4 ms·

Government debt gets resolved eventually through inflation. There's never a point where we have to "pay it all back" and get the debt down to zero. We just end

Government debt gets resolved eventually through inflation. There's never a point where we have to "pay it all back" and get the debt down to zero. We just end up paying of a $1 loan with a dollar that's worth only 50c. So there's never a particular point that it "comes back to bite us" - if anything, the "bite" is happening already right now for all of us. Inflation is a form of taxation on currency. It's less like credit card debt and more like wage garnishing. It's also worth pointing out that young people are less affected by inflation than old - retirees and people with savings. Inflation is good for people in debt. So it's not so much your children you have to worry about with today's debt level so much as it is yourself.

myrmidon 7mo ago
> Government debt gets resolved through inflation. This is misleading. US debt as GDP percentage is higher than for any other nation except Italy and Greece, and was much lower historically, too (<50%ish for basically the last century instead of >100% now). So the status quo is not how government spending gets typically resolved. Racking up public debt risks runaway inflation, which is unpleasant for everyone.
- neilwilson 7mo ago
  Comparing a currency issuer like the US to currency users like Italy and Greece is a category error. You can compare Alaska to Greece or California to Italy. But you should compare the US to other currency issuers - like the Eurozone, Japan or the UK.
  - myrmidon 7mo ago
    Euro area is slightly under 90%, doing a bit worse than EU average (80%ish). Japan is much higher-- I did not have that in my dataset, appears to be at 230% debt but decreasing pretty rapidly (down from almost 260% in 2020).
neilwilson 7mo ago
It’s rather more simple than that. In a floating exchange rate world, which is the one we live in a dollar is just a 0% bearer bond. So when a government bond matures it is replaced automatically with a simple bank deposit. It’s nothing more than an asset swap. “People with savings” are precisely why there is a “debt” in the first place. When they spend those savings they pass tax points which then creates the tax that retires the “debt”. To put it in simple terms the “grandchildren” will “service the debt” using the counterparty “savings assets”inherited from their “grandparents”. Don’t fall for the standard narrative. It’s not true.
scoofy 7mo ago
> So there's never a particular point that it "comes back to bite us" - if anything, the "bite" is happening already right now for all of us. This is magical thinking. The bonds are actually held by investors, and when investors see them as a losing bet, they will stop buying them. Unless you think American taxpayers will suddenly be willing to live within our means, it’s a real problem. The current reserve currency status means that people often use the bonds for reasons other than returns, but we need to not fool ourselves into assuming this paradigm is permanent. Once real inflation gets going, it’s just a coordination problem to change the reserve instrument. After that, the intersection between what the US can feasibly return and what investors require can quickly evaporate. We are currently on a Japanese trajectory, but that could easily become Argentina.
- andriy_koval 7mo ago
  > The bonds are actually held by investors, and when investors see them as a losing bet, they will stop buying them largest investor will be or already a Fed, and it will continue buying if there is political will.
  - scoofy 7mo ago
    Again... when the only purchaser becomes the central bank, then you're effectively printing money. Since no one is bearing the cost of actually buying the bonds, and there is no profit motive, then you're ultimately just printing the deficit every year. This is already quite high, and is compounded by the knowledge that outstanding liabilities of the nation basically dwarf the current debt. If that is the plan, then hyper-inflation is not only on the table, it starts to become probable. I shouldn't have to explain why that's a problem. There isn't a free lunch here. Yes, inflating the debt away is an option... to a point, but there are still hard limits on what the market will bear.
    - andriy_koval 7mo ago
      > Since no one is bearing the cost of actually buying the bonds, and there is no profit motive, then you're ultimately just printing the deficit every year. sure, there are plenty of countries in the world who just print money without all these debt ritual. > to a point, but there are still hard limits on what the market will bear. this niche (government prints money to fund its expenses) is not part of any market, but just policy supported by monopoly on violence.
rurp 7mo ago
This sounds like pretty dangerous thinking to me. A government financial crisis is something that happens slowly and then very quickly. The US currently enjoys extremely low borrowing rates and still spends a significant portion of its tax receipts servicing debt. If the country starts to appear much less stable and reliable in the long term those rates can increase sharply, which would put gigantic strain on the country's finances, which would cause rates to jump even more. It's a bad cycle that we very much want to avoid. Even without any disaster scenarios we spend an immense amount of money every year on debt payments. That money could instead be spent on any number of other use cases that actually produce something useful.
- andriy_koval 7mo ago
  > If the country starts to appear much less stable and reliable in the long term those rates can increase sharply, but its US who decides which rates it uses to borrow from itself. I see its just some process to do all this inflation thing in US, while I imagine various other countries just print the money causing inflation and don't go through debt ceiling approval voting.
Acrobatic_Road 7mo ago
We won't be able to inflate our way out of the debt because government spending is tied to inflation.

myrmidon 7mo ago

> Government debt gets resolved through inflation. This is misleading. US debt as GDP percentage is higher than for any other nation except Italy and Greece, and was much lower historically, too (<50%ish for basically the last century instead of >100% now). So the status quo is not how government spending gets typically resolved. Racking up public debt risks runaway inflation, which is unpleasant for everyone.

neilwilson 7mo ago
Comparing a currency issuer like the US to currency users like Italy and Greece is a category error. You can compare Alaska to Greece or California to Italy. But you should compare the US to other currency issuers - like the Eurozone, Japan or the UK.
- myrmidon 7mo ago
  Euro area is slightly under 90%, doing a bit worse than EU average (80%ish). Japan is much higher-- I did not have that in my dataset, appears to be at 230% debt but decreasing pretty rapidly (down from almost 260% in 2020).

neilwilson 7mo ago

It’s rather more simple than that. In a floating exchange rate world, which is the one we live in a dollar is just a 0% bearer bond. So when a government bond matures it is replaced automatically with a simple bank deposit. It’s nothing more than an asset swap. “People with savings” are precisely why there is a “debt” in the first place. When they spend those savings they pass tax points which then creates the tax that retires the “debt”. To put it in simple terms the “grandchildren” will “service the debt” using the counterparty “savings assets”inherited from their “grandparents”. Don’t fall for the standard narrative. It’s not true.

scoofy 7mo ago

> So there's never a particular point that it "comes back to bite us" - if anything, the "bite" is happening already right now for all of us. This is magical thinking. The bonds are actually held by investors, and when investors see them as a losing bet, they will stop buying them. Unless you think American taxpayers will suddenly be willing to live within our means, it’s a real problem. The current reserve currency status means that people often use the bonds for reasons other than returns, but we need to not fool ourselves into assuming this paradigm is permanent. Once real inflation gets going, it’s just a coordination problem to change the reserve instrument. After that, the intersection between what the US can feasibly return and what investors require can quickly evaporate. We are currently on a Japanese trajectory, but that could easily become Argentina.

andriy_koval 7mo ago
> The bonds are actually held by investors, and when investors see them as a losing bet, they will stop buying them largest investor will be or already a Fed, and it will continue buying if there is political will.
- scoofy 7mo ago
  Again... when the only purchaser becomes the central bank, then you're effectively printing money. Since no one is bearing the cost of actually buying the bonds, and there is no profit motive, then you're ultimately just printing the deficit every year. This is already quite high, and is compounded by the knowledge that outstanding liabilities of the nation basically dwarf the current debt. If that is the plan, then hyper-inflation is not only on the table, it starts to become probable. I shouldn't have to explain why that's a problem. There isn't a free lunch here. Yes, inflating the debt away is an option... to a point, but there are still hard limits on what the market will bear.
  - andriy_koval 7mo ago
    > Since no one is bearing the cost of actually buying the bonds, and there is no profit motive, then you're ultimately just printing the deficit every year. sure, there are plenty of countries in the world who just print money without all these debt ritual. > to a point, but there are still hard limits on what the market will bear. this niche (government prints money to fund its expenses) is not part of any market, but just policy supported by monopoly on violence.

rurp 7mo ago

This sounds like pretty dangerous thinking to me. A government financial crisis is something that happens slowly and then very quickly. The US currently enjoys extremely low borrowing rates and still spends a significant portion of its tax receipts servicing debt. If the country starts to appear much less stable and reliable in the long term those rates can increase sharply, which would put gigantic strain on the country's finances, which would cause rates to jump even more. It's a bad cycle that we very much want to avoid. Even without any disaster scenarios we spend an immense amount of money every year on debt payments. That money could instead be spent on any number of other use cases that actually produce something useful.

andriy_koval 7mo ago
> If the country starts to appear much less stable and reliable in the long term those rates can increase sharply, but its US who decides which rates it uses to borrow from itself. I see its just some process to do all this inflation thing in US, while I imagine various other countries just print the money causing inflation and don't go through debt ceiling approval voting.

Acrobatic_Road 7mo ago

We won't be able to inflate our way out of the debt because government spending is tied to inflation.