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Will America's debt doom us?

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Re: Will America's debt doom us?

#181
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.

No single number will tell the whole story about a country's debt. GDP today is not a perfect proxy for GDP in 10 years (Japan's will probably be about the same, the US's will probably grow a bit, China's has a decent chance of growing a lot.) GDP today is not a perfect measure of economic activity today (Ireland has a really high GDP because companies are incorporated there but don't really pay much in taxes or do much to benefit Ireland. Actual Individual Consumption may be a better measure of a country's wealth. https://johnhcochrane.blogspot.com/2017/04/consumption-vs-gd... ) So Debt/GDP isn't nonsense, but it also could be potentially misleading.

Current interest rates can give a somewhat distorted picture for the US. Banks buy US debt because they have to due to regulation, other countries buy US debt as part of their economic policy, the net effect is that the US government is able to borrow money more cheaply that it should based purely on credit risk. Even so, the US is able to borrow money at historically cheap rates.

My understanding is that if current trends is health care costs and economic growth continue then in the long run the US will be unable to service its debt and maintain its current spending programs without raising taxes. Most spending is on the military, Medicare, Medicaid and Social Security, so there will be some difficult political decisions. However, that doesn't mean the US is close to a debt crisis today.

Re: Will America's debt doom us?

#182

Earlier quoted context omitted.

What do Republicans advertise they are going to spend money on? I'm only familiar with Democrats calling for free health care, free college, universal basic income, etc.

War and enriching military contractors, creating the TSA, subsidies to businesses that don't need them, etc. https://i.ytimg.com/vi/FiW5I95R5xg/hqdefault.jpg

Thankfully it looks like Neocon days are behind us with the retirement of the Old Guard.

Re: Will America's debt doom us?

#183
post #27

“If something cannot go on forever, it will stop.” [Herbert Stein] Every dollar we spend on interest is not spent on investment.

That’s not actually true. There more demand for liquidity than there are actual investments. That’s why government debt helps the economy. Same way poker chips help a casino.

Re: Will America's debt doom us?

#184
post #61

Of course it won't. Worst case scenario, if the economy tumbles, the government prints money to pay debt, inflation happens, confidence is shaken and the economy slows. But at the end of the day, an economy is characterised by its ability to produce things and keep people busy (working). Money is simply the value of labour and production shifting hands. The nominal value doesn't matter as much as the real value (ie.…

If you believe that inflating the debt away is a viable strategy then I have a 100 Trillion Zimbabwe dollar note to sell you for 40 cents. The Zimbabwe government tried that and look at what happened to their dollar! Also, I have a loaf of bread to sell you for $1,000.

Nowadays, America's largest export isn't soybeans or corn, it's the American Dollar. See this link for more info on the Petrodollar: https://www.thebalance.com/what-is-a-petrodollar-3306358

Re: Will America's debt doom us?

#185

Earlier quoted context omitted.

Maybe it's because of the difference in what's at stake: If the USA falls into a debt crisis the result will be global economic disruption. If the world falls into runaway climate change the result will be the extinction of the human race and possibly all life on earth. Personally I'm more comfortable with the possibility of the first than of the second.

There may not be much difference. Extinction of the human race is an exaggerated prediction, but more importantly, what do you expect the consequences of global economic disruption (to the level of taking the US down) to be? Take a look at history if you may.

[deleted]

Re: Will America's debt doom us?

#186
post #51

After Bretton-Woods, there is a lot of demand for US dollars as a reserve currency. And due to the petrodollar, US dollars are also needed to buy oil. The US is in a unique situation that lets it print a lot more money than other countries. At the end of the day, we will end this debt by printing money. Anyone buying bonds has to factor in the possibility that the US dollar the coupons are paid in will be devalued. I…

Re: At the end of the day, we will end this debt by printing money.

Normally this risks runaway inflation, but inflation has been subpar of late such that some "printing" may not hurt. However, it's a bad habit to get into.

To force discipline, we need something similar to a balanced budget amendment that allows Keynesian stimulus when warranted. However, it will probably have to have a "timer clause" to kick in several years away and gradually, because the side-effects could be a dampening of the economy, hurting current law-maker's reelection. Spreading the bitter medicine out over time may make it more politically acceptable.

Re: Will America's debt doom us?

#187
post #163
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.

The problem is, state debt is not like personal or corparate debt. If you cut your spending to pay of a loan, it is usually not a problem. If the state cut its spending to pay back a loan, it means people have to spent more money on another spot to make up for the budget cuts. We see this currently in Germany, the German government is proud of their budget but at the same time the infrastructure is crumbling, trains…

> The ideology to have little or no state debt is hurting the economy and will do so in the future.

Ideology can be pretty dangerous. This seems like your main point. Back up, though:

> [...] state debt is not like personal or corparate debt. If you cut your spending to pay of a loan, it is usually not a problem.

How is it less of a problem for a person, or for a corporation, than for a government, to have to reduce spending?

Re: Will America's debt doom us?

#188
post #163

Earlier quoted context omitted.

The problem is, state debt is not like personal or corparate debt. If you cut your spending to pay of a loan, it is usually not a problem. If the state cut its spending to pay back a loan, it means people have to spent more money on another spot to make up for the budget cuts. We see this currently in Germany, the German government is proud of their budget but at the same time the infrastructure is crumbling, trains…

German infrastructure is top-class, trains work quite well and bridges are not collapsing. May I ask where you got this from? EDIT Please don't turn this into a flame war. I am slightly worried about the effects of mainstream media, as I've seen these kind of posts on Reddit also. People keep hearing about the low/inexistent economic growth of countries like Germany or Japan and start thinking that these countries ar…

German news. We've been neglecting our infrastructure for at least a decade now, probably more. The above comment is exaggerating only slightly.

Re: Will America's debt doom us?

#189

Earlier quoted context omitted.

I wonder how people reconcile how it's OK to rely on progress to grow our way out of a debt burden but also incredibly irresponsible to expect progress to cope with our carbon problem. Both seem defensible to me but like they kind of need an adaptor to fit in the same worldview.

Maybe it's because of the difference in what's at stake: If the USA falls into a debt crisis the result will be global economic disruption. If the world falls into runaway climate change the result will be the extinction of the human race and possibly all life on earth. Personally I'm more comfortable with the possibility of the first than of the second.

The second actually involves the first, and this is the point we lose.

If we could have runaway climate change somehow not disrupt global economy, we could eventually tech our way out of it. But the game over point is when the economy stops, and humanity no longer has capability to slow down and mitigate the effects of warming. At that point there isn't much left of humanity anyway.

Re: Will America's debt doom us?

#190

Earlier quoted context omitted.

As opposed to the Republican platform of spending more money while cutting tax revenue?

What do Republicans advertise they are going to spend money on? I'm only familiar with Democrats calling for free health care, free college, universal basic income, etc.

The military and homeland security.

Also: A half reasonable single-payer health care system should save a lot of money over-all. The fiscal conservatives should be all over that one.

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