I wouldn’t bet against the United States growing its way out of the current debt-to-GDP ratio (which, while mildly alarming, is far from unprecedented either here or elsewhere at various stages in history). The current revenue/spending mismatch could be solved with modest tax increases.
I'm a bit disturbed by state of the US finances. I'm really disturbed by the political response to those finances. Nominally the Democratic party is committed to modest tax increases in the same way that the Republican party is committed to modest spending cuts.
It would be nice to see either party advance in any way towards those commitments. Whenever either party has the opportunity (i.e. control of Congress and the Executive) to do anything they invariably either cut taxes (GOP) or increase spending (Democrats) or both.
Fiscally only a divided government moves closer to fiscal sensibility.
No, it does not. The (e.g.) UK has, over its history, been in far "worse" financial shape than the US is or ever was. The UK was over 150% debt-to-GDP multiple occasions, as well as over 200%, and at one point (post-WW2) almost 250%:
And yet they've managed to survive and be a pretty decent place to live. Most of the economic troubles they've gone through were either global in scale (Great Depression, GFC) or self-inflicted (Gold Standard post-WW1 (too high a peg), Thatcherism, Brexit), that had little/nothing to do with debt.
One does have to be mindful that debt servicing costs don't crowd out more important spending (education, health), but to think there's some magic number that causes issues has not been born out by the historical record; see Reinhart and Rogoff retraction:
The bill does eventually come due. You pay for the interest and the debt, either through taxes or money printing (hidden tax of inflation.) There's no free lunch.
For Argentina, they were paying with money printing and that's why they had out of control inflation. So far the US is doing the same, and that's why inflation spiked. I think this is the long-term plan to finance the US debt. We're not going back to that 1-2% inflation. Probably 3-5% is the new normal.
I agree with you that there's no magic number of debt to GDP where things just fall apart. But there is certainly a number where they do. We don't know it, and it will be different for each country. Japan is sitting at 263% right now and doing OK (not great, but OK.)
Obviously debt weighs on future growth. This happens at the household level and at the company level and at the state level. That's well established.
The US right now is spending more on interest than defense. And that will keep rising. I'm not saying it will cause the US to fall. But between eroding the dollar through inflation, and weaponzing it aginst other countries - I think it will lose its status as a reserve currency. Not overnight, but I do expect to live to see it happen.
> The bill does eventually come due. You pay for the interest and the debt, either through taxes or money printing (hidden tax of inflation.) There's no free lunch.
Stop with the "printing money" non-sense: it is private banks where money is created, not central banks or governments.
The cuts Milei is doing are purely ideological and not even the most reticent of budget hawks )including the IMF) ever considered these cuts necessary or sustainable. The man is mentally insane and despises every public institution.
What they’re not saying here is that tax revenue is dropping and will wipe out any of these gains and that installed industrial activity dropped by over 30% since he assumed office.
The point is not to balance a budget. The point is to rein in persistently triple-digit inflation. Everyone wants to have their cake and eat it too, but the reality is that you fight inflation by cooling economic activity for a period.
A 30-40% real drop in economic activity and a reduction by half in purchases of medical consumer items isn't "cooling"; it is an active destruction of the real economy that has absolutely no rationale.
You literally just made that up. You probably think that everyone's salary got cut in half when the government stopped lying about the value of their currency.
