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Really no. As much as deficit nuts want to grasp at this as a confirmation of priors, this is absolutely 100% not at all about "The Debt". (In point of fact

by ajross 1y ago

Really no. As much as deficit nuts want to grasp at this as a confirmation of priors, this is absolutely 100% not at all about "The Debt". (In point of fact outstanding[1] debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off!) We could magically pay it off right now and the US would still look like a credit risk. It's all about trade policy right now, and the general existential risk that we blow it all up. The treasury rate spike in April (likely but inconclusively due to strategic dumping) continues to have everyone spooked, and fiscal restraint, tax policy, austerity, etc... don't speak to that concern at all. [1] Corrected: service cost of the debt

scoofy 1y ago
>In point of fact outstanding debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off I think you are very much mistaken: https://fred.stlouisfed.org/series/gfdegdq188S https://fred.stlouisfed.org/series/gfdegdq188S
- ajross 1y ago
  I did indeed say that wrong, the nominal debt was lower but the cost to service it was much higher (borrowing in the 80's was done at interest rates into the double digits!): https://fred.stlouisfed.org/graph/?g=iEiV https://fred.stlouisfed.org/graph/?g=iEiV Again, if the debtpocalypse didn't happen then it's clearly not happening now. This is simply not about fiscal policy. Period. It's about institutional trust in the government's ability to manage payments.
  - scoofy 1y ago
    The double digit rates were because of the inflation following the dollar being de-pegged from gold in 1971. It was easy to pay the massive interest rates because the point of the high rates was to bring inflation down. The idea was that people did not want to hold US debt exactly because the inflation was a de facto partial default.
    - ajross 1y ago
      I don't follow that economics. How does interest rates being high make bonds easier to pay? And how to I get some of that action, that sounds pretty magic to me. :) (No, that's not correct. Borrowing in the 80's was more expensive. Period.)
      - scoofy 1y ago
        You’re mistaking rate vs outstanding debt. If I have a $1M mortgage at 6%, and a $1000 credit card debt at 25%, which is harder for me to pay off, assuming I make $100K per year?
        ajross 1y ago
        Click on the link. I assure you I am not.
        scoofy 1y ago
        I see your point. I suppose my only response is that a significant amount of our debt is being rolled over annually. It’s currently being rolled over from extremely low interest rates to non-trivially high interest rates. We should expect the spike on the left side of the graph to keep increasing unless rates decline significantly, soon.
  - efavdb 1y ago
    If it didn’t happen then it can’t happen now?
    - ajross 1y ago
      Paying off the debt is cheaper (significantly so) than it was then, and we had no trouble then. So yes, if it didn't happen then it won't happen now, at least not for the same reason. You can construct a double/triple-failure situation, sure, but any argument of the form "We can't sustain this level of financing" is simply wrong by counterexample. We already did.
      - boroboro4 1y ago
        No one guarantees current rates further down the road, that’s a tricky thing. There is some chance inflation will be keep increasing because of a lot of printed moneys in last decade or so, and then fed will be forced to increase rates even further which will make it much harder to pay federal debt, much harder than in 80s perhaps.
        ajross 1y ago
        > There is some chance inflation will be keep increasing So what? Inflation is GOOD for the debt, which is dollar-valued and not inflation-indexed! If you inflate the currency by 20% the real value of the outstanding debt drops by 20%. That's always been the joke about federal borrowing, if we ever get in trouble we just print money to pay all the bonds and poof, no debt. Inflation being high makes borrowing cheaper, not more expensive. The discourse about the subject is cursed. Everyone projects their own (largely political) priors onto it, everyone thinks macroeconomics works like checkbooks. It's just one bad idea after another. (I think what you're trying to say is that interest rates being high makes borrowing expensive, and that high interest rates are a natural policy response to high inflation. But you have the causality backwards. In fact one reason borrowing doesn't care about inflation is that the fed moves the levers to keep the impact roughly constant.)
        1y ago
jack_h 1y ago
> In point of fact outstanding debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off! This[1] shows in the 80s the total debt to GDP ratio started at 31% and ended at 51%. We are currently at about 122% according to the same chart. I'm not sure what numbers you're referring to, could you provide a source? In terms of the bonds being paid off that's true, but they were paid off by selling even more bonds to cover new spending and old, i.e. total debt grew even if individual bonds matured. [1] https://fred.stlouisfed.org/series/gfdegdq188S https://fred.stlouisfed.org/series/gfdegdq188S

by ajross 1y ago

scoofy 1y ago

>In point of fact outstanding debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off I think you are very much mistaken: https://fred.stlouisfed.org/series/gfdegdq188S https://fred.stlouisfed.org/series/gfdegdq188S

ajross 1y ago
I did indeed say that wrong, the nominal debt was lower but the cost to service it was much higher (borrowing in the 80's was done at interest rates into the double digits!): https://fred.stlouisfed.org/graph/?g=iEiV https://fred.stlouisfed.org/graph/?g=iEiV Again, if the debtpocalypse didn't happen then it's clearly not happening now. This is simply not about fiscal policy. Period. It's about institutional trust in the government's ability to manage payments.
- scoofy 1y ago
  The double digit rates were because of the inflation following the dollar being de-pegged from gold in 1971. It was easy to pay the massive interest rates because the point of the high rates was to bring inflation down. The idea was that people did not want to hold US debt exactly because the inflation was a de facto partial default.
  - ajross 1y ago
    I don't follow that economics. How does interest rates being high make bonds easier to pay? And how to I get some of that action, that sounds pretty magic to me. :) (No, that's not correct. Borrowing in the 80's was more expensive. Period.)
    - scoofy 1y ago
      You’re mistaking rate vs outstanding debt. If I have a $1M mortgage at 6%, and a $1000 credit card debt at 25%, which is harder for me to pay off, assuming I make $100K per year?
      - ajross 1y ago
        Click on the link. I assure you I am not.
        scoofy 1y ago
        I see your point. I suppose my only response is that a significant amount of our debt is being rolled over annually. It’s currently being rolled over from extremely low interest rates to non-trivially high interest rates. We should expect the spike on the left side of the graph to keep increasing unless rates decline significantly, soon.
- efavdb 1y ago
  If it didn’t happen then it can’t happen now?
  - ajross 1y ago
    Paying off the debt is cheaper (significantly so) than it was then, and we had no trouble then. So yes, if it didn't happen then it won't happen now, at least not for the same reason. You can construct a double/triple-failure situation, sure, but any argument of the form "We can't sustain this level of financing" is simply wrong by counterexample. We already did.
    - boroboro4 1y ago
      No one guarantees current rates further down the road, that’s a tricky thing. There is some chance inflation will be keep increasing because of a lot of printed moneys in last decade or so, and then fed will be forced to increase rates even further which will make it much harder to pay federal debt, much harder than in 80s perhaps.
      - ajross 1y ago
        > There is some chance inflation will be keep increasing So what? Inflation is GOOD for the debt, which is dollar-valued and not inflation-indexed! If you inflate the currency by 20% the real value of the outstanding debt drops by 20%. That's always been the joke about federal borrowing, if we ever get in trouble we just print money to pay all the bonds and poof, no debt. Inflation being high makes borrowing cheaper, not more expensive. The discourse about the subject is cursed. Everyone projects their own (largely political) priors onto it, everyone thinks macroeconomics works like checkbooks. It's just one bad idea after another. (I think what you're trying to say is that interest rates being high makes borrowing expensive, and that high interest rates are a natural policy response to high inflation. But you have the causality backwards. In fact one reason borrowing doesn't care about inflation is that the fed moves the levers to keep the impact roughly constant.)
        1y ago

jack_h 1y ago

> In point of fact outstanding debt as a fraction of GDP isn't even all that large, historically; it was much higher in the 80's and literally every one of those bonds is now paid off! This[1] shows in the 80s the total debt to GDP ratio started at 31% and ended at 51%. We are currently at about 122% according to the same chart. I'm not sure what numbers you're referring to, could you provide a source? In terms of the bonds being paid off that's true, but they were paid off by selling even more bonds to cover new spending and old, i.e. total debt grew even if individual bonds matured. [1] https://fred.stlouisfed.org/series/gfdegdq188S https://fred.stlouisfed.org/series/gfdegdq188S