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Will America's debt doom us?

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Re: Will America's debt doom us?

#81

Post by cthalupa »

NTDF9 wrote: post #3
whatshisface wrote: post #2

The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causin…

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 govt doesn't have this ability to print money and pay debt. The Fed does.

The Federal Reserve is part of the government. The Board of Governors is an independent government agency, with members appointed by the President. The individual banks are set up more like private corporations, but it's the Board of Governors that set the orders for new money being minted. Saying that it isn't the government that has the ability to print money and pay debt when this is the case is a little obtuse.

Re: Will America's debt doom us?

#82

Post by JohnFen »

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…

> It's denominated in dollars that the government can create for "free".

The government cannot create wealth "for free". It can print more dollars, but in doing so it makes each dollar worth less. No wealth is actually gained.

> there are knock on effects of creating enough dollars to zero out the debt

Doing that is impossible, though. Reducing the value of a dollar means that you'll need even more dollars to repay that debt than you would have needed otherwise. There is no net gain here.

Re: Will America's debt doom us?

#83

Post by littlestymaar »

_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.

Debt/GDP ratio for a state doesn't make more sense than a debt/turnover ratio for a company.

> years of productivity

You got the units wrong: the GDP isn't productivity, it's production (it's even consumption actually,but this is another subject).

Re: Will America's debt doom us?

#84

Post by AnimalMuppet »

pjc50 wrote: post #33
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?

But why would you do that? That forgoes growth and investment now in exchange for .. what exactly?

Future freedom of action. Being in debt can constrain your future options. If nothing else, it can reduce peoples' willingness to lend to you later when you need them to.

Re: Will America's debt doom us?

#85

Post by mylons »

i read some speech from a chinese community party member who's in charge of some aspect of financial planning, and they're basically counting on this happening. the speaker said the debt was more or less impossible to recover from, and it's just a matter of time and patience.

Re: Will America's debt doom us?

#86

Post by mrfredward »

JackFr wrote: post #36
topkai22 wrote: post #26

Earlier quoted context omitted.

His proposed alternate metric, interest as a percentage of tax revenue is also deeply flawed- it misses the obligation to pay the principal, which has tripled since the low point in the early 2000s. I like the finance wonks word for debt- leverage. Taking on debt is like going out further on a lever- the debter is more exposed to swings in the overall economy. While it's worked out fine so far, a high debt to gdp rat…

> it misses the obligation to pay the principal But you never really have to do that. You can just keep rolling them. If we could keep the debt at the same absolute level inflation and productivity increases would drive it into insignificance. Of course the idea of keeping it at the same level is a fantasy.

While the government will almost certainly never pay down it's debt completely, looking at the effort needed to pay off the debt is a useful way to ground the discussion of debt when future interest rates are unknown.

In the last 40 years, the 30 year treasury bond has gone for rates of less than 2% and more than 14%. The interest as a percent of tax revenue metric would have predicted the death of America in the 1980s, while oppositely making it look like things will be forever rosy today. Neither of those perspectives accurately characterizes the debt burden.

Re: Will America's debt doom us?

#87

Post by dpc_pw »

yasp wrote: post #80
dpc_pw wrote: post #67

Earlier quoted context omitted.

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.…

> How else would your explain negative interest rates? Um, central banks that are charging negative interest on reserves.

No. :D

Re: Will America's debt doom us?

#88

Post by opportune »

wang_li wrote: post #76
metabagel wrote: post #65

Earlier quoted context omitted.

Rather, President George W. Bush used the existence of the surplus as a reason to enact two tax cuts. Those tax cuts, their extension (mostly) by Obama, the Trump tax cuts, the wars in Iraq and Afghanistan, and sizable increases in the defense budget are the major contributors to the budget deficit and hence the accumulation of debt since 2001.

You left out the fact that nearly 2/3 of Americans are net tax recipients. Everything that the government does at all levels is paid for by either debt or the highest 40% of earners.

Why is this supposed to be surprising or relevant?

Re: Will America's debt doom us?

#89

Post by AnimalMuppet »

NTDF9 wrote: post #47
pjc50 wrote: post #37

Earlier quoted context omitted.

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 fu…

Historically, recessions have not played out the way you describe. (Never, IIRC.) So I think your theory is flawed.

Re: Will America's debt doom us?

#90

Post by SomeOldThrow »

The only real problem is resource distribution. While we have the resources we’re gonna be fine. So power adjusts and America has less. As long as I’m eating I don’t care. If the government won’t feed its people, well, that leaves something truly magical in the air.
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