old debt with new borrowing. No one is mentioning this because no one cares, least of all the guy who just signed massive tariffs. What you're describing is the end result of 30-ish years of Republicans implementing "Read my lips: no new taxes" and this country refusing to have to a mature conversation about revenues. Also, over that period, wages remained stagnant, meaning more people look to the government for assistance, which then costs money in the form of deficit spending. The numerous expensive wars didn't help, either. There's no good fix to this other than some serious revenue raising through taxes on people who can afford it. Of course, those people are of the opinion that they're entitled to net worths that measure as a significant portion of a trillion dollars, and will simply push the costs onto consumers in order to maintain share prices since that's what most of the net worth sits in. You have to break those people of that idea. Talk of interest rates, Treasury securities, Federal Reserve policy, it's all just noise. The money going in must be a larger portion of the money going out, and significantly burdening the average American with more tax debt isn't going to solve the problem before causing social upheaval.

myroon5 2y ago
> revenue raising through taxes on people who can afford it. Of course, those people are of the opinion that they're entitled to net worths that measure as a significant portion of a trillion dollars millionaires collectively have more than an order of magnitude more wealth than all billionaires: https://forum.effectivealtruism.org/posts/4zjnFxGWYkEF4nqMi/how-could-we-have-avoided-this?commentId=cy8TPNhMetsvaEpoC https://forum.effectivealtruism.org/posts/4zjnFxGWYkEF4nqMi/...

svara 2y ago

The trade deficit is balanced by USD flows, which are ultimately reinvested with leverage into American capital markets. In many ways the US trade deficit combined with the USD reserve currency status is thus what enables the high budget deficit in the first place.

skeeter2020 2y ago
this SHOULD be really obvious to those in charge, but I think is too subtle for them, or they're willfully ignoring it for the "trade deficit" narrative. I don't see how the end result is not a decline in the global role of the US and a whole bunch of pain for everybody as this all unwinds. All for the hubris of an old man...

ck2 2y ago

The F-35 jet will cost over $1.5 Trillion, doesn't work and won't be used Cancel it and stop making everyone's daily life absolute hell by doubling the prices of groceries, car payments, etc. every month National Debt is not a problem for a country that will be around for 1000+ years unless you know of something that is going to greatly shorten that. There are nearly 1,000 BILLIONAIRES in the US, the debt is their problem, they can pay more taxes until it's down to a number you like.

kacesensitive 2y ago
A progressive wealth tax starting at 2% on net worth from $50 million to $250 million and increasing to 8% for wealth over $10 billion is projected to raise $4.35 trillion over 10 years. Seems like a great start to me. Alas, I'll never understand people who make average wages defending billionaire wealth hoarding.
ge96 2y ago
> doesn't work I don't understand, they're being flown all over
dingaling 2y ago
> The F-35 jet will cost over $1.5 Trillion, doesn't work and won't be used Over 1,100 of them have been built so far and they seem to be working quite well.
mrguyorama 2y ago
>The F-35 jet will cost over $1.5 Trillion, doesn't work and won't be used You've bought literal Russian propaganda hook, line, and sinker. The F35 is an incredible piece of technology. Do you remember infamous articles saying it couldn't dogfight? Not only were those stupid propaganda (you can't dogfight at 100km engagement ranges), all the people repeating them seemed to miss the comment by the older aircraft pilot that the radar assisted gunsight on their gen 4 fighter could not track the F35!, not even at knife fighting range. Go lookup how good gunnery was in WW2 if you want to understand how hilariously bad that is for gen 4 fighters. The F35 is pricey to run, $40k an hour, but so was the F14, which is correctly understood to be a high tech masterpiece, a tech platform, and one of the best aircraft ever made. We've already built 1000s of them, and they are already being used today. Israel's attack on Iran that showed just how impotent soviet era air defenses are was conducted with f35s. "Israel used more than 100 aircraft, carrying fewer than 100 munitions, and with no aircraft getting within 100 miles of the target in the first wave, and that took down nearly the entirety of Iran's air-defense system," It's a very impressive machine, that everyone wants, and China is really rushing to build something competitive. >There are nearly 1,000 BILLIONAIRES in the US, the debt is their problem, they can pay more taxes until it's down to a number you like. 150% correct. The USA is stupidly wealthy on the world stage. We don't have to play pretend poverty, if we would tax the people who have hoarded all that wealth.

pyrale 2y ago

> Increased demand for Treasuries pushes their prices up and yields down, effectively lowering interest rates. > What are the flaws in this thinking? Not sure why international investors would want to buy more t-bonds when the country issuing them is starting a trade war and their money could effectively be locked abroad.

comte7092 2y ago

>Treasuries are considered safe during such crisis. This isn’t a law of nature. The behavior the admin is displaying is exactly the type of thing that leads to your statement not being true anymore.

jagjit 2y ago

One thing I am not sure about is how much reluctance foreign holders of US treasuries will have to buy more treasuries. My guess is both foreign government and commercial holdings will edge down quite a bit, even without any reciprocal activity. Just because they will have reduced US reserves, and in effect need for treasuries. God knows what happens if reciprocal activity starts towards using another currency also for global trade.

bhouston 2y ago

Trump is a wildcard, but I could see the US defaulting on its debt, probably in some way that focuses the default burden on foreign countries holding US debt with some relief for domestic holders. I would definitely not be holding it over the coming few years.

SideQuark 2y ago
Defaulting on the US debt would send the US into hyperinflation and likely the end of the US. The US sells debt to US and world investors, at good rates (a few percent), and continually rolls over past debt with new issues. The US spends around 11% of budget on interest on this debt. A default means the world stops lending at low rates. Triple rates triples the interest payments to 33% of the budget. There’s no possible way the govt will collect that much more, especially as the economy craters, and no group would likely cut all the benefits, since they’d simply get in-elected. So we’d do what countless other countries did throughout history: we’d print money to pay the bills. Of course this devalues each dollar, so this accelerates, and there would be a massive implosion as the US gets cannibalized by whomever can extract value the quickest. Default would be incredibly bad.

niklasbuschmann 2y ago

This is just delusional. Everybody is looking for some reason that makes this less stupid than it looks, but there is none. Intentionally causing a recession to lower the debt burden makes no sense, neither politically nor economically. Besides that the US is not some third world country that issues debt in a currency they have no sovereignty over.

regularization 2y ago

> The cost of servicing this debt — paying interest rather than reducing principal — is already a major budget item, surpassing Medicare, approaching Defense and Social Security levels. Military ("defense") expenditures are always understated. Over $180 billion in veteran's benefits were paid last year. This is not counted as military expenditures. Also the debt you talk about is to not only pay for the money sent to Israel and the Ukraine last year, but still for the adventures in Afghanistan, Iraq etc. That just becomes generic debt in the skewed analysis, alienated from its past military adventures. The military budget is higher than stated.

partiallypro 2y ago

Tax receipts drop during recessions, generally governments have to issue even -more- debt during them.

hnthrowaway0315 2y ago

The key, IMHO, is to maintain the status quo of the USD as the safe haven which also has the ability to destroy other safe havens. As long as the USD is the primary safe have the amount of debt is irrelevant.

DrNosferatu 2y ago

» The country is at risk of a debt spiral. This is impossible by definition: The U.S. dollar is the world's dominant reserve currency.

svachalek 2y ago
And as history shows, printing money is a super fantastic way to get out of debt spirals. [Narrator voice: No, it's not.]
- DrNosferatu 2y ago
  The "printing money" quip misunderstands how modern monetary systems operate. The Fed doesn't just "print money" - it has only two real tools: buying and selling assets, and raising/lowering interest rates.
- DrNosferatu 2y ago
  Instead of throwing around historically illiterate analogies, let's talk about the real issues: What are the actual inflationary risks right now given the state of the economy? What are the costs of not spending (i.e., austerity)? Because history also shows – very clearly – that austerity imposed due to debt panic in countries that could have afforded to spend is often way more damaging than the debt itself.

tootie 2y ago

Fed rate influences treasury rates, but it's not a direct impact. If creditors lose faith in our fiscal situation, rates will rise no matter what the Fed does.

mywittyname 2y ago

> What are the flaws in this thinking? That the national debt matters. A) The Fed & Treasury have the ability to buy back the securities at any time if they wanted, since they can basically poof the currency into existence. And t-bonds are as good as cash anyways, so that money is basically already in the economy. B) The country's national debt is also our citizens' savings accounts. Every major company in the country (and the gov't itself) holds an absurd amount of t-bonds because its the best place to store billions of dollars for safe keeping. Paying off the debt means this capital needs to go somewhere. Should it go to China? The EU? Canada? American real estate? The national debt is probably the most misunderstood concept in the country. It's denominated in USD, unlike other countries, whose debt is borrowed in currencies they don't control. And "paying off" the national debt risks capital flight and/or asset bubbles - both of which are detrimental to the economy. The system we have in place is a good one. Thought experiment: consider what would happen if the US Treasury decided interest rates are negative. That is, you pay $10,000 for a bond and receive back $9,900 after 10 years. What do you think this would do to the economy? Now ratchet up that negative rate to 100%, that is, you pay $10k for a t-bond and eventually it's worth $0 after 10 years. That's pretty much what paying off the national debt would do (in fact, that's probably how the national debt would be paid off, if ordered to do so, the fed would purchase these bonds and the treasury would use the proceeds to buy existing bonds off the open market). It's two sides to the same coin, but instead of prohibiting the purchase of t-bonds, you just disincentivize it.

jay_kyburz 2y ago
All I know about this issue is what you wrote above, but it sounds to me like the US taxpayer is paying interest on bonds so that bond holders can earn interest. I think its perfectly reasonable for the taxpayer to say they would rather not pay interest on those loans. The bond holder could lend the money somebody else instead. In fact, I think its really unfair that one generation of people can leave debt behind for future generations to pay with higher taxes.

dughnut 2y ago

I think what’s happening backstage in this magic show are desperate moves to recapitalize the country. Foreign and domestic investors are pledging to spend trillions, probably under duress. Stocks are being crashed to create a flight to treasuries. Dollars are partially anchored to crypto by so-called stable coins. Federal assets are getting dumped and operating costs cut. Maybe we will get out of this without having to survive on cat food, but I’m not holding my breath.