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Will America's debt doom us? (usatoday.com)
117 points by spking 24 days ago | hide | past | web | favorite | 236 comments



> 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.


The book "Looting Greece" by progressive economist Jack Rasmus explains in technical detail the "twin deficit" strategy budget deficit is balanced by trade deficit, which hints at why USA has aircraft carriers stationed around the world, projecting power that tilts the free markets in its favor which is what makes this strategy work. Here is an excerpt: http://www.dustingetz.com/:rasmus-usa-twin-deficit/


I don't understand why US having military presence around the globe tilts the free markets in their favour. Realistically, no military outside of perhaps Russian could stand up against the US but I don't think US are outright forcing trade agreements at a gun point, or am I wrong?


The United States has a variety of techniques for making sure its business interests get what they want. Aircraft carriers are one (see Iraq, and possibly Iran if things go south), CIA-sponsored coups another (Guatemala, El Salvador), economic sanctions a third (Iran again, Russia, much of Latin America). Negotiation at gun point often takes the form of crippling sanctions until and unless a US-friendly regime is in power - there's no actual guns, but there's also no free elections.

Noam Chomsky is a great resource if you want to go deeper on this topic.


Why would a renowned linguist be a credible source of geopolitics? Especially when his wikipedia article starts off the section on political views by calling him a "dissident"?

> Chomsky is a prominent political dissident. His political views have changed little since his childhood, when he was influenced by the emphasis on political activism that was ingrained in Jewish working-class tradition.

If you want confirmation bias or arguments to feed your matching viewpoint, sure, but neutral, reasoned analysis? Not so much.

[1] https://en.wikipedia.org/wiki/Noam_Chomsky#Political_views


Can I make a small counterpoint? I would say Noam Chomsky has very little credibility as a social scientist. (As a linguist is another matter.) He's tied himself in knots over Venezuela. Before that he disgraced himself by denying genocide in Cambodia (http://www.paulbogdanor.com/chomsky/wma.html). His books are well-nigh unreadable rants, which substitute conspiratorial thinking for serious analysis.

If you want to read a serious progressive economist, go for Dani Rodrik. Or hell, read Marx. Marx was a real social scientist. Chomsky, no.


This sounds like something a lot of people might believe.


It's difficult to impose sanctions without having control of waterways. The US can enforce sanctions against Iran and Russia, but the reverse is not true. This puts the former is a position of advantage. True, aircraft carrier diplomacy is a bit more subtle than the the "sign this treaty or we'll blow up your harbor" gunboat diplomacy of old. But it's still the application of force to put the nation at a diplomatic and economic advantage.


Sometimes you can just ask someone what their motivations are and they simply tell you:

Summary of the 2018 National Defense Strategy of the USA https://dod.defense.gov/Portals/1/Documents/pubs/2018-Nation... (11 pages, easy read)

First page: "Failure to meet our defense objectives will result in decreasing U.S. global influence, eroding cohesion among allies and partners, and reduced access to markets that will contribute to a decline in our prosperity and standard of living"

I'll leave it to the reader to decide if this supports the above argument, it's just USA propaganda but I found it certainly interesting to read with a cynical eye.


What rational state wouldn’t want to avoid the above scenarios?


Look up petro dollar and how anyone who tried to build an alternative was overthrown or invaded.

The US will use all its might if someone threatens the stability and dominance of the dollar.


The Russian military is a shadow of what the Soviets brought to the table. Their main aircraft carrier has a habit of catching on fire. However their ability to spew propaganda, and to bribe businessmen with penchants for East European women, is unsurpassed.

The real counter to the US military is China, both in a direct military sense, as well as economically/softpower-y.


Look up what ended Japan self-imposed isolation.


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 ratio exposes the US to higher risk on the downside.


> 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.


I wonder how people reconcile how it's OK to rely on progress to grow our way out of a debt burden but also incredibly irresponsible to expect progress to cope with our carbon problem. Both seem defensible to me but like they kind of need an adaptor to fit in the same worldview.


Historically, progress has resulted in more environmental damage and CO2 emissions. Relying on progress to fix these things is counting on a fundamental shift to happen. By comparison, progress historically has always increased GDP, so counting on progress to grow away our debt is just expecting the historical trend to continue.


Maybe it's because of the difference in what's at stake:

If the USA falls into a debt crisis the result will be global economic disruption.

If the world falls into runaway climate change the result will be the extinction of the human race and possibly all life on earth.

Personally I'm more comfortable with the possibility of the first than of the second.


The second actually involves the first, and this is the point we lose.

If we could have runaway climate change somehow not disrupt global economy, we could eventually tech our way out of it. But the game over point is when the economy stops, and humanity no longer has capability to slow down and mitigate the effects of warming. At that point there isn't much left of humanity anyway.


I wondered if this was part of the great extraterrestrial life filter: that there were so many "only in this window" chances that a civilization gets.

E.g. how easy would it be for us to bootstrap back to space capabilities after a catastrophic war wiped out a large portion of world economic capability?


Many, many thousands of years, I believe.

If something pulled the plug on our economy, all the technology we have today would disappear in few years to decades. Devices wearing out with no way of repairing them or producing new ones. We'd regress to medieval times, because that would be the most advanced things available energy sources would support.

The industrial revolution happened because we had easy access to high-density energy source in the form of coal. Maybe, given enough time, some survivors would figure out how to do a new industrial revolution without it, though I'm not having high hopes. So whatever is left of humanity would have to wait until the Earth recycles enough living matter to create new deposits of high-energy something.


There may not be much difference. Extinction of the human race is an exaggerated prediction, but more importantly, what do you expect the consequences of global economic disruption (to the level of taking the US down) to be? Take a look at history if you may.


Not trying to minimize the human cost of global economic disruption, but it's almost certainly less than total extinction.


A global nuclear winter is very likely much more impacting than global warming.


”You can just keep rolling them”

Only if you can find people or institutions willing to buy the new bonds.

_if_ those cannot be found, the ‘easy’ (easy because all it’s debts are in US dollars) way out for the USA is to print money, but a country that has to print money because nobody wants to lend it money will find it hard to buy stuff from other countries.


I think the zero sum nature is what trips up most people about state finance.

Ultimately, what is and isn't possible for a state to do stems from the vagaries of what all other states are currently doing.

It's somewhat rooted in economic output, but there are a lot of other independent variables in the pot.


But so long as the debt rollover remains straightforward, the principal never has to be repaid. Large parts of the economy probably couldn't survive repayment of all outstanding treasury bonds, they're too useful. They behave more like huge denomination bills with a tiny coupon.


No single number will tell the whole story about a country's debt. GDP today is not a perfect proxy for GDP in 10 years (Japan's will probably be about the same, the US's will probably grow a bit, China's has a decent chance of growing a lot.) GDP today is not a perfect measure of economic activity today (Ireland has a really high GDP because companies are incorporated there but don't really pay much in taxes or do much to benefit Ireland. Actual Individual Consumption may be a better measure of a country's wealth. https://johnhcochrane.blogspot.com/2017/04/consumption-vs-gd... ) So Debt/GDP isn't nonsense, but it also could be potentially misleading.

Current interest rates can give a somewhat distorted picture for the US. Banks buy US debt because they have to due to regulation, other countries buy US debt as part of their economic policy, the net effect is that the US government is able to borrow money more cheaply that it should based purely on credit risk. Even so, the US is able to borrow money at historically cheap rates.

My understanding is that if current trends is health care costs and economic growth continue then in the long run the US will be unable to service its debt and maintain its current spending programs without raising taxes. Most spending is on the military, Medicare, Medicaid and Social Security, so there will be some difficult political decisions. However, that doesn't mean the US is close to a debt crisis today.


”No single number will tell the whole story about a country's debt.”

I don’t think anybody is making that claim. Problem is: if you can only rank values that have a total order (https://en.wikipedia.org/wiki/Total_order), so if you want to rank countries, you have to simplify.

For the judgment of “how deep is a country in debt” it also seems desirable to have the property that splitting a country into equal parts yields smaller countries that are equally deep in debt.

If you want that, “debt” on its own doesn’t cut it. Debt/population and debt/GDP are two metrics that have that property. They also are simple, so do not seem doctored, which correcting for modeled/guessed at/hoped for future growth or correcting for the age distribution of the population, average fertility, etc. easily could.

”GDP today is not a perfect proxy for GDP in 10 years”

Again: I don’t think anybody is claiming ‘perfect’.


The problem is, state debt is not like personal or corparate debt. If you cut your spending to pay of a loan, it is usually not a problem. If the state cut its spending to pay back a loan, it means people have to spent more money on another spot to make up for the budget cuts.

We see this currently in Germany, the German government is proud of their budget but at the same time the infrastructure is crumbling, trains are delayed, bridges are in need for repair or even replacement, broadband doesn't reach all places and I don't want to talk about climate change and the structural issue to which it will lead.

There is also one more thing about state debt, many people invest in state debt because it is a secure investment for the retirement and when a country no longer takes debt, this possibility is gone.

The ideology to have little or no state debt is hurting the economy and will do so in the future. And I'm not even talking about a recession or a depression which will come sooner or later.


German infrastructure is top-class, trains work quite well and bridges are not collapsing. May I ask where you got this from?

EDIT

Please don't turn this into a flame war. I am slightly worried about the effects of mainstream media, as I've seen these kind of posts on Reddit also.

People keep hearing about the low/inexistent economic growth of countries like Germany or Japan and start thinking that these countries are a deep mess. The reality is quite far from it.


I wish it were top-class, but it isn't. many bridges have structural issues and in need to be replaced or repaired and due to the fact that the DB Netz who runs the railway network has to pay for small repairs but the state pays for big ones, you can see how it is not well maintained.

Here are some more information in German though: https://www.deutschlandfunk.de/autobahnbruecken-in-deutschla... https://www.dw.com/de/bahnfahren-auf-verschleiß/a-46623921


German news. We've been neglecting our infrastructure for at least a decade now, probably more. The above comment is exaggerating only slightly.


"neglecting our infrastructure for at least a decade now" honestly struck my American funny bone. But I can understand that being frustrating from a German perspective, and I mean that respectfully. :)


Especially compared to America, which has awful infrastructure...


It's interesting how much design tolerances and overbuilding factor into this.

Assuming linear failure to fault (e.g. rust or structural weakening), an overbuilt bridge makes a big difference if one is skimping on maintenance costs.


LOL - He's talking about the USA.


> The ideology to have little or no state debt is hurting the economy and will do so in the future.

Ideology can be pretty dangerous. This seems like your main point. Back up, though:

> [...] state debt is not like personal or corparate debt. If you cut your spending to pay of a loan, it is usually not a problem.

How is it less of a problem for a person, or for a corporation, than for a government, to have to reduce spending?


Ideologies are not dangerous, they are just the eyes through which we see things. Sometimes you have to be able to see more because your ideology doesn't help you. But you will never really escape that bias.

The difference is actually very simple. Persons and corporations are not closed systems. If you safe money, the impact is very small. Even when a big corporation safes money it doesn't really matter. But the state is huge and spends a lot of money. And many companies depend on state contracts.

I give you a simple example. The German state is subsidising public transport, if the state cuts theses costs, the company providing this service has only a few choices, such as cutting service or increasing prices. These will leads the consumer to have higher costs. If the company cuts lay off people to compensate, those will lose their income and the state must even pay them unemployment benefits.

So the state budget is not really a question if something is be paid but rather by whom and at what point. It is essentially a closed system.

P.S. Very export depended countries can essentially export this partially to other countries. There is this argument that Germany did that with Greece. While Germany consolidated its budget, the debt of Greece increased.


The counterargument to the point you're making would be that taxes are essentially "closing the loop" between private and public services.

Either the state taxes and provides public services, or the state taxes less and private services are provided.

I think the bigger point is about the state's role as a consumer- and lender- of last resort.

Through its ability to deficit spend (enabled by its supposed future ability to tax) or its ability to print currency (through its central bank), there are functions the only states have access to. Which become incredibly valuable when everyone else is economically terrified.


It does, but the author's point, I think, is that dividing by GDP isn't particularly meaningful. They argue that the cost of additional borrowing is a better measure - will people loan you more or are they getting nervous they won't get their money back?

You could divide by other numbers - an example the author gives is hard assets- and come up with a different percentage.


>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 to the entire country working for years.


> 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.


>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.

That's the point. The government isn't on the hook for wealth. They are on the hook for dollars. And dollars, to the US government, are "free".

>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.

The amount of debt doesn't go up if the value of the dollar goes down.


> The amount of debt doesn't go up if the value of the dollar goes down.

The interest rate goes up almost instantly when the government prints money. That's not exactly equivalent to increasing the debt value, but it's more than enough to make the "just inflate it away" strategy fail 100% of the times some country tries it.


Imagine we have a company with 100 shares total. I have 1 share. Now you print 100 more shares and keep them. Sure, company is still the same but the wealth is redistributed, I have 2 times less of it.

Same with US dollars. Half of them might be held by non-US persons. Another quarter by US population. Printing dollars is a wealth redistribution excersice and a very effective one.


> that the government can create for "free"

One of the very smart things the U.S. has done is take a good portion of those printed dollars and invest in weapons which allow us to force the world to accept the same printed dollars. That's what really allows our government to be in that globally unique position. Resistance to this by other nations has various consequences. If you're a country that doesn't have a certain level of military deterrent you become victim of "regime change". If you are a country that meets that deterrent threshold you become victim of the foreign boogeyman FUD.


That's not really accurate either. Switzerland and Japan aren't out there regime changing countries but their currencies are valued. The dollar is valued because the US is the largest economy and has a history of sound monetary policy.


Not only that, but the Nixon administration cut a deal with the Saudis to ensure that all OPEC oil would be sold in US dollars. This creates a demand for US dollars.


Similarly, the Rubble is garbage, even with Russia flexing their guns.


How long do we expect roads to last? Or the investments that have to be made over someone's lifetime to enable them to retire? Even the big "high tech" weapons and aircraft investments which consume a big chunk of spending have 30-50 year project lifetime. The B-52 fleet is 55 years old, not counting the design time. Is it not reasonable to spread payment for that over the lifetime of the asset?


The financing of long-term Public Goods has to be one of the best arguments for government debt there is.

I'm not against debt[0] so much as I like interesting units and metrics. If you want to compare debt levels of different countries across history getting the local currency to cancel out means no converting 1870 dollars to 2019 dollars, no converting 1920 Yen to 1995 Azerbaijani Manats, etc.

The fact that Debt-to-GDP reduces to years, even if it's unclear what that means, lets us make years-to-years comparisons and makes charts like this possible[1].

[0] - Though I think what it's being spent on really matters cough: https://en.wikipedia.org/wiki/United_States_federal_budget [1] - https://en.wikipedia.org/w/index.php?title=File:Gdp_to_debt_...


It's more nuanced than that. The debt/GDP number is talking about future dollars above the divider, and present dollars below the divider. FutureUS$ / (PresentUS$ / yr) is meaningless.

The government could choose to reduce the productivity value of the debt by reducing the value of the dollar (quantitative easing), or numerous other monetary policy levers it can pull. How many years of "productivity we owe" isn't a sensible metric when it's not to be paid now, and we can manipulate the number between now and maturity.


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).


I'll add that debt is the integral (well sum) of deficits. deficit/GDP, or deficit/revenue ($4T/$3T = 33%? is that right?) is far more worrying than just the debt/GDP.

However, I will concede that GDP as a measure of productivity is hard to measure, easy to manipulate, and less effective than other measures of productivity.


This is a very clear explanation.


You're being pedantic and ignoring the whole point of the article.


so, 103 years of productivity for the US?


Isn't it 1.03 years?


Yes.


It's always great to see an extremely intelligent person try to rationalize a core belief that's at direct odds with the cold, hard, and unforgiving reality they live in. The amount of mental gymnastics done here are Olympian, and this guy deserves a gold medal.

However, even the fanciest mental tricks are never going to change the fundamental laws of reality.

In the entire article he dances around second order effects and demonstrates why they're meaningless. Great, but there's one measure that actually matters: the percentage of our annual budget spent servicing existing debt. Right now that number is at 6%, and there's some share under 100% where it will cause our country to effectively go bankrupt. The closer we get to 100%, the exponentially higher the chance of bankruptcy.

Right now there's two things which make me scared this number is going to go up considerably:

One, US tax revenue is going up around 2% a year, but our outstanding debt is going up around 20% a year. The debt is rapidly outpacing economic and tax revenue growth. If nothing changes, paying off the debt will be 25% of our national budget in around 20 years, and 50% in 40 years. That's well within most our lifetimes, and is well in the extreme bankruptcy risk area.

Two, the US has access to unprecedented low rates of interest right now. The average rate on it's 23 trillion in debt is 1%. If that were to go up to a more historical 3%, interest repayment would jump to 24%. Due to the length of government debt, this transition would probably take around 20 years to fully happen.

Now combine the two into a nightmare scenario: debt continues to rise over the next 20 years at its current rate, and interest rates return to their historical 3%; and within 20 years repaying debt will explode to 75% of our budget. There is your potential black swan event.

Hopefully action is taken before any of this happens, but something has to give from where we are now, and pretending that there's no troubled waters on the horizon is absolutely insane and irresponsible.


On the other hand, top marginal tax rates are a fraction of what they were at their peak last century. We could double tax revenue at the drop of a hat, paying down our debt and ameliorating toxic wealth inequality simultaneously.


Effective tax rates haven't changed that much over time [0]. Doubling the tax rate on the rich is unlikely to double tax revenue, and could easily decrease income tax revenue.

If we want to increase tax revenue to fund our current and future liabilities, the money is almost certainly going to have to come from tax increases on the middle class (who don't pay meaningful amounts of federal income tax for the most part) in the form of a VAT, as almost every other developed nation has already determined.

[0] https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/


I agree that in principle the inequality is causing instability and , and as much as I detest socialism, I don't see a peaceful way out of where we are not involving the "tax the wealthy... a lot".

Some comments: income taxes are the most stupid taxes ever. Rich people don't have incomes, they have capital gains. Increasing income taxes hurts middle-class: the rich wannabe. We need to abolish income tax, and turn it into asset tax, or at very least increase the capital taxes significantly. Tax people that are already rich, not the ones that are motivated to try to get there! Once they get there - then you can tax them.

Having said that - the taxes can't be too high, because people don't like taxes and rich people have plenty of resources to run away with their wealth.

So... there's no really easy way to get out of this mess.


>as much as I detest socialism, I don't see a peaceful way out of where we are not involving the "tax the wealthy... a lot"

Socialism != taxing the wealthy a lot.

Maybe part of your "hatred" of socialism comes from a misunderstanding of it? I make the suggestion because the rest of your comment pretty much outlines some of the many major problems with unlimited accumulation and concentration of wealth.


+1 rep


The US debt is a problem in the same way that the earth constantly falling into the sun is a problem.

You've missed a velocity vector in your analysis.

Ask yourself this: if you get dollars for your maturing Treasury, where do those dollars end up in aggregate? They are either taxed away due to them circulating past tax points as they are spent and respent, which eliminates the need for a bond, or they are saved which increases the demand for a new bond from the individual, the deposit holding bank and the central bank (on the same dollar due to the hierarchy of money).

Where's the problem?


If your velocity enables you to stay in orbit, there's no problem. If not, then you're just falling, which is also fine... until you hit the ground.

As for your analysis of what happens when you receive payment for a bond, you seem to be saying that the government gets the money back, either by taxing spending or by you buying a new bond. I don't buy that analysis, for two reasons. First, I could receive payment for a Treasury, and buy some other investment with it. And second, your analysis would remain unchanged even if the result was hyperinflation (that's "hitting the ground" in my first paragraph).


"First, I could receive payment for a Treasury, and buy some other investment with it."

You could. But that is just an asset swap. The person who gets your cash is then faced with the same choice you were - spend it (which will result in taxation) or save the money (which ends up with a bond purchase).

Always remember that money doesn't stop at the first use.


No, they are faced with the same choice I was - spend it, or invest the money in a bond, or invest it somewhere else.

In particular, people in aggregate can decide to invest less money in Treasury bonds. This has in fact been happening - there have been Treasury auctions that have "failed", which in practice means that dealers buy the remaining bonds. But they can't do that forever, because the dealers don't have infinite money.

And even the static picture that you present isn't enough, because the government is running a deficit, and therefore needs more money to come into Treasury bonds. The same amount isn't enough. Even the same amount plus the interest earned isn't enough.


Your analogs are poor fits:

The solar system is an extremely stable system, while our economic system is not at all stable.

Your proposed money cycle is based on the concept of a closed system, which the US economy is definitely not.

If the US government starts having to pay an unbearable amount of debt, money is going to outflow to other countries and make it harder for the US to issue new debt.

If the US just issues enough money to pay the debt off, then interest rates are going to go through the roof and overcompensate for what just happened, making the situation even worse. The US economy would probably collapse.


The dollar economy is a closed system. Dollars cannot be converted. They are always exchanged. So where do they go and what do people do with them? A paper dollar is just a receipt for a liability entry in the US treasury - wherever you are in the world.

For interest rates to go up, bond prices have to go down. If the Fed just buys up bonds that drop below par with new dollars, how can interest rates go up?


Low rates are a result of boomeres all over the world saving for retirement (+ CB manipulation). As soon as they start using that savings, instead of accumulating them both inflation and yields will tend to naturally raise again. More people to care for, less people to do the work -> inflation. Inflation expectation -> higher yields.

That $175T wealth figure is measured at the peak of everything bubble in the US. Real estate, stock market, bonds - everything is at the all time highs, after debt and low yields fueled decade. And yet still, according to the article government would have to confiscate 10% of all wealth in the America to pay the debt.

And that's just the official debt. What about unfounded liabilities, which are many, many times higher? https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pen...

So basically optimists here say, that to pay the debt the government will need confiscate more than a half of all the total wealth in US, at its peak, without causing economic slowdown and without causing inflation (and thus yields) to spike. And that assuming the government doesn't accrue any new debt as it is running a balanced budget. And considering that fiscal spending is an important part of keeping this struggling economy going ... that balanced budget would have to come from the tax... like you would never seen before (basically double?). And again... all these taxation without crippling the economy.

And all that inflation and taxation, without people noticing and trying to counteract to preserve their wealth (tax avoidance, running into PM, crypto, foreign assets, whatever.)

Yeah... whatever keeps you sleep well at night. :D


Inflation is basically necessary at this point in order to collapse the various asset bubbles without causing a mass default spiral on the debt issued to finance it. The housing crisis is a good portion of this; we cannot build our way out of housing without putting homeowners underwater on their mortgages en masse, and young people cannot tolerate the current trends of housing prices near areas of economic opportunity indefinitely. The only way out of this double-bind is to inflate away homeowner's mortgage debt as we make more available housing to prevent housing prices from inflating along the general trend.


Agreed. But ... can there be A Beautiful Deleveraging https://www.youtube.com/watch?v=wI0bUuQJN3s ? I don't think so. It is all a dynamic system. I think there will be no inflation for a while, and when it appears it will be massive and almost uncontrollable. It is hard to "trade" on it, because I could imagine even a decade of politicians and CBs struggling with a deflation, until they winds change, and all their efforts finally start "paying of" and we have a period of a very high inflation. Or alternatively ... a severe stagflation for a decade or two, where it is hard to pay mortgage (afford a new one) despite prices generally falling - because eating comes before investing.


>Low rates are a result of boomeres all over the world saving for retirement [citation needed] How did you come to that conclusion?


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. Paid taxes but were promised medicare and other benefits that they expect to eventually get. They are (in great part) the savings glut: https://www.brookings.edu/blog/ben-bernanke/2015/04/01/why-a...

How else would your explain negative interest rates? That have not happened in the recorded history before and doesn't really make sense. There is a certain CB manipulation involved, sure, but generally - it's the result of many people competing to preserve and invest their savings. This trend will reverse - and then... wow... these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.


The aggregate amount of savings by a generation is almost entirely irrelevant to the aggregate material conditions that generation has in retirement. They're not canning food and stashing it in their basement like a squirrel, they're generally simply acquiring financial claims on future productivity. And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production.

>these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.

Current misspending doesn't particularly impact future retirees. It impacts current retirees and workers. Current aggregate retiree spending is always equal to aggregate worker saving plus tax transfers from workers to retirees. This misspending means that material wealth that could have been consumed by either retirees or workers is instead wasted.

The only ways for Boomers to be wealthier in retirement, as a class, are for society to be wealthier or for a higher percentage of society's real production to be allocated to Boomers via taxes or sold for their savings.


> And this is exactly what a bubble is - higher prices on financial assets, which means more assets per real dollar of future production.

Exactly. Deflation (financial asset cost inflation) now, for inflation (financial asset cost deflation) later, right?

> Current misspending doesn't particularly impact future retirees.

I agree with everything, except this part. Have we used all this surplus productivity to actually increase future productivity (invented some life changing gene therapy, cheaper transportation methods, better medical treatments, and so forth) and government used that debt to increase productivity as well (better infrastructure etc.), the quality of life would improve for everyone (including retirees), making the society as a whole spend more of their productivity voluntarily giving back more to the investments boomers bought with their savings.

It didn't have to be a bubble if it delivered the value. The future inflation and capital reallocation from society to the retired could have been offseted by an increase in productivity, keeping everone's quality of life raise, or at lest not fall.

But obviously, you can't pull ground breaking discoveries and great bussinesess out of the hat, and make government more efficient, just because there is more money to be invested. Quite the opposite. Surplus was mostly wasted and reallocation will have to come at the cost of the quality of life.


>But obviously, you can't pull ground breaking discoveries and great bussinesess out of the hat, and make government more efficient, just because there is more money to be invested. Quite the opposite.

I think we agree more than you think here. There weren't any good investments to be made, so the extra money thrown at investments is wasted through malinvestment rather than consumed. The big difference is that I'm explicitly trading off malinvestment with current consumption, rather than the inaccessible hypothetical world in which productive investment opportunities were pulled out of a hat.


> How else would your explain negative interest rates?

Um, central banks that are charging negative interest on reserves.


No. :D


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 causing high inflation.


This is wrong. The risk free rate is equal to the real risk free rate plus expected inflation. If there's a significant risk of excess inflation, then the yields on treasuries will rise correspondingly.


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 will have to make a choice between cutting services vs paying the debt.


The Fed can't directly influence real interest rates, only nominal. What exactly are you claiming interest rates are "artificially low" compared to?

The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt 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.


The government "prints money" when it sells treasuries on the public market.

The Fed creates most of the money, but it isn't the only mechanism.


The Treasury can mint new money at the behest of the Executive.


The government can overrule the Fed, if it really wants to.


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 furthering economic decline.

This is how the deficits have out the fed between a rock and a hard place.


True up to "nobody has the money to pay for those bonds": there's often a flight to safety in recessions of people moving money out of the stock market. Plus all the big international investors. Shortage of buyers is a risk but not one we've been close to so far.

One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.


> One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.

You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.


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


You need to look at other countries that have had inflation to see how this goes. US is not an island and economics works the same everywhere.


Economics works the same everywhere? Very well. It has never worked in the US the way you say it has. And if you say it works the same everywhere...


The Fed might be independent in the law, but the govt makes the law.


> But that's misleading. The federal government itself owns more than a quarter of U.S. debt, money the government essentially owes itself. It’s an accounting entry. As an asset and a liability, it effectively cancels out.

Well, no. These bonds are held in the Social Security Trust Fund, and while yes in one sense they are both an asset and a liability, they are also funding a future liability (although not all of it). So you can cancel them out against the future liability or the current one, but not both.

(As to Social Security being underfunded, I had an econ professor explain Social Security could be fully funded immediately if the Treasury could just issue a new class of bonds which cost a penny and are redeemed for a trillion dollars in ten years, and sell them to the Trust Fund.)


You cancel them out against the current liabilities. Retiree spending is entirely funded by current production; the only real question is whether it's through taxation or savings (savings is, after all, current production that is sold and not consumed. This is essentially a tax.)

Social Security's funding level is completely irrelevant - what matters is primarily how wealthy society is when current workers retire, and secondarily how much future workers will be willing to save and pay taxes.


Of course it won't. Worst case scenario, if the economy tumbles, the government prints money to pay debt, inflation happens, confidence is shaken and the economy slows. But at the end of the day, an economy is characterised by its ability to produce things and keep people busy (working). Money is simply the value of labour and production shifting hands. The nominal value doesn't matter as much as the real value (ie. the shit that's actually being produced).


If you believe that inflating the debt away is a viable strategy then I have a 100 Trillion Zimbabwe dollar note to sell you for 40 cents. The Zimbabwe government tried that and look at what happened to their dollar! Also, I have a loaf of bread to sell you for $1,000.

Nowadays, America's largest export isn't soybeans or corn, it's the American Dollar. See this link for more info on the Petrodollar: https://www.thebalance.com/what-is-a-petrodollar-3306358


It seems like the whole financial system depends on the time delay between people agreeing to get a certain salary/price and then actually getting paid and spending it. By the time they actually get paid, the money is actually worth less than what they had originally agreed to. It seems that large corporations should be able to make a profit on that delay alone, even if they produce nothing of actual value. I guess it explains why huge powerful corporations like Apple and Amazon always ask for money up-front and then delay payment to suppliers for as long as possible. Seems like a vulnerability in the system.


Every company tries to accelerate revenue and delay expenses.

Nothing wrong with that, and if everyone knows about it it's hardly misleading anyone. They all take it into account.


Our government does the same thing. "Tax witholding" means that I lose out many months of arbitrage. I could have invested that money, saved it an gotten interest, done any number of things. Tax day is once a year; no one ought to pay before then. It's a nasty trick to hide just how much people are paying from those who can't afford fancy financial advisors.


Why do you think you are entitled to not pay a cent before tax day?


It's my money, why do you think the gov't should get it early? You're coming at this from the wrong perspective.


Early compared to what benchmark? You’re treating as axiomatic the idea that your taxes are only “supposed” to be due on tax day, which is not grounded in tax law at all.


Fascinating. What brought you to this conclusion?


Yes this will doom us if it is not taken care of but I expect the American people will get smart and elect congressional leaders that will care of the growing national debt before we default.

9.8% of all of our government's revenues (tax dollars) are wasted on paying interest on the $22 trillion dollars of national debt(1)(2).

1) https://www.cbo.gov/publication/55342

2) https://www.usdebtclock.org/


Please read the article.


Some say debt to GDP does not matter, because we can print dollars. My question to them is: Would a 1000% matter? 100000%?

At some point people will start demanding the government provide everything because they’ve been told debt doesn’t matter and we can print money. It looks like we’re reaching that point because “Main Street” seeemingly realized in 2008 that there was no limit. That it’s a game of chicken with the Fed. Let’s give everyone $2000 / mo and free healthcare and education. Why have any limit on government spending? The Fed will monetize it after all!

Yang might not win this time around, but Yang #2 will be more popular and have bigger demands. Especially when another downtown and another bailout occurs. It’s getting very hard to convince Joe Sixpack that the printing press should only be used for the banks. Yang is the canary in the coal mine.


As the joke goes:

If you owe someone 100K and you cannot pay - you are in deep trouble.

If you owe someone 1 trillion and cannot pay - they are in deep trouble.


For most households bankruptcy happens slowly, then quickly. I think we need to be more mindful of our debt. Most people I talk to are like, "It's not a problem yet." Which implies we will deal with it when it is a problem... which is dumb.


This is not a well written or useful article.

First it says debt as a percentage of GDP used to be higher so it should have been scarier. Then it says current interest rates are low but doesn't give anywhere near the weight to that statement they should.

Even in the article they state 8% interest was normal 30 years ago but then go on to say sustained 8% interest going forward is crazy talk. WHY? Why wouldn't interest rates go up? They certainly can't go much lower...

If they did go up our debt would take a much higher percentage of the budget than the 18% of the 80's and 90s. This is a very real problem.


What amount of debt would doom us, Mr. Fisher?


Oh darn, we're talking about the debt again? I guess it's time for Democrats to be elected, be blamed for letting the debt run away, and cobble together a half-assed fix that the next Republican presindent blows away.


I no longer know how to view these concerns. The only mechanism I now know of that creates money in modern economies in order to purchase goods and services directly, without obtaining funds from circulation from other businesses, is debt created from financial institutions. In order to have healthy economies and create money and move capital, you must therefore have debt.

How did western economies function prior to this? I wish I was educated on the matter. I've not found good reading for this topic outside of the enclave of academia.


Land is a type of capital, landowners could produce agricultural products, accrue wealth, and debt was a thing back in the day as well. Often projects would be bank-rolled by wealthy landowners or even royalty (who accrued their wealth by taxing others). Labour also used to be extraordinarily cheap (or free). Go back far enough, everything was produced by individual labour, and things were simply traded for other things.


The big difference between debt taking 18% of budget at historically high interest and 8% of budget at very low interest is that if the low interest ever becomes very high again (say around 9x what it is now, which has happened historically) you're talking about interest taking 72% of budget which would be catastrophic. 18% at the historic high would require 4X the historic high (an 80%+ interest rate, which we have good reasons for believing won't happen in the US).


Like the housing bubble, our debt hasn't been a problem and it's not going to be a problem right up until it is a problem. It will be a black swan event and afterward everyone will claim that they saw it coming and "the other guy" ignored it.


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?


There were budget surpluses from 1998 through 2001.

One thing you aren't accounting for is tax receipts going up because the economy grows. It's usually the case that spending goes up at the same time, but it doesn't have to go up.


> It's usually the case that spending goes up at the same time, but it doesn't have to go up.

I just know I read a lot of headlines about how government programs are underfunded. I feel like the base of a lot of Democratic candidate campaigns is about wanting to spend more money for people who need it (impoverished people, etc.)


As opposed to the Republican platform of spending more money while cutting tax revenue?


What do Republicans advertise they are going to spend money on? I'm only familiar with Democrats calling for free health care, free college, universal basic income, etc.


War and enriching military contractors, creating the TSA, subsidies to businesses that don't need them, etc. https://i.ytimg.com/vi/FiW5I95R5xg/hqdefault.jpg


Say what you want about him, but Trump did run an anti-war and anti-military spending campaign. The budgets he's approved are a huge betrayal to his base. There's spending on border security and the wall that's not really happening, but that's chump change compared to entitlements and broader military spending.

So it seems like we have the choice of voting for left-wing politicians who run on increasing spending on new forms of entitlements, and spending will increase precipitously - or voting for right-wing politicians who run on not spending like the neocons do, then just do it anyway, and spending will increase precipitously.


The Senate is largely tilted towards rural areas, and hence Republicans. This provides a pretty natural check on the spending ambitions of Democratic presidents, except in rare circumstances. No such check exists for Republican presidents, which is why our deficits are soaring despite the current record economic expansion. Take that into account when you vote.


The rural Republican base are just the pawns used to build a voting block that can win elections. The party doesn't actually serve them. That's why it makes so many appeals to them on election cycles and then always turns around and only favors policies that benefit wealthy business owners.


https://www.cnn.com/2016/09/06/politics/donald-trump-defense... "Donald Trump on Wednesday called for eliminating the sequester on defense spending and increasing military spending to boost troop levels and the number of ships and aircraft."


Border security, policing, military spending

https://www.ft.com/content/9ce05a54-c424-11e9-a8e9-296ca6651...


advertise ≠ action. take a look at the general slope by party: https://www.axios.com/federal-budget-deficit-trump-obama-f11...


free military


The military and homeland security.

Also: A half reasonable single-payer health care system should save a lot of money over-all. The fiscal conservatives should be all over that one.


Our government already spends more on its healthcare programs (Medicare and Medicaid) than Germany and UK, and they don’t even cover half of the people. I don’t see how paying for everyone would save any money at all. It might make the per capita costs a bit lower, but total tax expenditure will certainly be higher.


We can't go to a program like the UK that's works out to be cheaper in the long run because our current half-assed program costs more? Not following the logic here. We already "pay" for the people we don't explicitly pay for. (Emergency room, lack of preventive care, etc)


The world abounds with concrete examples of systems that provide healthcare at a cost that would allow us to cover all our citizens at less than we're paying now, over all.

E.g., https://www.healthsystemtracker.org/chart-collection/health-...

(BTW, when talking about the overall cost, it doesn't make sense not to count the costs of employer-provided plans.)

The real question is how to we transition from the broken, hodgepodge system we have now to one of those proven better, and cheaper systems.


Right, but it doesn't necessarily mean that it is possible to have such system here. World also abounds with countries building cheap rail, but when we attempt this, it's very expensive. Just because it can be done, doesn't mean that it will end up happening the way you wish it to happen.

I think it would be worthwhile to have a pilot program of it here, say with a single small state introducing it. It could show us how it would end up working in practice.


The problem with a single small state is that providers will leave when you cut their pay.

The thing to do is to encourage many more people to do primary care.


Have you read about Trump's tax cut?


> here were budget surpluses from 1998 through 2001.

... by borrowing from the social security trust fund.


But growing entitlement spending then was not an issue.


Bill Clinton accomplished that but at some cost. My father still laments the cancellation of the superconducting supercollider that he had the pleasure to work on.


Worth noting is that Clinton was president during the dot com bubble, which enabled that surplus... until the economy came crashing down a short while later. Also worth noting is that some of the policy changes of the Clinton white house + Greenspan federal reserve enabled the housing crash as well. I personally feel like we got a surplus only by taking out a mortgage on the next ~15 years of America.


The 2000 crash was mostly a stock market drop. The actual economy never constricted, just approached 0 growth. http://visualizingeconomics.com/blog/2011/03/08/long-term-re...

If anything it was how weak the 2000 correction was that lead to the housing bubble.


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.


Seems reasonable - after all, those people have more money.


Why is this supposed to be surprising or relevant?


It's a surprise to plenty of people who think that their $70,000/yr income makes them a net tax payer when it actually doesn't. And it's relevant because people will reduce their marginal income, or relocate to more favorable tax jurisdictions, when the tax burden of that income is excessive.

It's also relevant because, at a certain point, the productive portion of the population will fall below that necessary to make payment on the debt at which point the shit hits the fan in a big way.


70k is in the top ~16% so by your description they are net contributors to the tax base. https://graphics.wsj.com/what-percent/

The cutoff for top 40% is around 40k/year.

PS: Numbers are 5 years old but should be a good ballpark.


According to google te median 2019 household income is $63k. And according to the CBO the median income of the middle quintile of households filing tax returns was $72k. That seems to disagree with your wsj link.


Households can contain multiple people filing separately. Did you mean only 40% of households or 40% of taxpayers?

Anyway, people getting Social Security should really mess with this calculation as someone could be making 150k, but up to 45k of that is from the government.


Did that change from Clinton to Bush? If not, then it wasn't how we got from a surplus under Clinton to the deficit.


I was responding to a commenter who enumerated their list of perceived fiscal failings of the government, from Bush to Obama to Trump.


The Clinton years also coincided with a great increase in consumer debt (mostly credit card). When people have more money to spend, they spend it - and the economy grows. There's a cost that comes later, naturally.


A massive tax cut and a few wars also had to do with the deficit during the Bush Jr. years.


Clinton ran a current account surplus, but overall debt grew because Medicare and Social Security were still losing money at the time. Not to mention that it wasn't all Clinton, some of it was the opposition Congress.


This is a dumb unrelated question on my end but are the returns of Social Security very bad?

If you put 6.2% (12.4% total with employer contribution) of your income away into index funds that grew at 7% per year, at $100k/yr gross salary ($12.4k/yr) from ages 25 - 65 (40 years), you would end up with $2.6m (in today's dollars).

$2.6m converted into dividend funds with a 3% yield would be $6.6k/mo.

I don't know anybody getting $6.6k/mo from Social Security...


Social Security funds aren't allowed to be invested in the stock market, and are held in the form of US Treasuries [0]. There was talk of changing that under Bush 44, but his reform plans never gained any serious traction.

[0] https://www.cbpp.org/research/social-security/policy-basics-...


Bush 44 wanted to turn SS into a 401K. SS is mostly invested in the federal government (ie congress spent the surplus).


>There was talk of changing that under Bush 44

I wish it had, I'd love to dedicate X% of my SS check to investing in the stock market.


> Social Security funds aren't allowed to be invested in the stock market

I know, but based on my calculations above, don't you agree that the end user (citizens) are not getting the best bang for their buck?


It depends on your definition of "best bang for your buck".

Social Security doesn't exist to maximize returns, it exists to protect the elderly from extreme poverty once they are no longer able to work. Because of that, the funds are invested in a very risk averse manner.

I'd certainly be open to the idea of a US sovereign wealth fund in some sense, but I don't think privatization or anything else where individuals are making decisions about their own Social Security account is a good idea, since we'll have to create another Social Security-like program to support the people who invested poorly and are unable to support themselves.


>I don't know anybody getting $6.6k/mo from Social Security...

Of course you don't. The maximum benefit in 2019 is $3,770/mo for people who retire at 70. If you retire at 66, then the max is $2,861/mo. And these are only what you get if you maxed out 35 years of SS payments. Besides, SS is designed to only replace 40% of your pre-retirement income.


> The maximum benefit in 2019 is $3,770/mo for people who retire at 70.

How much would you have had to contribute between 18-70 to achieve this number?


They use the highest 35 years of earnings. So I would assume that you'd need to be over the inflation adjusted annual cap to max out the benefit.


$100k/year is way above what most people will ever make. The average person will peak in the $50-60k/year range. If you exclude the top percent or two as extreme outliers, it's even lower.

Ref: https://smartasset.com/retirement/the-average-salary-by-age


I think it depends on where you live. $100k / year here in New York City is not a huge amount of money.


From what I understand, social security has more complex effects as well. It enables people to exit the workforce today, opening more senior positions, allowing for more career growth. So while the returns might not be ideal for an individual, it seems to be a case where it's good for the whole.


Find me 7% growth on $10k dollars for multiple decades running and you can have all my money. In other words, that's a very unreasonable mean growth rate.



Here’s what you’re missing. Imagine you retired in 2007. If SS was invested in private stocks you’re likely destitute and possibly dead, because your home, 401ks and social security are all underwater.

Social security has less volatility and has an associated cost for that.


Essentially, all your numbers are subtly wrong and all of their wrongness is making the final number look much larger. You have to adjust for inflation, including 'weird' inflation. You have to account to suddenly becoming disabled after 20 years. Including the employer contribution is arguably misleading.

Social security is security: no matter how I get screwed, I'm only poor when I'm old, not poverty stricken and dead.


I think you might be right. Could you please rerun them with inflation accounted for just to make sure I didn't miss anything?


That isn’t true. Medicare and Social Security were still pulling surpluses during the Clinton administration (and they continued to do that until very recently).


> 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?

this seems like a weird statement. what is "fair share"? i am a middle class person with a job with fantastic benefits, yet i easily pay over 30% in taxes (probably closer to 40% if one really counts all the "hidden" taxes) and still have to put up with shit infrastructure, terrible public transportation, expensive non-public transportation, expensive insurance, etc. at what point is it considered that i and others are paying our "fair share"?


A fair share (to me) includes progressive tax rates on estates, capital gains, and wealth. Thomas Piketty’s Capital in the Twenty-First Century is a good resource. https://www.hup.harvard.edu/catalog.php?isbn=9780674430006


Also progressive corporate taxes might be enough to stop monopolies.


Banish "fair share" from your vocabulary when speaking of taxation. That is a guaranteed way to derail a productive conversation, by shifting it into arguing about what is fair, rather than what would solve the problem.

If we are intent on fairness, the generations that incurred the debts should be the ones forced to pay them off. So for the sake of argument, let's divide the populace by birth year, and institute a tax called the Debt Retirement Tax (DRT).

I took the historic debt from 1791, and divided it into 40 buckets. For each subsequent year, I charged each bucket 2% over inflation, dumped each bucket into the bucket to its left (except the leftmost), and divided the increase in debt, after interest, evenly across all 40 buckets. In years when the debt shrank, the reduction was divided evenly across all buckets with a debt balance.

This was to simulate the relative contributions to paying off and incurring more debt for working persons for each age 25-64, and all people 65 years or older. I presumed that age brackets younger than 24 have too little political power to significantly affect national debt. Scrolling down to 2018, the age 65+ bucket is now responsible for over 59% of the extant debt. Looking at the numbers over the years, and the clusters of zeroes in particular, whenever the debt is reduced, it is always the younger workers paying off the older people's debts. The eldest have never paid off their share of debt. At the 1835 minimum, the algorithm I used puts 100% of the responsibility for that last bit of debt on the age 65+ bucket. But instead of paying it off, they used their political power to charge up more debt, based on the willingness of the younger folks to work harder pay it off.

For the DRT, you could pay an income tax based on how much debt is in your age cohort's bucket, and if your year's bucket gets emptied, then you don't pay DRT the next year unless the debt goes up, and the interest charged on the other buckets doesn't cover your cohort's 1/40th share of it. The DRT can also include an inheritance tax component, so if you die with more debt in your age bucket, the state takes more out of your estate.

What is happening now is like identity theft. Elders are running up credit debt for their own benefit when their grandchildren's names are the ones on the accounts. What could possibly be "fair", when that situation is never addressed?


What you're proposing goes against normal sensible morality, but the context is true.


Labeling one type of morality as the normal, sensible one is cheating, because normality and sensibility are value judgments. You can say it goes against the modal morality. I think that particular one generally gives older people too much of a pass for harms they inflicted while younger, and for which they never made adequate reparations.

If I expand the number of buckets to 100, modeling for 11-year-olds up to 110-year-old and older (but mostly the dead), the responsibility for the debt in 2018 still shakes out to 20% in the 110+ bucket.

We're still paying the debts of dead people. 1846 is the last year in which the national debt could be truly said to belong entirely to the living, and 1974 was the last year we actually paid off any of the debts of the dead, rather than perpetually refinancing them.


Sorry, I made this post in haste. I meant what I said as a reason why you're being downvoted without saying it. I share your concern that children have been given the bill by their parents. I personally don't agree with your solution, but we can simply disagree on that point.


Not really a solution. It just illustrates the problem of deciding what "fair share" is.

You can't exhume dead bodies and demand that they pay more tax. And the method for allocating new debt to birthyear-based buckets is probably not in line with where the responsibility actually lies.


Since most candidates are running on a platform of promising more free things, it doesn't seem likely.


> Since most candidates are running on a platform of promising more free things

Most candidates are running on a platform of directing the taxes citizens pay towards services the citizens want. It's easy, and dishonest, to deride these as "free things" if you don't want them. Even the tax cut tooth fairy is supposed to be deficit neutral due to "dynamic accounting" gimmickry. The difficult lift is to discern what promises are based on flimflam and which are based on honest accounting and reasonable, time-tested assumptions.


Forget the candidates, what about our current president. He seems plenty happy spending away. Billions in Agriculture subsides to prop up his trade war, just as a start.


While I don't think that subsidies and trade wars are good things. The tariffs collected a lot more than was spent on those agriculture subsidies.


You are aware that the money collected by the tariffs was extracted from American pockets, right, not Chinese? So you are describing a tax and transfer program: Americans who buy Chinese goods are taxed to compensate Americans who are losing income due to the trade war with China.


In the case when prices are increased to cover the tariffs, yes. However, right now the Chinese manufacturers are eating the costs.


> He seems plenty happy spending away

I have more faith in modern politics that one man can veto an entire cabinet of elected officials on what to spend. Whether or not one man can influence them or ask them to keep spending, I have no doubts. But... how many elected lifetime professional politicians sign off on budgets + spending? I am going to guess it is more than "one man".


I'm all for scrutinizing everybody who sits in that chair, but forget the candidates? If you're concerned about the state of our financial situation, I don't see how you can't be scared of these people. It makes me hope they really are just making promises they can't begin to keep.


https://econproph.com/2011/07/14/private-debt-vs-government-...

Government debt is different than private debt.


> for citizens to contribute their fair share of paying down the debt

What does "fair share" mean?


Spending is bound to go up because of population growth and inflation. It would be more appropriate to look at spending and taxation as a portion of GDP (which also goes up with population and inflation). Spending:

https://tradingeconomics.com/united-states/government-spendi...

It has been going down since the Great Recession (44% in 2009 vs. 38% in 2016). Taxation:

https://fred.stlouisfed.org/series/FYFRGDA188S

Taxation was going up a bit relative to GDP towards the end of Obama’s term (which is why the deficit was shrinking), but taxation is now going down (hence the deficit is rising again under Trump).


The answer can be zero. We also own the printing presses. This could act as a general tax on the economy without a tax rate hike.


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.


People sitting around doing nothing constrains your actions.

In a country which prints dollars, and borrows dollars, future debt cannot constrain action.

The fear here is whether people will stop lending you dollars, but as we can see in the US we are nowhere close to that situation. (Europe/Germany, which is pathologically committed to not having debts has it even worse/better...people are paying them to take their money).


> because spending can't go down, right?

Why not? Or was that tongue-in-cheek?


In theory, the debt could also be "monetized", meaning converting it to cash via the fed. That should also lead to inflation, but that may be politically easier than raising taxes.


I’m super libertarian and even I would like to see somebody raise taxes and cut spending to cut the deficit… although it would be a battle to get them to lower taxes again once the debt was paid off.


Working for certain branches of the government has made me extremely cynical towards taxes. Just like most non-profit's main goal should be to put themselves out of business, many government programs should have methods of scaling back when objectives are met. I've seen buildings full of people that accomplish nothing but asking for more money.


In recent memory, there's been no trouble getting the American government to lower taxes.

Of course, they've borrowed heavily to accomplish this...


This is a strange opinion to me because there’s many, many people see it coming so it wouldn’t be especially incorrect for people to say this


So you basically didn't read the article, or it passed right over your head if you did...


Could you rephrase that in a way that isn't so insulting that it makes me just want to ignore you?


What are your thoughts on Modern Monetary Theory, that the debt will never be a problem because the US is a currency issuer?


I don't trade at all, but I am curious if there are any prominent indices/securities whose values are tied to the U.S. debt/GDP/etc. ?


As with the climate, the old people in US power don't care about stuff that extends beyond their own lifetimes. The current policies and regulations (or lack of) are evidence of that.


Why would it possibly be a "black swan" event? All the numbers are public and we see it coming from miles away. Black swan event refer to something that isn't easily predicable because of their rarity. The government makes debt payments and calculations constanty. It's not like people just want up one morning and everything changes. That's not how markets work.

The people who pay these "everything will turn in a dine when people really understand" narratives are usually people who the markets are telling them they are wrong and cannot accept it.


“If something cannot go on forever, it will stop.” [Herbert Stein]

Every dollar we spend on interest is not spent on investment.


When interest rates are lower than inflation you're not spending money on interest.


That’s not actually true. There more demand for liquidity than there are actual investments. That’s why government debt helps the economy. Same way poker chips help a casino.


How would you know where the money earned as interest is spent?


If the GDP grows faster than the debt, there's no need to ever pay it off.

Similarly, if you borrow money and invest it, and the investment pays more than the interest on the debt, there's no particular reason to ever pay back the debt.


This is some SERIOUS misrepresentation of the facts. Just as an example: "One-third of the debt is money the government owes to itself". To itself? And whom might that be? Oh right, THAT'S US.

That money is owed to the people, and they're probably doing to need it. Especially considering that Social Security, Medicare, and Medicaid account for 36% of the federal budget - which is....let me do the math - one third.

https://www.thebalance.com/u-s-federal-budget-breakdown-3305...


And they're probably going to need it? Well, when is Social Security projected to run out of money? I think they're going to need all of it by then. (Yeah, I know, some is Medicare. It's also projected to run out of money, just a bit later.)


I don't see the point of talking about the $23T number, which doesn't account for unfunded liabilities.

I guess the thinking goes that we can it's easier to renegotiate social security and medicare benefits than to renegotiate the interest payments on a bond. Not sure that's true -- it seems like inflation is the only reasonable solution to either of those problems.


https://carnegieendowment.org/chinafinancialmarkets/78304

... the U.S. current account deficit and the country’s high level of income inequality distort the structure and amount of American savings.


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.


The debt to GDP ratio has been a major concern for years. That's why I recently moved me and my family to Texas. Texas is a no income tax state and I need to keep more of my money and then reinvest it in gold. Maybe I am a little paranoid but also now have all of my info going to a PO box like a company, https://physicaladdress.com just in case gov goes crazing with trying to take more and more of my hard-earned income.


The end of the American empire is determined by the fact that the USA won't be able to pay for the expenses of maintaining its military force. The US is already wasting more than half of its discretionary spending on the military. These military expenses already account for 89% of the federal government deficit, which will be $1.101T in 2020 [1]. These expenses are going up faster than GDP growth, and are not expected to go down, since this administration refuses to close the 20-years old wars on Afghanistan and Iraq, and is now actively operating in other fronts of the general war on the Middle East. The US also has to maintain more than 800 military basis in 70 countries. It takes huge amounts of money to keep a military force of this kind, especially when the country is under severe deficits, which is the current situation of the US government. It seems that it will take a few years for the shoe finally drop, but all the bravado of the Trump era is moving the US into a situation in which it cannot afford to maintain its empire.

[1] https://www.thebalance.com/u-s-federal-budget-breakdown-3305...


Yes, of course. Every Ponzi scheme has an end. It is just a question of time.


After Bretton-Woods, there is a lot of demand for US dollars as a reserve currency. And due to the petrodollar, US dollars are also needed to buy oil.

The US is in a unique situation that lets it print a lot more money than other countries. At the end of the day, we will end this debt by printing money. Anyone buying bonds has to factor in the possibility that the US dollar the coupons are paid in will be devalued. It's not a "risk-free asset". It just depends on when and how the US will start printing money, and where that money will go. We did quantitative easing for years, but the banks didn't increase lending very much.

A good economy is when we should have been raising taxes and paying down our debt. But instead, the Trump administration presides over the biggest debt, deficit and trade deficit in our country's history. So it seems to me that the next Bernie administration will absolutely need to do large infra projects a la FDR, Green New Deal etc. because the recession may be severe.


Re: At the end of the day, we will end this debt by printing money.

Normally this risks runaway inflation, but inflation has been subpar of late such that some "printing" may not hurt. However, it's a bad habit to get into.

To force discipline, we need something similar to a balanced budget amendment that allows Keynesian stimulus when warranted. However, it will probably have to have a "timer clause" to kick in several years away and gradually, because the side-effects could be a dampening of the economy, hurting current law-maker's reelection. Spreading the bitter medicine out over time may make it more politically acceptable.


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.


Legend has it Picasso used to pay as much as he could using checks [1]

TLDR: not many of these were cashed, because people loved the idea of having his signature on a piece of paper and kept the checks.

So, effectively, every time he paid with a check, he essentially got products and services for free.

Now, if you take the dollar - essentially a fed IOU - and in theory ultimately redeemable against some sort of tangible piece of American property (real estate, infrastructure, intellectual property, etc ...), it is very tempting to draw a parallel, namely;

As long as the dollar is the world's currency reserve and people stockpile it, greenbacks are just like Picasso's checks: the IOU never gets exercised.

And America can keep on issuing debt for ever ...

[1] https://www.fool.com/investing/small-cap/2004/12/08/picassos...


dont know why people would want to pay back debt.

without debt there is no money. the art is to not inflate too much too quick.


crypto will save us


Betteridge's law says no.

Less glibly, this article presents a good set of arguments for why not. The doomsayers need to be clearer with exactly how their proposed doom would come about - and why there would be no effective government response, and how this could happen without the rest of the world economy also getting into trouble and fleeing to the safety of the US dollar.


What stands between the USD and the Zimbabwean Dollar is the worlds largest military/intelligence power not just prepared but using it's full strength to enforce the petrodollar.


I don't mind the downvotes, but I would rather see rebuttals that would change my mind.


Since you specifically asked for it: What really stands between the USD and the Zimbabwean Dollar is printing press funded spending.

The Fed is doing something similar with quantitative easing, but at a by far smaller scale, and the money mostly goes to banks anyway. It's injecting printed money into the real economy that spells trouble, and that is currently not happening in the US.

Also, while the military is definitely a boon to the US economy, most of that is indirect via guaranteed jobs and income, not via projected force.

Plus, in case of a hyperinflation, the military would become unmaintainable very quickly, exactly because of it's size.

All that said, your comment had basically nothing to do with the topic (debt), so there is where the downvotes come from.




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