
55% of the US National Debt Is the Result of Repaying Debt with More Debt - Four_Star
http://thesoundingline.com/taps-coogan-55-of-the-us-national-debt-is-the-result-of-repaying-debt-with-more-debt/
======
stephen_g
I think the biggest thing to keep in mind is that the Federal Government of a
monetarily sovereign nation (like the US, UK, Japan, Australia, etc.) plays by
different rules to a household or business.

This could be a massive problem if the debt was denominated in a currency
other than US dollars (which the US Government controls the monopoly currency
issuer for). But since all of the US's debt is in US dollars, and they're not
constrained by artificial limitations like commodity convertibility or fixed
exchange rates, it's just an interesting fact that doesn't actually really
matter much.

The real killers are excessive private sector debt, and even worse, debt
denominated in a foreign currency.

~~~
SkyMarshal
The notion this can go on indefinitely with no repercussions just bc the debt
is denominated in our own currency doesn’t square with reality. Everything has
a cost.

~~~
maxerickson
The big cost of the national debt is that we have stuff now instead of later.

~~~
damptowel
That’s only true of external debt. I.e. debts owed to other currency areas.
Government debt is just the number of funds from the currency originator
(central bank) to it’s distributor (treasury). Both institutions are a subject
of the nation state, which is controlled by the government. So it’s not a
“debt” in any colloquial sense of the term, neither is it an intergenerational
transfer, since the souvereign nation state is an institution that both
creates and enforces it’s own currency... which by definition implies it can
create as much money (“debt”/“credit”) as it seems fit.

~~~
maxerickson
Yeah, "instead of later" would have been better constructed as "instead of
waiting".

------
bubbleRefuge
Articles like this are killing us, because they reinforce a false analogy that
the federal government is like a business or a home. This is killing us
politically. Its a shame.

This is the way modern monetary systems work (sovereign fiat money). Its
healthy and totally normal. Federal debt is not debt that private citizens are
liable for. A treasury security is like a CD, or savings account. Since the
Federal Government Complex ( including the Federal Reserve Bank) can issue
currency to infinity, there is no problem here. When a treasury security
expires or is redeemed, they merely changes numbers in a spreadsheet. 99% of
the time those "funds" are moved back into a new treasury security. There will
always be demand for interest bearing risk free government debt.

go read
[http://neweconomicperspectives.org/](http://neweconomicperspectives.org/) its
all there.

~~~
JumpCrisscross
> _Since the Federal Government Complex ( including the Federal Reserve Bank)
> can issue currency to infinity, there is no problem here_

You just broke central bank independence, and with it the political
independence of monetary policy. Historically, that leads to rampant
inflation. The federal debt isn't like household debt. But it can't be printed
into infinity. The U.S. government's debt incurred as a result of fiscal
policy ( _i.e._ not including the Federal Reserve's debt, which technically
includes every dollar bill) has real consequences in constraining the
government's taxing and spending power without tripping up inflation.

~~~
damptowel
Government debt isn’t “debt” in the classical sense. Let me suggest an
analogy: a bank lends you a loan at intrest, but no expiry date. You can pay
back the loan at _any_ point in the future. Not only that, the bank has no
ways of enforcing you to pay it back through legal action. On top of that, you
are infinitely credit worthy, you can get as much loans as you want, including
loans to cover existing loans. Would you consider this a “debt”. The answer is
that it’s nothing like a debt in any meaningful sense of the term, it is
merely a label used because of accounting convention.

Could you “print”* an amount of money several times the world GDP and get
inflation?

That depends whether te money is circulated at all. Inflation is not a
function of the money stock, it happens when sellers collectively mark up
their price above current market rate. This is easier to do with rising
expectations of higher return. The money stock is not some magical denominator
on top of a real goods numerator.

*(it’s really just incrementing a number in a database, zero production cost, so print is another misnomer)

~~~
nybble41
Forget the currency aspect, which is nothing but a distraction. What matters
is the balance between production and consumption. Without debt one must first
produce goods before one can consume. Individuals can get around this by
taking out loans, borrowing the opportunity for consumption in the present
from someone else with a positive balance. For society as a whole, however,
there is no avoiding it: goods which have not yet been produced by _someone_
are not available to be consumed. Introducing new currency in order to fund
consumption disrupts the balance, since there is no production to offset the
consumption. The result is that society becomes poorer; capital is consumed
without replacement, productivity falls, and goods become less affordable. (By
this I refer not not only to rising prices, but to prices rising faster than
wages, a increase in the cost of goods even after adjusting for the change in
money supply.)

> Inflation is not a function of the money stock, it happens when sellers
> collectively mark up their price above current market rate.

The term "inflation" has multiple definitions. Yours is popular in political
circles but is not very useful as an economic indicator because it conflates
ordinary changes in prices due to supply and demand of goods and available
production capacity with changes due to shifts in the money supply. The
general increase in prices which results from consumption of capital is
nothing like the change in prices which accompanies a deliberate increase in
the supply of money. The former is a useful economic indicator which suggests
a need for more saving and prudent investment, while the latter offers nothing
but noise and tends to encourage malinvestment and waste.

------
TheSpiceIsLife
A couple of ways I can think of real quickly that this is meaningless:

1\. All money is debt insofar as it only represent goods as services yet to be
rendered, an I Owe You as it were

2\. If an entity is able to continue borrowing (more and more) money it
represents a willingness of lenders to _lend_ , which is a direct
representation of their faith in that entities ability to service the debt

3\. Whether a nation-state should balance it's budget is more a philosophical
question coloured be ideology rather than a pragmatic concern.

4\. If you believe the good times are going to keep rolling, and any bad times
will, on average, pass relatively swiftly (people do have a tendency to
persevere), then not borrowing money results in a lost opportunity cost.

I'm sure someone can respond with some equally convincing reasons as to why
nation-states shouldn't run a deficit.

Go!

~~~
mindslight
> _1\. All money is debt insofar as it only represent goods as services yet to
> be rendered, an I Owe You as it were_

You're drawing a false equivalence. A dollar (or a gold bar) does not
represent a _specific amount_ of goods or services that any _specific
counterparty_ is bound to deliver. So in general no, money is not inherently
debt.

> _4\. If you believe the good times are going to keep rolling, and any bad
> times will, on average, pass relatively swiftly (people do have a tendency
> to persevere), then not borrowing money results in a lost opportunity cost._

On the flip side, creating inflation channels wealth up towards the top, to
those who are able to better bear the burden of roundtripping through the
inflating assets rather than saving in dollars. Plus the lagging effect of
wages means that they only rise after the people earning them are feeling
enough pain to demand more.

Even taking the CPI calculation at face value, it does not represent the whole
of inflation. We would expect prices in a technological economy to be level or
_trending downwards_ , due to basic market optimization. Every time some
innovation makes things "cheaper" and yet their real prices still go up, we're
getting hit twice!

I'd say the long term effects of centralizing the economy (ie the wealth
imbalance we're dealing with now) are more harmful than forgoing a little top-
down metric of "growth". We have a "shortage of jobs" precisely because people
at the bottom are still stuck chasing 40 hours a week to service debt, rather
than having been able to build wealth (ie economic negotiating power) in
dollars.

And of course all that too-hot "growth" is occurring by churning through real
natural resources, suboptimally even. If you care at all about sustainability
or global warming, and you don't look at the US's monetary policy and weep,
you need to study deeper.

~~~
damptowel
> You're drawing a false equivalence. A dollar (or a gold bar) does not
> represent a specific amount of goods or services that any specific
> counterparty is bound to deliver. So in general no, money is not inherently
> debt.

This is confused. A dollar is a debt/credit dual created by central bank and
private finance operations.

A dollar is a unit of monetary accounting, a physical dollar is a token
representation of a debt/credit entry inside an accounting ledger.

A bar of gold is a commodity denominated in a monetary value. It is not a
token representation of a state enforced contract.

~~~
mindslight
Yes, a dollar does represent a coupled obligation of someone out there to
collect it (or another dollar) in order to satisfy their debt. I do agree that
a dollar is therefore debt-based money.

What I was refuting was OP calling all currency in general "debt" based on it
having little "intrinsic use", and therefore only useful for what it can be
traded for.

------
arcbyte
There's a lot of talk about how the Federal Gov't isn't like a household or
business. It is different, but not to extent that people who preach that like
to pretend.

That aside, I wonder what opportunities and paradigm shifts we are missing out
on by being ok with all this debt, good or not.

The American gov't is so far in the hole that it doesn't have ANY wealth! What
if we built up a Sovereign Wealth Fund such that we could completely eliminate
taxes and fund all government activities from the interest? What would that
world look like?

~~~
UncleMeat
Funding the government on interest is going to require more than 100T in
capital.

~~~
arcbyte
US GDP is 18T, which means we only need 5 years worth of GDP.

If we saved/invested a surplus each year equal to the amount we reduced the
public debt under Clinton in the year 2000 - $230 billion and assumed the 4%
annualized returns - the same rate you're requiring for your 100T figure - for
75 years, we'd have 100T.

------
sp332
It's an interesting point and something that we should talk about. But the
article doesn't really make the case that this is a waste of money. If it was
advantageous to take on the debt in the first place, it might also be
worthwhile to keep the debt on the books now. Presumably there is an interest
rate at which it will stop being worth servicing the debt, but I don't really
know where that point is.

~~~
readhn
well the game will continue until you cant service your debt payments anymore.
Then you default. Crisis, pain, recession. Rinse then repeat.

[https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises](https://en.wikipedia.org/wiki/List_of_sovereign_debt_crises)

~~~
sp332
There's an alternative to defaulting on debt and that is to pay it off. Is
there even a case to be made that we are in or near a crisis?

~~~
jsoc815
> _There 's an alternative to defaulting on debt and that is to pay it off._

I think it's in one of my CFA books -- definitely in other materials I have or
have viewed--, but I think the point of the game is to trade as much
intrinsically worthless fiat for extrinsically valuable stuff as possible. If
and/or when one exhausts one's ability to trade the fiat, then one is supposed
to walk away _a winner_ , so to speak.

This sort of came yesterday in a C-Span program, when a caller essentially
asked what backs the USD.[1]

[1] [https://www.c-span.org/video/?448590-3/washington-journal-
ch...](https://www.c-span.org/video/?448590-3/washington-journal-chris-condon-
discusses-federal-reserve-us-economy&start=1699)

------
_bxg1
I was much more sad when I initially thought this was talking about the debts
of individuals.

~~~
readhn
Consumer debt is at all time high as well.

[https://www.newyorkfed.org/microeconomics/hhdc.html](https://www.newyorkfed.org/microeconomics/hhdc.html)

~~~
seanmcdirmid
With inflation, GDP growth, and population growth, that is generally true at
any time.

~~~
graedus
I briefly searched for inflation-adjusted debt per capita but couldn't find
it.

There is the federal debt to GDP ratio, which is 105%. This is at least a
50-year high[0]. FRED's household debt to GDP data doesn't go back very far,
but we can see it's off the highs off 2008[1]. (edit: added household debt to
GDP)

[0]
[https://fred.stlouisfed.org/series/gfdegdq188S](https://fred.stlouisfed.org/series/gfdegdq188S)

[1]
[https://fred.stlouisfed.org/series/HDTGPDUSQ163N](https://fred.stlouisfed.org/series/HDTGPDUSQ163N)

~~~
JumpCrisscross
> _I briefly searched for inflation-adjusted debt per capita but couldn 't
> find it_

You're looking for household debt to GDP [1]. It is a real (versus nominal)
statistic because it's a ratio between two nominal terms. It also communicates
financial health better than a per-capita term, since it measures against
production.

[1]
[https://fred.stlouisfed.org/series/HDTGPDUSQ163N](https://fred.stlouisfed.org/series/HDTGPDUSQ163N)

~~~
graedus
I managed to find that - thanks!

A few other interesting angles: Household Debt Service Payments as a Percent
of Disposable Personal Income[0] (10.3%, near 40-year lows), Consumer Debt
Service Payments as a Percent of Disposable Personal Income[1] (5.9%, near
40-year average), Personal Saving Rate[2] (3.2%, near 50-year lows).

[0]
[https://fred.stlouisfed.org/series/TDSP](https://fred.stlouisfed.org/series/TDSP)

[1]
[https://fred.stlouisfed.org/series/CDSP](https://fred.stlouisfed.org/series/CDSP)

[2]
[https://fred.stlouisfed.org/series/PSAVERT](https://fred.stlouisfed.org/series/PSAVERT)

~~~
readhn
Part of the problem might be that it became harder for folks to obtain debt
(mortgages specifically).

------
koverda
What happens if the US inflates away the national debt?

~~~
logfromblammo
The interest rates go up on the new debt instruments issued to make payments
on the old debts.

------
thetaclear
This reminded me of a documentary I watched quite a while ago: The Money
Masters -
[https://www.youtube.com/watch?v=HBk5XV1ExoQ](https://www.youtube.com/watch?v=HBk5XV1ExoQ)
I always wondered which parts are an accurate description of the current
monetary system and which are unfounded conspiracy theories.

------
swebs
Where are these interest payments going to? Who profits off the US being
perpetually in debt?

~~~
sp332
The treasury has a one-page breakdown of the kinds of debt.
[https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opd...](https://www.treasurydirect.gov/govt/reports/pd/mspd/2018/opds062018.pdf)
It's not a deep dive but I thought it was a great overview for fitting on one
page.

(edit: more recent link)

~~~
5874-4b22-a4e0
19k could be paid off by a single person, has this increased in the last two
years?

~~~
bannable
Take another look at the table - the values are denominated in millions of
dollars, and that second symbol is a comma, not a period, so it's 19 million
million.

------
ToFab123
From whom do the borrow all that money? Who "owns" America?

~~~
bjl
A sizeable majority of US Treasuries are owned by American citizens.

------
justsomedude43
If you lend money to yourself, why not just write the debt off?

~~~
nybble41
Because we're not actually borrowing from ourselves, we're borrowing from
future generations. That said, there is no plan (or will) to ever pay back the
debt, so the difference is academic. The politicians will just keep borrowing
(i.e. spending; it makes zero difference whether the funds come from loans or
inflating the currency supply) until there is no capital left to consume.

~~~
justsomedude43
How can there be no capital left to consume if the borrowed money has no
support to back it up? You're saying we're borrowing from future generations
which is like saying we're borrowing money from air. If we're borrowing money
from non-existent source then there is an endless supply of the money, isn't
there?

And if there's no plan to pay it off, then why not just write it off? It makes
no difference, the whole effect is psychological.

~~~
nybble41
Money _per se_ is irrelevant; it's what you can buy with it that counts.
Normally, to get money you have to produce something; when you spend that
money you're claiming your share of what has been produced. If you buy on
credit (with intent to repay) then you're committing your own future
production capacity towards paying off the loan, with interest. If we want to
hand our descendents a world at least as good as the one we received from our
ancestors then we need to produce at least as much as we consume—more,
actually, since some of that production will need to be dedicated toward the
preservation and maintenance of capital (production capacity). If we borrow
without any intention of ever paying down that debt, or (equivalently)
introduce new money out of thin air in order to fund consumption, then the
equation is unbalanced; there is no production to offset that consumption.
That implies a reduction in capital investment (again: production capacity),
which means goods will be harder to produce and thus more scarce in the
future, which means a poorer quality of life for future generations.

> And if there's no plan to pay it off, then why not just write it off? It
> makes no difference, the whole effect is psychological.

On that point I agree with you. However, I am arguing that we _should_ plan to
pay it off, and thus do our part to maintain and improve this world before
handing it off to our children.

------
hcurtiss
And it breaks my heart that both parties are to blame.

~~~
ebikelaw
Yes, a real heart-breaker.
[http://zfacts.com/p/318.html](http://zfacts.com/p/318.html)

------
tiatia123
"Debt Is the Result of Repaying Debt with More Debt"

Actually, you can pay debt only with more debt. This is fundamental to
capitalism and reason for it's dynamic and future downfall.

"In order to pay back debt with interest, it is necessary to have economic
growth, and financial growth and growth in fossil fuel use are very closely
tied." [https://ourfiniteworld.com/2011/02/21/there-is-no-steady-
sta...](https://ourfiniteworld.com/2011/02/21/there-is-no-steady-state-
economy-except-at-a-very-basic-level/)

------
yuhong
This reminds me of selling Bitcoin in order to pay off debt.

~~~
readhn
more like paying off one credit card with another that has higher APR.

Next big crisis might be a sovereign debt crisis on a global scale. The only
question is how long this can continue...until SHTF.

~~~
amsheehan
I don't think you read it correctly. What we're doing, indeed what we've done
since 2008, was borrow at a historically _low_ interest rate to pay back
interest and debt bought at a higher interest rate.

------
rdiddly
_" This interest includes repaying principal."_

Stop right there. Something's fishy with the terminology/math/reasoning then,
no? If the "interest" includes principal, then _what is the interest?_ It's
like saying "Use one cup of flour and water" or "The size of my penis is 6
feet including my height."

Here's what let's do: subtract the principal from the interest. That should
leave you with the interest only. Therefore

I - P = I

Subtract I from both sides...

-P = 0

Divide by -P...

1 = 0

This is the axiom of Black Math.

~~~
Four_Star
That's the way reporting on the repayment of the national debt is done. The
point of the article is unchanged. Those familiar with Treasuries will
understand

If I run a deficit of 100 dollars, borrow 100 dollars and I repay the loan by
borrowing 100 dollars and the interest on both is 10 dollars, than I owe 220
dollars but I only got 100 dollars of real spending.

That is what the article is saying. of the $21.4 trillion in debt, only $14
trillion funded deficits and half of those deficits were the results of
rolling debt over.

No funny math at all

~~~
rdiddly
My point is that it's bad terminology, which I show by proving it leads to bad
math. I notice at no point do you refer to the $10 as including part of the
$100 in either case, so apparently you agree.

------
teslabox
This is an inevitable consequence of basing the money supply on debt. The
Federal Reserve banks are responsible for making money and loaning it out into
circulation. There is never enough money to pay back the interest on the
loans, so the federal reserve loans out a little bit more every year.

A solution to this quandary was figured out in 2011. Due to a quirk in the
laws, the US Government has the ability to issue platinum coins of any value.
These 'coins' never have to be paid back. The U.S.'s national debt could be
retired by minting a couple "trillion dollar coins":

[https://en.wikipedia.org/wiki/Trillion_dollar_coin](https://en.wikipedia.org/wiki/Trillion_dollar_coin)

The Federal Reserve does a decent job at keeping the money supply growing at
less than a hyper-inflationary rate, but the value of our money has collapsed
since I was a kid, since we all were kids...

~~~
JumpCrisscross
> _This is an inevitable consequence of basing the money supply on debt_

Not really. The U.S. government ran surpluses in the nineties. This led to
hand-wringing as banks imagined a world without Treasuries, which would make
collateralisation quite complicated. (We had the same "not enough safe assets"
conversation after the financial crisis.)

The U.S. government could wipe out its debt. The Federal Reserve couldn't, as
every dollar bill is technically a Federal Reserve note, but that's a
different beast.

~~~
teslabox
I'm saying that under the Federal Reserve system, the total indebtedness of
the U.S. economy must always increase. If the government starts to pay off its
debt, the private sector must increase its debt levels. If the economy doesn't
keep borrowing money, the money supply would rapidly collapse, leading to a
deflationary spiral.

The only money that never has to be paid back are coins.

Do you have an alternate understanding of our monetary system?

