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U.S. on Track to Add $19T in New Debt over 10 Years

nytimes.com

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Re: U.S. on Track to Add $19T in New Debt over 10 Years

#11

Post by dsfyu404ed »

sashu123 wrote: post #6
MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

The simple answer is we are debasing our currency in a very complex way, that we cannot measure how much we debased it. In the past kings printed new coins to fund their wars or whatever and it was easier to track how much the currency lost value. In the present because economies have gotten complex + tools to debase have gotten complex we cannot estimate how much we have actually debased our currency by. If it’s 100…

>that we cannot measure how much we debased it.

"it's a feature not a bug."

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#12

Post by yCombLinks »

paulpauper wrote: post #9
MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

It is not as bad as the headline would suggest. The economy presumably is growing at the same time that the $19 trillion debt is being added. US GDP has grown a lot since 2012. Debt to GDP the highest since ww2, which seems bad, but the economy still boomed after ww2 anyway, so it's not saying much.

Grown on paper only. I don't think most people's lives are any better than 2012. Stock and house prices have skyrocketed is all.

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#13

Post by ALittleLight »

MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

My intuition is that it's obviously right that borrowing money could be a neutral or positive thing - but that depends on the borrowed money being spent in ways that will have a positive return. If you borrow money, when borrowing is cheap, to buy a car so you can go to work, smart! If you borrow money to spend it on booze and concert tickets - not smart!

I think the issue is that one side is saying "Borrowing is terrible!" And the other side is saying "No, borrowing cheap money is somewhere between fine and great!" And the real answer is "Borrowing can be smart if you use it well, but we are using it poorly."

If the US was borrowing money to build and renovate roads, bridges, ports, update the electrical grid, build new nuclear power plants, engage in basic science research and similar projects likely to yield good return on investment - that was be amazing financial planning. My limited understanding of what the government actually spends its money on - wasteful healthcare, social security, the military, and intelligence agencies - is that the money is actually just being squandered.

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#14

Post by 2OEH8eoCRo0 »

MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

As long as they can continue making interest payments on the debt then what's the problem? It's all relative.

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#16

Post by legitster »

I encourage people interested in this topic to read up on the Fiscal Theory of the Price Level. I flippantly refer to it as "MMT without the magic". But it really did a good job of explaining our current situation.

When you have a long-term fixed rate mortgage, only some of the value is paid off by principal payments. The rest is being paid off naturally by inflation. Imagine paying off a mortgage made in 2003 dollars with dollars you made in 2023. The payment is the same, but only a pittance of the same value.

The theory goes that inflation is not completely a result of monetary policy - there is also a market adjustment of the dollar to the amount of government debt issued. To oversimplify, government debt will be paid back - if not through taxes, then through inflation.

The implication is that MMT gets it partially right - worrying about debt to GDP is somewhat irrelevant. And if it can issue debt at less than the rate of inflation, the government can get free money! But we are clearly well past that point.

The silver lining is that default is not really a risk here (maybe a political one) - inflation will cap out whenever the value of the money "catches up" with the debt level. (That said, if we continue to add to the debt, that means inflation will never stop).

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#17

Post by lotsofpulp »

2OEH8eoCRo0 wrote: post #14
MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

As long as they can continue making interest payments on the debt then what's the problem? It's all relative.

Which the feds can always do since they can issue money.

The relevant question is can the US continue producing goods and services that are desirable on a global scale, one of which is a trustworthy society where you can mostly depend on the judicial system keeping things in order, for better or for worse.

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#18

Post by scottiebarnes »

2OEH8eoCRo0 wrote: post #14
MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

As long as they can continue making interest payments on the debt then what's the problem? It's all relative.

The problem is the fundamentals. The US will "never default on its debt" because it issues debt in its own currency, which it can control the creation of necessary to service that debt (money printer go brrrr).

So nobody is ever concerned about debt; you just say screw it let someone else worry about it, usually future generations. The value has to come from somewhere, and in this case its from the debasement of the dollar.

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#19

Post by legitster »

MuffinFlavored wrote: post #3

I wish I knew the truth on which camp is "right". You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt" and the other camp says it's going to lead to our demise, etc. Wil…

A budget surplus would be pretty irrelevant target in the grand scheme of things.

There are foreign policy implications (other countries waiting for us to pay them back is a good thing).

But also, just like corporate finance, if the government can get good rates on debt, it almost always makes sense to just take the money and make the payments.

So some small and sustainable amount of budget deficit is probably a good thing. But we are clearly on the wrong side of that equation.

Re: U.S. on Track to Add $19T in New Debt over 10 Years

#20

Post by avalys »

In discussions like this, it's worth reviewing where total government spending in the US actually goes.

This is actually not the easiest thing to pin down, but the best analysis I've seen is at https://www.usgovernmentspending.com/year2022_0.html.

In summary:

17% to pension programs (e.g. social security)

23% to healthcare

19% to education

12% to defense

7% to welfare

3.6% to police/fire/prisons

4% to transportation infrastructure

14% to everything else (scientific research, the courts, the Department of Agriculture, etc.)

The US budget deficit doesn't come from overspending in any particular area, and there is no single fix that is going to get us back to parity. A focus on efficient spending and reducing waste might help, but it would need to be applied systematically across the entire government.

We are simply spending too much money everywhere, and getting too little value for the expenditure.

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