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AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to eith

AI is a risk. The thing we know is going to bite us in the butt is our continued massive sovereign debt burden and lack of any political will whatsoever to either increase taxes or reduce spending. The dollar is not going to do well this century and creditors confidence is already starting to decline. In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.

monero-xmr 1y ago
There is only 1 solution to the global debt crisis and thats inflating the currency. They did it after WW2 and they will have to do it now. There is no other option. They can do it sneaky through fake measures of inflation, keeping a lid on cost of living adjustments, but ultimately they soak bond holders and standard of living. You see it everywhere in things they can’t inflate. The price of houses and gold most obviously, but you see it in commodities that can’t expand production quickly as well. The solution is to buy assets of course.
- whimsicalism 1y ago
  Monetizing a debt of this magnitude would be disastrous, but agreed this appears to be the path we are going on by default - given that we are consistently above the inflation mandate yet still lowering rates. It's no longer the early 20th, there are other competitive & well-run jurisdictions for creditors to dump their money in if they lose faith in the US.
  - disgruntledphd2 1y ago
    > It's no longer the early 20th, there are other competitive & well-run jurisdictions for creditors to dump their money in if they lose faith in the US. Where, pray tell are these competitive and well-run jurisdictions? China has capital controls so that probably won't work. The EU might work if they ever get their sh*t together and centralise their bonds and markets, otherwise no. Like, I too believe that the US is on an unsustainable path, but I just don't see where all that money is gonna go (specifically referring to the foreign investment in the US companies/markets here).
    - whimsicalism 1y ago
      I think there are many smaller jurisdictions that are getting their shit together and might absorb demand - southeast Asia, Singapore obviously (but small), the Gulf. Some subsets of the EU, particularly Eastern Europe. Plus, even worse-run higher yield jurisdictions become more appealing as the US fails.
      - disgruntledphd2 1y ago
        It's more about volume than anything else. You or I could invest elsewhere but where do all the foreign holders of Treasuries and US stocks put their money?
        whimsicalism 1y ago
        Yes, I understand your point very well. My point is two-fold, 1. that many small and stable jurisdictions can absorb excess capital even if there isn't a single stable player as large as the US, 2. it makes higher yield less stable jurisdictions more appealing on the margin. Ultimately, capital will flow away from the US if our fiscal stability is increasingly in question.
    - AnimalMuppet 1y ago
      Switzerland?
      - disgruntledphd2 1y ago
        If you avoid their banks, then maybe. Still not big enough though. I feel like eurobonds or remnibi bonds are the only options, but both don't work for various reasons.
- CyberDildonics 1y ago
  Will have to do it now? There was a huge amount of money printed off after covid.
CraigJPerry 1y ago
>> sovereign debt burden So all the entities that want to hold the debt (social security administration, mutual funds, pension funds etc) where should they go instead? Riskier assets is what you're saying right? Is that a great idea?
- whimsicalism 1y ago
  I'm not giving investment advice, just commenting that our current fiscal trajectory has become completely unsustainable & dangerous and very few people seem to be seriously discussing it. Probably the closest US bond equivalent would be debt from well-run Asian countries. I would avoid fixed-income dollar denominated assets.
  - CraigJPerry 1y ago
    >> completely unsustainable in what way? as a sovereign currency issuer, the US can't ever be made to default or can it? What definition of unsustainable fits? What event could cause public debt growth to reach some kind of insurmountable maximum? It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outstanding public debt could be executed tomorrow without collecting another penny in taxes. I wouldn't recommend it, but it could be done.
    - whimsicalism 1y ago
      Leveraging your power as "sovereign currency issuer" means monetizing the debt, aka inflating away the debt, which is disastrous in terms of what it does to purchasing power but also in terms of creditor confidence. Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.
      - CraigJPerry 1y ago
        There's so much to unpack here. I think the first thing to agree is that we don't need a model when we can just look directly at the law. This goes in the bin: >> recommend learning traditional macro It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions. So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws. Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference. With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in? Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy) Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?) So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this. The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.
alphazard 1y ago
> either increase taxes or reduce spending I see this sentiment a lot, they are not equivalent. The US must reduce spending, if it wants to protect the dollar. Tax increases may also help. The relationship between tax rates, GDP, government revenue, the market value of new US debt, and the value of the dollar, is complicated and depends on uncertain estimates and models of the economy. Increasing taxes can reduce GDP, which needs to increase to outgrow the debt, there is an optimal tax rate, more doesn't always help. Decreasing spending is a more straightforward relationship, no new debt, no new dollars.
- whimsicalism 1y ago
  If the US reduces the debt, it removes pressure to monetize and removes market expectation that we will monetize, which directly boosts the dollar. I also think that "rich people are scamming us" is a politically more advantageous message than "old people are scamming us".
  - alphazard 1y ago
    The most important thing is eliminating the annual deficit. That sends more of a signal about the future of the country and it's currency than the total amount of debt. How it gets done is separate from that. Given that the only demographic that can comfortably weather a recession is also starting to collect social security, paid for by younger generations who would be meaningfully affected by a recession, "old people are scamming us" may actually be an effective message.
    - array_key_first 1y ago
      Social Security is not really relevant to the deficit, that's just a thing some politicians say because they want to dismantle the pie to take their piece. Every time someone points to SS as the source of our fiscal woes, we should be immediately skeptical.
      - cmurf 1y ago
Theodores 1y ago
Approximately half the S&P500 is in the Magnificent Seven. It doesn't matter what they sell, there is just too much money there. Calling this situation an 'AI risk' is disingenuous, or at best blinkered. Everyone outside of the American empire knows that the gig is up. When Uncle Sam has his money printing press on full blast, the American people don't feel the full effect, but everyone in the global majority, where there are no dollar printing machines, gets to see too many dollars chasing the same goods, a.k.a. inflation. The day when the American people elect a fiscally prudent government, for Americans to work hard, pay their taxes and get that deficit to a manageable number is never going to happen. But that is not a problem, the situation is out of America's hands now. It was the 2022 sanctions on Russia that made the BRICS alliance take note. Freezing their foreign reserves was not well received. Hence we now have China trading in their own currency with their trading partners happy with that. Soon we will have a situation where there is no 'exorbitant privilege' (reserve currency, which can only ever end up with massive deficits), instead the various BRICS currencies will be anchored to valuable commodities such as rare earth metals, gold and everything else that is 'proof of work' and important to the future. So that means no more 'petro-dollar', the store of value won't be hydrocarbons. This sounds better than going back to a gold standard. As I see it, the problem with the gold standard is that you kind of know already who has all the gold and we don't want them to be the masters of the universe, because it will be the same bankers. As for an AI 'Hail Mary', I do hope so. The money printed by Uncle Sam to end up in the Magnificent Seven means that it will be relatively easy to write this money off.
- marcosdumay 1y ago
  > It was the 2022 sanctions on Russia that made the BRICS alliance take note. IMO, it was the barriers imposed on the trade of oil, mostly from Iran and Syria. Not really Russia, because they adapted quickly. The countries on the group's name all had alternatives at that time. Either way, the BRICS trading system wasn't a serious thing until this year. And what really kicked it out was Trump.
ajross 1y ago
> massive sovereign debt burden Cost to service the debt is about 60% of what it was in the 1980's. All those bonds are long since paid off. This is a meme. Should we adjust to something more sustainable? Yes. Is the "burden" too high to bear? No, it's just not.
- whimsicalism 1y ago
  if you know enough to know that cost to service was higher in the 1980s as a % of govt revenue (not sure about 60%, we're actually pretty close AFAIU) then you should understand enough to know why that is not nearly the full picture.
bakeshop 1y ago
A country that issues its own currency cannot run out of money or be forced into default in that currency. What we call the national debt is the total of money the government has created and not yet taxed back. Those dollars are private savings in another form, not a burden that must one day be repaid. Creditors do not fund government spending; they hold safe interest-bearing assets created by it. The real risks to society are not financial but productive and ecological. What matters is whether we are using our labor, technology, and resources to meet real needs, not the size of a number on a balance sheet.
- munksbeer 1y ago
  > A country that issues its own currency cannot run out of money or be forced into default in that currency. What we call the national debt is the total of money the government has created and not yet taxed back. Those dollars are private savings in another form, not a burden that must one day be repaid. Richard Murphy is that you? Snark aside, this is just straight up MMT which you're presenting as gospel, but absolutely isn't. The very shortest way to debunk MMT is that every single government would be printing their way to prosperity if it was possible. Their ultimate desire is to be in power, and a happy prosperous population will keep electing them. No government has ever follow MMT to it's natural conclusion. It is simplistic and wrong.
  - hshdhdhehd 1y ago
    Plus there are many examples of currency collapse.

monero-xmr 1y ago

There is only 1 solution to the global debt crisis and thats inflating the currency. They did it after WW2 and they will have to do it now. There is no other option. They can do it sneaky through fake measures of inflation, keeping a lid on cost of living adjustments, but ultimately they soak bond holders and standard of living. You see it everywhere in things they can’t inflate. The price of houses and gold most obviously, but you see it in commodities that can’t expand production quickly as well. The solution is to buy assets of course.

whimsicalism 1y ago
Monetizing a debt of this magnitude would be disastrous, but agreed this appears to be the path we are going on by default - given that we are consistently above the inflation mandate yet still lowering rates. It's no longer the early 20th, there are other competitive & well-run jurisdictions for creditors to dump their money in if they lose faith in the US.
- disgruntledphd2 1y ago
  > It's no longer the early 20th, there are other competitive & well-run jurisdictions for creditors to dump their money in if they lose faith in the US. Where, pray tell are these competitive and well-run jurisdictions? China has capital controls so that probably won't work. The EU might work if they ever get their sh*t together and centralise their bonds and markets, otherwise no. Like, I too believe that the US is on an unsustainable path, but I just don't see where all that money is gonna go (specifically referring to the foreign investment in the US companies/markets here).
  - whimsicalism 1y ago
    I think there are many smaller jurisdictions that are getting their shit together and might absorb demand - southeast Asia, Singapore obviously (but small), the Gulf. Some subsets of the EU, particularly Eastern Europe. Plus, even worse-run higher yield jurisdictions become more appealing as the US fails.
    - disgruntledphd2 1y ago
      It's more about volume than anything else. You or I could invest elsewhere but where do all the foreign holders of Treasuries and US stocks put their money?
      - whimsicalism 1y ago
        Yes, I understand your point very well. My point is two-fold, 1. that many small and stable jurisdictions can absorb excess capital even if there isn't a single stable player as large as the US, 2. it makes higher yield less stable jurisdictions more appealing on the margin. Ultimately, capital will flow away from the US if our fiscal stability is increasingly in question.
  - AnimalMuppet 1y ago
    Switzerland?
    - disgruntledphd2 1y ago
      If you avoid their banks, then maybe. Still not big enough though. I feel like eurobonds or remnibi bonds are the only options, but both don't work for various reasons.
CyberDildonics 1y ago
Will have to do it now? There was a huge amount of money printed off after covid.

CraigJPerry 1y ago

>> sovereign debt burden So all the entities that want to hold the debt (social security administration, mutual funds, pension funds etc) where should they go instead? Riskier assets is what you're saying right? Is that a great idea?

whimsicalism 1y ago
I'm not giving investment advice, just commenting that our current fiscal trajectory has become completely unsustainable & dangerous and very few people seem to be seriously discussing it. Probably the closest US bond equivalent would be debt from well-run Asian countries. I would avoid fixed-income dollar denominated assets.
- CraigJPerry 1y ago
  >> completely unsustainable in what way? as a sovereign currency issuer, the US can't ever be made to default or can it? What definition of unsustainable fits? What event could cause public debt growth to reach some kind of insurmountable maximum? It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outstanding public debt could be executed tomorrow without collecting another penny in taxes. I wouldn't recommend it, but it could be done.
  - whimsicalism 1y ago
    Leveraging your power as "sovereign currency issuer" means monetizing the debt, aka inflating away the debt, which is disastrous in terms of what it does to purchasing power but also in terms of creditor confidence. Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.
    - CraigJPerry 1y ago
      There's so much to unpack here. I think the first thing to agree is that we don't need a model when we can just look directly at the law. This goes in the bin: >> recommend learning traditional macro It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions. So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws. Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference. With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in? Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy) Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?) So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this. The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.

alphazard 1y ago

> either increase taxes or reduce spending I see this sentiment a lot, they are not equivalent. The US must reduce spending, if it wants to protect the dollar. Tax increases may also help. The relationship between tax rates, GDP, government revenue, the market value of new US debt, and the value of the dollar, is complicated and depends on uncertain estimates and models of the economy. Increasing taxes can reduce GDP, which needs to increase to outgrow the debt, there is an optimal tax rate, more doesn't always help. Decreasing spending is a more straightforward relationship, no new debt, no new dollars.

whimsicalism 1y ago
If the US reduces the debt, it removes pressure to monetize and removes market expectation that we will monetize, which directly boosts the dollar. I also think that "rich people are scamming us" is a politically more advantageous message than "old people are scamming us".
- alphazard 1y ago
  The most important thing is eliminating the annual deficit. That sends more of a signal about the future of the country and it's currency than the total amount of debt. How it gets done is separate from that. Given that the only demographic that can comfortably weather a recession is also starting to collect social security, paid for by younger generations who would be meaningfully affected by a recession, "old people are scamming us" may actually be an effective message.
  - array_key_first 1y ago
    Social Security is not really relevant to the deficit, that's just a thing some politicians say because they want to dismantle the pie to take their piece. Every time someone points to SS as the source of our fiscal woes, we should be immediately skeptical.
    - cmurf 1y ago

Theodores 1y ago

Approximately half the S&P500 is in the Magnificent Seven. It doesn't matter what they sell, there is just too much money there. Calling this situation an 'AI risk' is disingenuous, or at best blinkered. Everyone outside of the American empire knows that the gig is up. When Uncle Sam has his money printing press on full blast, the American people don't feel the full effect, but everyone in the global majority, where there are no dollar printing machines, gets to see too many dollars chasing the same goods, a.k.a. inflation. The day when the American people elect a fiscally prudent government, for Americans to work hard, pay their taxes and get that deficit to a manageable number is never going to happen. But that is not a problem, the situation is out of America's hands now. It was the 2022 sanctions on Russia that made the BRICS alliance take note. Freezing their foreign reserves was not well received. Hence we now have China trading in their own currency with their trading partners happy with that. Soon we will have a situation where there is no 'exorbitant privilege' (reserve currency, which can only ever end up with massive deficits), instead the various BRICS currencies will be anchored to valuable commodities such as rare earth metals, gold and everything else that is 'proof of work' and important to the future. So that means no more 'petro-dollar', the store of value won't be hydrocarbons. This sounds better than going back to a gold standard. As I see it, the problem with the gold standard is that you kind of know already who has all the gold and we don't want them to be the masters of the universe, because it will be the same bankers. As for an AI 'Hail Mary', I do hope so. The money printed by Uncle Sam to end up in the Magnificent Seven means that it will be relatively easy to write this money off.

marcosdumay 1y ago
> It was the 2022 sanctions on Russia that made the BRICS alliance take note. IMO, it was the barriers imposed on the trade of oil, mostly from Iran and Syria. Not really Russia, because they adapted quickly. The countries on the group's name all had alternatives at that time. Either way, the BRICS trading system wasn't a serious thing until this year. And what really kicked it out was Trump.

ajross 1y ago

> massive sovereign debt burden Cost to service the debt is about 60% of what it was in the 1980's. All those bonds are long since paid off. This is a meme. Should we adjust to something more sustainable? Yes. Is the "burden" too high to bear? No, it's just not.

whimsicalism 1y ago
if you know enough to know that cost to service was higher in the 1980s as a % of govt revenue (not sure about 60%, we're actually pretty close AFAIU) then you should understand enough to know why that is not nearly the full picture.

bakeshop 1y ago

A country that issues its own currency cannot run out of money or be forced into default in that currency. What we call the national debt is the total of money the government has created and not yet taxed back. Those dollars are private savings in another form, not a burden that must one day be repaid. Creditors do not fund government spending; they hold safe interest-bearing assets created by it. The real risks to society are not financial but productive and ecological. What matters is whether we are using our labor, technology, and resources to meet real needs, not the size of a number on a balance sheet.

munksbeer 1y ago
> A country that issues its own currency cannot run out of money or be forced into default in that currency. What we call the national debt is the total of money the government has created and not yet taxed back. Those dollars are private savings in another form, not a burden that must one day be repaid. Richard Murphy is that you? Snark aside, this is just straight up MMT which you're presenting as gospel, but absolutely isn't. The very shortest way to debunk MMT is that every single government would be printing their way to prosperity if it was possible. Their ultimate desire is to be in power, and a happy prosperous population will keep electing them. No government has ever follow MMT to it's natural conclusion. It is simplistic and wrong.
- hshdhdhehd 1y ago
  Plus there are many examples of currency collapse.