
Government to borrow nearly $1 trillion this year 84 percent jump from last year - gscott
http://www.chicagotribune.com/news/nationworld/politics/ct-spending-debt-analysis-20180203-story.html
======
seba_dos1
US government, in case you're like me and start with reading the comments
before checking out the article.

~~~
GunlogAlm
Thanks. My first question was "Government? _Which_ government?"

~~~
lifeformed
At this point I just assume any news article is based on the US by default,
unless stated otherwise.

~~~
ghostly_s
Both the city of Chicago and state of Illinois have their own well-publicized
debt problems, so I certainly assumed it was regarding one of those
considering the source.

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jhiska
So much for the lie that Trump would "end big gov".

More like end having a sustainable budget.

~~~
dragonwriter
> So much for the lie that Trump would "end big gov".

The Republicans like to talk about fiscal responsibility to attack “tax and
spend” Democrats, but when the Republicans are in power they are much more
inclined to cut taxes than spending (they certainly _redirect_ spending, but
they never cut as much as they cut taxes.)

~~~
fencepost
I believe "looting" may be the word you're looking for.

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jimrandomh
The word "borrow" is not entirely accurate. Exactly what happens when the US
federal government has a deficit is complicated, but it's closer to issuing
new money than it is to taking out a loan.

~~~
tryptophan
Not really - What I assume you are thinking about is the Fed buying the
treasuries(with their money printing skills) that are issued in their QE
program. However QE is winding down, and a larger and larger % of that
borrowed money comes from private investors using their own money. While after
the recession the fed was responsible for buying more than half of the
treasuries for years, those days are over.

~~~
jganetsk
Yes really. It's called modern money theory.

[https://www.youtube.com/watch?v=TDL4c8fMODk](https://www.youtube.com/watch?v=TDL4c8fMODk)
[https://www.nytimes.com/2017/10/05/opinion/deficit-tax-
cuts-...](https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-
trump.html)

The US federal government pays for things by crediting bank accounts (hence
money creation). The fact that the federal government also issues Treasury
securities is a political constraint, not strictly required from a technical
standpoint. The Federal Reserve then uses Treasures as a reserve drain when
they are trying to hit their overnight interest rate targets.

~~~
tryptophan
The way I understand it is that the fed has to(maybe not in law, but in
practice) sell securities to accomplish its mandate of maintaining a stable
currency. If they did not then it would cause lots of inflation. Is that
correct?

~~~
jganetsk
[https://en.wikipedia.org/wiki/Open_market_operation#United_S...](https://en.wikipedia.org/wiki/Open_market_operation#United_States)

They are mainly trying to control the size of bank reserves by buying and
selling securities, with the goal of hitting a target interest rate. When they
are worried about inflation, they increase interest rates.

------
tbronchain
It still amazes me how governments manage to keep borrowing money while being
in constant growing deficit. Is there such thing as a real trust in the future
possibility of paying the debt back? Or is it a hope of taking as much money
as possible while there are inflation opportunities? - then generating more
and more inflation. The first option is interesting, the second one quite
scary and I can't help thinking Ponzi. Anyone with a better understanding of
economics could help seeing a little bit better through this?

~~~
MarkMc
The US government has a long history of repaying it's debts. I'd say that can
continue indefinitely, so long as the debt-to-GDP ratio remains manageable.

~~~
hn_throwaway_99
> I'd say that can continue indefinitely, so long as the debt-to-GDP ratio
> remains manageable.

What's the quote about "To believe you can have infinite exponential growth in
a finite world means you are either crazy, or an economist."

~~~
MarkMc
Actually my statement doesn't depend on exponential growth. If in future GDP
were to switch from exponential to logarithmic growth, debt would still be
serviceable as long as it also switched to logarithmic growth.

~~~
hn_throwaway_99
Come on, that's silly. At some point, for all intents and purposes in the real
world, logarithmic growth would essentially mean "no growth". Splitting hairs
between the continuous math and the math to a reasonable level of precision
doesn't add clarity to your statement.

~~~
MarkMc
OK maybe over hundreds of years US GDP will go from exponential growth to
linear growth, to logarithmic growth, to eventually "no growth". If total debt
mirrors this trajectory, can't the US government continue repaying its debts
over this period, even at the "no growth" stage?

------
dandare
Funny thing I learned recently - the US federal budget deficit has little to
do with how much the government borrows: federal institutions can borrow money
on their own, that is why for instance the US government debt can grow faster
this year even if the deficit is lower than the previous year.

------
Gustomaximus
I've can't understand why this isn't more of a concern;

\- The rate of increase is taking this debt rapidly to somewhere
unsustainable.

\- With the fractured politics this becomes so much more dangerous/likely to
be an issue.

\- Interest rates are pushing up adding to the servicing costs, currently
about 500 billion/yr and probably likely to become the single largest payment
line on the federal budget.

\- Pension funds are going to be increasingly liquidating treasuries as
boomers retire and they hit their own funding issues.

\- Countries like China are selling off holdings.

\- The debt is going to be an increasing drag on the economy to grow or safely
inflate out of it.

\- I cant see the political parties reducing military or social security costs
of any significance to reduce the growing pressure.

The only positives seem;

\- The amazing strength and scope of the US economy.

\- Trump once proposed a one-time wealth levy/tax to pay this down, so if this
happened it would be a game changer.

So I do believe the US is capable of sorting this out if the political
will/intelligence was there. But I dont see this mood and feel people like to
kick the can down the road these days. Time will tell.

~~~
jganetsk
There are a lot of misconceptions about the nature of national debt. You
should read about Modern Money Theory.
[https://www.youtube.com/watch?v=TDL4c8fMODk](https://www.youtube.com/watch?v=TDL4c8fMODk)
[https://www.nytimes.com/2017/10/05/opinion/deficit-tax-
cuts-...](https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-
trump.html)

Remember, the US is monetarily sovereign. The government has the ability to
create and destroy US dollars. Things you don't need to worry about:

\- Default. If it happens, it would be a purely political move, not an
economic or financial one. The US federal government can always afford
payments. A check from the federal government never bounces. They can always
just credit bank accounts. In fact, the government can abolish the debt
instantly. They can simply redeem all Treasuries with bank reserves.

\- Interest rates. The Federal reserve controls short-term interest rates. And
the supply of long-term Treasuries doesn't impact interest rates: increased
government deficits lead to an increase in the size of bank reserves which
lead to an increase in demand in Treasury bonds that matches the increased
supply, since banks want to swap low-paying reserves with higher-paying debt
instruments.

\- China. Treasuries are like a savings account, while bank reserves are like
a checking account. If China or pension funds (or anyone) sell off their
Treasuries, it's akin to transferring money from a savings account to a
checking account. What's the harm in that? And why would they do that? That
would decrease their interest income.

Here are real concerns about ballooning national debt:

\- Inflation. This can happen since the government is stimulating aggregate
demand, in a classical Keynesian way. But it hasn't happened for a while, and
if it does, the government can raise taxes. That shrinks the debt and
decreases aggregate demand.

\- Foreign exchange. With all the new USD floating around (because government
spending = money creation and taxation = money destruction), there's a risk of
a weaker dollar. But that has its upsides. And China's currency peg at least
keeps the prices of Chinese goods fixed.

\- Spending it unwisely. The government can't buy everone a pony. There aren't
enough ponies in the world, and it would wreck the pony market.

~~~
Gustomaximus
Thanks for the comprehensive answer. From some of your points I see it
differently;

NYT article: This comes from an economist that loves to push MMT. I actually
studied economies under the guy that coined this term. He's a super smart guy
but I dont agree with it in the theory probably works in a bubble. It seems a
classic case of academia vs reality. Very unusual for economists haha. I'd
suggest you read some criticisms of MMT if you haven't before you push it as a
truism.

\- Default: This attitude is cant happen to a monetarily sovereign nation is a
little ignorant of history. Sure US can print/credit but then inflation. And
being the worlds reserve currency give a bunch of leeway but this isnt a fixed
variable, and is increasingly under threat. End of the day it's a confidence
point and the US can lose this creating a run domestically and/or
internationally.

\- Interest rates are only under control while the market has confidence they
will be repaid. Sure some FI's are held to a certain level of treasuries but
plenty of existing market demand can leave, taking with it the Feds ability to
control rates. At the end of the day if the risk/reward ratio get outta whack
the fed will lose their ability to control rates at any scale and especially
when they attempt to recycle existing debt.

\- China. I dont understand your logic here. It's a supply and demand market.
If its (do I understanding you?) as easy as the Feb buying up any excess
demand that is a limited game. The FED probably did well with QE but that's a
limited tool, needs to unwind at some point, and we wont truly know the effect
for some time.

Inflation: Possibly. What if we hit stagflation? And US has a strong
resistance to tax increases. There is a possibility for US to inflate their
way out of this debt. It would need to be well managed for many decades which
seems low probability with the current political management.

Don't get me wrong. I am not saying default will happen. We'd needs some
serious events to trigger this. I do feel it is a possibility and am amazed
some people feel it's in the risk likelihood of a meteor strike.

~~~
jganetsk
\- Default: Yes it can happen, but it's voluntary and done politically. It's
not a technical requirement. The US government can always service the debt.
Here's an article from the Economist, "Countries rarely default on their debt"
[https://www.economist.com/news/finance-and-
economics/2173280...](https://www.economist.com/news/finance-and-
economics/21732808-venezuela-exception-rule-countries-rarely-default-their-
debts)

\- Interest rates: the Fed controls overnight interest rates, afaik. But what
happens with long-term rates is that the Fed uses those bonds as a "reserve
drain". [https://www.nakedcapitalism.com/2010/08/why-treasury-
bonds-d...](https://www.nakedcapitalism.com/2010/08/why-treasury-bonds-do-not-
fund-our-federal-deficit.html) Long term interest rates have been going down
for decades, despite the size of the debt consistently going up.

\- China: the point is that they already have over $1 trillion in Treasuries,
what is the difference between holding Treasuries vs holding cash? It's just
two different kinds of bank account at the Federal Reserve. And the former
pays interest, so why convert to the latter? They would only do so to spend
it. Which either means a trade surplus for the USA (a boon for the economy) or
converting their holdings into another currency, which just means transferring
ownership of the Treasuries to someone else. In both cases, inflation and
foreign exchange rate are the biggest risk. Do you think there is interest
rate risk here? As for the Fed, I don't see limits to their powers.

\- Inflation: I see the causality in reverse. Increased government debt leads
to inflation (because government debt is money, money supply has gone up, and
aggregate demand through government spending has gone up) rather than the
government trying to inflate to pay off the debt. Stagflation in the 70s was
caused by a supply shock (oil prices). If inflation happens because of the
money supply, then the government can fix that problem by shrinking the money
supply. If it happens for other reasons, then the government needs to address
those issues. What is the problem with the debt then? How is that a concern?

------
ohiovr
Intentionally slashing revenue for political gain has consequences.

------
bedhead
We live beyond our means, have unsustainable quality of life. Gonna catch up
one day.

~~~
adventured
Fortunately we don't have an unsustainable quality of life.

It's pretty simple mathematically. Not so simple politically.

You slash $250 billion off the US military. You slash $100 billion in
local+state+federal spending off of all the activities related to the war on
drugs.

You very lightly cut entitlements.

You raise taxes on the top 10% by quite a bit. You raise taxes on the next
quarter by a modest amount.

Your budget is now close to break-even. You haven't impacted the standard of
living of ~95% of Americans at all.

Quite the opposite, you just dramatically boosted the long-term prospects of
the quality of life for the average American. Hundreds of billions in wasted
revenue can now flow into highly productive use over time, whether healthcare
or transportation/infrastructure (or just not running up debt interest by
exceeding the budget). Just by not running up that debt interest, you'll save
trillions of dollars over time.

If you really wanted to dramatically boost the US standard of living, you'd
squeeze the healthcare cost monster to death. The monetary benefit of that
system overwhelmingly flows to the top quarter of Americans, who are already
doing extraordinarily well. We have a ton of room to work with in that area,
that could improve our situation by hundreds of billions of dollars per year.
It's not even necessary to get creative, all we have to do is begin copying
any number of several highly function systems from around the world.

Cutting the military etc. will harm the economy you might say? Except that's
obviously wrong. It'll further unleash the economy, releasing that money to
far superior productive, compounding use. Most US military spending is for
soldiers, who are contributing very little to the US economy as is versus
their peers, their labor is low productivity and low innovation. They make
nothing, they're nearly strictly consumption engines. No other prosperous
developed economies have the need to spend on such things at such a high rate,
neither does the US. It merely requires that the US accept that it's not the
world police and doesn't need to be.

~~~
d--b
Definitely agree with all that. Yet this is all quite unpopular.

I can't help thinking that all economic woes are self inflicted because of bad
culture.

------
hkmurakami
More relevant would probably be the net increase in the cost to service the
debt?

~~~
Gustomaximus
A good measure is Debt to GDP to allow for economic growth etc.

[https://tradingeconomics.com/united-states/government-
debt-t...](https://tradingeconomics.com/united-states/government-debt-to-gdp)

A common rule of thumb is 120% means debt is in serious trouble.

Here is a comparison of the G20: [https://tradingeconomics.com/country-
list/government-debt-to...](https://tradingeconomics.com/country-
list/government-debt-to-gdp?continent=g20)

------
jaequery
What will come first guys, the San Andreas fault letting go or the American
stock market bubble? Both been steadily developing for quite some time now.

------
mythrwy
[http://www.businessinsider.com/the-costs-of-us-wars-have-
lin...](http://www.businessinsider.com/the-costs-of-us-wars-have-lingered-for-
more-than-100-years-2013-3)

The US is (or was as of 2013) still making payments to children of Civil War
veterans. Granted it's only 2 of them and less than a grand a year apiece but
still.

------
geggam
The question I have is if the govt is truly printing our currency who is the
govt borrowing money from. If the govt was truly making more money then it
would simply balance the books by making enough money.

When you start talking about the Federal reserve as a non govt entity people
call you crazy. Yet I have not heard why the govt borrows money from the govt.

~~~
wavefunction
The GOP offers tax cuts to the wealthy, inducing a higher debt-load for the
US.

The wealthy turn around and buy US government bonds.

The rest of us pay the wealthy bond interest and pay taxes against the debt
accrued by offering tax cuts to the wealthy so they could buy US bonds.

------
ramzyo
Previous discussion:
[https://news.ycombinator.com/item?id=16300892](https://news.ycombinator.com/item?id=16300892)

------
Zigurd
I thought we would get stagflation after 2008. Then I thought Janet Yellen was
going to actually unwind qe without inflation or high interest rates. And now
a goofball pseudo president could screw it all up.

------
rokhayakebe
Geniune question: Instead of printing new money, would it be a good idea for
the government to launch a cryptocurrency and raise the money that way? This
would be a gov backed coin. Thoughts.

~~~
knieveltech
Beyond providing employment for a few folks involved in implementation and
systems maintenance, in what way does launching a government-backed
cryptocurrency benefit over the existing state-backed currency?

