
The US Government Interest Expense Was 93% of Military Spending in 2018 - Four_Star
https://thesoundingline.com/in-brief-the-us-government-interest-expense-was-93-of-military-spending-in-2018/
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rpiguy
Moderate tax cuts to spur growth with a modicum of spending restraint will
produce a surplus, as we witnessed with Bill Clinton coupled with a Republican
congress (when Republicans still had some interest in spending restraint).

The problem, however, is many fold. Bill Clinton largely benefited from a
"peace dividend" in that the US was ramping down military spending post-Cold
War. We have since reversed course dramatically to support the "War on
Terror."

Second, the debt is now so huge, that even if we managed to regularly run a
modest surplus it would take many (perhaps hundreds) of years to to reduce the
national debt back to manageable levels.

Massive tax hikes would slow the economy, and the chance that any of the tax
revenue would actually go to debt reduction is highly dubious based on
historic patterns.

So yeah, we need some new solutions, or just wait for the global finance
system to collapse for good and pick up the pieces and start fresh (with
likely horrific short term consequences for infrastructure, healthcare, etc.)

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astazangasta
The dollar value of debt is meaningless without accounting for interest rates.
When interest rates rise, the dollar value of debt can be reduced by trading
low interest debt for high interest debt.

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defterGoose
This sounds like economic witchcraft, can you explain a little further?

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SamReidHughes
A bond paying 2% that matures in 10 years is worth less than a bond paying 4%
that matures in 10 years. So you can buy back low interest long term bonds for
cheaper.

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salawat
So... What happens when you run out of people willing to hand you money until
you actually pay them back?

What you describe assumes someone is always willing to take the gamble on will
you make good.

That's one hell of an assumption.

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astazangasta
Well, so far people continue to borrow from all major governments no matter
how indebted. Also, your bond is legal tender guaranteed by the US Treasury
(or some other sovereign treasury), so you can always sell it to someone else.
No one is stuck waiting for their bond to mature.

Finally, and most critically, the Treasury pays back the bond in dollars when
it matures. The treasury can also create dollars. Thus, the Treasury will
never be unable to pay back a bond.

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defterGoose
Ok, but when they print unlimited amounts of money I'm not exactly getting the
return on value that I expected because of inflation.

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astazangasta
Inflation is pretty low right now. Just printing money does not produce
inflation - if it did we would have seen massive inflation during Quantitative
Easing, when the Fed put trillions into the economy. In fact there was almost
none. This is because inflation is governed by the equation of exchange, MV =
PQ. M is the supply of money, V is its velocity (how fast it is being spent),
P is prices and Q is aggregate demand. If M goes up, P only goes up if Q and V
are constant. In an economy like ours where the productive capacity is much
greater than demand, M can rise without much effect on P.

In general the government can continue printing money at the rate that
productivity growth supports. Since this is related to the amount of
borrowing, debt probably isn't going to cause inflation.

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pie_hacker
I don't find any reason to believe this is inherently problematic. The federal
funds rate is ~2.5%, and inflation is ~2.0%, so the real interest rate is
approximately 0.5%.

America's current debt-to-GDP ratio is not unprecedentedly high by any means.
What is slightly concerning is that our debt-to-GDP ratio is increasing even
though the economy is relatively strong.

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whb07
This is only the case because investors are willing to buy treasury bonds and
loan the money out at those levels. If things get worse(though no one knows
where the line is) and they will, at some point those investors will wisen up
and demand higher interest.

These rates are abnormal rather, go back 30-40 years and if the rates got
anywhere above 5% (which are still incredibly low) it would crush the
servicing of debt and cause runs on the system.

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astazangasta
[https://fred.stlouisfed.org/series/FYOIGDA188S](https://fred.stlouisfed.org/series/FYOIGDA188S)

In other words it is at a historic low. Also debt service comes in the form of
maturing bonds. It is literally created from nothing and requires no tax
revenue.

