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Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

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Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#101

Post by dikaio »

matthewaveryusa wrote: post #58
berserk1010 wrote: post #33

Earlier quoted context omitted.

Take a look at Zeihan's video where he shows in a graph how US debt level compares to other major economies. https://youtu.be/mcZPOuI-vcU?t=939 . US is in the middle of the pack. US is going to be ok. Also, watch until 20:38. You will see how screwed up some countries are when it comes to debt.

I started watching and couldn't stop until the end. Now the only question I have is how much should I believe Zeihan? He makes a lot of bold assertions, what's his track record?

I’ve personally disliked Zeihans gung-ho rants about how everyone is nothing without the US but I do have to say, he has nailed the China issues pretty well, him and Kyle Bass.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#102

Post by dikaio »

pavs wrote: post #92
aryehof wrote: post #82

The USA can continue overspending, lending and making payments, all while taxing minimally - for a limited time only. Eventually, that equation will need to change. The choices are tighten the belt and/or increase taxes, war and the appropriation of resources, and/or renege on debt and start printing money. All choices and consequences (in some cases dire) sadly left to the next and future generations.

You know I have been hearing this and its many incarnation debt related doom scenario for atleast 20+ years, when I first started following it. Probably longer. Every few years, when debt related doomed future story pops, I feel lile no one really knows what is going on, or even worse what they are talking about.

Personally, I don’t think @aryehof is wrong, it’s just that governments do really well at pushing the ball down four more years, until they can’t. It’s like that with all Empires.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#103

Post by dimitar »

CygnusX-1 wrote: post #93

Why compare debt against GDP? For a person, debt to income ratio is important, but I think debt to assets is a better indicator of how likely the debt is likely to be paid off (vs being defaulted.) For the US, if you divide debt ($33T) by assets ($270T), that ratio is just 12%. This ratio will grow into a big problem only in a massively deflationary scenario when the value of all assets goes down a lot while debt sta…

The very best metric is what % of the budget is spent servicing debt, for the US it is around 15%.

On top of that the US government debt is mostly owned by US organizations and citizens; it is assets owned by US taxpayers.

A very different situation from the typical debt/inflationary crisis in developed countries where you have a foreign-owned debt and limited tax base; these cause serious credibility issues for governments, which in turn further push up rates.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#104

Post by fallingfrog »

There’s something that a lot of people get wrong about inflation.

What you have to keep in mind is that the debt is in US dollars. So, while printing money and causing inflation to pay the debt sucks, it won’t cause a Weimar Germany situation. that only happens when the debt is in an external currency. When you inflate your currency and the debt is in your currency, it becomes easier to pay as the currency inflates. But when it’s in a foreign currency, the exchange rate tanks, and so the more money you print, the more the debt appears to increase. So you then need to print more money faster and faster to continue to make the payments.

A government would only do this under threat of attack or if they thought someone would organize a coup against their government if they failed to pay. That was the exact situation in Venezuela, for instance, which is why they kept printing money to make the payments on their imf loans.

But for us, it might suck, but the economy won’t collapse.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#105

Post by casercaramel144 »

slowhand09 wrote: post #76
PaulDavisThe1st wrote: post #16

We owe a bit more than 1 year's GDP. Most families that own a house owe substantially more than 1 year's income. Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else. MMT…

MMT basically says "its ok, we can just print more money". How did that work for Venuzuela? Lets see... 1.00 US Dollar = 3,615,588.83 Venezuelan Bolívares. The 6 inch thick stack of currency required to buy a roll of toilet paper would be more efficient than the toilet paper. Printing more money just devalues the work product of everyone before that. Republican attitudes about tax? Surely you jest.

Except this is the exact opposite of what MMT says? Since MMT is such a boogeyman nowadays and people on the internet can't agree on a single definition, lets take the wikipedia article explaining it (2 seconds of research you didn't do before posting).

https://en.wikipedia.org/wiki/Modern_monetary_theory

"Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment"

The whole point of MMT is simply that the painting is not the item, and money is not value, money is a representation of value and that it's inherently worthless. IE, if you suddenly taxed away 50% of everyone's dollars and cut all dollar-denominated debt by 50%, literally nothing would change except that people would need to get used to new prices being half of what they were.

What MMT says is that printing and taxing are just wealth distribution under the assumption that humans are rational and can adjust to new prices quickly. The issue and all complications are

1. Rebasing all forms of currency including weird things like dollar denominated debt, sovereign reserves, stocks etc is hard.

2. Human's aren't rational and will be mad if you suddenly halve the value of their dollar even if in real terms nothing has changed for them b/c government handouts or whatever.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#106

Post by [deleted] »

bigstrat2003 wrote: post #40
PaulDavisThe1st wrote: post #16

We owe a bit more than 1 year's GDP. Most families that own a house owe substantially more than 1 year's income. Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else. MMT…

> The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else. No, it has just as much to do with Democrat attitudes towards spending. You're right that the Republicans are partly to blame. But to balance a budget requires cutting spending as much as, if not more than, increasing revenues. The problem is that ~everyone thinks using their preferred approach (…

[deleted]

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#107

Post by candiodari »

elashri wrote: post #100
CygnusX-1 wrote: post #93

Why compare debt against GDP? For a person, debt to income ratio is important, but I think debt to assets is a better indicator of how likely the debt is likely to be paid off (vs being defaulted.) For the US, if you divide debt ($33T) by assets ($270T), that ratio is just 12%. This ratio will grow into a big problem only in a massively deflationary scenario when the value of all assets goes down a lot while debt sta…

Doesn't this mean also you need to get an estimate on a more complex number, which is how much of US assets can be liquidated in a way that would help you pay the dept? I know that this is true in case of companies and individuals but how this will play our with governments? I don't know. It does not own the majority of these assets but we are talking about government dept as liabilities. Yes, they will not default a…

No, it wouldn't. Like most companies, the US "is" what it's people do. That's where the actual value is. From plumbers fixing pipes to soldiers fighting in Africa to carrier groups in the pacific. The buildings and assets inside the US support that, but actually represent zero of the value.

So essentially nothing can be liquidated. There's exceptions, like raw materials (from gold to oil), but not many.

The problem is that the other side, valuing the US as the total value of oil in US soil, plus all other assets, is also bullshit.

You also can't sell it or buy it. For example, the natural resources of North Korea far exceed it's GDP. And yet, if I go to 10 banks, and offer kim 10 times North Korean GDP, could I buy North Korea? No ... they would not sell, nor would North Koreans honor the sale if it was made. So the value of all state organisation ... is zero. But for most countries that is the only thing valuable about them.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#108

Post by casercaramel144 »

nickff wrote: post #24
PaulDavisThe1st wrote: post #16

We owe a bit more than 1 year's GDP. Most families that own a house owe substantially more than 1 year's income. Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else. MMT…

Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams. MMT says a lot of things, but people only seem to follow it when convenient.

Except it can. The way it does that is by printing and taxing. Both can be used to pay debt and are "taking income streams" / "seizing property" in disguise.

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#109

Post by KoolKat23 »

CygnusX-1 wrote: post #93

Why compare debt against GDP? For a person, debt to income ratio is important, but I think debt to assets is a better indicator of how likely the debt is likely to be paid off (vs being defaulted.) For the US, if you divide debt ($33T) by assets ($270T), that ratio is just 12%. This ratio will grow into a big problem only in a massively deflationary scenario when the value of all assets goes down a lot while debt sta…

Your asset base is in truth meaningless (and often very inflated). The true measure is your ability to pay this debt and in order to pay this debt you need to generate revenue, at a country scale this revenue is GDP.

A bank's first think to look at is affordability, are you able to actually pay the installments on this. Recoverability of initial capital is secondary and only matters in a liquidation event, you don't want to have to worry about a country-wide liquidation event (in truth they can print money, so long as your debts denominated in your currency and they accept this).

Re: Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

#110

Post by littlestymaar »

apexalpha wrote: post #95

I think that's a bit overblown. The US debt-to-GDP isn't that high. Though, I have to say, running 6,5% deficits in fiscal years with no immediate crisis or direct war seems a bit extravagant. If that becomes the norm it could spiral out of control.

All that matters is the comparison between debt to GDP ratio, interest rates, deficit and nominal GDP growth (that is: “real” growth + inflation) see:

Let R be the debt/GDP ratio, g the “real” GDP growth, i the inflation rate, and r the interest rate, the deficit that stabilizes the debt/GDP ratio is the following: R(g+i-r).

For the US in 2023 you have:

    g=3.3%
    r=2.9%
    R=120%
    i=3.4%
Which means that the stabilizing deficit level is 4.5%. So the current deficit is 2% higher than it should. And at this deficit level, the debt/GDP ratio would stabilize around 170%, it won't “spiral out of control”.

That being said, even though the death spiral narrative is BS, the fact that governments of developed countries stopped taxing the rich and started borrowing from them instead is indeed a problem…

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