You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt"
and the other camp says it's going to lead to our demise, etc.
Will we ever see a surplus or breakeven in the next 10-50 years? Why should/shouldn't we? Is it worth it to target a surplus? Obviously it must not be because we're nowhere near it.
I wonder how the first camp reconcile their views with the current struggle Italy has with their debt caused by excessive deficit spending in the past.
Mostly by saying this is Italy's fault for being in the Eurozone and thus not being able to print its own money.
Also the USA is in a unique situation in the world due to the status of the dollar, so comparison with other countries have very little validity. If argentina prints money it just loses value immediately and triggers crazy inflation. If the US prints money it is still not that big of a deal compared to all the dollars used everywhere in the world so the negative effects are much lower.
> Also the USA is in a unique situation in the world due to the status of the dollar
I hope this remains true. I fear for the USD's status as the world's reserve currency due to our abusing it to print, our oil producing Arab allies starting to accept other currencies, our disconnecting Russia from our financial system motivating countries to try to be independent of us etc.
The simple answer is we are debasing our currency in a very complex way, that we cannot measure how much we debased it. In the past kings printed new coins to fund their wars or whatever and it was easier to track how much the currency lost value. In the present because economies have gotten complex + tools to debase have gotten complex we cannot estimate how much we have actually debased our currency by. If it’s 100% then there’s going to be a lot of inflationary pain, if it’s 10% we can probably handle it but I wouldn’t hold my breadth on getting any good estimate
>it was easier to track how much the currency lost value.
I think this is a glamorization of the past. I'll bet most exchange throughout history was being done with some level of fraud baked into the system highly up the chain. Our modern fiscal institutions haven't even been cooking for 100 years and look at all the shit the weird sages in the crown city keep pulling with our green coinage.
You don't debase fiat currency, since there isn't a limited supply. Markets are distorted because of a poor distribution of money (too much where demand is low, too little where demand is high), because the Fed handed out money to the wealthy (who hoard it in the form of assets) and Congress refuses to tax it back and redistribute it to the working class who can't currently pay their rent.
> You don't debase fiat currency, since there isn't a limited supply.
That doesn't sound correct. There isn't a limited supply, but introducing more currency into circulation can reduce the value of it, which is a proper use of debasing.
As a contrived example, if the treasury printed 100 trillion dollars and handed it out to everyone, I'm doubtful that bread would still be $1 a loaf.
It doesn't reduce the value of the currency, it increases the supply of available money. This can drive additional demand and drive inflation that way.
That's different than (e.g.) Roman-era debasement where they were using less valuable metals to mint coins and the value of the coin was based on the perceived metal content of the coin, rather than being fiat currency that follows supply and demand trends.
If the currency was debased, inflation would have occurred fairly evenly across the economy, since the currency would be literally worth less. Instead we saw inflated prices chase sectors of the economy where there was either an over supply of money (e.g. PE buying up housing, driving up the price) or an undersupply of product (e.g. cheap eggs).
> If the currency was debased, inflation would have occurred fairly evenly across the economy
Nothing makes this necessarily true. As an example, if the government printed everyone in the world 100 trillion dollars, and everyone used it to buy as much house they could, and nothing else, then houses would skyrocket in price as this money spurred demand for houses causing a shortage of housing stock (as prices are a matter of supply vs demand). Bread wouldn't change a dime in this scenario, because no one used the new money to buy more bread than normal, causing a supply shortage of bread. Ergo, nothing necessitates that inflation occurs evenly across the economy. Not even in Roman times. Inflation only occurs where demand happens. If demand, demands it be stored in bank accounts, then bank accounts inflate.
Wrong. If you debase your currency, by definition the cost goes up on goods even where demand is static. That's what it literally means - coins are now worth half because they have half the silver they used to.
We saw some inflation on food and gas prices in 2022 (for reason not directly related to monetary policy), but not in 2020 or 2021 when the cash was added to the economy - we saw inflation in assets because the Fed handed out cash to investors who deployed it on a limited pool of assets.
I'm not wrong at all. You can make coins with 1/4 the silver they use to, but if people don't demand more coins to make up for the debasement, there is no inflation seen in traded goods. There's nothing necessarily stopping anyone from accepting the 1/4 silver coin as equivalent as the 100% silver coin for the same good. However if someone is wiser about the debasement, and now demands 4 coins instead of 1 to make up for it = there's your inflation. Like I said, inflation only happens where demand happens. Demand can be broad based, but nothing necessitates it being evenly distributed.
That assumes people are unaware suckers and would still only be true for a short time under metallist economies (until word gets out). My entire point was that it doesn’t work that way with fiat currency. Demand is driving inflated prices, but the money isn't being debased, the supply is increasing. Congress could remove the extra cash with taxes, which you cant do with debased coins, they have to be reminted entirely.
There is no right, because a lot of people pull in all sorts of directions, which means there are simultaneously multiple perceptions of what is "right". It may not be apparent until you realize that 1) not everyone wants US to continue being a superpower 2) not everyone thinks expensive dollar is a good thing.. by which I mean, lots of people have different idea of what right actually is.
And since I am looking at it all through a lens of an individual of US, to me it is clear that making US drown in debt is bad for USD price against, well, everything. For the longest time, US had been the place to park your cash due to stability alone ( and the fact that dollar was worth something ).
That stability is currently not assured. That said, any analysis on the matter I heard was oddly optimistic ( and I will admit that I don't get the optimism ). Not sure if it is the lack of alternatives or something else, but it does not seem US treasury has problems selling bonds.
It is not as bad as the headline would suggest. The economy presumably is growing at the same time that the $19 trillion debt is being added. US GDP has grown a lot since 2012. Debt to GDP the highest since ww2, which seems bad, but the economy still boomed after ww2 anyway, so it's not saying much.
My intuition is that it's obviously right that borrowing money could be a neutral or positive thing - but that depends on the borrowed money being spent in ways that will have a positive return. If you borrow money, when borrowing is cheap, to buy a car so you can go to work, smart! If you borrow money to spend it on booze and concert tickets - not smart!
I think the issue is that one side is saying "Borrowing is terrible!" And the other side is saying "No, borrowing cheap money is somewhere between fine and great!" And the real answer is "Borrowing can be smart if you use it well, but we are using it poorly."
If the US was borrowing money to build and renovate roads, bridges, ports, update the electrical grid, build new nuclear power plants, engage in basic science research and similar projects likely to yield good return on investment - that was be amazing financial planning. My limited understanding of what the government actually spends its money on - wasteful healthcare, social security, the military, and intelligence agencies - is that the money is actually just being squandered.
Which the feds can always do since they can issue money.
The relevant question is can the US continue producing goods and services that are desirable on a global scale, one of which is a trustworthy society where you can mostly depend on the judicial system keeping things in order, for better or for worse.
And more importantly will others keep accepting USD. Or will they expect to be settled in something else be it other currency or some commodity. If others start to want something else than USD things can go sideways.
The problem is the fundamentals. The US will "never default on its debt" because it issues debt in its own currency, which it can control the creation of necessary to service that debt (money printer go brrrr).
So nobody is ever concerned about debt; you just say screw it let someone else worry about it, usually future generations. The value has to come from somewhere, and in this case its from the debasement of the dollar.
A budget surplus would be pretty irrelevant target in the grand scheme of things.
There are foreign policy implications (other countries waiting for us to pay them back is a good thing).
But also, just like corporate finance, if the government can get good rates on debt, it almost always makes sense to just take the money and make the payments.
So some small and sustainable amount of budget deficit is probably a good thing. But we are clearly on the wrong side of that equation.
There's a lot of scary numbers, but here's a graph of the US budget deficit as a percentage of GDP[1] according to the CBO. Yes, the US has a deficit most years, and yes both the financial crisis and COVID lead to very large dficits. But between 1992 and 2000 a deficit of 4.5% became a surplus of 2.3%. So it's well within the possible to decrease the deficit by 7% of GDP over a relatively short period of time. If we started that process today we'd be back to the long term average deficit within 8 years - and we're starting from a crazy base because of all the hangovers of COVID.
So whilst it's obviously a policy choice whether that happens, it's definitely well within the possible.
But we're not, right? Not only are we not doing that, we're nowhere close to that? We're still on tracking to collect roughly the same in taxation (leaving loopholes open for corporations on purpose) and spending more than ever (growing every year).
Even worse, $19T added to the debt is an extreme lowball by some expectations. Many estimates put the US national debt closer to $90T by the end of the decade.
The country is right on the edge of walking into one of the most expensive wars in its history as well as a few delayed economic disasters that would kick the money printer into much higher gear.
Trump adding $10T+ in a relatovely uneventful 4 years even before the massive inflation spike hit should give you an idea how quickly diminishing returns on QE can escalate spending.
I encourage people interested in this topic to read up on the Fiscal Theory of the Price Level. I flippantly refer to it as "MMT without the magic". But it really did a good job of explaining our current situation.
When you have a long-term fixed rate mortgage, only some of the value is paid off by principal payments. The rest is being paid off naturally by inflation. Imagine paying off a mortgage made in 2003 dollars with dollars you made in 2023. The payment is the same, but only a pittance of the same value.
The theory goes that inflation is not completely a result of monetary policy - there is also a market adjustment of the dollar to the amount of government debt issued. To oversimplify, government debt will be paid back - if not through taxes, then through inflation.
The implication is that MMT gets it partially right - worrying about debt to GDP is somewhat irrelevant. And if it can issue debt at less than the rate of inflation, the government can get free money! But we are clearly well past that point.
The silver lining is that default is not really a risk here (maybe a political one) - inflation will cap out whenever the value of the money "catches up" with the debt level. (That said, if we continue to add to the debt, that means inflation will never stop).
This is what the bitcoin people got right. The dollar is going down A LOT. This is also what the bitcoin people got wrong. You don't want to to denominate your asset in dollars. Yes BTC will hit 100k some day. But 100k will only buy a crappy used car at that point.
>This is also what the bitcoin people got wrong. You don't want to to denominate your asset in dollars.
Bitcoin people dont get that wrong, the "1 bitcoin = 1 bitcoin" meme is popular for that reason.
Having said that, fiat has no bottom, so bitcoin has no top. It will continue to increase in fiat value for the rest of its existence as long as the network technicals stay sound.
14% to everything else (scientific research, the courts, the Department of Agriculture, etc.)
The US budget deficit doesn't come from overspending in any particular area, and there is no single fix that is going to get us back to parity. A focus on efficient spending and reducing waste might help, but it would need to be applied systematically across the entire government.
We are simply spending too much money everywhere, and getting too little value for the expenditure.
This is a bit misleading though as it includes state spending as well. For the purpose of federal debt, we really only have three sources of spending that can move the needle:
- Health Care 28%
- Pensions 24%
- Defense 20%
Defense seems like an easy cut, but we are not currently in any major conflicts anyway. And our allies might not take to kindly if we start pulling bases from around the world.
Pensions are entitlements and we can't really touch those.
I think though that we are underrating the effectiveness of efficiency reforms around our healthcare system. For both private patients and taxpayers.
> we are not currently in any major conflicts anyway
Disagree. The war with Russia has been slowly but steadily escalating and more directly involving NATO countries. It's not unthinkable it could turn into WW3.
I don't disagree that it might very well escalate. But to the extent that the current conflict has already impacted our budget or the forecasted budget as outlined in the linked article I think is pretty negligible.
My point was that we are unlikely to find any "easy" cuts in defense spending - and a major conflict could make us regret it.
Yes it is. Russia is bogged down and unable to make any progress while fighting the poorest country in Europe, who is 1/3rd their size, has been equipped with whatever leftovers NATO was getting rid of anyway, and has conditions on using NATO tech to target Russia proper.
There is zero chance of this becoming WW3. Any Russian escalation targeting NATO countries will likely be met with increased border defenses, possibly a no-fly zone, and giving Ukraine another 1% of defense spending collectively across NATO, but this time with all the long range missiles they want, the freedom to target Russia, and whatever aircraft NATO has in the back of the pantry...
> has been equipped with whatever leftovers NATO was getting rid of anyway
That’s really inaccurate; a lot of what Ukraine got is modern kit. It’s true that a lot of the really heavy equipment was ex-Soviet gear that was (or is now, if it wasn’t before) being replaced by more modern Western gear, and some of the rest was for speed current operational gear that the operators could do without even if it wasn’t planned for imminent replacement. But even some of the heavy gear (especially more recently) is new and modern, like NASAMS, and that seems to be more than case with announced and upcoming deliveries (heck, for the Ground-Launched Small Diameter Bomb – a funny name for a long-range artillery rocket – they are not merely getting new and modern Western kit, they are going to be the first operator.)
There's a reason actions you suggest like a no fly zone have not and probably will never be taken by NATO. Russia is a nuclear superpower capable of destroying most life on earth.
> The government expects to spend $6.011 trillion in 2022. More than 65% of that pays for mandated benefits such as Social Security, Medicare, and Medicaid.
> Military spending includes the Departments of Homeland Security, State, and Veterans Affairs. All of these military costs combined equal $943.9 billion.
> Pensions are entitlements and we can't really touch those.
They are touched all the time. Implicitly via decreased purchasing power of currency that is not made up for via cost of living adjustments, and explicitly via things like increasing retirement age and changes to benefit formula.
Healthcare spending is also frequently adjusted via reduced remuneration and policies for remuneration to providers changing the quantity and quality of services received.
> it's worth reviewing where total government spending in the US actually goes.
Is it also worth reviewing
1. are we likely to ever increase incoming tax revenue (which loopholes stand to benefit the country's income the most without hurting it's citizens/economy/the businesses (and its employees who are basically the citizens) inside of it) enough to offset the debt-GDP ratio
2. if we are (or even if we aren't) going to increase taxation, are we going to lower spending in a significant manner or can we count on spending to pretty much stay the same or grow to offset the debt-GDP ratio
so far in the past like, 15 years, we've shown we're going to keep taxes roughly the same and keep spending roughly the same (continue to grow it year over year)
therefore we have no indication that we're headed towards anything but a debt/GDP ratio of 120-150% next 10 years, correct?
> so far in the past like, 15 years, we've shown we're going to keep taxes roughly the same and keep spending roughly the same (continue to grow it year over year)
> The CBO estimated that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years, or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.
... And of course the time between 2017 and 2023 has been great for the economy with improved revenue growth offsetting the reduction in taxes.
I hate to say it but yah. There is no institutional backbone in Congress anywhere to do course correct. If memory serves corp taxes are down about 20pct from Reagan while my W2 taxes are high. I've been in the apple building in Cupertino. Nobody really thinks it's Irish for tax purposes.
In most counties, property taxes fund local schools. Public AND private universities are largely unaffordable without huge loans.
Seems like most of this money is being squandered, with maybe a few billion going to decent NSF grants.
Pre primary thru secondary education 152.2 0.0 7.3 789.9 949.4
[+] Tertiary education 481.3 0.0 292.8 49.7 823.7
[+] Education not definable by level 59.0 -112.0 80.6 13.3 40.9
[+] Subsidiary services to education 0.0 0.0 0.0 0.0 0.0
[+] R and D Education 0.0 0.0 0.0 0.0 0.0
[+] Education n.e.c. 0.0 0.0 0.0 0.0 0.0
> The US budget deficit doesn’t come from overspending in any particular area
You are right, but even more, the US budget deficit doesn’t come from overspending at all. The deficit is about 2% of GDP. The US taxes at about 8.5% of GDP less than the OECD average. The US deficit is from undertaxing.
Bingo. And (as much as this crowd hates to admit it) the US undertaxes the middle class and poor to an incredible amount compared to other first world countries.
OECD tax vs GDP [1]
OECD rates US most progressive [2] (the rich pay more of the tax base, even when relative to their share of income).
OECD data includes payroll taxes (and all relevant taxes in each country). You can dig around on their site to find their tax data and methodology.
If you don't like the date, also dig around on their site to find anything up to date you like. The point I made is correct - and it's well backed by the OECD databases.
It can be misleading looking at the budget this way. As to your last statement, they could cut the budget by a trillion, and still have 17% go to pensions, 23% to healthcare, etc. In any case, doing a comparison in percentage terms to other areas of spending won't indicate whether they are overspending in any particular area. There could be huge wastes in some categories.
What's interesting is that the US has been issuing a tremendous amount of debt, and the volume of that debt is a lot more than what should be possible under standard economic theories.
Interest rate are still historically low, even after the inflationary bump. And there doesn't really seem to be crowding out; in fact, there's so much money floating around that it doesn't have enough places to go...which is presumably why the US debt is still finding buyers (the debt limit thing notwithstanding).
If the US was under IMF supervision it would have been in violation decades ago.
I don't follow this anymore, but does anyone know if there has been anything written about this bizarre financial era we live in, monetarily speaking?
What's distressing to me about the debt situation is that Americans are willfully living in a total fantasy land about spending and taxes. The most recent pre-pandemic budget deficit was $1 trillion, while last year it was $1.4 trillion.
Even the folks solidly on the left like Warren and AOC aren't talking about tax increases that would come close to closing that deficit. Their wealth and 70% top tax bracket proposals would raise less than $200 billion annually at the beginning. And of course, they want to combine that with $1 trillion+ in new spending.
The issue is that Reagan dramatically lowered taxes on the middle class and upper middle class in the 1980s, and there's literally nobody in Congress willing to roll those back.
> What are the mechanics behind the US seemingly able to have infinite debt?
The root reason is due to the US government's control over its own currency.
If you have your own currency, and if a lot of your debts are denominated in said currency, you can slowly make that debt less valuable over time with inflation. When debts almost always become less valuable relative to present value via inflation, there's less pressure to rein in on government spending than if your debts are denominated in another country's currency.
This will eventually always happen even if a country decides to stick to a 1% annual inflation target. Within 100 years, said debt will be close to 37% of its current value:
1/(1.01**100) = 0.369711212
Even a 4% annual inflation target can cut that debt's Net Present Value (NPV) by to about the same level within a quarter of a century:
1/(1.04**25) = 0.375116802
The methods by which you can achieve this 1% inflation can be done in any number of ways, from quantitative easing, to regular old money printing, to government bond interest rate adjustments. Regardless of the methods used, inflation inherently makes any government debts held less valuable over time, making it easier for the government to eventually pay it off.
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[ 5.5 ms ] story [ 132 ms ] threadYou've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt"
and the other camp says it's going to lead to our demise, etc.
Will we ever see a surplus or breakeven in the next 10-50 years? Why should/shouldn't we? Is it worth it to target a surplus? Obviously it must not be because we're nowhere near it.
Also the USA is in a unique situation in the world due to the status of the dollar, so comparison with other countries have very little validity. If argentina prints money it just loses value immediately and triggers crazy inflation. If the US prints money it is still not that big of a deal compared to all the dollars used everywhere in the world so the negative effects are much lower.
I hope this remains true. I fear for the USD's status as the world's reserve currency due to our abusing it to print, our oil producing Arab allies starting to accept other currencies, our disconnecting Russia from our financial system motivating countries to try to be independent of us etc.
I think this is a glamorization of the past. I'll bet most exchange throughout history was being done with some level of fraud baked into the system highly up the chain. Our modern fiscal institutions haven't even been cooking for 100 years and look at all the shit the weird sages in the crown city keep pulling with our green coinage.
"it's a feature not a bug."
That doesn't sound correct. There isn't a limited supply, but introducing more currency into circulation can reduce the value of it, which is a proper use of debasing.
As a contrived example, if the treasury printed 100 trillion dollars and handed it out to everyone, I'm doubtful that bread would still be $1 a loaf.
That's different than (e.g.) Roman-era debasement where they were using less valuable metals to mint coins and the value of the coin was based on the perceived metal content of the coin, rather than being fiat currency that follows supply and demand trends.
If the currency was debased, inflation would have occurred fairly evenly across the economy, since the currency would be literally worth less. Instead we saw inflated prices chase sectors of the economy where there was either an over supply of money (e.g. PE buying up housing, driving up the price) or an undersupply of product (e.g. cheap eggs).
Nothing makes this necessarily true. As an example, if the government printed everyone in the world 100 trillion dollars, and everyone used it to buy as much house they could, and nothing else, then houses would skyrocket in price as this money spurred demand for houses causing a shortage of housing stock (as prices are a matter of supply vs demand). Bread wouldn't change a dime in this scenario, because no one used the new money to buy more bread than normal, causing a supply shortage of bread. Ergo, nothing necessitates that inflation occurs evenly across the economy. Not even in Roman times. Inflation only occurs where demand happens. If demand, demands it be stored in bank accounts, then bank accounts inflate.
We saw some inflation on food and gas prices in 2022 (for reason not directly related to monetary policy), but not in 2020 or 2021 when the cash was added to the economy - we saw inflation in assets because the Fed handed out cash to investors who deployed it on a limited pool of assets.
And since I am looking at it all through a lens of an individual of US, to me it is clear that making US drown in debt is bad for USD price against, well, everything. For the longest time, US had been the place to park your cash due to stability alone ( and the fact that dollar was worth something ).
That stability is currently not assured. That said, any analysis on the matter I heard was oddly optimistic ( and I will admit that I don't get the optimism ). Not sure if it is the lack of alternatives or something else, but it does not seem US treasury has problems selling bonds.
I think the issue is that one side is saying "Borrowing is terrible!" And the other side is saying "No, borrowing cheap money is somewhere between fine and great!" And the real answer is "Borrowing can be smart if you use it well, but we are using it poorly."
If the US was borrowing money to build and renovate roads, bridges, ports, update the electrical grid, build new nuclear power plants, engage in basic science research and similar projects likely to yield good return on investment - that was be amazing financial planning. My limited understanding of what the government actually spends its money on - wasteful healthcare, social security, the military, and intelligence agencies - is that the money is actually just being squandered.
The relevant question is can the US continue producing goods and services that are desirable on a global scale, one of which is a trustworthy society where you can mostly depend on the judicial system keeping things in order, for better or for worse.
So nobody is ever concerned about debt; you just say screw it let someone else worry about it, usually future generations. The value has to come from somewhere, and in this case its from the debasement of the dollar.
There are foreign policy implications (other countries waiting for us to pay them back is a good thing).
But also, just like corporate finance, if the government can get good rates on debt, it almost always makes sense to just take the money and make the payments.
So some small and sustainable amount of budget deficit is probably a good thing. But we are clearly on the wrong side of that equation.
So whilst it's obviously a policy choice whether that happens, it's definitely well within the possible.
[1]: https://www.cbo.gov/publication/58268
But we're not, right? Not only are we not doing that, we're nowhere close to that? We're still on tracking to collect roughly the same in taxation (leaving loopholes open for corporations on purpose) and spending more than ever (growing every year).
The country is right on the edge of walking into one of the most expensive wars in its history as well as a few delayed economic disasters that would kick the money printer into much higher gear.
Trump adding $10T+ in a relatovely uneventful 4 years even before the massive inflation spike hit should give you an idea how quickly diminishing returns on QE can escalate spending.
When you have a long-term fixed rate mortgage, only some of the value is paid off by principal payments. The rest is being paid off naturally by inflation. Imagine paying off a mortgage made in 2003 dollars with dollars you made in 2023. The payment is the same, but only a pittance of the same value.
The theory goes that inflation is not completely a result of monetary policy - there is also a market adjustment of the dollar to the amount of government debt issued. To oversimplify, government debt will be paid back - if not through taxes, then through inflation.
The implication is that MMT gets it partially right - worrying about debt to GDP is somewhat irrelevant. And if it can issue debt at less than the rate of inflation, the government can get free money! But we are clearly well past that point.
The silver lining is that default is not really a risk here (maybe a political one) - inflation will cap out whenever the value of the money "catches up" with the debt level. (That said, if we continue to add to the debt, that means inflation will never stop).
Some of them honestly believe that halving inflation doubles price no matter how many times you do it.
Bitcoin people dont get that wrong, the "1 bitcoin = 1 bitcoin" meme is popular for that reason.
Having said that, fiat has no bottom, so bitcoin has no top. It will continue to increase in fiat value for the rest of its existence as long as the network technicals stay sound.
This is actually not the easiest thing to pin down, but the best analysis I've seen is at https://www.usgovernmentspending.com/year2022_0.html.
In summary:
17% to pension programs (e.g. social security)
23% to healthcare
19% to education
12% to defense
7% to welfare
3.6% to police/fire/prisons
4% to transportation infrastructure
14% to everything else (scientific research, the courts, the Department of Agriculture, etc.)
The US budget deficit doesn't come from overspending in any particular area, and there is no single fix that is going to get us back to parity. A focus on efficient spending and reducing waste might help, but it would need to be applied systematically across the entire government.
We are simply spending too much money everywhere, and getting too little value for the expenditure.
- Health Care 28%
- Pensions 24%
- Defense 20%
Defense seems like an easy cut, but we are not currently in any major conflicts anyway. And our allies might not take to kindly if we start pulling bases from around the world.
Pensions are entitlements and we can't really touch those.
I think though that we are underrating the effectiveness of efficiency reforms around our healthcare system. For both private patients and taxpayers.
Alternatively we could raise taxes a little bit.
Disagree. The war with Russia has been slowly but steadily escalating and more directly involving NATO countries. It's not unthinkable it could turn into WW3.
My point was that we are unlikely to find any "easy" cuts in defense spending - and a major conflict could make us regret it.
There is zero chance of this becoming WW3. Any Russian escalation targeting NATO countries will likely be met with increased border defenses, possibly a no-fly zone, and giving Ukraine another 1% of defense spending collectively across NATO, but this time with all the long range missiles they want, the freedom to target Russia, and whatever aircraft NATO has in the back of the pantry...
That’s really inaccurate; a lot of what Ukraine got is modern kit. It’s true that a lot of the really heavy equipment was ex-Soviet gear that was (or is now, if it wasn’t before) being replaced by more modern Western gear, and some of the rest was for speed current operational gear that the operators could do without even if it wasn’t planned for imminent replacement. But even some of the heavy gear (especially more recently) is new and modern, like NASAMS, and that seems to be more than case with announced and upcoming deliveries (heck, for the Ground-Launched Small Diameter Bomb – a funny name for a long-range artillery rocket – they are not merely getting new and modern Western kit, they are going to be the first operator.)
https://www.thebalancemoney.com/u-s-federal-budget-breakdown...
> The government expects to spend $6.011 trillion in 2022. More than 65% of that pays for mandated benefits such as Social Security, Medicare, and Medicaid.
> Military spending includes the Departments of Homeland Security, State, and Veterans Affairs. All of these military costs combined equal $943.9 billion.
> Pensions are entitlements and we can't really touch those.
They are touched all the time. Implicitly via decreased purchasing power of currency that is not made up for via cost of living adjustments, and explicitly via things like increasing retirement age and changes to benefit formula.
Healthcare spending is also frequently adjusted via reduced remuneration and policies for remuneration to providers changing the quantity and quality of services received.
Is it also worth reviewing
1. are we likely to ever increase incoming tax revenue (which loopholes stand to benefit the country's income the most without hurting it's citizens/economy/the businesses (and its employees who are basically the citizens) inside of it) enough to offset the debt-GDP ratio
2. if we are (or even if we aren't) going to increase taxation, are we going to lower spending in a significant manner or can we count on spending to pretty much stay the same or grow to offset the debt-GDP ratio
so far in the past like, 15 years, we've shown we're going to keep taxes roughly the same and keep spending roughly the same (continue to grow it year over year)
therefore we have no indication that we're headed towards anything but a debt/GDP ratio of 120-150% next 10 years, correct?
I would like to bring that into question.
https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act_of_2017
> The CBO estimated that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years, or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.
... And of course the time between 2017 and 2023 has been great for the economy with improved revenue growth offsetting the reduction in taxes.
Where does this go?
In most counties, property taxes fund local schools. Public AND private universities are largely unaffordable without huge loans. Seems like most of this money is being squandered, with maybe a few billion going to decent NSF grants.
Pre primary thru secondary education 152.2 0.0 7.3 789.9 949.4 [+] Tertiary education 481.3 0.0 292.8 49.7 823.7 [+] Education not definable by level 59.0 -112.0 80.6 13.3 40.9 [+] Subsidiary services to education 0.0 0.0 0.0 0.0 0.0 [+] R and D Education 0.0 0.0 0.0 0.0 0.0 [+] Education n.e.c. 0.0 0.0 0.0 0.0 0.0
You are right, but even more, the US budget deficit doesn’t come from overspending at all. The deficit is about 2% of GDP. The US taxes at about 8.5% of GDP less than the OECD average. The US deficit is from undertaxing.
OECD tax vs GDP [1]
OECD rates US most progressive [2] (the rich pay more of the tax base, even when relative to their share of income).
[1] https://www.oecd.org/coronavirus/en/data-insights/tax-to-gdp...
[2] https://taxfoundation.org/news-obama-oecd-says-united-states...
For instance, does it include payroll taxes? Because that would skew the data pretty significantly.
If you don't like the date, also dig around on their site to find anything up to date you like. The point I made is correct - and it's well backed by the OECD databases.
Interest rate are still historically low, even after the inflationary bump. And there doesn't really seem to be crowding out; in fact, there's so much money floating around that it doesn't have enough places to go...which is presumably why the US debt is still finding buyers (the debt limit thing notwithstanding).
If the US was under IMF supervision it would have been in violation decades ago.
I don't follow this anymore, but does anyone know if there has been anything written about this bizarre financial era we live in, monetarily speaking?
IMF loans aren’t denominated in the recipients own currency, though.
Even the folks solidly on the left like Warren and AOC aren't talking about tax increases that would come close to closing that deficit. Their wealth and 70% top tax bracket proposals would raise less than $200 billion annually at the beginning. And of course, they want to combine that with $1 trillion+ in new spending.
The issue is that Reagan dramatically lowered taxes on the middle class and upper middle class in the 1980s, and there's literally nobody in Congress willing to roll those back.
The root reason is due to the US government's control over its own currency.
If you have your own currency, and if a lot of your debts are denominated in said currency, you can slowly make that debt less valuable over time with inflation. When debts almost always become less valuable relative to present value via inflation, there's less pressure to rein in on government spending than if your debts are denominated in another country's currency.
This will eventually always happen even if a country decides to stick to a 1% annual inflation target. Within 100 years, said debt will be close to 37% of its current value:
1/(1.01**100) = 0.369711212
Even a 4% annual inflation target can cut that debt's Net Present Value (NPV) by to about the same level within a quarter of a century:
1/(1.04**25) = 0.375116802
The methods by which you can achieve this 1% inflation can be done in any number of ways, from quantitative easing, to regular old money printing, to government bond interest rate adjustments. Regardless of the methods used, inflation inherently makes any government debts held less valuable over time, making it easier for the government to eventually pay it off.