This is exclusively the failure of right-wing politics and corporation-first, profit-first thinking. The US could operate its full budget without a deficit if it just taxed corporations at a reasonable rate and didn't accept bribes/strong lobbyist behaviour to change laws and create loopholes.
Yes, the Trump administration is at fault for the recent jump - but they are merely adding to a problem going back decades.
Apple should pay a lot more tax to the US than it does. So should Google, so should Exxon, etc. So should all the rich people in the USA.
Time and time again, right-wing people will argue that the corporations and the billionaires will flee the USA if we keep their taxes the same, or increase them some. But that's just not true. In fact, the corporations will flock to the USA and so will the billionaires if you raise taxes on them.
How do I know this? Because it's the only logical thing. Corporations like stability because it makes their profits predictable and lets them control the mood in the room (innovation, regulation, etc). Low taxes for the rich mean chaos - an extremely large, underpaid, underfed, underrepresented bottom class will not be good for the rich in the long run. High taxes for the rich mean a well-sustained middle class, with money to spend on products made by the corporations. It is also a safer place, with less homelessness, less violence, less hatred.
Raise the taxes on the rich. Stop the false narratives perpetrated by the hate-driven, xenophobic, spiteful right-wing media. Raise taxes on the rich and our society will be so much better for it - especially the rich.
What I really don't understand is why these (my) opinions are considered left-wing. Shouldn't basic fiscal conservatism be a right-wing/conservative idea? It should be but it isn't! Right-wing, conservative politics has always been nonsense - constantly ignoring science and logic in order to make policies based around short-term greed.
I'm about as "left-wing" as they come, but all of my opinions match with what I would have expected right-wing policies to be about. But as it turns out, saving money, working to have a strong economy with a middle class that spends money, letting states make decisions themselves, etc, are all not right-wing policies at all! They are left-wing policies in the real world.
So where is conservatism? The thing the world needs most is a real conservative party in the US and Canada, one that does not hate immigrants, one that loves to clean up the environment (because it's going to save money to do that now instead of later), one that respects states rights.
Then the US elections could mean something again. But until then, it's not left vs right, it's just logic vs. stupid.
Ignore what? Consciously choosing a non zero-sum option? That there is a spectrum of ideas, that everything is not black and white? Ignoring that choosing the major parties gets you to the same end result?
Aside from snark what is the substance of your comment?
I'm talking about vote splitting and you know it. If you want to effect change, aim to nudge the platform building process. Lobbying, media attention, campaign involvement, there are many ways to have an effect that's perpendicular to the axis between R and D. Voting third party is dead last among them in that you can expect it to have predictable negative efficacy.
Regarding the federal budget and debt, I suggest you read into modern monetary theory (MMT).
> How do I know this? Because it's the only logical thing. Corporations like stability because it makes their profits predictable and lets them control the mood in the room (innovation, regulation, etc). Low taxes for the rich mean chaos - an extremely large, underpaid, underfed, underrepresented bottom class will not be good for the rich in the long run. High taxes for the rich mean a well-sustained middle class, with money to spend on products made by the corporations. It is also a safer place, with less homelessness, less violence, less hatred.
Agreed. The US has enough economic leverage to ignore the silly threats of "we're going to move our business out of the US if you do [something]" or "the rich will move away if you do [something]." Fine, go ahead and stop operating in one of the largest developed markets in the world. Sounds like a very wise business move (not).
Ok so as a somewhat left wing libertarian I'll give my 2 cents.
Most of us on the economically conservative side are against taxes wherever possible. The only thing we like less than taxes is spending. The ideology that I follow and most other conservatives I know follow is that the government should strive to spend the least amount of money necessary to guarantee the services that it promises its citizens. With that in mind, taxes should only be raised to guarantee sufficient funds for all promised services and should only be lowered when there is money left on the table. (i.e. depreciation or discontinuation of services or increased operating efficiency)
Now as to where those taxes should be concentrated is largely dependent on who you are talking to however personally I believe that taxes should be focused solely on consumption of goods and services rather than taxing people on income and assets but then again this is just my opinion.
The problem with what does and doesn't classify as economically conservative is that raising taxes is against the goals of conservative ideology however it is one of a handful of options for maintaining a balanced budget. The other is reevaluating spending and cutting costs where they can be cut.
Like everything else it is a matter of tradeoffs and economic conservatives tend towards cutting costs before increasing taxes. The only issue is that the republican party tends to ignore the cutting cost part and I wouldn't really consider the party to be considered "economically conservative" in their current state.
> the government should strive to spend the least amount of money necessary to guarantee the services that it promises its citizens.
I am of the opposite opinion. The government should spend an excess of funds to do these tasks, and should strive for that excess as a goal. To me, your solution would result in roads that fall apart after 10 years instead of 100, would result in infrastructure failures daily, would leave most people out-in-the-cold when there is a disaster in their family or in their community.
A government that strives for quality and care for its citizens, rather than for lowest cost, will actually save money in the long run. The more economically efficient way to allocate money is to spend potentially more than the minimum required up front to increase the likelihood of success for a project and to reduce the chances of things falling through the cracks.
Do you think the FDA should "strive" to spend the least amount of money possible in ensuring that our food is safe to eat? That sounds to like we'd have a lot of false positives/negatives in their testing, and we'd have a lot more sick people and we'd have a less productive economy for it.
I do not, and will not ever, understand the idea of a government being cheap to save money. It will not work. It produces low-quality societies that leave their poor to starve and die of sickness rather than help them heal and be back in the workforce making money and paying taxes.
The thing about moving out of the country if taxes are not reduced is pure bravado that is spread by Republicans. If a company moves out because of taxes, they will lose a lot of the advantages of being headquartered in the US: privileged access to research, infrastructure, favorable laws, natural resources, and so many other factors.
Another point that is not understood is that high taxes are good for companies: it forces executives to reinvest most of the money they receive in the business, so that there is little money left to be paid in taxes. In a low tax environment, on the other hand, there is always high pressure from so-called active shareholders to return most of the gains. This is one of the reasons why modern American companies are run so much focused on the next quarter. I expect that this tax break will make matters much worse, and public companies will be forced to return most of the money they make immediately to shareholders.
It is not a surprise that the best times for American industry happened when taxes were very high in the 50s and early 60s.
The window is so far to the right currently that you are voting for corporatism or more corporatism. Don't expect democrats to roll any of this shit back.
No. This defeatism is exactly out of the Russian playbook to make Americans more docile and reduce the chance for change in this country. I'm not accusing you of being a Russian shill, but that is exactly their talking point and it is wrong.
The Democrats will indeed be a much better governing party. They have nearly always enacted better policies and are way more reliable at reducing the debt than the Republicans.
Apathy is dangerous and presents a false view of the world. Real things happen in the real world. Electing a different government matters. Everyone else out there, don't let anyone tell you that you don't matter, or that both parties are the same, or that there isn't any hope.
The OP used swear words against a political party, specifically calling out the Democrats and saying they are shit. I am not the one that did the political battle. Also I did not make a national swipe. Russia, as a country, is taking actions and has for a long time that undermine democracy. My post is a response to violent hatred of a political party and group of people.
> How do I know this? Because it's the only logical thing.
As a somewhat libertarian person, I will give you my opinion why I think that low taxes are better.
As history shows, all known forms of government eventually become very ineffective at spending money. Firstly, on the "macro" level, funds more often end up being allocated to useless projects (e.g. google trillion dollars useless plane). Secondly, on the "micro" level funds more often end up being allocated to work that does not produce any value - e.g. "paper pushers".
On the other hand, I see that my logic stops to work when the government ends up borrowing money anyway.
> As history shows, all known forms of government eventually become very ineffective at spending money.
First, that does not mean that a current government will fall into that trap. That is just something to look out for, not something that is destined to happen forever.
Second, why does it matter? The efficiency of government spending is absolutely not the most important thing, or even important at all. We are considering the questions of the future survival of the species, and therefore the society and government in question (if you don't agree with this, then I recommend checking the recent 2017-2018 nuclear threats made by the US president). Efficiency is not the goal. Survival is. You are less likely to survive as a society if there is massive wealth inequality and massive unrest and chaos like government shutdowns and rising debt ceilings due to it.
Increasing govenrment efficiency is a "nice-to-have", not the be-all and end-all of everything that exists. It doesn't make sense to optimize for the efficiency of something when that "efficient" machine is the most likely one to fail.
> On the other hand, I see that my logic stops to work when the government ends up borrowing money anyway.
Right. The government would borrow a lot less if it raised the taxes in the first place. Therefore, raised taxes are better.
As this is the discussion about taxes - notice that all currently available methods capable of blowing human species off the earth were funded by taxes.
> recent nuclear threats made by the US president
How does that relate to taxes or income inequality in any way?
If anything, if the government would have even more spare money it would be more likely to go to war in order to spend that money.
> government shutdowns
The way I see it, the government shutdown is just a bargaining chip used in negotiations between parties. The problem here is lowered standard of acceptable behavior in politics and increased adversity between republican and democratic party.
There is definitelly something seriously wrong, but I don't think it's fundamentally economic in nature - you find both rich and poor people on each side.
Both the city of Chicago and state of Illinois have their own well-publicized debt problems, so I certainly assumed it was regarding one of those considering the source.
The word "borrow" is not entirely accurate. Exactly what happens when the US federal government has a deficit is complicated, but it's closer to issuing new money than it is to taking out a loan.
So if there are 50 million people with anything from $10 to 0.4 trillion in crypto, I reckon that it is on average at the lower end of that scale, the ponzi schemes, freely printed 'Tethers' and 'valuation' boosting that figure up into some absurd number. Plus you always have the guy who mined his first bitcoins on a 386DX 66MHz machine with a maths co-processor and Hercules graphics card, however, he saved his bitcoins onto a 3" Sony drive that is not compatible with modern day 3 1/2" drives.
The main market has had a bit of a tough time, the crypto side show is nothing. However it is a bubble. The bigger bubble in the economy is because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts. Where else do you put your money when banks are no more useful than hiding hard currency under the mattress?
Meanwhile a large part of the world does not have access to printing presses and cannot just print money, as per the USA. These places have to buy dollars before they can buy oil. Yet these other places seem to balance their books. For instance, the Russians, despite the childish sanctions from America are managing to balance the books and not live in deficit. As for China, no deficit problem there despite the boom in development.
The elephant in the room is the military spending and adventures. It would be cheaper for the USA to trade with the world on fair terms rather than have to borrow lots of money to have bases and battleships everywhere.
> because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts
Agreed. Easy money has caused investment in many projects - including mal-investment in projects that would otherwise never have been started, over-investment in sectors that can't deliver as much as they promise.
Said differently, the market is so hot that even turkeys can fly. When the market cools down, chicken will have a softer landing than turkeys, but only birds will stay in the air.
A correction is due, but it is not clear to me that the crypto bubble will fare better or worse than the stock market or anything else.
QE money will have inflated the market bubble. Private investor with more money than wits will have inflated the crypto bubble. Both will crash.
The big question is, which one is the turkey, which one is the chicken.
Back to my first question: I wonder if the people who call crypto a bubble factor in the seignorage.
In the current environment, it may be a "rational" bubble not worse than the alternatives.
>As for China, no deficit problem there despite the boom in development.
You are giving them too much optimism. The state budget is healthy only because the national government collect a disproportionate amount of tax revenue* and leave the local governments to fend for themselves, and indeed many of them have been funded entirely on debt for years now the property boom have mostly died down and took land grant money with it.
*Last year 25 provinces ended up receiving more transfer payments than the taxes collected, in other words only the remaining 9 costal provinces are (sort of) without deficit. With a looming demographic crash China is not any better off than the US.
Not really - What I assume you are thinking about is the Fed buying the treasuries(with their money printing skills) that are issued in their QE program. However QE is winding down, and a larger and larger % of that borrowed money comes from private investors using their own money. While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over.
> While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over.
That is hard to say, fed is planning to wind down QE, but it's also trying to hit a certain interest rate, when those two objective collide, i.e. interest rate going up too fast, it'll be interesting to see what happens then.
the fed hasn't increased its bond holdings in 4 years. treasury debt has obviously increased over the same time period. so, yes, this debt is not just financed by printing money, despite whatever they're saying on youtube these days.
The US federal government pays for things by crediting bank accounts (hence money creation). The fact that the federal government also issues Treasury securities is a political constraint, not strictly required from a technical standpoint. The Federal Reserve then uses Treasures as a reserve drain when they are trying to hit their overnight interest rate targets.
The way I understand it is that the fed has to(maybe not in law, but in practice) sell securities to accomplish its mandate of maintaining a stable currency. If they did not then it would cause lots of inflation. Is that correct?
They are mainly trying to control the size of bank reserves by buying and selling securities, with the goal of hitting a target interest rate. When they are worried about inflation, they increase interest rates.
It's a widely held misconception that the government needs to finance its spending. It doesn't. It just spends money into existence. Treasuries are a political constraint, not a technical one.
Geniune question: Instead of printing new money, would it be a good idea for the government to launch a cryptocurrency and raise the money that way? This would be a gov backed coin. Thoughts.
Beyond providing employment for a few folks involved in implementation and systems maintenance, in what way does launching a government-backed cryptocurrency benefit over the existing state-backed currency?
Funny thing I learned recently - the US federal budget deficit has little to do with how much the government borrows: federal institutions can borrow money on their own, that is why for instance the US government debt can grow faster this year even if the deficit is lower than the previous year.
I thought we would get stagflation after 2008. Then I thought Janet Yellen was going to actually unwind qe without inflation or high interest rates. And now a goofball pseudo president could screw it all up.
The US hasn't had a sustainable budget since 2002.
The Obama years added ~$10 trillion in debt in eight years. How was that sustainable exactly?
For the last decade, the CBO has been forecasting blown out budget deficits starting about now, because of entitlement costs. There's no scenario where the budget deficit doesn't explode, unless you cut entitlements, dramatically raise taxes, or both.
I'm assuming you meant first year in office, also the last Bush budget (as fiscal 2017 was the last Obama budget and the coming one will be the first Trump budget).
As for 2016, I am confused by the numbers on that table - the addition to the debt seems to have several hundred billion in unexplained increase that doesn't appear to be referenced anywhere that I saw.
> So much for the lie that Trump would "end big gov".
The Republicans like to talk about fiscal responsibility to attack “tax and spend” Democrats, but when the Republicans are in power they are much more inclined to cut taxes than spending (they certainly redirect spending, but they never cut as much as they cut taxes.)
I don't think the actions and the goal are inconsistent. As you quoted it's all about 'ending big government.'
Taxing and spending increases the size of government. And it arguably has no end. Government is the ultimate bureaucracy and will spend every penny it receives, and then some. Even Finland, whose government takes more than 40% of its national GDP in taxes, is now somehow facing mounting government debt. It has phenomenal state programs, but will they prove to be sustainable or not? Since the government is a bureaucracy, the only way to reduce its spending is to reduce the amount of money it has available. As Milton Friedman put it, reducing taxes 'cuts the government's allowance.' Reducing taxes results in either programs being cut out of necessity, or the eventual collapse of the government under its own debt. In either case it certainly 'ends big government.'
The big hypocrisy is not in the tax cuts, but in the spending of presidents like Bush. We spent one can only imagine how many trillions in Iraq and Afghanistan. And while perhaps the military can be considered distinct from government in general, spending money on poorly justified wars we can't afford certainly precludes any notion of fiscal purpose.
Fortunately we don't have an unsustainable quality of life.
It's pretty simple mathematically. Not so simple politically.
You slash $250 billion off the US military. You slash $100 billion in local+state+federal spending off of all the activities related to the war on drugs.
You very lightly cut entitlements.
You raise taxes on the top 10% by quite a bit. You raise taxes on the next quarter by a modest amount.
Your budget is now close to break-even. You haven't impacted the standard of living of ~95% of Americans at all.
Quite the opposite, you just dramatically boosted the long-term prospects of the quality of life for the average American. Hundreds of billions in wasted revenue can now flow into highly productive use over time, whether healthcare or transportation/infrastructure (or just not running up debt interest by exceeding the budget). Just by not running up that debt interest, you'll save trillions of dollars over time.
If you really wanted to dramatically boost the US standard of living, you'd squeeze the healthcare cost monster to death. The monetary benefit of that system overwhelmingly flows to the top quarter of Americans, who are already doing extraordinarily well. We have a ton of room to work with in that area, that could improve our situation by hundreds of billions of dollars per year. It's not even necessary to get creative, all we have to do is begin copying any number of several highly function systems from around the world.
Cutting the military etc. will harm the economy you might say? Except that's obviously wrong. It'll further unleash the economy, releasing that money to far superior productive, compounding use. Most US military spending is for soldiers, who are contributing very little to the US economy as is versus their peers, their labor is low productivity and low innovation. They make nothing, they're nearly strictly consumption engines. No other prosperous developed economies have the need to spend on such things at such a high rate, neither does the US. It merely requires that the US accept that it's not the world police and doesn't need to be.
The question I have is if the govt is truly printing our currency who is the govt borrowing money from. If the govt was truly making more money then it would simply balance the books by making enough money.
When you start talking about the Federal reserve as a non govt entity people call you crazy. Yet I have not heard why the govt borrows money from the govt.
It still amazes me how governments manage to keep borrowing money while being in constant growing deficit.
Is there such thing as a real trust in the future possibility of paying the debt back? Or is it a hope of taking as much money as possible while there are inflation opportunities? - then generating more and more inflation. The first option is interesting, the second one quite scary and I can't help thinking Ponzi. Anyone with a better understanding of economics could help seeing a little bit better through this?
The US government has a long history of repaying it's debts. I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.
The US never pays back, they re finance the debts. Ad infinitum. I mean does anyone think that at this point the US could STOP the deficit? Let alone turn it into a surplus and start buying back debt?
US is too big to fail and rich people have to put their money somewhere. At least with US Treasury bonds you get a small but reliable return. So the train keeps going.
It happened under Clinton, admittedly with the advantage of a roaring economy. I won't rule out completely out, though from today's viewpoint it certainly doesn't look promising.
Well my country DOES try to balance the budget because otherwise the interest rates on the bonds we put out has to increase. But the US is special, it is virtually exempt from the normal laws of economics due to its superpower status.
Actually my statement doesn't depend on exponential growth. If in future GDP were to switch from exponential to logarithmic growth, debt would still be serviceable as long as it also switched to logarithmic growth.
Come on, that's silly. At some point, for all intents and purposes in the real world, logarithmic growth would essentially mean "no growth". Splitting hairs between the continuous math and the math to a reasonable level of precision doesn't add clarity to your statement.
OK maybe over hundreds of years US GDP will go from exponential growth to linear growth, to logarithmic growth, to eventually "no growth". If total debt mirrors this trajectory, can't the US government continue repaying its debts over this period, even at the "no growth" stage?
It's been going since the days of FDR. Whilst I don't claim it will go on forever, the US is in a mich better position to do thos than any other country so it's hard not to.
Modern Monetary Theory (aka Neo-Chartalism) is a reason to believe it can probably keep on going.
I ended up staying in tech instead of pursuing doctoral studies in Economics, but had life broken a different direction my thesis would have been (loosely speaking) related to assessing how governments could leverage MMT differently depending on whether or not they're an issuer of one of the common global reserve currencies.
I was ultimately turned onto the underlying theories after breaking from Neo-Keynesian theories in the wake of QE1 & QE2, but before QE3 was in full swing.
MMT assumes a sovereign can never default. That is not a politically realistic. At a certain debt level, American politicians would default. That ignored threshold, in turn, makes MMT’s suggestions dangerous.
I don't think it has much to do with politicians. It has to do with currency counterparties and economic value created therein. Hence my desire to study where I think MMT can make the biggest net impact. Which is likely in currency issuers who are Too Big To Default™.
All money is just an agreed upon fiction by multiple counterparties, and when there's a lot invested in that fiction it becomes fairly undesirable to be the one(s) to pierce the suspension of disbelief.
If the % required to service it was growing significantly, that'd be a problem. The debt outstanding growing, on its own, doesn't matter.
The government is not a human who better pay off their debt by 65 or they're screwed. The government'll keep receiving income "forever", in a pretty predictable way. So there is no reason to ever stop borrowing; it'd be leaving money on the table (utility of a dollar now > utility of a dollar later).
Does that validate the guess #1, that there is a trust from lenders in the future of [US] economy, as you're saying that $1 now < value of that $ tomorrow?
In other words, it's ok to lend 1$ today because tomorrow that $, even if devaluated, will help people getting more services and maybe getting more $.
That is very interesting. It sounds like we manage to magically create some unlimited resources that is creating the world's wealth and strength. It sounds magical. What's the catch? What's the limitation of creating more wealth, faster?
Is today's dollar value simply based on the value that it can potentially have tomorrow? - From a non-economist point of view, it's quite hard to picture.
How do you get 4:1? Wikipedia pegs the GDP to debt ratio at less than one.[1] So the US owes more than 100% of it’s income. Servicing the debt is approaching 7% of federal spending.[2] Are you using numbers other than GDP and National Debt for your ratio?
At least for personal loans, debt to income doesn't use your total debt, it uses your monthly payments made on debts against your monthly income. So I assume you would have to compare the yearly payments on the national debt to total federal revenue.
Think OP is talking about public debt (~$15 trillion) not intergovernmental debt (~$20 trillion). GDP has little to do with federal revenue; the federal government doesn’t tax 100% of all exchanged money. Federal revenue is about $3.6 trillion.
Companies are able to attract investors and lenders because of the reasonable expectation of future profits. For the US there is no expectation of ever breaking out of our debt. There's a term for private entities whose only means of ever being able to pay off old investors and lenders is from the funds of new investors and lenders.
You’re mixing two different things (“future profits,” “breaking out of debt”). Companies get loans because lenders have an expectation that the company will have future revenue with which to make debt payments. The US government is virtually guaranteed to have a future income stream. Lenders don’t care if the borrower ever pays off all their other loans. Indeed, companies roll over and refinance their debt all the time.
Look at it another way. Our debt is like a 2% mortgage that we can pay off in 30 years using just 18% of our revenue. Back in boom times people could get interest only mortgages with those parameters.
Your numbers are both technically wrong and misleading. The federal government is currently spending 120% of our annual revenue. Even if we somehow cut enough programs that 18% of our revenue became disposable (which is itself completely unrealistic) you'd be making 0 progress. You need to not only start paying off the principle + interest, but also drop our spending to 100%. That's already about 40% of gross federal revenue.
The misleading aspect is because 40%, and even 18%, don't sound as absurd as they really are. Even cutting spending modestly is incredibly difficult. Cutting it by 18% is arguably impossible without completely reshaping government as we know it. Cutting it by the 40% required to actually make progress on the debt is completely unrealistic at any point in the foreseeable future. And these numbers are getting worse each year, with the difficulty of getting out of debt continuing to increase. And of course this repayment pretends we will both maintain or increase income while never increasing spending beyond growth in said income - for 30 years.
No, no private company is getting a loan in these conditions. Drowning in debt with the only means of possible repayment, both short and longterm, being to hope they can find other lenders to pay off you, as a new lender? That's like a mental version of something between a ponzi and pyramid scheme.
this podcast says its because the usd is the dominant world reserve currency (a lot of trade is priced in usd, critically oil due to USA alliance with saudi arabia) so there is high foreign demand for usd. they allege that keeping it this way - keeping demand for usd high - is why USA occupies the middle east.
it also says that the usd is dying and that the USA's free lunch (ability to borrow endlessly without consequences) is now ending or already ended, though the politicians will deny it.
they also say that if you are russia or china, the obvious move is to hire a bunch of blockchain engineers, try to unload your usd treasury bonds (forcing a financial crisis in the USA in the 2020s when the USA politicians don't realize they can't borrow anymore), and then simply wait, and when the dollar dies you can step in and "save the world" from the dying dollar with their new cryptocurrency.
obviously, russia famously had meetings with Vitalek (ethereum founder) and there is a huge amount of blockchain investment happening in China right now.
The reason oil is priced in dollars has nothing to do with Saudi Arabia or any US involvement there. The US has always (since the 1800s) been a major player in oil markets. The NYMEX futures contract for physical oil is the real reason oil is priced in dollars. OTC physical trades often reference the NYMEX (now CME) price. So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars.
I am not sure what blockchain engineers have to do with selling treasury bonds. The larger issue for China is that they have to do something with their dollars. It's not feasible just to dump them.
Unfortunately (or fortunately depending on your perspective) the USAs ability to continue to borrow does not appear to be ending. It is true that so long as others will lend to you in your own reserve currency you can basically just keep borrowing. I didn't think that the US could borrow $20T but maybe we can borrow $50T or even more. It seems for the time being the sky is the limit.
This is false. The entire story of the petrodollar is lengthy and involves an understanding of economic arrangements in times past, how they worked, how they collapsed, and the details in between. Rather than try to write this all out here, I think an excellent post that does a very good job of summing up these intricacies is available here: https://www.quora.com/Why-is-oil-priced-and-traded-in-U-S-do...
The fact that oil is settled to this day primarily in USD has everything to do with the US and Saudi Arabia. Understanding this system also helps one appreciate the relevance of very contemporary issues like China attempting to push oil producing nations to settle their contracts in yuan. It's not about the short micro level effects, which would essentially just be a currency conversion, but about the macro level effects and implications of what currency the most in demand import in the world is offered in. If China succeeds with their goal, the economic consequences for the US could not be overstated.
It's too bad that this opinion was downvoted, I've just repeated the opinions of a few famous hedge fund managers and investors who have a famously high quality podcast. These are not programmer nerd-activists who give a shit about bitcoin. Here's a page-length quote from the middle of the podcast on this idea that I liked (including one of the cryptocurrency quotes, you can C-F the podcast transcripts to find more): http://www.dustingetz.com/ezpyZXF1ZXN0LXBhcmFtcyB7OmVudGl0eS...,
That's because the government's deficit is the people's surplus, by simple accounting identity. Paying off the debt would be catastrophic. Andrew Jackson did it, and 1 year later we had a financial crisis. Clinton gave us a surplus, which led to a financial crisis. It's very simple: either the government is in debt to the people, or the people are in debt to the governmet. The latter is a perverse situation.
What will come first guys, the San Andreas fault letting go or the American stock market bubble? Both been steadily developing for quite some time now.
I've can't understand why this isn't more of a concern;
- The rate of increase is taking this debt rapidly to somewhere unsustainable.
- With the fractured politics this becomes so much more dangerous/likely to be an issue.
- Interest rates are pushing up adding to the servicing costs, currently about 500 billion/yr and probably likely to become the single largest payment line on the federal budget.
- Pension funds are going to be increasingly liquidating treasuries as boomers retire and they hit their own funding issues.
- Countries like China are selling off holdings.
- The debt is going to be an increasing drag on the economy to grow or safely inflate out of it.
- I cant see the political parties reducing military or social security costs of any significance to reduce the growing pressure.
The only positives seem;
- The amazing strength and scope of the US economy.
- Trump once proposed a one-time wealth levy/tax to pay this down, so if this happened it would be a game changer.
So I do believe the US is capable of sorting this out if the political will/intelligence was there. But I dont see this mood and feel people like to kick the can down the road these days. Time will tell.
I think it's a perspective problem. Since this issue is more complex, I'll use a simpler one - nuclear weapons. There has not been major unrestrained warfare directly between modern nations in what's approaching a century. Very few people alive today have lived through this sort of warfare. So it becomes a unicorn. Yet we still have things like nuclear weapons. And people see these as a relic of times past. Why would you want these sort of weapons when this sort of warfare no longer exists? And so naturally we have an increasing push to try to get rid of nuclear weapons, a stark reminder of a 'less enlightened times.'
Of course the reality is that this era of peace we've created has largely been enabled by nuclear weapons. Mutually assured destruction is indeed MAD but it has been the one thing, in the entire history of our species, that has managed to prevent this sort of conflict. Without nuclear weapons nations like the US, China, and Russia would certainly have long since came to 'hot war' in the process of determining who's ideology will be the world ideology. And that certainly would have drawn in the rest of the world, one way or the other: to wit, World War 3.
And so too today in economics, most people have lived during an era when the US has been more than capable of 'printing' (not how many is made - another complex topic) vast sums of money while suffering no real economic consequence, as well as being involved a system where we are only able to pay off old debts by taking on new debts - with no expectation of this ever really changing. If a private organization was behaving as we do, it would be considered a Ponzi Scheme. The reasons for this economic immunity are complex -- the fact our currency is indirectly backed by oil is a major player. But the point is is that people don't see any nuance here. We've always been able to behave this way (from the perspective of most people), so why would anything suddenly change? Probably a similar scenario to what happens at the end of any other meaningfully long era.
Remember, the US is monetarily sovereign. The government has the ability to create and destroy US dollars. Things you don't need to worry about:
- Default. If it happens, it would be a purely political move, not an economic or financial one. The US federal government can always afford payments. A check from the federal government never bounces. They can always just credit bank accounts. In fact, the government can abolish the debt instantly. They can simply redeem all Treasuries with bank reserves.
- Interest rates. The Federal reserve controls short-term interest rates. And the supply of long-term Treasuries doesn't impact interest rates: increased government deficits lead to an increase in the size of bank reserves which lead to an increase in demand in Treasury bonds that matches the increased supply, since banks want to swap low-paying reserves with higher-paying debt instruments.
- China. Treasuries are like a savings account, while bank reserves are like a checking account. If China or pension funds (or anyone) sell off their Treasuries, it's akin to transferring money from a savings account to a checking account. What's the harm in that? And why would they do that? That would decrease their interest income.
Here are real concerns about ballooning national debt:
- Inflation. This can happen since the government is stimulating aggregate demand, in a classical Keynesian way. But it hasn't happened for a while, and if it does, the government can raise taxes. That shrinks the debt and decreases aggregate demand.
- Foreign exchange. With all the new USD floating around (because government spending = money creation and taxation = money destruction), there's a risk of a weaker dollar. But that has its upsides. And China's currency peg at least keeps the prices of Chinese goods fixed.
- Spending it unwisely. The government can't buy everone a pony. There aren't enough ponies in the world, and it would wreck the pony market.
Thanks for the comprehensive answer. From some of your points I see it differently;
NYT article: This comes from an economist that loves to push MMT. I actually studied economies under the guy that coined this term. He's a super smart guy but I dont agree with it in the theory probably works in a bubble. It seems a classic case of academia vs reality. Very unusual for economists haha. I'd suggest you read some criticisms of MMT if you haven't before you push it as a truism.
- Default: This attitude is cant happen to a monetarily sovereign nation is a little ignorant of history. Sure US can print/credit but then inflation. And being the worlds reserve currency give a bunch of leeway but this isnt a fixed variable, and is increasingly under threat. End of the day it's a confidence point and the US can lose this creating a run domestically and/or internationally.
- Interest rates are only under control while the market has confidence they will be repaid. Sure some FI's are held to a certain level of treasuries but plenty of existing market demand can leave, taking with it the Feds ability to control rates. At the end of the day if the risk/reward ratio get outta whack the fed will lose their ability to control rates at any scale and especially when they attempt to recycle existing debt.
- China. I dont understand your logic here. It's a supply and demand market. If its (do I understanding you?) as easy as the Feb buying up any excess demand that is a limited game. The FED probably did well with QE but that's a limited tool, needs to unwind at some point, and we wont truly know the effect for some time.
Inflation: Possibly. What if we hit stagflation? And US has a strong resistance to tax increases. There is a possibility for US to inflate their way out of this debt. It would need to be well managed for many decades which seems low probability with the current political management.
Don't get me wrong. I am not saying default will happen. We'd needs some serious events to trigger this. I do feel it is a possibility and am amazed some people feel it's in the risk likelihood of a meteor strike.
- Default: Yes it can happen, but it's voluntary and done politically. It's not a technical requirement. The US government can always service the debt. Here's an article from the Economist, "Countries rarely default on their debt" https://www.economist.com/news/finance-and-economics/2173280...
- Interest rates: the Fed controls overnight interest rates, afaik. But what happens with long-term rates is that the Fed uses those bonds as a "reserve drain". https://www.nakedcapitalism.com/2010/08/why-treasury-bonds-d... Long term interest rates have been going down for decades, despite the size of the debt consistently going up.
- China: the point is that they already have over $1 trillion in Treasuries, what is the difference between holding Treasuries vs holding cash? It's just two different kinds of bank account at the Federal Reserve. And the former pays interest, so why convert to the latter? They would only do so to spend it. Which either means a trade surplus for the USA (a boon for the economy) or converting their holdings into another currency, which just means transferring ownership of the Treasuries to someone else. In both cases, inflation and foreign exchange rate are the biggest risk. Do you think there is interest rate risk here? As for the Fed, I don't see limits to their powers.
- Inflation: I see the causality in reverse. Increased government debt leads to inflation (because government debt is money, money supply has gone up, and aggregate demand through government spending has gone up) rather than the government trying to inflate to pay off the debt. Stagflation in the 70s was caused by a supply shock (oil prices). If inflation happens because of the money supply, then the government can fix that problem by shrinking the money supply. If it happens for other reasons, then the government needs to address those issues. What is the problem with the debt then? How is that a concern?
The US is (or was as of 2013) still making payments to children of Civil War veterans. Granted it's only 2 of them and less than a grand a year apiece but still.
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[ 3.7 ms ] story [ 165 ms ] threadYes, the Trump administration is at fault for the recent jump - but they are merely adding to a problem going back decades.
Apple should pay a lot more tax to the US than it does. So should Google, so should Exxon, etc. So should all the rich people in the USA.
Time and time again, right-wing people will argue that the corporations and the billionaires will flee the USA if we keep their taxes the same, or increase them some. But that's just not true. In fact, the corporations will flock to the USA and so will the billionaires if you raise taxes on them.
How do I know this? Because it's the only logical thing. Corporations like stability because it makes their profits predictable and lets them control the mood in the room (innovation, regulation, etc). Low taxes for the rich mean chaos - an extremely large, underpaid, underfed, underrepresented bottom class will not be good for the rich in the long run. High taxes for the rich mean a well-sustained middle class, with money to spend on products made by the corporations. It is also a safer place, with less homelessness, less violence, less hatred.
Raise the taxes on the rich. Stop the false narratives perpetrated by the hate-driven, xenophobic, spiteful right-wing media. Raise taxes on the rich and our society will be so much better for it - especially the rich.
What I really don't understand is why these (my) opinions are considered left-wing. Shouldn't basic fiscal conservatism be a right-wing/conservative idea? It should be but it isn't! Right-wing, conservative politics has always been nonsense - constantly ignoring science and logic in order to make policies based around short-term greed.
I'm about as "left-wing" as they come, but all of my opinions match with what I would have expected right-wing policies to be about. But as it turns out, saving money, working to have a strong economy with a middle class that spends money, letting states make decisions themselves, etc, are all not right-wing policies at all! They are left-wing policies in the real world.
So where is conservatism? The thing the world needs most is a real conservative party in the US and Canada, one that does not hate immigrants, one that loves to clean up the environment (because it's going to save money to do that now instead of later), one that respects states rights.
Then the US elections could mean something again. But until then, it's not left vs right, it's just logic vs. stupid.
Aside from snark what is the substance of your comment?
> How do I know this? Because it's the only logical thing. Corporations like stability because it makes their profits predictable and lets them control the mood in the room (innovation, regulation, etc). Low taxes for the rich mean chaos - an extremely large, underpaid, underfed, underrepresented bottom class will not be good for the rich in the long run. High taxes for the rich mean a well-sustained middle class, with money to spend on products made by the corporations. It is also a safer place, with less homelessness, less violence, less hatred.
Agreed. The US has enough economic leverage to ignore the silly threats of "we're going to move our business out of the US if you do [something]" or "the rich will move away if you do [something]." Fine, go ahead and stop operating in one of the largest developed markets in the world. Sounds like a very wise business move (not).
Most of us on the economically conservative side are against taxes wherever possible. The only thing we like less than taxes is spending. The ideology that I follow and most other conservatives I know follow is that the government should strive to spend the least amount of money necessary to guarantee the services that it promises its citizens. With that in mind, taxes should only be raised to guarantee sufficient funds for all promised services and should only be lowered when there is money left on the table. (i.e. depreciation or discontinuation of services or increased operating efficiency)
Now as to where those taxes should be concentrated is largely dependent on who you are talking to however personally I believe that taxes should be focused solely on consumption of goods and services rather than taxing people on income and assets but then again this is just my opinion.
The problem with what does and doesn't classify as economically conservative is that raising taxes is against the goals of conservative ideology however it is one of a handful of options for maintaining a balanced budget. The other is reevaluating spending and cutting costs where they can be cut.
Like everything else it is a matter of tradeoffs and economic conservatives tend towards cutting costs before increasing taxes. The only issue is that the republican party tends to ignore the cutting cost part and I wouldn't really consider the party to be considered "economically conservative" in their current state.
> the government should strive to spend the least amount of money necessary to guarantee the services that it promises its citizens.
I am of the opposite opinion. The government should spend an excess of funds to do these tasks, and should strive for that excess as a goal. To me, your solution would result in roads that fall apart after 10 years instead of 100, would result in infrastructure failures daily, would leave most people out-in-the-cold when there is a disaster in their family or in their community.
A government that strives for quality and care for its citizens, rather than for lowest cost, will actually save money in the long run. The more economically efficient way to allocate money is to spend potentially more than the minimum required up front to increase the likelihood of success for a project and to reduce the chances of things falling through the cracks.
Do you think the FDA should "strive" to spend the least amount of money possible in ensuring that our food is safe to eat? That sounds to like we'd have a lot of false positives/negatives in their testing, and we'd have a lot more sick people and we'd have a less productive economy for it.
I do not, and will not ever, understand the idea of a government being cheap to save money. It will not work. It produces low-quality societies that leave their poor to starve and die of sickness rather than help them heal and be back in the workforce making money and paying taxes.
Have a nice evening.
Another point that is not understood is that high taxes are good for companies: it forces executives to reinvest most of the money they receive in the business, so that there is little money left to be paid in taxes. In a low tax environment, on the other hand, there is always high pressure from so-called active shareholders to return most of the gains. This is one of the reasons why modern American companies are run so much focused on the next quarter. I expect that this tax break will make matters much worse, and public companies will be forced to return most of the money they make immediately to shareholders.
It is not a surprise that the best times for American industry happened when taxes were very high in the 50s and early 60s.
The Democrats will indeed be a much better governing party. They have nearly always enacted better policies and are way more reliable at reducing the debt than the Republicans.
Apathy is dangerous and presents a false view of the world. Real things happen in the real world. Electing a different government matters. Everyone else out there, don't let anyone tell you that you don't matter, or that both parties are the same, or that there isn't any hope.
There is hope. You do matter. Your vote matters.
Please keep national swipes and politicla battle far away from here.
As a somewhat libertarian person, I will give you my opinion why I think that low taxes are better.
As history shows, all known forms of government eventually become very ineffective at spending money. Firstly, on the "macro" level, funds more often end up being allocated to useless projects (e.g. google trillion dollars useless plane). Secondly, on the "micro" level funds more often end up being allocated to work that does not produce any value - e.g. "paper pushers".
On the other hand, I see that my logic stops to work when the government ends up borrowing money anyway.
First, that does not mean that a current government will fall into that trap. That is just something to look out for, not something that is destined to happen forever.
Second, why does it matter? The efficiency of government spending is absolutely not the most important thing, or even important at all. We are considering the questions of the future survival of the species, and therefore the society and government in question (if you don't agree with this, then I recommend checking the recent 2017-2018 nuclear threats made by the US president). Efficiency is not the goal. Survival is. You are less likely to survive as a society if there is massive wealth inequality and massive unrest and chaos like government shutdowns and rising debt ceilings due to it.
Increasing govenrment efficiency is a "nice-to-have", not the be-all and end-all of everything that exists. It doesn't make sense to optimize for the efficiency of something when that "efficient" machine is the most likely one to fail.
> On the other hand, I see that my logic stops to work when the government ends up borrowing money anyway.
Right. The government would borrow a lot less if it raised the taxes in the first place. Therefore, raised taxes are better.
As this is the discussion about taxes - notice that all currently available methods capable of blowing human species off the earth were funded by taxes.
> recent nuclear threats made by the US president
How does that relate to taxes or income inequality in any way?
If anything, if the government would have even more spare money it would be more likely to go to war in order to spend that money.
> government shutdowns
The way I see it, the government shutdown is just a bargaining chip used in negotiations between parties. The problem here is lowered standard of acceptable behavior in politics and increased adversity between republican and democratic party.
There is definitelly something seriously wrong, but I don't think it's fundamentally economic in nature - you find both rich and poor people on each side.
This article says that this year alone, the government is borrowing 1 trillion.
I wonder if people who say crypto is a bubble are factoring in seignorage, especially in this order of magnitude.
The main market has had a bit of a tough time, the crypto side show is nothing. However it is a bubble. The bigger bubble in the economy is because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts. Where else do you put your money when banks are no more useful than hiding hard currency under the mattress?
Meanwhile a large part of the world does not have access to printing presses and cannot just print money, as per the USA. These places have to buy dollars before they can buy oil. Yet these other places seem to balance their books. For instance, the Russians, despite the childish sanctions from America are managing to balance the books and not live in deficit. As for China, no deficit problem there despite the boom in development.
The elephant in the room is the military spending and adventures. It would be cheaper for the USA to trade with the world on fair terms rather than have to borrow lots of money to have bases and battleships everywhere.
Agreed. Easy money has caused investment in many projects - including mal-investment in projects that would otherwise never have been started, over-investment in sectors that can't deliver as much as they promise.
Said differently, the market is so hot that even turkeys can fly. When the market cools down, chicken will have a softer landing than turkeys, but only birds will stay in the air.
A correction is due, but it is not clear to me that the crypto bubble will fare better or worse than the stock market or anything else.
QE money will have inflated the market bubble. Private investor with more money than wits will have inflated the crypto bubble. Both will crash.
The big question is, which one is the turkey, which one is the chicken.
Back to my first question: I wonder if the people who call crypto a bubble factor in the seignorage.
In the current environment, it may be a "rational" bubble not worse than the alternatives.
You are giving them too much optimism. The state budget is healthy only because the national government collect a disproportionate amount of tax revenue* and leave the local governments to fend for themselves, and indeed many of them have been funded entirely on debt for years now the property boom have mostly died down and took land grant money with it.
*Last year 25 provinces ended up receiving more transfer payments than the taxes collected, in other words only the remaining 9 costal provinces are (sort of) without deficit. With a looming demographic crash China is not any better off than the US.
That is hard to say, fed is planning to wind down QE, but it's also trying to hit a certain interest rate, when those two objective collide, i.e. interest rate going up too fast, it'll be interesting to see what happens then.
the fed hasn't increased its bond holdings in 4 years. treasury debt has obviously increased over the same time period. so, yes, this debt is not just financed by printing money, despite whatever they're saying on youtube these days.
https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...
The US federal government pays for things by crediting bank accounts (hence money creation). The fact that the federal government also issues Treasury securities is a political constraint, not strictly required from a technical standpoint. The Federal Reserve then uses Treasures as a reserve drain when they are trying to hit their overnight interest rate targets.
They are mainly trying to control the size of bank reserves by buying and selling securities, with the goal of hitting a target interest rate. When they are worried about inflation, they increase interest rates.
Please read about Modern Money Theory.
https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-... https://www.youtube.com/watch?v=TDL4c8fMODk
They could even call it "tether".
It would be almost indistinguishable from the recent situation - except tether is a private company, and the govt does not like competition.
https://tradingeconomics.com/united-states/government-debt-t...
A common rule of thumb is 120% means debt is in serious trouble.
Here is a comparison of the G20: https://tradingeconomics.com/country-list/government-debt-to...
More like end having a sustainable budget.
The Obama years added ~$10 trillion in debt in eight years. How was that sustainable exactly?
For the last decade, the CBO has been forecasting blown out budget deficits starting about now, because of entitlement costs. There's no scenario where the budget deficit doesn't explode, unless you cut entitlements, dramatically raise taxes, or both.
Have a look:
https://www.cbo.gov/sites/default/files/cbofiles/images/pubs...
We spent $1 trillion in Iraq and another trillion in Afghanistan, but that should have shown up earlier?
https://www.thebalance.com/us-deficit-by-year-3306306
Both parties are spending our children’s future.
As for 2016, I am confused by the numbers on that table - the addition to the debt seems to have several hundred billion in unexplained increase that doesn't appear to be referenced anywhere that I saw.
The Republicans like to talk about fiscal responsibility to attack “tax and spend” Democrats, but when the Republicans are in power they are much more inclined to cut taxes than spending (they certainly redirect spending, but they never cut as much as they cut taxes.)
Taxing and spending increases the size of government. And it arguably has no end. Government is the ultimate bureaucracy and will spend every penny it receives, and then some. Even Finland, whose government takes more than 40% of its national GDP in taxes, is now somehow facing mounting government debt. It has phenomenal state programs, but will they prove to be sustainable or not? Since the government is a bureaucracy, the only way to reduce its spending is to reduce the amount of money it has available. As Milton Friedman put it, reducing taxes 'cuts the government's allowance.' Reducing taxes results in either programs being cut out of necessity, or the eventual collapse of the government under its own debt. In either case it certainly 'ends big government.'
The big hypocrisy is not in the tax cuts, but in the spending of presidents like Bush. We spent one can only imagine how many trillions in Iraq and Afghanistan. And while perhaps the military can be considered distinct from government in general, spending money on poorly justified wars we can't afford certainly precludes any notion of fiscal purpose.
It's pretty simple mathematically. Not so simple politically.
You slash $250 billion off the US military. You slash $100 billion in local+state+federal spending off of all the activities related to the war on drugs.
You very lightly cut entitlements.
You raise taxes on the top 10% by quite a bit. You raise taxes on the next quarter by a modest amount.
Your budget is now close to break-even. You haven't impacted the standard of living of ~95% of Americans at all.
Quite the opposite, you just dramatically boosted the long-term prospects of the quality of life for the average American. Hundreds of billions in wasted revenue can now flow into highly productive use over time, whether healthcare or transportation/infrastructure (or just not running up debt interest by exceeding the budget). Just by not running up that debt interest, you'll save trillions of dollars over time.
If you really wanted to dramatically boost the US standard of living, you'd squeeze the healthcare cost monster to death. The monetary benefit of that system overwhelmingly flows to the top quarter of Americans, who are already doing extraordinarily well. We have a ton of room to work with in that area, that could improve our situation by hundreds of billions of dollars per year. It's not even necessary to get creative, all we have to do is begin copying any number of several highly function systems from around the world.
Cutting the military etc. will harm the economy you might say? Except that's obviously wrong. It'll further unleash the economy, releasing that money to far superior productive, compounding use. Most US military spending is for soldiers, who are contributing very little to the US economy as is versus their peers, their labor is low productivity and low innovation. They make nothing, they're nearly strictly consumption engines. No other prosperous developed economies have the need to spend on such things at such a high rate, neither does the US. It merely requires that the US accept that it's not the world police and doesn't need to be.
I can't help thinking that all economic woes are self inflicted because of bad culture.
When you start talking about the Federal reserve as a non govt entity people call you crazy. Yet I have not heard why the govt borrows money from the govt.
The wealthy turn around and buy US government bonds.
The rest of us pay the wealthy bond interest and pay taxes against the debt accrued by offering tax cuts to the wealthy so they could buy US bonds.
The Fed can also buy other assets besides T-bills and use them to back new issuance of US currency notes.
You can read the federal reserve act at Frb.gov
US is too big to fail and rich people have to put their money somewhere. At least with US Treasury bonds you get a small but reliable return. So the train keeps going.
What's the quote about "To believe you can have infinite exponential growth in a finite world means you are either crazy, or an economist."
I ended up staying in tech instead of pursuing doctoral studies in Economics, but had life broken a different direction my thesis would have been (loosely speaking) related to assessing how governments could leverage MMT differently depending on whether or not they're an issuer of one of the common global reserve currencies.
I was ultimately turned onto the underlying theories after breaking from Neo-Keynesian theories in the wake of QE1 & QE2, but before QE3 was in full swing.
All money is just an agreed upon fiction by multiple counterparties, and when there's a lot invested in that fiction it becomes fairly undesirable to be the one(s) to pierce the suspension of disbelief.
The government is not a human who better pay off their debt by 65 or they're screwed. The government'll keep receiving income "forever", in a pretty predictable way. So there is no reason to ever stop borrowing; it'd be leaving money on the table (utility of a dollar now > utility of a dollar later).
That is very interesting. It sounds like we manage to magically create some unlimited resources that is creating the world's wealth and strength. It sounds magical. What's the catch? What's the limitation of creating more wealth, faster? Is today's dollar value simply based on the value that it can potentially have tomorrow? - From a non-economist point of view, it's quite hard to picture.
[1] https://en.wikipedia.org/wiki/National_debt_of_the_United_St...
[2] http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-abou...
Look at it another way. Our debt is like a 2% mortgage that we can pay off in 30 years using just 18% of our revenue. Back in boom times people could get interest only mortgages with those parameters.
The misleading aspect is because 40%, and even 18%, don't sound as absurd as they really are. Even cutting spending modestly is incredibly difficult. Cutting it by 18% is arguably impossible without completely reshaping government as we know it. Cutting it by the 40% required to actually make progress on the debt is completely unrealistic at any point in the foreseeable future. And these numbers are getting worse each year, with the difficulty of getting out of debt continuing to increase. And of course this repayment pretends we will both maintain or increase income while never increasing spending beyond growth in said income - for 30 years.
No, no private company is getting a loan in these conditions. Drowning in debt with the only means of possible repayment, both short and longterm, being to hope they can find other lenders to pay off you, as a new lender? That's like a mental version of something between a ponzi and pyramid scheme.
it also says that the usd is dying and that the USA's free lunch (ability to borrow endlessly without consequences) is now ending or already ended, though the politicians will deny it.
they also say that if you are russia or china, the obvious move is to hire a bunch of blockchain engineers, try to unload your usd treasury bonds (forcing a financial crisis in the USA in the 2020s when the USA politicians don't realize they can't borrow anymore), and then simply wait, and when the dollar dies you can step in and "save the world" from the dying dollar with their new cryptocurrency.
obviously, russia famously had meetings with Vitalek (ethereum founder) and there is a huge amount of blockchain investment happening in China right now.
https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-en...
I am not sure what blockchain engineers have to do with selling treasury bonds. The larger issue for China is that they have to do something with their dollars. It's not feasible just to dump them.
Unfortunately (or fortunately depending on your perspective) the USAs ability to continue to borrow does not appear to be ending. It is true that so long as others will lend to you in your own reserve currency you can basically just keep borrowing. I didn't think that the US could borrow $20T but maybe we can borrow $50T or even more. It seems for the time being the sky is the limit.
The fact that oil is settled to this day primarily in USD has everything to do with the US and Saudi Arabia. Understanding this system also helps one appreciate the relevance of very contemporary issues like China attempting to push oil producing nations to settle their contracts in yuan. It's not about the short micro level effects, which would essentially just be a currency conversion, but about the macro level effects and implications of what currency the most in demand import in the world is offered in. If China succeeds with their goal, the economic consequences for the US could not be overstated.
Argument is that USA borrowing is contingent on foreign superpowers buying US Treasury Bonds, which they "started to stop" doing a couple years ago
> So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars
Other than pissing off the USA who will manufacture some moral imperative to sanction/proxywar/depose said government
Please read about Modern Money Theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...
- The rate of increase is taking this debt rapidly to somewhere unsustainable.
- With the fractured politics this becomes so much more dangerous/likely to be an issue.
- Interest rates are pushing up adding to the servicing costs, currently about 500 billion/yr and probably likely to become the single largest payment line on the federal budget.
- Pension funds are going to be increasingly liquidating treasuries as boomers retire and they hit their own funding issues.
- Countries like China are selling off holdings.
- The debt is going to be an increasing drag on the economy to grow or safely inflate out of it.
- I cant see the political parties reducing military or social security costs of any significance to reduce the growing pressure.
The only positives seem;
- The amazing strength and scope of the US economy.
- Trump once proposed a one-time wealth levy/tax to pay this down, so if this happened it would be a game changer.
So I do believe the US is capable of sorting this out if the political will/intelligence was there. But I dont see this mood and feel people like to kick the can down the road these days. Time will tell.
Of course the reality is that this era of peace we've created has largely been enabled by nuclear weapons. Mutually assured destruction is indeed MAD but it has been the one thing, in the entire history of our species, that has managed to prevent this sort of conflict. Without nuclear weapons nations like the US, China, and Russia would certainly have long since came to 'hot war' in the process of determining who's ideology will be the world ideology. And that certainly would have drawn in the rest of the world, one way or the other: to wit, World War 3.
And so too today in economics, most people have lived during an era when the US has been more than capable of 'printing' (not how many is made - another complex topic) vast sums of money while suffering no real economic consequence, as well as being involved a system where we are only able to pay off old debts by taking on new debts - with no expectation of this ever really changing. If a private organization was behaving as we do, it would be considered a Ponzi Scheme. The reasons for this economic immunity are complex -- the fact our currency is indirectly backed by oil is a major player. But the point is is that people don't see any nuance here. We've always been able to behave this way (from the perspective of most people), so why would anything suddenly change? Probably a similar scenario to what happens at the end of any other meaningfully long era.
Remember, the US is monetarily sovereign. The government has the ability to create and destroy US dollars. Things you don't need to worry about:
- Default. If it happens, it would be a purely political move, not an economic or financial one. The US federal government can always afford payments. A check from the federal government never bounces. They can always just credit bank accounts. In fact, the government can abolish the debt instantly. They can simply redeem all Treasuries with bank reserves.
- Interest rates. The Federal reserve controls short-term interest rates. And the supply of long-term Treasuries doesn't impact interest rates: increased government deficits lead to an increase in the size of bank reserves which lead to an increase in demand in Treasury bonds that matches the increased supply, since banks want to swap low-paying reserves with higher-paying debt instruments.
- China. Treasuries are like a savings account, while bank reserves are like a checking account. If China or pension funds (or anyone) sell off their Treasuries, it's akin to transferring money from a savings account to a checking account. What's the harm in that? And why would they do that? That would decrease their interest income.
Here are real concerns about ballooning national debt:
- Inflation. This can happen since the government is stimulating aggregate demand, in a classical Keynesian way. But it hasn't happened for a while, and if it does, the government can raise taxes. That shrinks the debt and decreases aggregate demand.
- Foreign exchange. With all the new USD floating around (because government spending = money creation and taxation = money destruction), there's a risk of a weaker dollar. But that has its upsides. And China's currency peg at least keeps the prices of Chinese goods fixed.
- Spending it unwisely. The government can't buy everone a pony. There aren't enough ponies in the world, and it would wreck the pony market.
NYT article: This comes from an economist that loves to push MMT. I actually studied economies under the guy that coined this term. He's a super smart guy but I dont agree with it in the theory probably works in a bubble. It seems a classic case of academia vs reality. Very unusual for economists haha. I'd suggest you read some criticisms of MMT if you haven't before you push it as a truism.
- Default: This attitude is cant happen to a monetarily sovereign nation is a little ignorant of history. Sure US can print/credit but then inflation. And being the worlds reserve currency give a bunch of leeway but this isnt a fixed variable, and is increasingly under threat. End of the day it's a confidence point and the US can lose this creating a run domestically and/or internationally.
- Interest rates are only under control while the market has confidence they will be repaid. Sure some FI's are held to a certain level of treasuries but plenty of existing market demand can leave, taking with it the Feds ability to control rates. At the end of the day if the risk/reward ratio get outta whack the fed will lose their ability to control rates at any scale and especially when they attempt to recycle existing debt.
- China. I dont understand your logic here. It's a supply and demand market. If its (do I understanding you?) as easy as the Feb buying up any excess demand that is a limited game. The FED probably did well with QE but that's a limited tool, needs to unwind at some point, and we wont truly know the effect for some time.
Inflation: Possibly. What if we hit stagflation? And US has a strong resistance to tax increases. There is a possibility for US to inflate their way out of this debt. It would need to be well managed for many decades which seems low probability with the current political management.
Don't get me wrong. I am not saying default will happen. We'd needs some serious events to trigger this. I do feel it is a possibility and am amazed some people feel it's in the risk likelihood of a meteor strike.
- Interest rates: the Fed controls overnight interest rates, afaik. But what happens with long-term rates is that the Fed uses those bonds as a "reserve drain". https://www.nakedcapitalism.com/2010/08/why-treasury-bonds-d... Long term interest rates have been going down for decades, despite the size of the debt consistently going up.
- China: the point is that they already have over $1 trillion in Treasuries, what is the difference between holding Treasuries vs holding cash? It's just two different kinds of bank account at the Federal Reserve. And the former pays interest, so why convert to the latter? They would only do so to spend it. Which either means a trade surplus for the USA (a boon for the economy) or converting their holdings into another currency, which just means transferring ownership of the Treasuries to someone else. In both cases, inflation and foreign exchange rate are the biggest risk. Do you think there is interest rate risk here? As for the Fed, I don't see limits to their powers.
- Inflation: I see the causality in reverse. Increased government debt leads to inflation (because government debt is money, money supply has gone up, and aggregate demand through government spending has gone up) rather than the government trying to inflate to pay off the debt. Stagflation in the 70s was caused by a supply shock (oil prices). If inflation happens because of the money supply, then the government can fix that problem by shrinking the money supply. If it happens for other reasons, then the government needs to address those issues. What is the problem with the debt then? How is that a concern?
The US is (or was as of 2013) still making payments to children of Civil War veterans. Granted it's only 2 of them and less than a grand a year apiece but still.