55% of the US National Debt Is the Result of Repaying Debt with More Debt • Hacker News Board

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#51

Post by teslabox » Thu, Jul 19, 2018, 2:38 PM UTC

JumpCrisscross wrote: post #36

teslabox wrote: post #31

This is an inevitable consequence of basing the money supply on debt. The Federal Reserve banks are responsible for making money and loaning it out into circulation. There is never enough money to pay back the interest on the loans, so the federal reserve loans out a little bit more every year. A solution to this quandary was figured out in 2011. Due to a quirk in the laws, the US Government has the ability to issue…

> This is an inevitable consequence of basing the money supply on debt Not really. The U.S. government ran surpluses in the nineties. This led to hand-wringing as banks imagined a world without Treasuries, which would make collateralisation quite complicated. (We had the same "not enough safe assets" conversation after the financial crisis.) The U.S. government could wipe out its debt. The Federal Reserve couldn't, a…

I'm saying that under the Federal Reserve system, the total indebtedness of the U.S. economy must always increase. If the government starts to pay off its debt, the private sector must increase its debt levels. If the economy doesn't keep borrowing money, the money supply would rapidly collapse, leading to a deflationary spiral.

The only money that never has to be paid back are coins.

Do you have an alternate understanding of our monetary system?

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#52

Post by bjl » Thu, Jul 19, 2018, 2:38 PM UTC

ToFab123 wrote: post #44

From whom do the borrow all that money? Who "owns" America?

A sizeable majority of US Treasuries are owned by American citizens.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#53

Post by JumpCrisscross » Thu, Jul 19, 2018, 2:39 PM UTC

TheSpiceIsLife wrote: post #27

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend , which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state s…

> Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern

It's a pragmatic concern inasmuch as the lenders's "faith in [the government's] ability to service the debt" in step 2 is not infinite. If you lose that faith, you have to (a) raise rates, (b) impose capital controls, (c) raise taxes and/or (d) force your central bank to monetize the debt. Each of these do bad things to the economy. The national debt isn't like household debt because the government is immortal, but that doesn't mean it's meaningless.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#54

Post by bubbleRefuge » Thu, Jul 19, 2018, 2:43 PM UTC

JumpCrisscross wrote: post #45

bubbleRefuge wrote: post #41

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Governm…

> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fisc…

No . But you are getting there. Yes fiscal policy is the lever that determines the amount ( quantity) of money ( or demand ) driving the economy . Monetary policy is interest rates or the price of money. And ,there is mounting evidence that hight interest rates actually have the opposite of the intended effect . That is, that higher interest rates lead to higher net income to the private sector which is a bit inflationary.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#55

Post by antpls » Thu, Jul 19, 2018, 2:43 PM UTC

TheSpiceIsLife wrote: post #27

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend , which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state s…

I'm the average layman, but I will try my best.

> 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were

I never thought of money like this, but I not comfortable with that idea. Money is a currency, eventually exchanged for goods or services. I can save it just in case something goes unexpected, never spend it and die with 1 million left in my bank account (my analogy is at the individual level, since it's all I know)

> 3. Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern.

Pragmatically, to reach an improved democratical system, the number of people who decide the budget should asymptotically grow to the point where every citizen can equally (to reuse your own words) voice directly his/her opinion about how the budget should be distributed. We could ask by referendum every month : "should we pay the debt or borrow next month?", no one knows what would be the answer, since it has never been done.

> 4. If you believe the good times are going to keep rolling, and any bad times will, on average, pass relatively swiftly (people do have a tendency to persevere), then not borrowing money results in a lost opportunity cost.

Does it matter if we all die at the end, no matter the decision path and opportunities?

Disclaimer : I don't live in the US

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#56

Post by SkyMarshal » Thu, Jul 19, 2018, 2:43 PM UTC

stephen_g wrote: post #25

I think the biggest thing to keep in mind is that the Federal Government of a monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by different rules to a household or business. This could be a massive problem if the debt was denominated in a currency other than US dollars (which the US Government controls the monopoly currency issuer for). But since all of the US's debt is in US dollars, and t…

The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#57

Post by graedus » Thu, Jul 19, 2018, 2:56 PM UTC

JumpCrisscross wrote: post #50

graedus wrote: post #42

Earlier quoted context omitted.

I briefly searched for inflation-adjusted debt per capita but couldn't find it. There is the federal debt to GDP ratio, which is 105%. This is at least a 50-year high[0]. FRED's household debt to GDP data doesn't go back very far, but we can see it's off the highs off 2008[1]. (edit: added household debt to GDP) [0] https://fred.stlouisfed.org/series/gfdegdq188S [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N

> I briefly searched for inflation-adjusted debt per capita but couldn't find it You're looking for household debt to GDP [1]. It is a real (versus nominal) statistic because it's a ratio between two nominal terms. It also communicates financial health better than a per-capita term, since it measures against production. [1] https://fred.stlouisfed.org/series/HDTGPDUSQ163N

I managed to find that - thanks!

A few other interesting angles: Household Debt Service Payments as a Percent of Disposable Personal Income[0] (10.3%, near 40-year lows), Consumer Debt Service Payments as a Percent of Disposable Personal Income[1] (5.9%, near 40-year average), Personal Saving Rate[2] (3.2%, near 50-year lows).

[0] https://fred.stlouisfed.org/series/TDSP

[1] https://fred.stlouisfed.org/series/CDSP

[2] https://fred.stlouisfed.org/series/PSAVERT

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#58

Post by mindslight » Thu, Jul 19, 2018, 2:57 PM UTC

TheSpiceIsLife wrote: post #27

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend , which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state s…

> 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were

You're drawing a false equivalence. A dollar (or a gold bar) does not represent a specific amount of goods or services that any specific counterparty is bound to deliver. So in general no, money is not inherently debt.

> 4. If you believe the good times are going to keep rolling, and any bad times will, on average, pass relatively swiftly (people do have a tendency to persevere), then not borrowing money results in a lost opportunity cost.

On the flip side, creating inflation channels wealth up towards the top, to those who are able to better bear the burden of roundtripping through the inflating assets rather than saving in dollars. Plus the lagging effect of wages means that they only rise after the people earning them are feeling enough pain to demand more.

Even taking the CPI calculation at face value, it does not represent the whole of inflation. We would expect prices in a technological economy to be level or trending downwards, due to basic market optimization. Every time some innovation makes things "cheaper" and yet their real prices still go up, we're getting hit twice!

I'd say the long term effects of centralizing the economy (ie the wealth imbalance we're dealing with now) are more harmful than forgoing a little top-down metric of "growth". We have a "shortage of jobs" precisely because people at the bottom are still stuck chasing 40 hours a week to service debt, rather than having been able to build wealth (ie economic negotiating power) in dollars.

And of course all that too-hot "growth" is occurring by churning through real natural resources, suboptimally even. If you care at all about sustainability or global warming, and you don't look at the US's monetary policy and weep, you need to study deeper.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#59

Post by tialaramex » Thu, Jul 19, 2018, 3:01 PM UTC

JumpCrisscross wrote: post #53

TheSpiceIsLife wrote: post #27

A couple of ways I can think of real quickly that this is meaningless: 1. All money is debt insofar as it only represent goods as services yet to be rendered, an I Owe You as it were 2. If an entity is able to continue borrowing (more and more) money it represents a willingness of lenders to lend , which is a direct representation of their faith in that entities ability to service the debt 3. Whether a nation-state s…

> Whether a nation-state should balance it's budget is more a philosophical question coloured be ideology rather than a pragmatic concern It's a pragmatic concern inasmuch as the lenders's "faith in [the government's] ability to service the debt" in step 2 is not infinite. If you lose that faith, you have to (a) raise rates, (b) impose capital controls, (c) raise taxes and/or (d) force your central bank to monetize t…

It's true that _government debt_ is not meaningless, but the 55% ratio is meaningless.

Suppose you have a really nice condition Jackson Model C, and, because you're a crazy person you've been driving that damn thing every day since you bought it last century. Unsurprisingly the Jackson is not very reliable, and so you sometimes drive it to the garage where it can be repaired. Now alas the dry batteries in your Jackson are its weak spot, and you find they must be replaced every 100 miles or so. The garage is two miles away.

After you've driven 2000 miles in your Jackson Model C, much of that time with antique car enthusiasts yelling at you that it belongs in a museum, you have replaced the battery about 20 times, each trip to do taking four miles (there and back) and so 80 miles.

I observe that you've used 80% of the life of a battery just on driving to and from the garage to replace the batteries.

Like this 55% of national debt statistic, my observation is at once true and completely meaningless.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#60

Post by arcbyte » Thu, Jul 19, 2018, 3:05 PM UTC

There's a lot of talk about how the Federal Gov't isn't like a household or business. It is different, but not to extent that people who preach that like to pretend.

That aside, I wonder what opportunities and paradigm shifts we are missing out on by being ok with all this debt, good or not.

The American gov't is so far in the hole that it doesn't have ANY wealth! What if we built up a Sovereign Wealth Fund such that we could completely eliminate taxes and fund all government activities from the interest? What would that world look like?