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Will America's debt doom us?

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Re: Will America's debt doom us?

#41

Post by JackFr »

> But that's misleading. The federal government itself owns more than a quarter of U.S. debt, money the government essentially owes itself. It’s an accounting entry. As an asset and a liability, it effectively cancels out.

Well, no. These bonds are held in the Social Security Trust Fund, and while yes in one sense they are both an asset and a liability, they are also funding a future liability (although not all of it). So you can cancel them out against the future liability or the current one, but not both.

(As to Social Security being underfunded, I had an econ professor explain Social Security could be fully funded immediately if the Treasury could just issue a new class of bonds which cost a penny and are redeemed for a trillion dollars in ten years, and sell them to the Trust Fund.)

Re: Will America's debt doom us?

#42

Post by Pigo »

commandlinefan wrote: post #34
MuffinFlavored wrote: post #15

Earlier quoted context omitted.

In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?

I’m super libertarian and even I would like to see somebody raise taxes and cut spending to cut the deficit… although it would be a battle to get them to lower taxes again once the debt was paid off.

Working for certain branches of the government has made me extremely cynical towards taxes. Just like most non-profit's main goal should be to put themselves out of business, many government programs should have methods of scaling back when objectives are met. I've seen buildings full of people that accomplish nothing but asking for more money.

Re: Will America's debt doom us?

#43

Post by MuffinFlavored »

maxerickson wrote: post #23
MuffinFlavored wrote: post #15

Earlier quoted context omitted.

In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?

There were budget surpluses from 1998 through 2001. One thing you aren't accounting for is tax receipts going up because the economy grows. It's usually the case that spending goes up at the same time, but it doesn't have to go up.

> It's usually the case that spending goes up at the same time, but it doesn't have to go up.

I just know I read a lot of headlines about how government programs are underfunded. I feel like the base of a lot of Democratic candidate campaigns is about wanting to spend more money for people who need it (impoverished people, etc.)

Re: Will America's debt doom us?

#44

Post by hylaride »

MuffinFlavored wrote: post #15
crusso wrote: post #4

Like the housing bubble, our debt hasn't been a problem and it's not going to be a problem right up until it is a problem. It will be a black swan event and afterward everyone will claim that they saw it coming and "the other guy" ignored it.

In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?

In theory, the debt could also be "monetized", meaning converting it to cash via the fed. That should also lead to inflation, but that may be politically easier than raising taxes.

Re: Will America's debt doom us?

#46

Post by JackFr »

MuffinFlavored wrote: post #15
crusso wrote: post #4

Like the housing bubble, our debt hasn't been a problem and it's not going to be a problem right up until it is a problem. It will be a black swan event and afterward everyone will claim that they saw it coming and "the other guy" ignored it.

In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?

> for citizens to contribute their fair share of paying down the debt

What does "fair share" mean?

Re: Will America's debt doom us?

#47

Post by NTDF9 »

pjc50 wrote: post #37
NTDF9 wrote: post #3

Earlier quoted context omitted.

There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs.…

The normal management of inflation by raising interest rates works by slowing economic growth. There's no reason to raise rates in a recession.

In a recession:

People lose jobs

Govt pays out more social security benefits

Govt earns lesser tax revenue

Govt interest payments on bonds are still at pre recession levels

So, govt has to issue more bonds

Nobody has the money to pay for those bonds

Thus, interest rates would naturally rise.

The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline.

This is how the deficits have out the fed between a rock and a hard place.

Re: Will America's debt doom us?

#48

Post by 0x445442 »

treis wrote: post #39
_edo wrote: post #11

> Because debt-to-GDP is apples-to-nonsense. No it's not. Debt is measured in dollars. GDP is dollars per year. Debt/GDP is $/($/yr)=yr This ratio converts debt, a number it's hard to have intuition for, to years. It tells us how many years of productivity we owe. For those of us who don't manage $30 billion in assets years of productivity probably carries more meaning than big numbers with 12 zeros.

>It tells us how many years of productivity we owe. That's not accurate though. We can pay off the debt tomorrow and skip the years of productivity. It really is an apples to oranges comparison. The debt isn't denominated in productivity. It's denominated in dollars that the government can create for "free". Of course there are knock on effects of creating enough dollars to zero out the debt, but it's not equivalent…

> that the government can create for "free"

One of the very smart things the U.S. has done is take a good portion of those printed dollars and invest in weapons which allow us to force the world to accept the same printed dollars. That's what really allows our government to be in that globally unique position. Resistance to this by other nations has various consequences. If you're a country that doesn't have a certain level of military deterrent you become victim of "regime change". If you are a country that meets that deterrent threshold you become victim of the foreign boogeyman FUD.

Re: Will America's debt doom us?

#49

Post by mdorazio »

decoyworker wrote: post #30
MuffinFlavored wrote: post #15

Earlier quoted context omitted.

In the mean time, are us Americans ever going to get a president that focuses on paying down the debt? How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?

Bill Clinton accomplished that but at some cost. My father still laments the cancellation of the superconducting supercollider that he had the pleasure to work on.

Worth noting is that Clinton was president during the dot com bubble, which enabled that surplus... until the economy came crashing down a short while later. Also worth noting is that some of the policy changes of the Clinton white house + Greenspan federal reserve enabled the housing crash as well. I personally feel like we got a surplus only by taking out a mortgage on the next ~15 years of America.

Re: Will America's debt doom us?

#50

Post by Apes »

It's always great to see an extremely intelligent person try to rationalize a core belief that's at direct odds with the cold, hard, and unforgiving reality they live in. The amount of mental gymnastics done here are Olympian, and this guy deserves a gold medal.

However, even the fanciest mental tricks are never going to change the fundamental laws of reality.

In the entire article he dances around second order effects and demonstrates why they're meaningless. Great, but there's one measure that actually matters: the percentage of our annual budget spent servicing existing debt. Right now that number is at 6%, and there's some share under 100% where it will cause our country to effectively go bankrupt. The closer we get to 100%, the exponentially higher the chance of bankruptcy.

Right now there's two things which make me scared this number is going to go up considerably:

One, US tax revenue is going up around 2% a year, but our outstanding debt is going up around 20% a year. The debt is rapidly outpacing economic and tax revenue growth. If nothing changes, paying off the debt will be 25% of our national budget in around 20 years, and 50% in 40 years. That's well within most our lifetimes, and is well in the extreme bankruptcy risk area.

Two, the US has access to unprecedented low rates of interest right now. The average rate on it's 23 trillion in debt is 1%. If that were to go up to a more historical 3%, interest repayment would jump to 24%. Due to the length of government debt, this transition would probably take around 20 years to fully happen.

Now combine the two into a nightmare scenario: debt continues to rise over the next 20 years at its current rate, and interest rates return to their historical 3%; and within 20 years repaying debt will explode to 75% of our budget. There is your potential black swan event.

Hopefully action is taken before any of this happens, but something has to give from where we are now, and pretending that there's no troubled waters on the horizon is absolutely insane and irresponsible.

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