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Will America's debt doom us?

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Re: Will America's debt doom us?

#111

Post by Apes »

neilwilson wrote: post #96

The US debt is a problem in the same way that the earth constantly falling into the sun is a problem. You've missed a velocity vector in your analysis. Ask yourself this: if you get dollars for your maturing Treasury, where do those dollars end up in aggregate? They are either taxed away due to them circulating past tax points as they are spent and respent, which eliminates the need for a bond, or they are saved whic…

Your analogs are poor fits:

The solar system is an extremely stable system, while our economic system is not at all stable.

Your proposed money cycle is based on the concept of a closed system, which the US economy is definitely not.

If the US government starts having to pay an unbearable amount of debt, money is going to outflow to other countries and make it harder for the US to issue new debt.

If the US just issues enough money to pay the debt off, then interest rates are going to go through the roof and overcompensate for what just happened, making the situation even worse. The US economy would probably collapse.

Re: Will America's debt doom us?

#112

Post by blunte »

mdorazio wrote: post #49
decoyworker wrote: post #30

Earlier quoted context omitted.

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.

The Clinton years also coincided with a great increase in consumer debt (mostly credit card). When people have more money to spend, they spend it - and the economy grows. There's a cost that comes later, naturally.

Re: Will America's debt doom us?

#113

Post by cryptica »

It seems like the whole financial system depends on the time delay between people agreeing to get a certain salary/price and then actually getting paid and spending it. By the time they actually get paid, the money is actually worth less than what they had originally agreed to. It seems that large corporations should be able to make a profit on that delay alone, even if they produce nothing of actual value. I guess it explains why huge powerful corporations like Apple and Amazon always ask for money up-front and then delay payment to suppliers for as long as possible. Seems like a vulnerability in the system.

Re: Will America's debt doom us?

#114

Post by seanmcdirmid »

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?

Spending is bound to go up because of population growth and inflation. It would be more appropriate to look at spending and taxation as a portion of GDP (which also goes up with population and inflation). Spending:

https://tradingeconomics.com/united-states/government-spendi...

It has been going down since the Great Recession (44% in 2009 vs. 38% in 2016). Taxation:

https://fred.stlouisfed.org/series/FYFRGDA188S

Taxation was going up a bit relative to GDP towards the end of Obama’s term (which is why the deficit was shrinking), but taxation is now going down (hence the deficit is rising again under Trump).

Re: Will America's debt doom us?

#115

Post by seanmcdirmid »

wcunning wrote: post #35
decoyworker wrote: post #30

Earlier quoted context omitted.

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.

Clinton ran a current account surplus, but overall debt grew because Medicare and Social Security were still losing money at the time. Not to mention that it wasn't all Clinton, some of it was the opposition Congress.

That isn’t true. Medicare and Social Security were still pulling surpluses during the Clinton administration (and they continued to do that until very recently).

Re: Will America's debt doom us?

#116

Post by seanmcdirmid »

bpt3 wrote: post #101
MuffinFlavored wrote: post #68

Earlier quoted context omitted.

This is a dumb unrelated question on my end but are the returns of Social Security very bad? If you put 6.2% (12.4% total with employer contribution) of your income away into index funds that grew at 7% per year, at $100k/yr gross salary ($12.4k/yr) from ages 25 - 65 (40 years), you would end up with $2.6m (in today's dollars). $2.6m converted into dividend funds with a 3% yield would be $6.6k/mo. I don't know anybod…

Social Security funds aren't allowed to be invested in the stock market, and are held in the form of US Treasuries [0]. There was talk of changing that under Bush 44, but his reform plans never gained any serious traction. [0] https://www.cbpp.org/research/social-security/policy-basics-...

Bush 44 wanted to turn SS into a 401K. SS is mostly invested in the federal government (ie congress spent the surplus).

Re: Will America's debt doom us?

#117

Post by ThrustVectoring »

dpc_pw wrote: post #67
plantain wrote: post #54

Earlier quoted context omitted.

>Low rates are a result of boomeres all over the world saving for retirement [citation needed] How did you come to that conclusion?

There is 70M of Boomers in US. (Generally) about to end a decade or two of their most productive years: highest skills, highest level jobs, house paid off, kids out, etc. - trying to save and invest enough to give themselves a good retirement. Just yesterday I was listening to some YT podcast and boomers own ~74% of all US economical activity. Many of them accepted low salaries, for the promise of pensions and so on.…

The aggregate amount of savings by a generation is almost entirely irrelevant to the aggregate material conditions that generation has in retirement. They're not canning food and stashing it in their basement like a squirrel, they're generally simply acquiring financial claims on future productivity. And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production.

>these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.

Current misspending doesn't particularly impact future retirees. It impacts current retirees and workers. Current aggregate retiree spending is always equal to aggregate worker saving plus tax transfers from workers to retirees. This misspending means that material wealth that could have been consumed by either retirees or workers is instead wasted.

The only ways for Boomers to be wealthier in retirement, as a class, are for society to be wealthier or for a higher percentage of society's real production to be allocated to Boomers via taxes or sold for their savings.

Re: Will America's debt doom us?

#118

Post by AnimalMuppet »

neilwilson wrote: post #96

The US debt is a problem in the same way that the earth constantly falling into the sun is a problem. You've missed a velocity vector in your analysis. Ask yourself this: if you get dollars for your maturing Treasury, where do those dollars end up in aggregate? They are either taxed away due to them circulating past tax points as they are spent and respent, which eliminates the need for a bond, or they are saved whic…

If your velocity enables you to stay in orbit, there's no problem. If not, then you're just falling, which is also fine... until you hit the ground.

As for your analysis of what happens when you receive payment for a bond, you seem to be saying that the government gets the money back, either by taxing spending or by you buying a new bond. I don't buy that analysis, for two reasons. First, I could receive payment for a Treasury, and buy some other investment with it. And second, your analysis would remain unchanged even if the result was hyperinflation (that's "hitting the ground" in my first paragraph).

Re: Will America's debt doom us?

#119

Post by tptacek »

Transfinity wrote: post #72
theflyinghorse wrote: post #60

Earlier quoted context omitted.

I don't understand why US having military presence around the globe tilts the free markets in their favour. Realistically, no military outside of perhaps Russian could stand up against the US but I don't think US are outright forcing trade agreements at a gun point, or am I wrong?

The United States has a variety of techniques for making sure its business interests get what they want. Aircraft carriers are one (see Iraq, and possibly Iran if things go south), CIA-sponsored coups another (Guatemala, El Salvador), economic sanctions a third (Iran again, Russia, much of Latin America). Negotiation at gun point often takes the form of crippling sanctions until and unless a US-friendly regime is in…

This sounds like something a lot of people might believe.

Re: Will America's debt doom us?

#120

Post by _edo »

pjc50 wrote: post #31
_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.

How long do we expect roads to last? Or the investments that have to be made over someone's lifetime to enable them to retire? Even the big "high tech" weapons and aircraft investments which consume a big chunk of spending have 30-50 year project lifetime. The B-52 fleet is 55 years old, not counting the design time. Is it not reasonable to spread payment for that over the lifetime of the asset?

The financing of long-term Public Goods has to be one of the best arguments for government debt there is.

I'm not against debt[0] so much as I like interesting units and metrics. If you want to compare debt levels of different countries across history getting the local currency to cancel out means no converting 1870 dollars to 2019 dollars, no converting 1920 Yen to 1995 Azerbaijani Manats, etc.

The fact that Debt-to-GDP reduces to years, even if it's unclear what that means, lets us make years-to-years comparisons and makes charts like this possible[1].

[0] - Though I think what it's being spent on really matters cough: https://en.wikipedia.org/wiki/United_States_federal_budget [1] - https://en.wikipedia.org/w/index.php?title=File:Gdp_to_debt_...

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