For those unable to print their own money, there is a definite limit on how much debt that one can carry, though the total amount of debt that can be carried varies based on the prevailing interest rates.
On December 19, 1980, the prime rate hit 21.50% [source: 1], and in such situations it is difficult to run up large debts. Right now the prime rate is just over 5%, which makes large debts easier to manage than 39 years ago.
However, the USA government can print as much money as it wants to, and in that sense it can fund infinite debt. It could issue hundreds of trillions of dollars of debt and then print the money to pay the debt. The result would be inflation. For that reason, economists often point out that the only limit on USA government debt is how much inflation people are willing to tolerate. Since inflation has been in decline for the last 36 years, the presumption is that the USA government could print a lot more money, and cover a lot more debt, than it has so far.
We thus have to find incentives to punish existing politicians for debt and future-unfriendly decisions. Maybe require Congress to wear a chicken suit for 1 week for every 1 trillion in debt every year. Embarrassment is a powerful incentive. (An exception may be made for recessions that need a stimulus.)
You know what happend? All those 30 year bonds came to term and we paid the mortgage without breaking a sweat. Hell, we threw in a $2T war on top. Yawn.
US federal debt is almost literally free money. Obsession about spending (oddly always spending, no one obsesses about tax cuts that affect revenue in the same way, though I do note you threw in "pensions" that AFAIK haven't been "jacked up" in Washington in literally decades) hurts, and doesn't help.
Maybe a day will come when US bond rates rise and debt stops becoming free. That's when we need to stop borrowing. Until then this kind of argument is just a political thing that people (mostly republicans these days) trot out to blandly oppose the spending priorities of the other side.
Debt is at heights not seen since the War. Our debt is greater than our GDP. Look at that compared to the bump in the 80s-90s.
This is both sides. Everyone keeps spending more. From one of the few who doesn't: "Imagine you and your spouse are hugely in debt from overspending, so you call a meeting & each agree that each of you will spend more.
In fact federal interest payments on the not-seen-since-the-War debt balance is... about as low as it's ever been in the post war period.
In fact the point where it really did get scary and showed a real bump that took a while to correct was precisely the republican spending spree of the 80's. Which we made it through just fine. All that debt you see in that hump? IT'S PAID.
Seriously, amateur economics need to chill out about this. You are being fed a line by your political masters, you just haven't figured it out.
In other words, interest comprises a few percent of the debt. The debt itself is a huge issue, too.
I'm not being fed anything by anyone. I'm not particularly loyal to either political party. I think both suck. But I also think that's a ridiculous amount of money to have borrowed, and will be very difficult to pay off. And the politicians won't even stop spending.
I'm sorry, but how exactly does your point work, numerically? If I take out a 30 year mortgage on a home with a monthly payment of $1000 and am given the choice of a balance of $100k with an interest rate of X and $200k with an interest rate of Y, why exactly is it not in my interest to take out the bigger loan? What breaks?
It sounds like you're making a moral point, not a financial one. And while you claim not to be loyal to either party, you're parroting talking points pushed by only one. I think it's pretty clear who has your ear and counts on your vote, and is probably feeding you stuff to confirm your worldview in other ways.
The head of politics at Cambridge University, who you might think would know better, made a more extreme suggestion: Voting for 6 year olds.
There will be another market crash, it’s not a big deal it happens every so often and life moves on.
If there is a war, the size and strength of the US Military virtually guarantees we will win.
It’s not so bad. Nothing can touch us.
Historically, the usual failure mode for empires that consistently inflate their currency is that those entrusted with the empire's military might become loyal to those who can pay them with hard assets that don't lose value as soon as they receive them, whether it be foreign currency, Bitcoin, land, or private data that they don't want to become public. Basically, you get warlords and mercenaries, and society reverts to a quasi-feudal system. The risk isn't war in the sense of Great-Power conflicts, it's war in the sense of national disintegration, like what happened in Russia, Venezuela, Yugoslavia, Zaire, Somalia, and Rome.
Some amount of debt is okay and takes this into account. But we are overdoing it.
Ironically, we could "fix" most our debt by allowing in a larger flow of immigrants. You-know-who would do you-know-what in their pants over such an idea.
If you're betting on governments you can do worse than the US. The absolute number of debt is scary, but do you doubt we'll be able to pay back our dues?
Essentially the US is riding on its reputation, but as good as that reputation is, as debt continues to raise relative to GDP international banks may grow wary of loaning, or simply want to diversify if they have a lot tied into US bound debt.
That being said, inflation has been relatively mild of late such that a little extra "printing" may not hurt much this time. I just don't like printing as a general fix.
Of course, an actual default for a country like the U.S. is a very unlikely outcome for a variety of reasons. What is more likely, is that inflation is allowed to rise and 'eat' up the debt. The "hope" is that a mild rate of inflation is sufficient to do so. I doubt it though, there have always been periods of high inflation, and there is no reason to think they will not return.
Politicians today keep spending my kids’ future (both their inheritance and a claim on their time through US tax policy on foreign earned income), and that’s unsustainable.
A) an investment in the future of the country
B) future obligations
that it's hard to really compare it to personal finances.
When people are buying bonds it's generally a good sign for the perception of the country, but it obviously tacks more debt onto the ledger.
We tend to look at mortgages differently than, say, credit card debt because it's an obligation into something that ostensibly grows in value over time. One could argue that the same is true of social security and health and human services. You could also argue the cost is lower to fund those outright than to deal with the free-market implications. This is also an (the?) argument for Medicaid-For-All.
Slightly off the beaten path, but:
IIRC, roughly, the U.S began transitioning from a creditor nation to a debtor nation around the time of the Nixon handshake. Some argue that period marked the beginning of the end for the U.S as a superpower. Of course, that result has not fully materialized yet - if it will at all.
Debt is useually paid back over time. I borrow 100$ and pay you 1$ in interest and 1$ in principle. You now spend, loan, or invest that 2$ to somone that I can trade somone for to get one of these 2$ to pay you another 2$.
Over time I end up paying you 200$ even if there are never actually 200 different dollars around at any one time.
The only confusing bit is assuming when you loan banks actual money (A.K.A. deposit money) the amount listed in your account is also actual money vs a simple IOU. The difference is only important when the bank runs out, so mostly it’s irrelevant until something unusual happens and it’s not.
The number of times a dollar is spent is called its velocity, and it's on the order of 5, meaning on average each dollar is spent 5 times in a year.
My understanding is that there are various ways of calculating the National Government's long term and short term financial obligations. This particular metric excludes large underfunded obligations, while containing obligations that are never intended to be paid? The proportion of debt to GDP is also only marginally useful and it is unknown if there is a level where market confidence is shaken. Isn't that the direction all threads on this topic go?
If the debt hits 174.2 trillion (which is only x8 what it is now) then we will have to spend the entire budget just to make interest payments.
If we default the dollar is likely to collapse. The value of the US dollar is propped up by US Government bonds.
I'm not sure how this all plays out in the long run. But I often suspect we are stealing from our future (or children's future) with this much debt becoming an "anchor" on future productivity gains.
I think there was older writings about "the work week shrinking" eventually...but it hasn't...is this to make up for the 'stolen' productivity gains needed to pay for increased national debt? Are we in a giant pyramid scheme?
However, the USA government can print as much money as it wants to, and in that sense it can fund infinite debt. It could issue hundreds of trillions of dollars of debt and then print the money to pay the debt. The result would be inflation. For that reason, economists often point out that the only limit on USA government debt is how much inflation people are willing to tolerate. Since inflation has been in decline for the last 30 years, the presumption is that the USA government could print a lot more money, and cover a lot more debt, than it has so far.