6 ms·

People are worried about America's solvency

146 points by root-parent 2mo ago

root-parent 2mo ago
https://archive.is/L8RM7 https://archive.is/L8RM7
thelastgallon 2mo ago
What happens if US becomes insolvent? Is USD going to be inflated? hyperinflated? Will other currencies appreciate or just devalue their own currency by the same percentage to keep up the exports and continue to earn USD for oil?
- blahblaher 2mo ago
  There is no way, unless by political choice, for the US to become insolvent, meaning, not paying it's "debt" in US dollars
  - iAMkenough 2mo ago
    There is a deliberate effort by the current administration to weaken the dollar. Given their track record and interest in other forms of currency, I could see them going too far.
    - deleted 2mo ago
      [deleted]
  - florkbork 2mo ago
    There is no way (except for the way I just articulated)...
    - atq2119 2mo ago
      [dead]
- 317070 2mo ago
  If the US becomes insolvent, that would severely impact the USD. But other currencies will not try to follow the USD, there would be no point in that. The USD would just lose more status as an anchoring point. The US is also not a major oil exporter, so presumably most oil will trade for other currencies, rather than try to sell for an inflationary currency. In short, if the US becomes insolvent, the rest of the world will largely ignore what happens in the (at that point) 8th economy in the world, and mostly try to untie their economy from it.
  - petcat 2mo ago
    > The US is also not a major oil exporter I believe this is wrong? USA is the largest oil producer in the world, and also one of the 5 largest oil exporters.
    - gruez 2mo ago
      "Largest producer" != "largest exporter"
      - petcat 2mo ago
        Yes I said that. Largest producer, and 4th largest exporter.
      - cmiles8 2mo ago
        The US is the largest exporter of oil and refined products. Saudi Arabia is the largest exporter of crude oil.
  - GJim 2mo ago
    > and mostly try to untie their economy from it. That is already happening. The rest of the world is finding the likes of China to be more stable and predictable trading partners than the USA.
    - mrngld 2mo ago
      Absolutely no one serious thinks that, but when you feel like you need to diversify you don't have to find a like-for-like replacement. Any port in a storm. Just consult Google. All a country has to do to find itself on the receiving end of punishing Chinese trade actions is being mildly critical of China in the wrong way, and next thing they know their exporters to China report being held up for months. The EU has taken offense at how China kicks around smaller EU members, Australia has been on the receiving end of it more than once. If you'd said the EU might be seen as a relatively more stable trading partner, that may be true, the EU does seem to be fairly happy deindustrializing itself. Though it's fueling a rise in the fractured politics there too.
- alfiedotwtf 2mo ago
  America will move to Trump Coin of course! /s
  - api 2mo ago
    He would legitimately try this. There’s no limit to the cartoonish narcissism. It’s absurd and would fail of course.
- Havoc 2mo ago
  Nobody knows. There is no precedent for that happening in a post globalisation world. Think sht would get very real for everyone fast both inside and outside the US. Global economy can’t even deal with a ship stuck in the suez without wobbling…
  - mikewarot 2mo ago
    >There is no precedent Sure, there's a precedent for what's happening, the Late Bronze Age collapse.[1] Instead of the Sea People, we've got rogue actors with drones. [1] https://en.wikipedia.org/wiki/Late_Bronze_Age_collapse https://en.wikipedia.org/wiki/Late_Bronze_Age_collapse
- ahnick 2mo ago
  I'll tell you what is going to happen, b/c it is happening as we speak. The U.S. Government is soft-defaulting on the debt by devaluing the currency. (The debasement rate is somewhere in the 7%-8% range) There will never be a real default, but it is likely that the USD will lose reserve currency status. The U.S. Government has $114+ Trillion in total debt. (Something like $325,000 per person in the US) We are never paying that off. The only way we can do anything about it is to grow the economy and devalue the debt via inflation.
  - _ink_ 2mo ago
    But who will take over world reserve currency status?
    - ahnick 2mo ago
      It will likely be a cryptocurrency or perhaps a basket of cryptocurrencies. You essentially want a way to store wealth directly on the Internet as it is the fastest and easiest way to reassign ownership of money or collateral. The nice benefit too, then is the U.S. (and no other country as well) is subject to the Triffin Dilemma.
      - upboundspiral 2mo ago
        crypto is a solution in search of a problem.
        ahnick 2mo ago
        cryptocurrencies solved the double-spend problem for digital currencies. There is no ongoing search. https://en.wikipedia.org/wiki/Double-spending https://en.wikipedia.org/wiki/Double-spending
        delfinom 2mo ago
        Which was never really a problem before cryptocurrencies. Nor does it any way address the core issue we have with physical currency, taking out loans now, against future wealth generation, which is happening in the crypto space too.
- neilwilson 2mo ago
  The US can’t become insolvent. Those who say it can are just hard of accounting. It’s scaremongering nonsense. All treasuries will be swapped back into dollars on maturity and interest settled
- Tangurena2 2mo ago
  > continue to earn USD for oil? Iraq started taking Euros for oil. Shortly after that, they were invaded. Venezuela started selling oil for Yuan. Shortly after that, their president was kidnapped by American troops. Iran is selling oil in Yuan. Shortly after that, American bombs started falling on them. There is a very strong incentive for oil producing nations to only accept USD.
  - bluGill 2mo ago
    While the facts are not wrong, they are not compelling as a description of things that were building for years before the currency changes. Iraq/Venezuela were both collecting US ire for decades before the currency attempts. (Not supporting US actions on either - but currency was not a factor in what happened)
  - ksbd-pls-finish 2mo ago
    Do American people ever wonder "are we the baddies"? If this is an accurate description, I think everyone would agree that this is a bully behaviour. And arguably evil and opposite to the "free market" it champions officially. In fact, is China or Russia involved in similar planet-scale military enforcement?
    - Tangurena2 2mo ago
      > Do American people ever wonder "are we the baddies"? Any American who ponders this out loud is quickly silenced with "America! Love it or leave it!". https://en.wikipedia.org/wiki/Thought-terminating_clich%C3%A9 https://en.wikipedia.org/wiki/Thought-terminating_clich%C3%A...
    - testing22321 2mo ago
      The US is a very violent place. Founded by war, exists in part to feed the military industrial complex. The vast majority of Americans have no problem with exporting violence around the world if it means “America wins” and not the fear of muslims or socialism or all the other boogeymen.
epsteingpt 2mo ago
No one serious is worried about American solvency. The paper says 50% over the next 10 years, but even most economists misunderstand how the monetary system works. There are so many other issues to worry about at the moment more immediate than solvency.
- Grombobulous 2mo ago
  The word in the headline “solvency” versus the phrase in the article “debt crisis” is a major difference. To your point, I don’t think anyone has to be worried about American solvency, but a looming debt crisis doesn’t seem like a stretch of imagination at all.
- bilekas 2mo ago
  > but even most economists misunderstand how the monetary system works. It seems to be more of a subjective topic to me. Otherwise we would all have a perfect plan and never any monetary concerns. Highlighting weak links in the system is I believe a perfectly healthy thing to do. A sanity check would go a long way these days.
- d--b 2mo ago
  When enough non-"serious" people believe it, they still sell the bonds, and shit can hit the fan pretty quickly.
- root-parent 2mo ago
  >> There are so many other issues to worry about at the moment more immediate than solvency. The U.S. government spends about one-third! (roughly 33% to 39%) of individual income tax revenue strictly to pay the interest on the national debt and that is not even paying off the principal balance itself: https://budget.house.gov/imo/media/doc/cbo_baseline_february_2026.pdf https://budget.house.gov/imo/media/doc/cbo_baseline_february... A raise in interest rates for treasuries, can bring this into 50% to 60% within days. Yeah...worry about other things...
  - softwaredoug 2mo ago
    That 33%-39% goes back into stimulating the global economic system where America is at the center. To people like me that own US Treasuries. You’re not wrong. But it’s not as simple as 33-39% disappearing into a black hoe.
throw0101d 2mo ago
From 2018, "Sadly, Fiscal Restraint Is No Longer a Core Principle of the GOP": * https://www.cato.org/commentary/sadly-fiscal-restraint-no-longer-core-principle-gop https://www.cato.org/commentary/sadly-fiscal-restraint-no-lo... When you've lost the Cato Institute… More recently in 2025, "The petrodollar, not GOP fiscal restraint, is what sustains our unsustainable debt": * https://thehill.com/opinion/finance/5465671-republican-fiscal-responsibility-illusion/ https://thehill.com/opinion/finance/5465671-republican-fisca... Not that I believe the folks at the top at the GOP really cared about it, ever, going back to (at least) Reagan; it was mostly an excuse to cut taxes on the wealth and cut social programs: * https://archive.is/https://www.nytimes.com/2003/09/14/magazine/the-tax-cut-con.html https://archive.is/https://www.nytimes.com/2003/09/14/magazi...
- throwaway1492 2mo ago
  Former Republican here aka Rino. It’s easily explained; the GOP ceased to exist when they all fell in line with Trump first term. Trump threatened to to form his own party with his massive following and make the GOP the third choice on the ballot. Trumpism is not conservative in any sense; it’s jingoistic nationalism to benefit Trumps interest.
  - stetrain 2mo ago
    The GOP was not fiscally conservative before Trump either.
    - peaseagee 2mo ago
      Exactly. I remember hearing "tax and spend Democrats" as a slur back in the 90s/00s, but seeing the GOP spend without taxing during those years showed what it was really all about...
    - michaelt 2mo ago
      Yes, in the 1970s-1980s the GOP came up with the idea of "starve the beast" [1] which allowed them describe unfunded tax cuts and deficit spending as "fiscally conservative", like a parent taking away a child's allowance. Complete nonsense in practice, obviously - but political gold! Voters get all the same public services, lower taxes, and to think they're being responsible with money. And if you're a 65-year-old legislator, you'll be dead and buried before the consequences start to bite. [1] https://en.wikipedia.org/wiki/Starve_the_beast https://en.wikipedia.org/wiki/Starve_the_beast
cmiles8 2mo ago
Financial markets work in strange ways. The markets generally respond to US concerns by buying more US treasuries. That’s counter-intuitive but reflects the situation that if things hit the fan they feel loaning the US money is still the safest place for their money. For better or worse there’s unlikely to be a scenario where the US becomes insolvent but it’s not far worse for those outside the US.
- root-parent 2mo ago
  The US will become insolvent by trying to prop up Japan. "The Insane US-Japan Currency Bailout" - https://youtu.be/yh18YXKMk3g https://youtu.be/yh18YXKMk3g Why does the US need to prop Japan? Because they are the biggest holder of US treasuries ...and if they need to prop up their own currency, they will need to sell them. <Insert Pearl Harbor reference...>
  - thephyber 2mo ago
    Yes, and... The US sold Euros to do the propping of Japanese bonds without telling the EU. Not only did we spend a lot to save our biggest sovereign buyer, but we undermined our relationship with another. And we didn't buy the Japanese much time. Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week. It feels like the BRICS are taking over as of this month.
    - deleted 2mo ago
      [deleted]
    - ericmay 2mo ago
      > Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week. How many? > It feels like the BRICS are taking over as of this month. Taking over what?
      - thephyber 2mo ago
        The news about Chinese bond attractiveness today: https://x.com/macropaperr/status/2089255200918007854?s=46 https://x.com/macropaperr/status/2089255200918007854?s=46 Obviously we don't measure it in "how many traders", but what the effect their trading has on the instruments they buy. The US Dollar is slipping from the world's reserve currency status and the US treasury is slipping from the default safe haven for liquid assets. The BRICS countries bonds are becoming more attractive as of this month.
refurb 2mo ago
US government solvency is backed by the power to tax and tap into the massive US economy. Considering the US has one of the lower overall tax rates of developed economies, I’m not sure we’ve reached any sort of crisis level
- Zigurd 2mo ago
  This is the truest and most impactful point so far on this thread. Rescinding the Trump I tax cut (IIRC technically the permanent extension of a temporary tax cut) would fix a lot of problems. That and not being belligerent to our creditors gets you pretty close to a complete solution.
  - Scottn1 2mo ago
    Not that simple IMO. If Trump was to rescind his own tax cut, he'd lose a large majority of his base as they feel even more pinched in the pocketbook than they currently are experiencing with the inflation problem. I don't see a way out of this and I don't think current admin really cares. Loot every last drop they can for next two years to enrich themselves and leave America to burn with no money left for Social Security, bond payments, etc. The crowds with pitchforks won't have anyone to tar and feather as Trump will be too old/dead to face any justice and his rich billionaire family will expat to the billionaire utopia of choice. Along with Musk, Bezo's and Zuck.
hn9zmdcaou 2mo ago
Well reasoned throughout
OneManHorde 2mo ago
I am sure this is a nice article, but I'm always surprised when something with a hard paywall makes it this high up on HN. Does everybody but me have a Financial Times subscription?
- layer8 2mo ago
  Others know how to use https://news.ycombinator.com/item?id=49329360 https://news.ycombinator.com/item?id=49329360.
- chicken-stew 2mo ago
  I guess most promote the title by sentiment.
EGreg 2mo ago
This is why UBI is inevitable. There is less and less demand for US treasuries, and Trump’s tariff war has only accelerated it. The GENIUS act gets US a set of entitites that are forced by law to buy US treasuries - stablecoin issuers. It helps the digital dollar be used around the world, and treasuries to still have some demand. That is probably why it is called “genius”. This is the last step before the demand shock. The US will have to stop borrowing and eventually print money to service its sovereign debt. And when they do, they could either send it to banks, corporations, fatcats and pork projects — or they can send it to every American equally. The latter would be a UBI that would trickle up into the economy, with people spending it on their actual needs. It would increase most health outcomes, emotional health as well, raise average effective IQ by 13 points. And then they could tax the corporations and robots, and pay down the debt. As it is, there are literally not enough dollars in existence to pay down that debt. The US will have to print them, or default.
- mrngld 2mo ago
  Sounds like a reheated version of MMT, modern monetary theory. The "just print money" approach exploded in a mushroom cloud of inflation during the COVID years, just as any economist even remotely aligned with the Austrian school of thought could've predicted. And you're still seeing the inflation, it's just partly hidden in and taking place in frothy equity markets. MMT isn't inevitable. You're describing a path to where Argentina was before Milei. A path to amplifying all the social issues that started in the US with the creation of the welfare state. The alternative would simply be fiscal restraint. The only real problem or question is if democracy is capable of restraint. The answer is unclear, seems like it may be 'no'.
  - EGreg 2mo ago
    Mild inflation (in global terms) is fine and actually rebalances money from savers/hoarders to spenders. Look at the Miracle of Worgl. And the inflation is only the result of the money supply being increased, due to the politicians fear of raising taxes on the corporations. You need to increase taxes on corporations and automation if you want to prevent inflation, otherwise you aren’t removing money from the economy. Printing money on the one hand can be counterbalanced by taxing the money on the other hand — if you actually burn the money collected by the taxes in a giant hole. But instead the money from the taxes can be used to pay the treasury holders, and make them whole. This is in fact what the Grace commission found in the 80s under Reagan: With two thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services that taxpayers expect from their government. https://en.wikipedia.org/wiki/Grace_Commission https://en.wikipedia.org/wiki/Grace_Commission
mono442 2mo ago
The US emits two types of scrapes of paper, one of which (bonds) promises the other (the us dollar) and the "experts" somehow think america can actually go bankrupt. That's hilarious.
- ahnick 2mo ago
  The US is not going to go bankrupt, but the purchasing power of the dollar will continue to go down and down and down.
  - TSiege 2mo ago
    So US manufacturing would go up and up by that logic. Not to mention the US can simultaneously restrict the money supply via increased taxes at same time. The US also could just stop issuing bonds entirely and simply create the currency directly rather than the Rube Goldberg that is the bond market
    - javcasas 2mo ago
      The US also has to purchase raw materials and imports at higher and higher and higher prices.
- root-parent 2mo ago
  You will not go bankrupt, its just that a BigMac will cost you $10,000.
latentframe 2mo ago
Interesting part is the gap between beliefs and prices => if the investors expect a US debt crisis we expect it to show up somewhere in the term premium real yields dollar or inflation expectations ; those signals can remain muted for a long time
hellisothers 2mo ago
Just finished “Super Sad Love-story” and worrying about this hits hard :grimace:
m101 2mo ago
Here are the numbers for the US, as a percentage of GDP: - Government Debt: 123.0% - Tax Receipts: 17.2% - Spending: 23.1% - Deficit: 5.9% - Interest on Debt: 4.2% So yeah, 1/4 of taxes go to paying interest. To allay the debt concern crowd a bit: gdp numbers are real numbers, so inflation of 3% and growth of 1% = 4% nominal, so that deficit number actually means that next years govt debt as percent of gdp won’t be materially higher. This is the government playbook: create actual inflation of 6% per year, with reported statistic inflation of 3% per year. This means real growth looks like +3% before you need to talk about contractions/recession. All this means that the sovereign crisis is not near and the government steals your savings at 6% per year.
treebeard901 2mo ago
If the United States tried to make various geopolitical moves to sabotage its reserve currency and ultimately become insolvent as a result of a self inflicted debt crisis then I don't see how the current agent orange situation could be topped. There are so many plumbing issues with the financial system happening at once that people really do not have a clear picture of what is happening in totality. Start with Japan... Still the largest foreign creditor. However they are facing a situation where the yen carry trade that began after the plaza accords in the 1980s is unwinding. The recent Treasury intervention and the associated expansion of the repo market so they do not sell treasuries directly reveals a hidden structural weakness. This leads to the AI boom because cheap Japanese debt was recycled into larger yields in the U.S. And it's different this time because companies like Microsoft have what is rated as safer debt than the US Treasury itself. The yield on financing part of the AI boom has been much better than yields back home in Japan. So even Japanese institutional investors may start seeing domestic debt as more attractive as the carry trade unwinds and domestic Japanese debt starts paying more. This ties back into the recent treasury intervention and offering a way to unload U.S. debt without impacting the markets directly. Which brings us to an ongoing structural change that will remove the largest foreign investor in U.S. debt. Which as we all know, is approaching $40 trillion with over $30 trillion of that being held as public debt. Meanwhile, the budget deficit is continuing to rise causing even more issuance of debt. After the 2008 crash, and over the next decade, the U.S. was able to issue debt basically for free and it issued a ton of it. But that debt matures and when it matures, it has to largely be reissued at current rates. There was no free lunch. With the Japanese largely pulling back and at best not selling the debt they have now to defend their currency or to chase domestic yields in Japan, that goes to the UK as the second largest foreign investor. And the UK clearly can't absorb what the US has to issue and refinance. China has been reducing its holdings because as the BRICS bank, etc, replace their need for dollars, they will begin using it in more creative ways. Some speculation is that the U.S. intervention into the yen carry trade is being challenged by foreign actors, which did not happen during past interventions. Monitoring the daily spread, and if the yen continues climbing over 160 then this will be the first time the U.S. intervention failed to work. To prevent selling existing Treasuries to defend the currency, the Japanese investors will unload it in the repo market. But this brings us to a new structural problem in response to the insane amount of debt being issued and refinanced and this is called the weighted average maturity. Recently, the U.S. Treasury implied that they are going to begin moving more issuance to shorter term debt because those markets are currently still much more liquid than the longer term markets that had issues revealed by the failure of Silicon Valley Bank. When SVB needed to cover deposits, they found the 20 and 30 year Treasury market was not as liquid as they had hoped. This same fact likely pushed the Treasury to have Japanese investors move towards the repo market instead. But this brings a new problem, because there is only so much appetite for increasingly taking long term debt and reissuance and moving it towards the front of the weighted average. Currently around 6 years, and the goal is to move it between 2 and 4. Imagine the liquidity impact on moving large amounts of new debt issued and refinanced debt from the 30yr to more short term funding. Next up, there is a need to have the Federal Reserve unwind its balance sheet even more quickly at the same time all of the above is happening. But it is the Feds balance sheet and forms of QE that have propped up the repo market itself under times of stress. So after Japan, the UK and China all have reasons to continue cutting back, and after the short term funding gets eaten up, the yields will have to rise dramatically to continue attracting investors for even the short term. The immediate response to this will first be to stop issuing the 20 year and reduce the 30 year. They may debate the 50 year but odds are if the 30 has a weak showing that there would be even less appetite for the 50. But with the unwinding yen carry trade, we have to consider the impact on funding the AI boom going forward. Clearly this has been on the mind of nVidia recently, with the move to create a form of mortgage backed securities for GPU capacity. The largest tech companies have something like $2-3 trillion in shell companies set up specifically for the data center buildouts. The rest of the revenue seems to be going in a circular motion among several large companies. They know as soon as they stop funding the AI buildout, or are forced to by the unwinding of market forces, that the party will end. This is the very reason for the move from nVidia recently. And if mortgage backed securities don't make you feel better about it, they have also compared it to how airlines trade airplanes as assets. Neither is a comparison that they should want to make for historical reasons. Now in the past, the U.S. allies would see the value in the financial alliance and would ride to the rescue of something like a 50 year bond to lock up these bubbles for a long time. After so many years of tariffs and other forms of coercion, even the recent yen internvention broke norms between the U.S. Treasury and the European Central Bank. Maybe in the past the Saudis, UAE, etc would have jumped in to invest, but clearly those days are over too... With massive implications for the petrodollar. Which itself is another major factor in the reserve currency system and is clearly under strain from the Iran War and other geopolitical factors. The U.S. response to a debt crisis won't be to default, it will do what it always has done, and try to inflate itself out of the situation. It's just that they can't really take this path either. The more the Federal Reserve becomes the lender of last resort and expands its balance sheet to backstop moving all this to the short term repo market, the end result will be extreme inflation. The yields will begin rising on short term debt faster than we have been seeing on long term debt. Before long, it will be early 1980s style interest rates, and if they don't find a solution, this process will be self repeating... The $40 trillion, with roughly $1.2 trillion in deficits every year, and past reissuance, all into short term funding markets, where the only buyer capable of absorbing it all is the Federal Reserve, there is just no real way out of it. Even all the structural problems with mortgage backed securities haven't been fixed since 2008. If the AI bubble pops, the energy prices keep increasing, the yen carry trade continues to unwind, any South East Asian conflict with North and South Korea, China/Japan/Taiwan, etc... Or with the Ukraine war ending poorly with Russia moving further into the baltic states... Maybe hope that a guy who bankrupted several casinos can figure out to do when the largest casino in history runs out of money? I don't know. EDIT: Sorry for the wall of text. Had a lot to say.
zombot 2mo ago
Can't they just print more money and incur more debt?

146 points by root-parent 2mo ago

https://archive.is/L8RM7 https://archive.is/L8RM7

What happens if US becomes insolvent? Is USD going to be inflated? hyperinflated? Will other currencies appreciate or just devalue their own currency by the same percentage to keep up the exports and continue to earn USD for oil?

blahblaher 2mo ago
There is no way, unless by political choice, for the US to become insolvent, meaning, not paying it's "debt" in US dollars
- iAMkenough 2mo ago
  There is a deliberate effort by the current administration to weaken the dollar. Given their track record and interest in other forms of currency, I could see them going too far.
  - deleted 2mo ago
    [deleted]
- florkbork 2mo ago
  There is no way (except for the way I just articulated)...
  - atq2119 2mo ago
    [dead]
317070 2mo ago
If the US becomes insolvent, that would severely impact the USD. But other currencies will not try to follow the USD, there would be no point in that. The USD would just lose more status as an anchoring point. The US is also not a major oil exporter, so presumably most oil will trade for other currencies, rather than try to sell for an inflationary currency. In short, if the US becomes insolvent, the rest of the world will largely ignore what happens in the (at that point) 8th economy in the world, and mostly try to untie their economy from it.
- petcat 2mo ago
  > The US is also not a major oil exporter I believe this is wrong? USA is the largest oil producer in the world, and also one of the 5 largest oil exporters.
  - gruez 2mo ago
    "Largest producer" != "largest exporter"
    - petcat 2mo ago
      Yes I said that. Largest producer, and 4th largest exporter.
    - cmiles8 2mo ago
      The US is the largest exporter of oil and refined products. Saudi Arabia is the largest exporter of crude oil.
- GJim 2mo ago
  > and mostly try to untie their economy from it. That is already happening. The rest of the world is finding the likes of China to be more stable and predictable trading partners than the USA.
  - mrngld 2mo ago
    Absolutely no one serious thinks that, but when you feel like you need to diversify you don't have to find a like-for-like replacement. Any port in a storm. Just consult Google. All a country has to do to find itself on the receiving end of punishing Chinese trade actions is being mildly critical of China in the wrong way, and next thing they know their exporters to China report being held up for months. The EU has taken offense at how China kicks around smaller EU members, Australia has been on the receiving end of it more than once. If you'd said the EU might be seen as a relatively more stable trading partner, that may be true, the EU does seem to be fairly happy deindustrializing itself. Though it's fueling a rise in the fractured politics there too.
alfiedotwtf 2mo ago
America will move to Trump Coin of course! /s
- api 2mo ago
  He would legitimately try this. There’s no limit to the cartoonish narcissism. It’s absurd and would fail of course.
Havoc 2mo ago
Nobody knows. There is no precedent for that happening in a post globalisation world. Think sht would get very real for everyone fast both inside and outside the US. Global economy can’t even deal with a ship stuck in the suez without wobbling…
- mikewarot 2mo ago
  >There is no precedent Sure, there's a precedent for what's happening, the Late Bronze Age collapse.[1] Instead of the Sea People, we've got rogue actors with drones. [1] https://en.wikipedia.org/wiki/Late_Bronze_Age_collapse https://en.wikipedia.org/wiki/Late_Bronze_Age_collapse
ahnick 2mo ago
I'll tell you what is going to happen, b/c it is happening as we speak. The U.S. Government is soft-defaulting on the debt by devaluing the currency. (The debasement rate is somewhere in the 7%-8% range) There will never be a real default, but it is likely that the USD will lose reserve currency status. The U.S. Government has $114+ Trillion in total debt. (Something like $325,000 per person in the US) We are never paying that off. The only way we can do anything about it is to grow the economy and devalue the debt via inflation.
- _ink_ 2mo ago
  But who will take over world reserve currency status?
  - ahnick 2mo ago
    It will likely be a cryptocurrency or perhaps a basket of cryptocurrencies. You essentially want a way to store wealth directly on the Internet as it is the fastest and easiest way to reassign ownership of money or collateral. The nice benefit too, then is the U.S. (and no other country as well) is subject to the Triffin Dilemma.
    - upboundspiral 2mo ago
      crypto is a solution in search of a problem.
      - ahnick 2mo ago
        cryptocurrencies solved the double-spend problem for digital currencies. There is no ongoing search. https://en.wikipedia.org/wiki/Double-spending https://en.wikipedia.org/wiki/Double-spending
        delfinom 2mo ago
        Which was never really a problem before cryptocurrencies. Nor does it any way address the core issue we have with physical currency, taking out loans now, against future wealth generation, which is happening in the crypto space too.
neilwilson 2mo ago
The US can’t become insolvent. Those who say it can are just hard of accounting. It’s scaremongering nonsense. All treasuries will be swapped back into dollars on maturity and interest settled
Tangurena2 2mo ago
> continue to earn USD for oil? Iraq started taking Euros for oil. Shortly after that, they were invaded. Venezuela started selling oil for Yuan. Shortly after that, their president was kidnapped by American troops. Iran is selling oil in Yuan. Shortly after that, American bombs started falling on them. There is a very strong incentive for oil producing nations to only accept USD.
- bluGill 2mo ago
  While the facts are not wrong, they are not compelling as a description of things that were building for years before the currency changes. Iraq/Venezuela were both collecting US ire for decades before the currency attempts. (Not supporting US actions on either - but currency was not a factor in what happened)
- ksbd-pls-finish 2mo ago
  Do American people ever wonder "are we the baddies"? If this is an accurate description, I think everyone would agree that this is a bully behaviour. And arguably evil and opposite to the "free market" it champions officially. In fact, is China or Russia involved in similar planet-scale military enforcement?
  - Tangurena2 2mo ago
    > Do American people ever wonder "are we the baddies"? Any American who ponders this out loud is quickly silenced with "America! Love it or leave it!". https://en.wikipedia.org/wiki/Thought-terminating_clich%C3%A9 https://en.wikipedia.org/wiki/Thought-terminating_clich%C3%A...
  - testing22321 2mo ago
    The US is a very violent place. Founded by war, exists in part to feed the military industrial complex. The vast majority of Americans have no problem with exporting violence around the world if it means “America wins” and not the fear of muslims or socialism or all the other boogeymen.

epsteingpt 2mo ago

No one serious is worried about American solvency. The paper says 50% over the next 10 years, but even most economists misunderstand how the monetary system works. There are so many other issues to worry about at the moment more immediate than solvency.

Grombobulous 2mo ago
The word in the headline “solvency” versus the phrase in the article “debt crisis” is a major difference. To your point, I don’t think anyone has to be worried about American solvency, but a looming debt crisis doesn’t seem like a stretch of imagination at all.
bilekas 2mo ago
> but even most economists misunderstand how the monetary system works. It seems to be more of a subjective topic to me. Otherwise we would all have a perfect plan and never any monetary concerns. Highlighting weak links in the system is I believe a perfectly healthy thing to do. A sanity check would go a long way these days.
d--b 2mo ago
When enough non-"serious" people believe it, they still sell the bonds, and shit can hit the fan pretty quickly.
root-parent 2mo ago
>> There are so many other issues to worry about at the moment more immediate than solvency. The U.S. government spends about one-third! (roughly 33% to 39%) of individual income tax revenue strictly to pay the interest on the national debt and that is not even paying off the principal balance itself: https://budget.house.gov/imo/media/doc/cbo_baseline_february_2026.pdf https://budget.house.gov/imo/media/doc/cbo_baseline_february... A raise in interest rates for treasuries, can bring this into 50% to 60% within days. Yeah...worry about other things...
- softwaredoug 2mo ago
  That 33%-39% goes back into stimulating the global economic system where America is at the center. To people like me that own US Treasuries. You’re not wrong. But it’s not as simple as 33-39% disappearing into a black hoe.

throw0101d 2mo ago

From 2018, "Sadly, Fiscal Restraint Is No Longer a Core Principle of the GOP": * https://www.cato.org/commentary/sadly-fiscal-restraint-no-longer-core-principle-gop https://www.cato.org/commentary/sadly-fiscal-restraint-no-lo... When you've lost the Cato Institute… More recently in 2025, "The petrodollar, not GOP fiscal restraint, is what sustains our unsustainable debt": * https://thehill.com/opinion/finance/5465671-republican-fiscal-responsibility-illusion/ https://thehill.com/opinion/finance/5465671-republican-fisca... Not that I believe the folks at the top at the GOP really cared about it, ever, going back to (at least) Reagan; it was mostly an excuse to cut taxes on the wealth and cut social programs: * https://archive.is/https://www.nytimes.com/2003/09/14/magazine/the-tax-cut-con.html https://archive.is/https://www.nytimes.com/2003/09/14/magazi...

throwaway1492 2mo ago
Former Republican here aka Rino. It’s easily explained; the GOP ceased to exist when they all fell in line with Trump first term. Trump threatened to to form his own party with his massive following and make the GOP the third choice on the ballot. Trumpism is not conservative in any sense; it’s jingoistic nationalism to benefit Trumps interest.
- stetrain 2mo ago
  The GOP was not fiscally conservative before Trump either.
  - peaseagee 2mo ago
    Exactly. I remember hearing "tax and spend Democrats" as a slur back in the 90s/00s, but seeing the GOP spend without taxing during those years showed what it was really all about...
  - michaelt 2mo ago
    Yes, in the 1970s-1980s the GOP came up with the idea of "starve the beast" [1] which allowed them describe unfunded tax cuts and deficit spending as "fiscally conservative", like a parent taking away a child's allowance. Complete nonsense in practice, obviously - but political gold! Voters get all the same public services, lower taxes, and to think they're being responsible with money. And if you're a 65-year-old legislator, you'll be dead and buried before the consequences start to bite. [1] https://en.wikipedia.org/wiki/Starve_the_beast https://en.wikipedia.org/wiki/Starve_the_beast

cmiles8 2mo ago

Financial markets work in strange ways. The markets generally respond to US concerns by buying more US treasuries. That’s counter-intuitive but reflects the situation that if things hit the fan they feel loaning the US money is still the safest place for their money. For better or worse there’s unlikely to be a scenario where the US becomes insolvent but it’s not far worse for those outside the US.

root-parent 2mo ago
The US will become insolvent by trying to prop up Japan. "The Insane US-Japan Currency Bailout" - https://youtu.be/yh18YXKMk3g https://youtu.be/yh18YXKMk3g Why does the US need to prop Japan? Because they are the biggest holder of US treasuries ...and if they need to prop up their own currency, they will need to sell them. <Insert Pearl Harbor reference...>
- thephyber 2mo ago
  Yes, and... The US sold Euros to do the propping of Japanese bonds without telling the EU. Not only did we spend a lot to save our biggest sovereign buyer, but we undermined our relationship with another. And we didn't buy the Japanese much time. Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week. It feels like the BRICS are taking over as of this month.
  - deleted 2mo ago
    [deleted]
  - ericmay 2mo ago
    > Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week. How many? > It feels like the BRICS are taking over as of this month. Taking over what?
    - thephyber 2mo ago
      The news about Chinese bond attractiveness today: https://x.com/macropaperr/status/2089255200918007854?s=46 https://x.com/macropaperr/status/2089255200918007854?s=46 Obviously we don't measure it in "how many traders", but what the effect their trading has on the instruments they buy. The US Dollar is slipping from the world's reserve currency status and the US treasury is slipping from the default safe haven for liquid assets. The BRICS countries bonds are becoming more attractive as of this month.

refurb 2mo ago

US government solvency is backed by the power to tax and tap into the massive US economy. Considering the US has one of the lower overall tax rates of developed economies, I’m not sure we’ve reached any sort of crisis level

Zigurd 2mo ago
This is the truest and most impactful point so far on this thread. Rescinding the Trump I tax cut (IIRC technically the permanent extension of a temporary tax cut) would fix a lot of problems. That and not being belligerent to our creditors gets you pretty close to a complete solution.
- Scottn1 2mo ago
  Not that simple IMO. If Trump was to rescind his own tax cut, he'd lose a large majority of his base as they feel even more pinched in the pocketbook than they currently are experiencing with the inflation problem. I don't see a way out of this and I don't think current admin really cares. Loot every last drop they can for next two years to enrich themselves and leave America to burn with no money left for Social Security, bond payments, etc. The crowds with pitchforks won't have anyone to tar and feather as Trump will be too old/dead to face any justice and his rich billionaire family will expat to the billionaire utopia of choice. Along with Musk, Bezo's and Zuck.

hn9zmdcaou 2mo ago

Well reasoned throughout

OneManHorde 2mo ago

I am sure this is a nice article, but I'm always surprised when something with a hard paywall makes it this high up on HN. Does everybody but me have a Financial Times subscription?

layer8 2mo ago
Others know how to use https://news.ycombinator.com/item?id=49329360 https://news.ycombinator.com/item?id=49329360.
chicken-stew 2mo ago
I guess most promote the title by sentiment.

EGreg 2mo ago

This is why UBI is inevitable. There is less and less demand for US treasuries, and Trump’s tariff war has only accelerated it. The GENIUS act gets US a set of entitites that are forced by law to buy US treasuries - stablecoin issuers. It helps the digital dollar be used around the world, and treasuries to still have some demand. That is probably why it is called “genius”. This is the last step before the demand shock. The US will have to stop borrowing and eventually print money to service its sovereign debt. And when they do, they could either send it to banks, corporations, fatcats and pork projects — or they can send it to every American equally. The latter would be a UBI that would trickle up into the economy, with people spending it on their actual needs. It would increase most health outcomes, emotional health as well, raise average effective IQ by 13 points. And then they could tax the corporations and robots, and pay down the debt. As it is, there are literally not enough dollars in existence to pay down that debt. The US will have to print them, or default.

mrngld 2mo ago
Sounds like a reheated version of MMT, modern monetary theory. The "just print money" approach exploded in a mushroom cloud of inflation during the COVID years, just as any economist even remotely aligned with the Austrian school of thought could've predicted. And you're still seeing the inflation, it's just partly hidden in and taking place in frothy equity markets. MMT isn't inevitable. You're describing a path to where Argentina was before Milei. A path to amplifying all the social issues that started in the US with the creation of the welfare state. The alternative would simply be fiscal restraint. The only real problem or question is if democracy is capable of restraint. The answer is unclear, seems like it may be 'no'.
- EGreg 2mo ago
  Mild inflation (in global terms) is fine and actually rebalances money from savers/hoarders to spenders. Look at the Miracle of Worgl. And the inflation is only the result of the money supply being increased, due to the politicians fear of raising taxes on the corporations. You need to increase taxes on corporations and automation if you want to prevent inflation, otherwise you aren’t removing money from the economy. Printing money on the one hand can be counterbalanced by taxing the money on the other hand — if you actually burn the money collected by the taxes in a giant hole. But instead the money from the taxes can be used to pay the treasury holders, and make them whole. This is in fact what the Grace commission found in the 80s under Reagan: With two thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services that taxpayers expect from their government. https://en.wikipedia.org/wiki/Grace_Commission https://en.wikipedia.org/wiki/Grace_Commission

mono442 2mo ago

The US emits two types of scrapes of paper, one of which (bonds) promises the other (the us dollar) and the "experts" somehow think america can actually go bankrupt. That's hilarious.

ahnick 2mo ago
The US is not going to go bankrupt, but the purchasing power of the dollar will continue to go down and down and down.
- TSiege 2mo ago
  So US manufacturing would go up and up by that logic. Not to mention the US can simultaneously restrict the money supply via increased taxes at same time. The US also could just stop issuing bonds entirely and simply create the currency directly rather than the Rube Goldberg that is the bond market
  - javcasas 2mo ago
    The US also has to purchase raw materials and imports at higher and higher and higher prices.
root-parent 2mo ago
You will not go bankrupt, its just that a BigMac will cost you $10,000.

latentframe 2mo ago

Interesting part is the gap between beliefs and prices => if the investors expect a US debt crisis we expect it to show up somewhere in the term premium real yields dollar or inflation expectations ; those signals can remain muted for a long time

hellisothers 2mo ago

Just finished “Super Sad Love-story” and worrying about this hits hard :grimace:

m101 2mo ago

Here are the numbers for the US, as a percentage of GDP: - Government Debt: 123.0% - Tax Receipts: 17.2% - Spending: 23.1% - Deficit: 5.9% - Interest on Debt: 4.2% So yeah, 1/4 of taxes go to paying interest. To allay the debt concern crowd a bit: gdp numbers are real numbers, so inflation of 3% and growth of 1% = 4% nominal, so that deficit number actually means that next years govt debt as percent of gdp won’t be materially higher. This is the government playbook: create actual inflation of 6% per year, with reported statistic inflation of 3% per year. This means real growth looks like +3% before you need to talk about contractions/recession. All this means that the sovereign crisis is not near and the government steals your savings at 6% per year.

treebeard901 2mo ago

If the United States tried to make various geopolitical moves to sabotage its reserve currency and ultimately become insolvent as a result of a self inflicted debt crisis then I don't see how the current agent orange situation could be topped. There are so many plumbing issues with the financial system happening at once that people really do not have a clear picture of what is happening in totality. Start with Japan... Still the largest foreign creditor. However they are facing a situation where the yen carry trade that began after the plaza accords in the 1980s is unwinding. The recent Treasury intervention and the associated expansion of the repo market so they do not sell treasuries directly reveals a hidden structural weakness. This leads to the AI boom because cheap Japanese debt was recycled into larger yields in the U.S. And it's different this time because companies like Microsoft have what is rated as safer debt than the US Treasury itself. The yield on financing part of the AI boom has been much better than yields back home in Japan. So even Japanese institutional investors may start seeing domestic debt as more attractive as the carry trade unwinds and domestic Japanese debt starts paying more. This ties back into the recent treasury intervention and offering a way to unload U.S. debt without impacting the markets directly. Which brings us to an ongoing structural change that will remove the largest foreign investor in U.S. debt. Which as we all know, is approaching $40 trillion with over $30 trillion of that being held as public debt. Meanwhile, the budget deficit is continuing to rise causing even more issuance of debt. After the 2008 crash, and over the next decade, the U.S. was able to issue debt basically for free and it issued a ton of it. But that debt matures and when it matures, it has to largely be reissued at current rates. There was no free lunch. With the Japanese largely pulling back and at best not selling the debt they have now to defend their currency or to chase domestic yields in Japan, that goes to the UK as the second largest foreign investor. And the UK clearly can't absorb what the US has to issue and refinance. China has been reducing its holdings because as the BRICS bank, etc, replace their need for dollars, they will begin using it in more creative ways. Some speculation is that the U.S. intervention into the yen carry trade is being challenged by foreign actors, which did not happen during past interventions. Monitoring the daily spread, and if the yen continues climbing over 160 then this will be the first time the U.S. intervention failed to work. To prevent selling existing Treasuries to defend the currency, the Japanese investors will unload it in the repo market. But this brings us to a new structural problem in response to the insane amount of debt being issued and refinanced and this is called the weighted average maturity. Recently, the U.S. Treasury implied that they are going to begin moving more issuance to shorter term debt because those markets are currently still much more liquid than the longer term markets that had issues revealed by the failure of Silicon Valley Bank. When SVB needed to cover deposits, they found the 20 and 30 year Treasury market was not as liquid as they had hoped. This same fact likely pushed the Treasury to have Japanese investors move towards the repo market instead. But this brings a new problem, because there is only so much appetite for increasingly taking long term debt and reissuance and moving it towards the front of the weighted average. Currently around 6 years, and the goal is to move it between 2 and 4. Imagine the liquidity impact on moving large amounts of new debt issued and refinanced debt from the 30yr to more short term funding. Next up, there is a need to have the Federal Reserve unwind its balance sheet even more quickly at the same time all of the above is happening. But it is the Feds balance sheet and forms of QE that have propped up the repo market itself under times of stress. So after Japan, the UK and China all have reasons to continue cutting back, and after the short term funding gets eaten up, the yields will have to rise dramatically to continue attracting investors for even the short term. The immediate response to this will first be to stop issuing the 20 year and reduce the 30 year. They may debate the 50 year but odds are if the 30 has a weak showing that there would be even less appetite for the 50. But with the unwinding yen carry trade, we have to consider the impact on funding the AI boom going forward. Clearly this has been on the mind of nVidia recently, with the move to create a form of mortgage backed securities for GPU capacity. The largest tech companies have something like $2-3 trillion in shell companies set up specifically for the data center buildouts. The rest of the revenue seems to be going in a circular motion among several large companies. They know as soon as they stop funding the AI buildout, or are forced to by the unwinding of market forces, that the party will end. This is the very reason for the move from nVidia recently. And if mortgage backed securities don't make you feel better about it, they have also compared it to how airlines trade airplanes as assets. Neither is a comparison that they should want to make for historical reasons. Now in the past, the U.S. allies would see the value in the financial alliance and would ride to the rescue of something like a 50 year bond to lock up these bubbles for a long time. After so many years of tariffs and other forms of coercion, even the recent yen internvention broke norms between the U.S. Treasury and the European Central Bank. Maybe in the past the Saudis, UAE, etc would have jumped in to invest, but clearly those days are over too... With massive implications for the petrodollar. Which itself is another major factor in the reserve currency system and is clearly under strain from the Iran War and other geopolitical factors. The U.S. response to a debt crisis won't be to default, it will do what it always has done, and try to inflate itself out of the situation. It's just that they can't really take this path either. The more the Federal Reserve becomes the lender of last resort and expands its balance sheet to backstop moving all this to the short term repo market, the end result will be extreme inflation. The yields will begin rising on short term debt faster than we have been seeing on long term debt. Before long, it will be early 1980s style interest rates, and if they don't find a solution, this process will be self repeating... The $40 trillion, with roughly $1.2 trillion in deficits every year, and past reissuance, all into short term funding markets, where the only buyer capable of absorbing it all is the Federal Reserve, there is just no real way out of it. Even all the structural problems with mortgage backed securities haven't been fixed since 2008. If the AI bubble pops, the energy prices keep increasing, the yen carry trade continues to unwind, any South East Asian conflict with North and South Korea, China/Japan/Taiwan, etc... Or with the Ukraine war ending poorly with Russia moving further into the baltic states... Maybe hope that a guy who bankrupted several casinos can figure out to do when the largest casino in history runs out of money? I don't know. EDIT: Sorry for the wall of text. Had a lot to say.

zombot 2mo ago

Can't they just print more money and incur more debt?