Isn't the "miracle" just a persistent unexpectedly higher level of inflation, over a long period of time, doing a soft-default and screwing over long bongholders?
it's not painless because it exacerbates income inequality. Remember, debt holders (especially those leveraged into assets with debt) benefit from monetary inflation.
If you factor in equities that hold debt, the upper class actually holds more debt than the lower class, especially per capita.
Yes, either that, or a relatively stable fiscal picture coupled with moderate economic growth. Keep the deficit low-ish, and keep posting the growth numbers that have marked most of the last decade, and the debt situation looks a lot more manageable after not all that long.
Not everybody remembers what it was like before Bob Marley became popular outside of the Caribbean.
"Bong" was not widely recognized in the US vocabulary since it referred only to one of the legendary Rastafarian techniques for smoking their ganja, other than "spliffs", and not very many Americans had even heard of the Rastas at all back then.
This was a bamboo tube about 2 inches in diameter with a water chamber at the bottom and a smoking inlet there. All other "water pipes" which had become popular with the hippies had been derived from South Asian hookahs, which had been readily available in all sizes imported from India for decorative use since before there were hippies.
Nobody ever called them "bongs" until the Jamaican came along.
And these were 4-foot long pieces of bamboo, anything less was not considered a "bong" until a number of years later.
Congress-people have few incentives to restrain or reduce the national debt. There is plenty of talk, but little action. The event horizon may be distant, but the pull is inexorable. What could possibly solve this? Could we give representatives and senators bonuses for spending less and taxing more?
We could choose, for instance, to restrict people to single terms. I don't think long term exposure to power is actually that helpful, and it creates brand names and political careers, none of which really seems to be that helpful.
I think restricting the presidency to 2 terms is actually quite positive, and I wish we had a similar system in Canada (although generally it works out to be more or less the same)
Single terms might be too short - but I'd be happy with anything <= a 20 year limit...2 terms (same as president), 3 terms, or even 4 terms..
I also think term limits are the first step towards getting anything else fixed. Without term limits, pols are always going to vote to get re-elected/more lobbying money instead of improving things.
The clue that this guy is a right-wing crank is that he blames the problem on "Congress extending the debt limit".
The root cause of the problem happens long before the meaningless semiannual debt limit ritual.
The root cause is that Congress approved more spending, while also approving tax cuts, so that the spending isn't funded by tax revenue.
The whole debt limit fiasco doesn't fix this fundamental problem. The debt limit nonsense is just coming along later, after all the spending and tax cut legislation has been signed into law, and threatening to default on the nation's obligations.
It's like trying to solve the problem of leaving the barn doors open and letting the horses escape by coming along after the horses are gone and threatening to burn down the barn.
Because that's how you win elections. The voters want to spend less on the things they don't like and more on the things they do. When people say things like "reduce the deficit", "balance the budget", or something like that they don't actually mean it. All they want is to take money away from the other side. If they really wanted to reduce the national debt, they'd vote differently. And Washington knows it.
The only thing that makes the current situation tenable is being able to print money.
Put simply, the government doesn't actually view it as a problem. If you have an unlimited credit card you never have to repay, that's not a problem for you but for everyone else.
Bit of an unfortunate omission from the US constitution really. That's the only way they'd have kept it - otherwise the moment you get any "economic crisis" they'd just "suspend" it again.
Right. . . however the problems with fiat currency are unavoidable and end in collapse.
Considering the petrodollar, its time is near. Oil is quickly becoming a negotiable commodity between nations. Following the current trajectory, the USD will lose its global hegemony in 5-10 years. War will expedite that pace.
Is everything backed by gold? So no loans, debt, or bonds? This is deflationary because the total value of stuff grows but the monetary base stays the same.
Is there a fiat currency backed by gold? How will you avoid the monetary base growing larger than the total quantity of gold in the world? How is this functionally different from today?
The following one: simply remove the fiat, and let the market take over again.
I.e. the same way commerce was carried out everywhere for approximately forever.
It's presumed a gold standard would return in that scenario, but could be something else.
I assume this is how it'll end up naturally though. No one will end up willing to take the other country's currency in cross border trade, so that's where hard currency will return.
Non of that has anything to do with government debt. The gold standard, has never limited government spending. During the classical goal standard plenty of government had debt, plenty of governments went bust.
Well I mean this is the internet, where no comment is so absurd as to avoid confidently being made. But I'll bite.
So tell me: if an entity has to be able to repay its debt in gold, which it has limited stocks of, and can't get more without difficulty, how does that not limit their spending compared to if they can print bits of paper to repay their debt?
Its simply if you think about it, because a country can just decide not to pay back the debt. Just as they can just print money. So a country like the US can simply build up a huge amount of debt, that it could pay back in theory, and then simply decide not to do it because its easier.
Both are a way to fuck over the people you owe money to.
>simply remove the fiat, and let the market take over again.
You should look into what the US financial system was like before the Civil War. It was wild. The government issued gold coins. But most people's day-to-day currency was paper money issued by individual banks. Each bank issued its own notes, with their own design. In theory they were redeemable for gold, but in that era of low/no bank regulation, banks often failed, leaving the currency worthless.
People issued books detailing the design of each of the banknotes and estimates of the solvency of each bank. Counterfeits were a huge problem.
Of course, news traveled more slowly in those days, so the further you got from an issuing bank, the less anyone could trust the notes. If you tried to spend your home bank's notes out of state, you'd get pennies on the dollar.
Seems like an incredibly inefficient system to go back to. And one which still wouldn't stop the federal government from borrowing.
This post is a pretty reflects some common misconception about historical banking. Its only using US experience on historical banking and makes a number of factual errors about that period.
Lets clean up some of the misunderstanding. In pre-Civil War US banks were not unregulated. In fact the opposite, the US from its founding was very much against banks and banks were some of the business that were most heavily regulated. This is often ignored today because the regulation came from states, and were not federal.
In many states, banks were not even allowed to created. The often required an act to be passed threw the state parliament. And you can imagine the bribing and the blocking of competitors once a bank exists. This practice was eventually replaced in most states, and instead 'free banking' laws were adopt. But 'free' in this context didn't mean 'free' as in 'no regulation', but rather 'free' as in 'you can create a bank like any business'. But of course you would still have to follow the necessary regulation, just like you were free to create a mine, as long as you are following the mining law.
These banks were regulated in various ways, let me mention some of the most important.
The US in most places had a unit-banking policy. That basically means you are not allowed to create branches. And that doesn't just go for federal, a bank wasn't allowed to have branches within a state, not even within a city sometimes. This resulted in banks being generally very small, not diversified and with little capital (often the term Wildcat Banking is used). All these banks were at high risk of failing because of local downturns. A local harvest failure would take out local banks too. That was a big source for failures of these banks.
Another huge problem was that these banks were often forced to back all the notes they issued with state government debt. This was a huge problem, as in those days, state governments could default on their own debts and that would simply bust all the banks. How much debt a government issued could also effect money supply in various negative ways.
There were others too that I don't want to get into as this comment is already long. So you don't need a whole book full of 'Basel 3' regulation to have powerful regulations that negatively effect the operations of the banking system.
> If you tried to spend your home bank's notes out of state, you'd get pennies on the dollar.
This is also mostly overestimated. While this is a real problem, even going from the East to the West coast it very unlikely you would ever see more then single digit % differences. But you are correct, this was a real problem some people had to deal with.
> Seems like an incredibly inefficient system to go back to.
Nobody would suggest that. And even back then, anybody that wasn't completely dumb saw these issues. But not unlike with other political issues, to change the situation was hard because so many people had so much invested in keeping the status quo.
And its not hard to see a different situation. Just look to Canada. In Canada banks from early on were not restricted to one 'state' and were allowed to branch.
This lead to a radically different situation. While the US by the 1930s had literally 10000s of banks, Canada only had a few handful, and only like a couple big ones.
The banks were incredibly stable, as they had a diversified portfolio, and downturns in one location didn't kill the bank. These banks were also allowed to back their note issue with any assets, not just government bonds. This led to investment into the local economy and it allowed the bank to issue as many notes needed depending on the situation. It also means that you could go from Toronto to Vancover and all banks took all the notes.
Counterfeiters were not a huge problem in Canada, because you only had a few issue banks, and they had the capital to invest in modern note protection schemes. In fa...
>I.e. the same way commerce was carried out everywhere for approximately forever.
No! That's not true :) as long as there has been debt there has been fiat. There has been debt since the beginning of commerce. So your system is going to have the same issues. You're "assuming" quite a lot for someone who really shouldn't be assuming anything.
> History is useful for the thrill of knowing the past, and for the narrative (indeed), provided it remains a harmless narrative. One should learn under severe caution. History is certainly not a place to theorize or derive general knowledge, nor is it meant to help in the future, without some caution. We can get negative confirmation from history, which is invaluable, but we get plenty of illusions of knowledge along with it.
Lets also then consider that this gentleman has made a career from a book about the unpredictability of events, and should no more be venerated for his prediction capabilities than someone working under the neon lights of a flickering roadside Psychic sign.
Looking at the highest US national debt levels in history while declaring that we are in for a debt crisis is on the same level of prediction. Of course the most likely scenario is debt spiral. That is the lesson of history, and the pattern of civilization, as leaders aren’t wise and austerity isn’t popular.
“My major hobby is teasing people who take themselves and the quality of their knowledge too seriously.”
“But it remains the case that you know what is wrong with a lot more confidence than you know what is right.”
“Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality.”
1) The author is taking his own knowledge too seriously.
2) He is also boldly speaking about a subject not in his wheelhouse but with firm confidence (against his own advice).
3) He is also speaking about a reality in which everything is (ironically) obvious and well discussed as if it were novel.
There is a vast ocean of difference between critique of an intellectual and actual criticism I fear may be lost on this forum. We are allowed (encouraged?) by Western intellectual tradition to point out when leading intellectuals gaffaw, and it was considered in most of history not only noble but necessary to do so; a way to keep public discourse honest and prevent banal hypocracy from rising to popularity.
I am discouraged by the number of people demanding explanation or making accusations of personal attack (!).
Come on now. Lets not be so naive that we cannot criticise stupid statements from public figures. I
In the face of the information control systems that permiate the modern landscapes, each of us should probably be going out of our way to support thinking different from our own rather than the opposite: 1984 beckons.
> The author is taking his own knowledge too seriously.
I don't think this even makes any sense. If it's your own knowledge, of course you take it seriously.
> a subject not in his wheelhouse but with firm confidence (against his own advice)
Not in his wheelhouse? He became probably 100x as wealthy as you are (guessing) by having insights about risk that most people don't have. This gave him time to read virtually everything relevant on the subject.
Granted, he doesn't have a piece of paper from a university placing it "in his wheelhouse." If that's important to you, you have my sympathy.
> to point out when leading intellectuals gaffaw,
"gaffaw" is not even a word. If you meant "guffaw" that doesn't make sense. Maybe English isn't your primary language, in which case this forum probably is over your head.
Albert, you continue to engage in unnecessary personal attacks and straw man arguments. Why make a conversation a personal attack?
Please stop.
You have no place acting like this on Hacker News. Read the rules.
Critique of the arguments vs criticism of the person, please.
Also, if you want to have a constructive conversation with someone, insulting them as a lead isn’t… great.
I’m sorry for the typo. It happens. Doesn’t make me an idiot. When I find people making typos, I don’t feel a need to demonstrate my questionable bias towards non-native speakers with a superior complex either: how do you think that would genuinely make a non-native speaker feel? Not great.
People make typos in casual communication (have you typed on a phone recently, it only works because of spell check!). It doesn’t make them lower on the totem pole or worth “going after” personally. What it does is it makes me someone who made a typo (the horror).
I wish you the best, but please stop making it unnecessarily personal.
This isn’t Usenet in 1993, and I’m allowed to dislike the arguments of public intellectuals as long as my arguments and criticisms are cogent. I’m not making jokes about the man’s mother, sir.
I don’t need to be personally bullied or called ‘a poor’ for not being as successful as the person I’m providing a critique about. That’s an overly personal attack that doesn’t have anything to do with the criticisms I’m levying toward him.
I would normally ignore such behavior, but this is a small community and you’re a public person, so I feel compelled to say something. Please don’t do this to others. Be well, HN friend.
I’m going to try to engage more in this forum, but obit if you think I belong. Maybe I should practice my English a bit moar.
If you hadn't made these wild accusations (also inaccurate and ignorant) about a person whom I happen to have met, then none of this would have transpired. You clearly know nothing about Mr. Taleb and his books, and I will feel free to say so whenever you demonstrate it. You started it.
Isn't he just saying it's inevitable from what's observable? E.g. approaching the point where servicing the debt itself becomes untenable?
There's nothing historical or predictive involved that I can see. If a group of people are telling you again and again, for decades, that "we're just not ever going to even slow down the pace we're wracking up unrepayable debt, no matter what", isn't it just a case of take them at their word, and extrapolate to the obvious?
Like, if a car is heading towards a cliff, with the driver loudly yelling out the window "I'm driving off this cliff!", can't we just take him at his word?
The “who correctly called the 2008 financial crisis” in the headline supports nonsensical predictionism, even if the supporting article is entirely different.
Also bear in mind there’s a quote from the author for prediction as well though it is more than a tad offensive to modern sensibilities:
> “If one puts an infinite number of monkeys in front of typewriters, and lets them clap away, there is a certainty that one of them will come out with an exact version of the 'Iliad.”
The idea that somehow we should put more credence on a man speaking on the future of the markets and is calling for a “miracle” who is famous for writing a book about unpredictable events is just hilarious, and my point.
Who else should we take our advice from about the most predictable events of history? Steven Hawking from the grave? Perhaps a successful advice columnist?
Let us not get lost in the obviousness of the prediction or the durability of the prediction of bears when we can enjoy the stupidity of the media presenting an author of a book about unpredictability as some kind of novel expert in the inevitability of the collapse of the western financial system due to unsustainable debts. It’s rich and delicious irony and, especially combined with all of the famous things this man has said that are the opposite of linear predictability being more common than we realize is, as I said earlier, just utterly hilarious.
Servicing the debt is an entirely political act. If the US government wants to pay its bills, it does. The alternative is unlikely, but interesting-what if the US just says no? What enforcement mechanism is there? The biggest trade partner, biggest military, and cultural hegemon says "what are you gonna do about it?" and you do what?
This really is one of the most interesting questions.
Obviously, a loss of global prestige and reserve currency abandonment could be the result, but if there’s no other country to step in that has that prestige or offers a replacement…
What aee the requirements of debt to suppory a global order? Is it the rise of debt thats the issue or the loss of faith in the global order that that debt represents? People who understand that national debts are a necessary component of reserve currencies get the depth of this question.
> Obviously, a loss of global prestige and reserve currency abandonment could be the result, but if there’s no other country to step in that has that prestige or offers a replacement…
I don't think the role of the US dolar as a reserve currency is put into question with a hypothetical default.
The typical impact of a default is that lenders are stiffed out of the money they lended. Some might go bankrupt as a result, but the only consequence to the US government is a hypothetical inability to get further loans at lower rates. This might be problematic for the US if the US federal government still runs a deficit.
Now, there is the question of what would this "inability" mean.
When Greece defaulted on its sovereign debt, their credit rating tanked and the global financial market hiked interest rates for Greek debt to the point they reached double digits. That lead the Greek government to beg the EU and IMF for emergency loans, which were accompanied by fiscal policy changes. I doubt the US would follow a similar pattern, mainly because the IMF does not have funds of this hypothetical magnitude.
> I don't think the role of the US dolar as a reserve currency is put into question with a hypothetical default.
Why would it not ? Wasn't that how the previous reserve currencies ended ? Are there many examples of relatively as bad defaults that did not result in such an end ?
Especially when the lenders first to be screwed here are (or at least were in 2020) Japan and China.
Keynes was aware of the argument. It was he who said that, "The long run is a misleading guide to current affairs. In the long run, we are all dead."
> Extrapolate the obvious
OK. The list of things that are going to get worse before they get better is going to get longer before it gets shorter. There is a lot that has to change if we want to keep doing what we are doing. We are all in this alone, but we are chained to each other, and we can move only forward. Get used to it.
You seem to have a personal thing about Taleb ("his own damn quote", "this gentleman has made a career from a book about the unpredictability of events").
Taking the 2nd one first: he's written at least five books, and they're about much more than "unpredictability of events." Have you actually read any of them?
As for his own damn quote: a debt crisis is a matter of financial arithmetic, not "a flickering roadside Psychic sign."
If indeed the US tacitly admitted that it was never going to pay its debts, then the interest rates would rise. You don't have to be psychic to predict that.
That glass that you have in the border of the table may never fall, may not break if fall, even if a lot of people walk by its side not noticing it. But watching it may be obvious that the entire situation is fragile, odds are high that someone will bump that glass, it will fall, and it will break if everything continue as it is going, and even worse with trends pushing to make the situation even more unstable.
Things may change, or that risk somewhat never materializes. But someone that made a career showing up patterns of fragility in several kinds of systems think that the trend points to some kind of crash.
Yeah, but that issue also applies to your bet. Which probably also explains why this problem exists (much easier to kick the can when you probably won't be alive to see the consequences...)
Does this correctly factor in that currently the US is the western worlds de facto military, more or less?
Because as long as we hold that position I don’t imagine the US government will be shut out of the debt markets at all. This is part of the problem I wager is there is still enormous incentive to keep the scheme afloat by other nations too
America would do everything it possibly could to avoid a nuclear exchange. It's literally the only feasible military threat to the country. As long as nukes remain taboo, America gets to play world police and mostly get away with being a bully in some places, because what are you going to do, fight them?
If you are willing to die to American soldiers 10:1 like the NVA or most of the middle east, you can prevent America from "winning", but you're still going to be living in a bombed out hellhole while teens share celebrity gossip in American homes with zero fear for their lives.
It didn't help the Soviet Union. I think people over-estimate the value of the military in this context. A default will dissolve the military as you can no longer pay its members. The Western world is mostly united behind the US because it's getting free defense (who doesn't want free stuff?). If you remove that, I highly doubt they'll align as much with the US.
The Soviet Union lacked a domestic economy that could keep up with the needs of its population, and there by fell apart internally.
I'd argue the US can do the same, but our domestic economy - at least on paper - is more functional the Soviet Unions ever was and can provide for its citizenry and is an important market for nations all over the world.
That's a major difference than with the Soviet Union, and a key one.
The key difference in opinion that may be surfacing here, is that other nations are willing to co-operate and push interests that also further US interests because they get tangible benefits from the US being the dominate superpower (IE, the western worlds military, de facto).
This is a strong incentive for countries to look the other way in times of crisis. Arguably, because congress is inept at proper budgeting and such, we should already have trouble selling in the debt markets, but treasures still sell just fine and at an ultra low cost to the government, despite some notion of "downgrade" by one of the bond rating agencies (I think Moodys?).
If I was looking at the US right now, and all the political in-fighting problems we are having, I wouldn't have nearly as much faith in the US government and buying its debt. This should have made debt more expensive to sell, and it hasn't.
I posit, one reason is, keep the US propped up to a certain extent (IE, not raising the cost of the US government bonds by refusing to buy at current value) would be that we are the worlds de facto military, and western nations are increasingly leaning on us with the turmoil that has bubbled up recently, and they have every incentive to keep the machine going right now because of it.
US consumers are also a great market, currently, and I doubt anyone wants to see that crumble, and that plays a big role here too.
Most families that own a house owe substantially more than 1 year's income.
Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.
MMT says we don't need to think about this the way we think about personal and corporate debt.
It's not that there's nothing to see here, but the sky is not falling.
Now, the stock market overvaluation ... that could be a real problem, but not the same problem.
Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams.
MMT says a lot of things, but people only seem to follow it when convenient.
Comparing debt to GDP is mainstream economics, but it's very much different from the analogy of homeowners debts and their salaries. The proper analogy there would be government revenues, not GDP.
This is pretty non-mainstream macroeconomic point of view. It did not correspond to reality when latest sovereign debt default occurred in Greece.
Then it was government, foreign banks who bought the debt and European Central Bank who was on the hook for restructuring, not citizens or general public.
> Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues.
No. It's more like comparing a merchant's debts to the value of the turnover of their inventory. Sure, their revenue isn't the same as their income, but their income tends to be proportional to their revenue. Similarly, while GDP isn't representative of federal income, because most federal income is derived from taxation of activities that contribute to GDP, they tend to be closely correlated. Per Hauser's Law (https://en.wikipedia.org/wiki/Hauser%27s_law), federal tax revenues have been roughly consistent with 20% of the GDP. Since increasing the share the government extracts from the economy produces net drag on the economy, you don't want to get in to a situation where you have to increase that ratio significantly without a dramatic change in what the federal government puts back in to the economy (which also generally doesn't happen).
So yeah, the experts who look at debt to GDP ratios aren't crazy.
>That's not true, it's not like if the US defaults you become personally liable.
Citizens might not become "personally liable" in a legal sense, but they get similar consequences, reduction in wealth, poverty increase, etc, that somebody "personally liable" for their personal debt would get.
A country wide failure of economy can be even more devastating to individuals than some personal debt they default on.
Except it can. The way it does that is by printing and taxing. Both can be used to pay debt and are "taking income streams" / "seizing property" in disguise.
>Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams.
Doesn't matter, since it's a relative comparison, not an absolute one.
And as a proxy of the severity of the issue it's good. The government might not take "all its residents' property, and is usually unable take their income streams", but getting part of those is exactly where it gets the money to pay the debt (plus printing money, with its own side-effects).
Take a look at Zeihan's video where he shows in a graph how US debt level compares to other major economies. https://youtu.be/mcZPOuI-vcU?t=939. US is in the middle of the pack. US is going to be ok.
Also, watch until 20:38. You will see how screwed up some countries are when it comes to debt.
I started watching and couldn't stop until the end. Now the only question I have is how much should I believe Zeihan? He makes a lot of bold assertions, what's his track record?
That's a valid question. He does have videos where he just speaks off top of his head, and I prefer the ones where he has charts and numbers that he speaks to. If you don't believe his charts and numbers, find ones online that you believe.
I do think someone who can hold that much minute, dry details in his brain and can cross reference them is going to be smarter than most of us. He does after all consult for major corporations and the U.S government.
Yeah, he sounds very smart and pieces a lot of things together, but in a very assertive way. For example he goes on to talk about how gas is used only in the butadien petrochemical vertical but could displace oil verticals and have competitive advantage over other countries. That's cool as a theory, but really isn't a commoditized market a more likely scenario in a capitalist global economy? If I'm Mr. Gas I'm going to sell my LNG at a higher price abroad instead of selling it for the same in the US for others to make a profit instead
> That's cool as a theory, but really isn't a commoditized market a more likely scenario in a capitalist global economy?
Zeihan’s thesis is that the global economy is no longer global because the US is no longer interested in being the world police patrolling the shipping lane. That is, “the end of globalization and Bretton Woods.”
Zeihan is informed and generally right, better than 95% of sources. However, there are certain things he will get wrong imo, such as details and a certain siding of the Nagorno-Karabakh conflict, and portraying Navalny as far more militarily hawkish than he is.
I’ve personally disliked Zeihans gung-ho rants about how everyone is nothing without the US but I do have to say, he has nailed the China issues pretty well, him and Kyle Bass.
Not great. His predictions for the outcome of the Ukraine/Russia war were way off, and I haven't seen a mea culpa video for that just yet. There's a good debate between him and Ian Bremmer somewhere that highlights the flaws in Zeihan's thinking. I don't know what his motive is, probably likes, subscribes, money, etc.
> The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.
No, it has just as much to do with Democrat attitudes towards spending. You're right that the Republicans are partly to blame. But to balance a budget requires cutting spending as much as, if not more than, increasing revenues. The problem is that ~everyone thinks using their preferred approach ("just raise taxes"/"just cut spending") is more important than getting the budget balanced, so they are unwilling to compromise. And the American people get the shaft, as ever.
A lot of Democrats (not all, for sure) would be very happy to massively cut defense expenditure, which is a vast slice of federal expenditure.
Alas, that has two problems: (1) US military spending is our own national version of socialism, in which we prop up communities by providing massive state subsidies, along with housing, healthcare, education and more to a large group of people (2) because of (1), it is hard to convince elected representatives to cut these expenditures because of the very real and direct impact they will have on their communities.
Although both D & R representatives experience the above somewhat equally, there is some imbalance in the relationship between D & R representatives and the military-industrial complex, and that leads to us to a situation where cutting these expenditures is even more difficult than it would be if the only factors were 1+2 above.
The active duty military vote is not actually a solid republican voting block, contrary to popular belief: in 2020, they swung +8 for Biden [1]. It’s the veterans who are solidly (2/3) conservative, currently, but even that’s lessening [2].
Unfortunately I don’t think a majority of either party wants to reign in military spending, considering every admin including Obama and Biden has increased it since Carter, even though likely granting such a blank check is financially irresponsible (i.e. trillions unaccounted for in budget audits [3]). Both parties just want to please that bloc of votes, because it also has ripple effects on the rest of the nation’s votes to be seen as “good on military”.
I personally think our military could be just as effective if we tightened the wallet, but I don’t think either party actually wants to.
Just to be clear, I wasn't for a moment suggesting that the military itself is a solid R (or D) voting bloc.
What is true, however, is the most (not all) communities with a functioning US military base close by is a solid voting bloc for NOT cutting military expenditures, at least not insofar as they could lead to base closures (and specifically, their base).
The Democrats were much more interested in cutting military budgets until, you know, all that fun with Russia... and China... and Israel. We are very quickly remembering why we spend so much.
The American military budget is mostly the "America guarantees everyone can do business with anyone else (but mostly America) so that we can be very wealthy" budget. Remember that we built and sailed the Great White Fleet before world war 1.
There are a lot of Ron Swansons out there, who simultaneously decry big government and make their living directly from government spending.
> The reality is only broad taxes on the middle class or massive social spending can really change the long term situation.
Why the middle class, which has mostly been taxed into not existing? How about the upper class? As Warren Buffett says, they've won the class war, and gone a bit far with it. The lower classes are being depleted of their productivity through a kind of tragedy of the commons as they're relentlessly squeezed from above.
>Why the middle class, which has mostly been taxed into not existing?
Because that's not how the American middle class died? The American middle class died when upper management sold your solid career to the Chinese for a quick buck, and spent all the windfall on enriching themselves for decades. It's amazing you cite Warren Buffet while saying that, who commonly calls for higher taxes on the wealthy.
> Why the middle class, which has mostly been taxed into not existing?
With middle class I mean the population at large.
> How about the upper class?
Again, because it simply doesn't work. Its a leftist fantasy to 'tax the billionaires' or 'tax the top 1%'.
Yes of course you can make the tax progressive and collect more from those groups. But that simply want get it done.
This is my point. Everybody has their pet peeve, their pet group or whatever. But that's simply not realistic.
The only thing that can balance the budget are either broad taxes on most of the population, or massive cuts in social spending. Yes, you might not like it, but its true anyway.
> As Warren Buffett says
Buffett can say whatever he likes, it doesn't change the numbers.
Go on the most extreme socialist tax the rich spree, eliminate billionaires take all their wealth. Have fun. Then add lots of new taxes for the Top 10%, have fun.
All of that helps, but doesn't change the fundamentals.
You simply can't have large European welfare state and not have much of the population to pay for it. And the US has such a large welfare state in terms of what they pay, even if not in the outcome.
Most of this I do not disagree with this, but the fact that you do not even mention cuts in defense spending stands out to me. It may be "unrealistic", but then so are cuts to social security, medicare and medicaid.
Defense spending is not just a "pet peeve". We spend more on national defense than China, Russia, India, Saudi Arabia, United Kingdom, Germany, France, South Korea, Japan, and Ukraine — combined. There is ample scope to reduce our defense spending by massive amounts without threatening our national security.
You're really not accounting for scale. My pet peeve is the US military, your pet peeve (might be) subsidized cell phone service for low income people. One of these things is not like the other.
Again. Yes, some people have dumb theories. And yes, military is one of the best places to cut. The point still stands, you simply, can't get there with just military cuts.
Not just ... perhaps. But this is a major part of the puzzle.
Meanwhile, sure I support higher taxes on the middle class up (but MUCH higher taxes on the top 10% and MUCH MUCH higher taxes on the top 1% and above).
That needs to be coupled to a clear vision of what people are going to get as a result.
>would be very happy to massively cut defense expenditure, which is a vast slice of federal expenditure.
Just to undersocre two details that are often forgotten in discussions about how huge the U.S military budget is:
1st: as a percentage of GDP per capita, the U.S. spends less than at least two other countries and only moderately more than several others that aren't normally considered war-loving. (Singapore and Qatar for example).
2nd and more important: Of the total U.S. federal budget, military spending is far from the largest single outlay. Social services in the form of health services in general, social security, income security and medicare in particular take up much, much more Together any one of them (except medicare but smaller only by a tiny margin) is larger than the total defense budget, in some of those cases by a huge margin. Hell, even the total federal education budget for 2023 was nearly the size of the total defense budget.
Overall, of the total 6.3 trillion federal budget for 2023 at least, military spending accounted for just over 10%. A lot for a country as rich as the U.S. but not to the scale implied by a a lot of hyperbole.
Our taxes cover entitlements, military, and debt. That's it. Everything else is coming from the deficit. The Republicans have cut taxes to an unsustainable level. No matter how big or small the rest of the government is, the tax base is too low to support it.
Something like half of every dollar I make gets swallowed up by taxes of some sort, either directly or indirectly (by making products and services more expensive). A good portion of it just to fuck around in foreign countries against my wishes. How much more should they take?
I make about $120k/year. I have to pay taxes quarterly, since my income comes from my software business. I pay a total of 22.6% of my monthly income in federal and state (NM) taxes, and that currently nets me a significant refund every year since the TCJA ("Trump tax cuts").
So that's almost a quarter. Does that include social security and medicare?
Now what about property taxes (or your landlords property taxes if that's the case, which just goes onto your rent)? Sales taxes? Gas taxes? Alcohol and cigarette taxes? Any of 100 other taxes?
If you aren't brave enough to take on the tax code yourself, how much do you have to waste on accounting services so you don't wind up making a mistake that costs you even more?
Beyond that, what about all the taxes that come indirectly to you through the prices of everything you buy?
And while not technically a tax, every dollar you make is slowly eroded away by inflation.
Just to be clear, I'm not claiming nothing should be taxed. My point is that people often look at their federal income tax rate and think thats the whole story, when it's not even close.
Maybe you don't find the argument that taxes increases your costs in other ways compelling, though I don't see how. I think the usual objection to that is "well its worth it", which could be true, but it should show up in an accurate accounting.
> A good portion of it just to fuck around in foreign countries against my wishes. How much more should they take?
Well, if we defunded the military 100% and let the world order go to shit and that's exactly how you want it then we'd still need to raise taxes to cover our deficit.
So go ahead and vilify the military all you want, it's your right. But at least be aware that getting rid of the military is not going to solve the issue.
MMT basically says "its ok, we can just print more money". How did that work for Venuzuela? Lets see... 1.00 US Dollar = 3,615,588.83 Venezuelan Bolívares. The 6 inch thick stack of currency required to buy a roll of toilet paper would be more efficient than the toilet paper.
Printing more money just devalues the work product of everyone before that. Republican attitudes about tax? Surely you jest.
MMT works well, if exporters want to swap their real assets (commodities, food, chips, metals, labor) with US dollars (nominal). No one wants to export their real stuff to Venezuela unless the latter pays in US dollars.
Don't know why you're being down voted, it's widely accepted that it only really works for currencies that are reserve currency status. It could also work if you were entirely self-sufficient with no exports/imports.
All on the proviso that humans are quick to react to inflation, using perfect information, which we're not and which we don't have.
IIUC, it works for all currencies that are coupled to the economic and political policy making process. It does not work when the currency value is controlled to any significant degree by parties outside that process. These are sometimes called "sovereign currencies", and US dollar is one example thereof.
Except this is the exact opposite of what MMT says? Since MMT is such a boogeyman nowadays and people on the internet can't agree on a single definition, lets take the wikipedia article explaining it (2 seconds of research you didn't do before posting).
"Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment"
The whole point of MMT is simply that the painting is not the item, and money is not value, money is a representation of value and that it's inherently worthless. IE, if you suddenly taxed away 50% of everyone's dollars and cut all dollar-denominated debt by 50%, literally nothing would change except that people would need to get used to new prices being half of what they were.
What MMT says is that printing and taxing are just wealth distribution under the assumption that humans are rational and can adjust to new prices quickly. The issue and all complications are
1. Rebasing all forms of currency including weird things like dollar denominated debt, sovereign reserves, stocks etc is hard.
2. Human's aren't rational and will be mad if you suddenly halve the value of their dollar even if in real terms nothing has changed for them b/c government handouts or whatever.
MMT is more about the fact that money isn't some alien artifact but is created by a government that needs to credibly demonstrate that the money it issued is needed for tax payments.
If that credibility is lost, for example, by creating more money than it intends to tax, then you will see inflation.
I might be completely off but wouldn’t having more foreign owned debt be better since America can just say “we won’t pay that” and nobody has the power to collect? The military can always just crush whomever disagrees.
Where do you see the contradiction here? MMT says that government spending and money creation are two sides of the same coin, and the practical limit for both is inflation.
Whether you agree with that identity or not, we've certainly seen a lot of both during the pandemic (government subsidies, tax breaks etc.), which is where the current inflation pretty uncontroversially originates.
> Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible".
(Side: You’re likely referring to the 90s during Clinton’s administration)
Reducing the deficit to 0 barely means anything when the overall debt is high.
Besides, for your family example, it’s all well and good but families do not have to be concerned about the valuation of an international currency that they’re basing their borrowing off of.
(Couldn’t edit my previous sibling comment as it is out of the edit period)
> We owe a bit more than 1 year's GDP.
> Most families that own a house owe substantially more than 1 year's income.
Minor nitpick: A country’s income is not the GDP but rather the tax revenue collection. The US federal tax revenue is around $4.5T as of last year, which is just about 20% of the US’s GDP.
Is the U.S. primary deficit really all that much more than GDP growth? Seems like if we could make it a decade or so without deficit-financed tax cuts (TCJA), new entitlements (Medicare Part D) or some catastrophe requiring massive fiscal stimulus (GFC, Covid), the debt situation should look quite a bit more manageable just on the basis of economic growth.
Admittedly “if” is doing a lot of work in that sentence, though.
Demographics present an intractable problem that no amount of fiscal rectitude can fix. The old age dependency ratios we're going to see in the future guarantee deficits.
The bickering over the discretionary budget is a sideshow compared to what's happening with Medicare/Medicaid and to a lesser extent Social Security.
Health care spending has been basically flat in terms of GDP for the past decade. The doom and gloom of the early part of this century is, so far, not coming to pass, and so it’s not clear at all right now that Medicare/Medicaid is a crisis. The solution to Social Security solvency is pretty straightforward forward - when the trust fund runs out around 2035-2040, either cut benefits by 25% or raise taxes by ~1% of GDP, and it’s solvent for the next century. At that point, it’s merely a political question as to which option is more palatable to the politicians. Of course the most painless way to solve the issue would be to do something about it today, but, well, you know.
The oldest boomers (born 1945) have not turned 80 yet. The medical problems still lie ahead. Majority of healthcare spend is in the last 5-10 years of life.
You have it backwards. GDP growth is a function of government spending. Observe when they accelerated spending as covid stimulus, we had a large amount of GDP growth. As soon as spending growth slows down, so will the GDP.
This guy doesn't believe what he's saying. The US has issued a lot of bonds in the world's reserve currency over many years. So what. Money is made of debt.
Except of course when they're making astronomical increases in spending that benefits them. Such as increasing military budgets, tax cuts, and petro subsidy.
And of course, while the debt may not be a specific issue, eventually the _interest_ will be.
Capitalism has it's benefits, but there is no magical marketto always provide the right answers.
We need a serious reorg, and that will not happen prior to total destruction of the economy.
I'm not really a doomer, but those in power will absolutely not allow any systemic changes to occur, and we all will suffer the consequences... (inversly proportional to personal wealth of course)
If we’re being honest, this is why people vote Trump. They see these as real existential problems (along with China taking over manufacturing, illegal immigration, “woke” culture, and so on).
I mean I could absolutely believe that the US is in a death spiral, but from the national debt?!?!?
That's one of the dumbest things I've ever heard. I could believe it's from the instability of the political system, from the instability of the capitalist system, or from the effects of climate change. But national debt, please. This is just bullsh*t propaganda to enforce more austerity on the people.
The actual quote seems to be “So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system, eventually you’re going to have a debt spiral,” he explained, per Bloomberg. “And a debt spiral is like a death spiral.”
This piece mentions an important situation, and has weighty quotes from noteworthy people, and -- despite the business 'news' formula of simple noise generation around market direction predictions -- you think just maybe they're trying to say something meaningful, just this once...
But then their final-word wrap-up at the end is to shoehorn in pumping of specific stocks. (Including one of the most famously over-valued ones, right after the article just called out mis-valuations. Maybe not intentiona, but just an accident of the standard operating procedure of tacking pumping of any arbitrary thing, onto the end of any bearish message -- create a sense of problem, and present a "solution", for retail investors foolishly trying to stock-pick or sector-pick.)
Business 'news' at this point doesn't need an LLM to generate it -- you could do it with a small Perl script.
He doesn't seem to recognize that the government debt is backed by not only the entire productive capacity of the nation, but also the willingness of creditors to tank the world denominated currency. It's possible that some political fights could temporarily sway the market but it would take a broader societal collapse to actually kill the dollar.
People can meet anywhere anytime in private and trade whatever they want and negotiate and that determines the price. And this can easily happen in any country not controlled by the US.
So the US military opinion on what the doller should be worth is pretty much irrelevant.
The fentanyl drug addiction crisis and the TikTok digital addiction crisis are more of a problem than government debt, from where I'm standing. there's also the housing crisis to consider, as well as the job market. government debt death spiral isn't a thing. fentanyl is.
The USA can continue overspending, lending and making payments, all while taxing minimally - for a limited time only. Eventually, that equation will need to change.
The choices are tighten the belt and/or increase taxes, war and the appropriation of resources, and/or renege on debt and start printing money. All choices and consequences (in some cases dire) sadly left to the next and future generations.
You know I have been hearing this and its many incarnation debt related doom scenario for atleast 20+ years, when I first started following it. Probably longer. Every few years, when debt related doomed future story pops, I feel lile no one really knows what is going on, or even worse what they are talking about.
Personally, I don’t think @aryehof is wrong, it’s just that governments do really well at pushing the ball down four more years, until they can’t. It’s like that with all Empires.
Nobody that is serious about the topic believed in some kind of doom scenarios. Indeed people who are actually in this topic pretty much agree on the general numbers on the topic. The 'doom' talk is from people who don't know shit. However that doesn't mean there is no problem.
There are plenty of people who know whats going on, its not even very complex. What people disagree about is the long term implications.
The reality is this, the US getting to the point where the debt servicing costs as much as the military. And future spending is known to be high simply by the already promised social benefits.
And the debt servicing could go much bigger if interest on debt goes up even slightly. Ever 1% of increase debt might result in a whole US military worth of extra debt serving per year.
So, eventually the US will either have to raise taxes broadly on the whole population, or cut social spending by a large amount. Both are politically untenable and thus have a high potential of not happening or resulting in a serious political crisis.
As long as neither of them happens, the situation is getting worse, and critically getting worse with ever increasing speed. And that simply isn't possible to go on forever.
So its easy to go into an exponential curve of things getting worse and worse. All the other countries that ran into problems also had people say 'wouldn't happen here'.
So this isn't a doom for the next couple years, even decades but even until then, spending large parts of your GDP with debt servicing isn't really great way to spend money either.
Why compare debt against GDP? For a person, debt to income ratio is important, but I think debt to assets is a better indicator of how likely the debt is likely to be paid off (vs being defaulted.) For the US, if you divide debt ($33T) by assets ($270T), that ratio is just 12%. This ratio will grow into a big problem only in a massively deflationary scenario when the value of all assets goes down a lot while debt stays constant. In an inflationary scenario, 12% is not a problem.
I like Taleb's writings and agree with him on most things, but seems to me that the sky is not falling.
(Obtained the debt and asset values from Google Bard)
Doesn't this mean also you need to get an estimate on a more complex number, which is how much of US assets can be liquidated in a way that would help you pay the dept?
I know that this is true in case of companies and individuals but how this will play our with governments? I don't know. It does not own the majority of these assets but we are talking about government dept as liabilities. Yes, they will not default as they can keep printing money (and compete with cosmic inflation rate /s) but it wouldn't help the economy and will make matter worse with time.
But you will need to fight inflation which in part means you raise interest rate which in turn increase dept service and that would make you more dept. I probably wrong but I don't feel like this is a black and white situation.
No, it wouldn't. Like most companies, the US "is" what it's people do. That's where the actual value is. From plumbers fixing pipes to soldiers fighting in Africa to carrier groups in the pacific. The buildings and assets inside the US support that, but actually represent zero of the value.
So essentially nothing can be liquidated. There's exceptions, like raw materials (from gold to oil), but not many.
The problem is that the other side, valuing the US as the total value of oil in US soil, plus all other assets, is also bullshit.
You also can't sell it or buy it. For example, the natural resources of North Korea far exceed it's GDP. And yet, if I go to 10 banks, and offer kim 10 times North Korean GDP, could I buy North Korea? No ... they would not sell, nor would North Koreans honor the sale if it was made. So the value of all state organisation ... is zero. But for most countries that is the only thing valuable about them.
The very best metric is what % of the budget is spent servicing debt, for the US it is around 15%.
On top of that the US government debt is mostly owned by US organizations and citizens; it is assets owned by US taxpayers.
A very different situation from the typical debt/inflationary crisis in developed countries where you have a foreign-owned debt and limited tax base; these cause serious credibility issues for governments, which in turn further push up rates.
Your asset base is in truth meaningless (and often very inflated). The true measure is your ability to pay this debt and in order to pay this debt you need to generate revenue, at a country scale this revenue is GDP.
A bank's first think to look at is affordability, are you able to actually pay the installments on this. Recoverability of initial capital is secondary and only matters in a liquidation event, you don't want to have to worry about a country-wide liquidation event (in truth they can print money, so long as your debts denominated in your currency and they accept this).
For USA debts, it is falling. The last 3 years Fed need to buy the left over new bills unsold. In the past, 100% being sold to public and sovereign. But the last 3 years spooked US Treasury as routinely only half sold. Janet even had to fly over to China to "kowtow" to Xi to not sell but buy. It wasn't reported much in the west, but widely in the east and exceedingly humiliating if you able to read the chinese reporting. Essentially now, Fed is directly printing money to American public without going through hoops. Coincidentally the last 3 years inflation exceed way higher than 2% even though interest has been increased from 0% to 4+%.
> exceedingly humiliating if you able to read the chinese reporting
Given that what passes for “exceedingly humiliating” is extremely different between the two cultures, this seems more like packaging the transaction to be more palatable for a domestic Chinese audience that dislikes the idea of their leadership doing business with America.
I have no idea why you would ask Google Bard about the financial position of the US government. The Treasury department publishes financial statements for public consumption just as law requires. Here you go: https://www.fiscal.treasury.gov/reports-statements/financial...
The last reporting year is 2022 and assets were ~$4.9 trillion and liabilities ~$39 trillion.
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[ 3.1 ms ] story [ 258 ms ] threadThat seems like the most painless way out.
If you factor in equities that hold debt, the upper class actually holds more debt than the lower class, especially per capita.
I think the _bongholders_ will probably come out pretty painless dude
"Bong" was not widely recognized in the US vocabulary since it referred only to one of the legendary Rastafarian techniques for smoking their ganja, other than "spliffs", and not very many Americans had even heard of the Rastas at all back then.
This was a bamboo tube about 2 inches in diameter with a water chamber at the bottom and a smoking inlet there. All other "water pipes" which had become popular with the hippies had been derived from South Asian hookahs, which had been readily available in all sizes imported from India for decorative use since before there were hippies.
Nobody ever called them "bongs" until the Jamaican came along.
And these were 4-foot long pieces of bamboo, anything less was not considered a "bong" until a number of years later.
Long bong holders indeed.
The advantage of “professional” politicians is they can be held accountable. Unfortunately, the general public rarely actually does so.
I think restricting the presidency to 2 terms is actually quite positive, and I wish we had a similar system in Canada (although generally it works out to be more or less the same)
I also think term limits are the first step towards getting anything else fixed. Without term limits, pols are always going to vote to get re-elected/more lobbying money instead of improving things.
Every candidate who has stood up and said they will do the right thing (tm) was not elected.
The problem is the "we", the elected representation give people exactly what they want, and in a democracy what they (collectively) deserve.
The root cause of the problem happens long before the meaningless semiannual debt limit ritual.
The root cause is that Congress approved more spending, while also approving tax cuts, so that the spending isn't funded by tax revenue.
The whole debt limit fiasco doesn't fix this fundamental problem. The debt limit nonsense is just coming along later, after all the spending and tax cut legislation has been signed into law, and threatening to default on the nation's obligations.
It's like trying to solve the problem of leaving the barn doors open and letting the horses escape by coming along after the horses are gone and threatening to burn down the barn.
Stopped reading after seeing a clue that this guy is a far-left extremist.
Because that's how you win elections. The voters want to spend less on the things they don't like and more on the things they do. When people say things like "reduce the deficit", "balance the budget", or something like that they don't actually mean it. All they want is to take money away from the other side. If they really wanted to reduce the national debt, they'd vote differently. And Washington knows it.
The only thing that makes the current situation tenable is being able to print money.
Put simply, the government doesn't actually view it as a problem. If you have an unlimited credit card you never have to repay, that's not a problem for you but for everyone else.
Bit of an unfortunate omission from the US constitution really. That's the only way they'd have kept it - otherwise the moment you get any "economic crisis" they'd just "suspend" it again.
Considering the petrodollar, its time is near. Oil is quickly becoming a negotiable commodity between nations. Following the current trajectory, the USD will lose its global hegemony in 5-10 years. War will expedite that pace.
Is everything backed by gold? So no loans, debt, or bonds? This is deflationary because the total value of stuff grows but the monetary base stays the same.
Is there a fiat currency backed by gold? How will you avoid the monetary base growing larger than the total quantity of gold in the world? How is this functionally different from today?
I.e. the same way commerce was carried out everywhere for approximately forever.
It's presumed a gold standard would return in that scenario, but could be something else.
I assume this is how it'll end up naturally though. No one will end up willing to take the other country's currency in cross border trade, so that's where hard currency will return.
So tell me: if an entity has to be able to repay its debt in gold, which it has limited stocks of, and can't get more without difficulty, how does that not limit their spending compared to if they can print bits of paper to repay their debt?
Both are a way to fuck over the people you owe money to.
You should look into what the US financial system was like before the Civil War. It was wild. The government issued gold coins. But most people's day-to-day currency was paper money issued by individual banks. Each bank issued its own notes, with their own design. In theory they were redeemable for gold, but in that era of low/no bank regulation, banks often failed, leaving the currency worthless.
People issued books detailing the design of each of the banknotes and estimates of the solvency of each bank. Counterfeits were a huge problem.
Of course, news traveled more slowly in those days, so the further you got from an issuing bank, the less anyone could trust the notes. If you tried to spend your home bank's notes out of state, you'd get pennies on the dollar.
Seems like an incredibly inefficient system to go back to. And one which still wouldn't stop the federal government from borrowing.
Lets clean up some of the misunderstanding. In pre-Civil War US banks were not unregulated. In fact the opposite, the US from its founding was very much against banks and banks were some of the business that were most heavily regulated. This is often ignored today because the regulation came from states, and were not federal.
In many states, banks were not even allowed to created. The often required an act to be passed threw the state parliament. And you can imagine the bribing and the blocking of competitors once a bank exists. This practice was eventually replaced in most states, and instead 'free banking' laws were adopt. But 'free' in this context didn't mean 'free' as in 'no regulation', but rather 'free' as in 'you can create a bank like any business'. But of course you would still have to follow the necessary regulation, just like you were free to create a mine, as long as you are following the mining law.
These banks were regulated in various ways, let me mention some of the most important.
The US in most places had a unit-banking policy. That basically means you are not allowed to create branches. And that doesn't just go for federal, a bank wasn't allowed to have branches within a state, not even within a city sometimes. This resulted in banks being generally very small, not diversified and with little capital (often the term Wildcat Banking is used). All these banks were at high risk of failing because of local downturns. A local harvest failure would take out local banks too. That was a big source for failures of these banks.
Another huge problem was that these banks were often forced to back all the notes they issued with state government debt. This was a huge problem, as in those days, state governments could default on their own debts and that would simply bust all the banks. How much debt a government issued could also effect money supply in various negative ways.
There were others too that I don't want to get into as this comment is already long. So you don't need a whole book full of 'Basel 3' regulation to have powerful regulations that negatively effect the operations of the banking system.
> If you tried to spend your home bank's notes out of state, you'd get pennies on the dollar.
This is also mostly overestimated. While this is a real problem, even going from the East to the West coast it very unlikely you would ever see more then single digit % differences. But you are correct, this was a real problem some people had to deal with.
> Seems like an incredibly inefficient system to go back to.
Nobody would suggest that. And even back then, anybody that wasn't completely dumb saw these issues. But not unlike with other political issues, to change the situation was hard because so many people had so much invested in keeping the status quo.
And its not hard to see a different situation. Just look to Canada. In Canada banks from early on were not restricted to one 'state' and were allowed to branch.
This lead to a radically different situation. While the US by the 1930s had literally 10000s of banks, Canada only had a few handful, and only like a couple big ones.
The banks were incredibly stable, as they had a diversified portfolio, and downturns in one location didn't kill the bank. These banks were also allowed to back their note issue with any assets, not just government bonds. This led to investment into the local economy and it allowed the bank to issue as many notes needed depending on the situation. It also means that you could go from Toronto to Vancover and all banks took all the notes.
Counterfeiters were not a huge problem in Canada, because you only had a few issue banks, and they had the capital to invest in modern note protection schemes. In fa...
No! That's not true :) as long as there has been debt there has been fiat. There has been debt since the beginning of commerce. So your system is going to have the same issues. You're "assuming" quite a lot for someone who really shouldn't be assuming anything.
> The only thing that makes the current situation tenable is being able to print money.
That is factually wrong. The current situation isn't untenable from a financial standpoint. But over the medium term it would require hard choices.
https://youtu.be/NGAOLoYbZ6k?si=VQT5iNFhL7wZjPaL
> History is useful for the thrill of knowing the past, and for the narrative (indeed), provided it remains a harmless narrative. One should learn under severe caution. History is certainly not a place to theorize or derive general knowledge, nor is it meant to help in the future, without some caution. We can get negative confirmation from history, which is invaluable, but we get plenty of illusions of knowledge along with it.
Lets also then consider that this gentleman has made a career from a book about the unpredictability of events, and should no more be venerated for his prediction capabilities than someone working under the neon lights of a flickering roadside Psychic sign.
Looking at the highest US national debt levels in history while declaring that we are in for a debt crisis is on the same level of prediction. Of course the most likely scenario is debt spiral. That is the lesson of history, and the pattern of civilization, as leaders aren’t wise and austerity isn’t popular.
“But it remains the case that you know what is wrong with a lot more confidence than you know what is right.”
“Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality.”
— three quotes by Nassim Taleb
1) The author is taking his own knowledge too seriously.
2) He is also boldly speaking about a subject not in his wheelhouse but with firm confidence (against his own advice).
3) He is also speaking about a reality in which everything is (ironically) obvious and well discussed as if it were novel.
There is a vast ocean of difference between critique of an intellectual and actual criticism I fear may be lost on this forum. We are allowed (encouraged?) by Western intellectual tradition to point out when leading intellectuals gaffaw, and it was considered in most of history not only noble but necessary to do so; a way to keep public discourse honest and prevent banal hypocracy from rising to popularity.
I am discouraged by the number of people demanding explanation or making accusations of personal attack (!).
Come on now. Lets not be so naive that we cannot criticise stupid statements from public figures. I
In the face of the information control systems that permiate the modern landscapes, each of us should probably be going out of our way to support thinking different from our own rather than the opposite: 1984 beckons.
I don't think this even makes any sense. If it's your own knowledge, of course you take it seriously.
> a subject not in his wheelhouse but with firm confidence (against his own advice)
Not in his wheelhouse? He became probably 100x as wealthy as you are (guessing) by having insights about risk that most people don't have. This gave him time to read virtually everything relevant on the subject.
Granted, he doesn't have a piece of paper from a university placing it "in his wheelhouse." If that's important to you, you have my sympathy.
> to point out when leading intellectuals gaffaw,
"gaffaw" is not even a word. If you meant "guffaw" that doesn't make sense. Maybe English isn't your primary language, in which case this forum probably is over your head.
Please stop.
You have no place acting like this on Hacker News. Read the rules.
Critique of the arguments vs criticism of the person, please.
Also, if you want to have a constructive conversation with someone, insulting them as a lead isn’t… great.
I’m sorry for the typo. It happens. Doesn’t make me an idiot. When I find people making typos, I don’t feel a need to demonstrate my questionable bias towards non-native speakers with a superior complex either: how do you think that would genuinely make a non-native speaker feel? Not great.
People make typos in casual communication (have you typed on a phone recently, it only works because of spell check!). It doesn’t make them lower on the totem pole or worth “going after” personally. What it does is it makes me someone who made a typo (the horror).
I wish you the best, but please stop making it unnecessarily personal.
This isn’t Usenet in 1993, and I’m allowed to dislike the arguments of public intellectuals as long as my arguments and criticisms are cogent. I’m not making jokes about the man’s mother, sir.
I don’t need to be personally bullied or called ‘a poor’ for not being as successful as the person I’m providing a critique about. That’s an overly personal attack that doesn’t have anything to do with the criticisms I’m levying toward him.
I would normally ignore such behavior, but this is a small community and you’re a public person, so I feel compelled to say something. Please don’t do this to others. Be well, HN friend.
I’m going to try to engage more in this forum, but obit if you think I belong. Maybe I should practice my English a bit moar.
Are you actually 12?
There's nothing historical or predictive involved that I can see. If a group of people are telling you again and again, for decades, that "we're just not ever going to even slow down the pace we're wracking up unrepayable debt, no matter what", isn't it just a case of take them at their word, and extrapolate to the obvious?
Like, if a car is heading towards a cliff, with the driver loudly yelling out the window "I'm driving off this cliff!", can't we just take him at his word?
Also bear in mind there’s a quote from the author for prediction as well though it is more than a tad offensive to modern sensibilities:
> “If one puts an infinite number of monkeys in front of typewriters, and lets them clap away, there is a certainty that one of them will come out with an exact version of the 'Iliad.”
The idea that somehow we should put more credence on a man speaking on the future of the markets and is calling for a “miracle” who is famous for writing a book about unpredictable events is just hilarious, and my point.
Who else should we take our advice from about the most predictable events of history? Steven Hawking from the grave? Perhaps a successful advice columnist?
Let us not get lost in the obviousness of the prediction or the durability of the prediction of bears when we can enjoy the stupidity of the media presenting an author of a book about unpredictability as some kind of novel expert in the inevitability of the collapse of the western financial system due to unsustainable debts. It’s rich and delicious irony and, especially combined with all of the famous things this man has said that are the opposite of linear predictability being more common than we realize is, as I said earlier, just utterly hilarious.
"predictionism" -- is that a word you just invented? What does it mean?
Respectfully, the contrarian you seek is likely in your mirror.
Here is the definition:
https://www.oed.com/dictionary/predictionism_n?tl=true
Obviously, a loss of global prestige and reserve currency abandonment could be the result, but if there’s no other country to step in that has that prestige or offers a replacement…
What aee the requirements of debt to suppory a global order? Is it the rise of debt thats the issue or the loss of faith in the global order that that debt represents? People who understand that national debts are a necessary component of reserve currencies get the depth of this question.
Great comment.
I don't think the role of the US dolar as a reserve currency is put into question with a hypothetical default.
The typical impact of a default is that lenders are stiffed out of the money they lended. Some might go bankrupt as a result, but the only consequence to the US government is a hypothetical inability to get further loans at lower rates. This might be problematic for the US if the US federal government still runs a deficit.
Now, there is the question of what would this "inability" mean.
When Greece defaulted on its sovereign debt, their credit rating tanked and the global financial market hiked interest rates for Greek debt to the point they reached double digits. That lead the Greek government to beg the EU and IMF for emergency loans, which were accompanied by fiscal policy changes. I doubt the US would follow a similar pattern, mainly because the IMF does not have funds of this hypothetical magnitude.
Thank you.
Why would it not ? Wasn't that how the previous reserve currencies ended ? Are there many examples of relatively as bad defaults that did not result in such an end ?
Especially when the lenders first to be screwed here are (or at least were in 2020) Japan and China.
Very little if anything was affected.
> Extrapolate the obvious
OK. The list of things that are going to get worse before they get better is going to get longer before it gets shorter. There is a lot that has to change if we want to keep doing what we are doing. We are all in this alone, but we are chained to each other, and we can move only forward. Get used to it.
Taking the 2nd one first: he's written at least five books, and they're about much more than "unpredictability of events." Have you actually read any of them?
As for his own damn quote: a debt crisis is a matter of financial arithmetic, not "a flickering roadside Psychic sign."
If indeed the US tacitly admitted that it was never going to pay its debts, then the interest rates would rise. You don't have to be psychic to predict that.
Yes all of them.
Disagree. Economics is not pure math it is deeply political.
Indeed. The point.
That glass that you have in the border of the table may never fall, may not break if fall, even if a lot of people walk by its side not noticing it. But watching it may be obvious that the entire situation is fragile, odds are high that someone will bump that glass, it will fall, and it will break if everything continue as it is going, and even worse with trends pushing to make the situation even more unstable.
Things may change, or that risk somewhat never materializes. But someone that made a career showing up patterns of fragility in several kinds of systems think that the trend points to some kind of crash.
He will go into a literal ‘death spiral’ before the US goes into a figurative ‘death spiral’
>God is dead.
-Nietzsche
>Nietzsche is dead.
-God
Because as long as we hold that position I don’t imagine the US government will be shut out of the debt markets at all. This is part of the problem I wager is there is still enormous incentive to keep the scheme afloat by other nations too
If you are willing to die to American soldiers 10:1 like the NVA or most of the middle east, you can prevent America from "winning", but you're still going to be living in a bombed out hellhole while teens share celebrity gossip in American homes with zero fear for their lives.
I'd argue the US can do the same, but our domestic economy - at least on paper - is more functional the Soviet Unions ever was and can provide for its citizenry and is an important market for nations all over the world.
That's a major difference than with the Soviet Union, and a key one.
The key difference in opinion that may be surfacing here, is that other nations are willing to co-operate and push interests that also further US interests because they get tangible benefits from the US being the dominate superpower (IE, the western worlds military, de facto).
This is a strong incentive for countries to look the other way in times of crisis. Arguably, because congress is inept at proper budgeting and such, we should already have trouble selling in the debt markets, but treasures still sell just fine and at an ultra low cost to the government, despite some notion of "downgrade" by one of the bond rating agencies (I think Moodys?).
If I was looking at the US right now, and all the political in-fighting problems we are having, I wouldn't have nearly as much faith in the US government and buying its debt. This should have made debt more expensive to sell, and it hasn't.
I posit, one reason is, keep the US propped up to a certain extent (IE, not raising the cost of the US government bonds by refusing to buy at current value) would be that we are the worlds de facto military, and western nations are increasingly leaning on us with the turmoil that has bubbled up recently, and they have every incentive to keep the machine going right now because of it.
US consumers are also a great market, currently, and I doubt anyone wants to see that crumble, and that plays a big role here too.
Most families that own a house owe substantially more than 1 year's income.
Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.
MMT says we don't need to think about this the way we think about personal and corporate debt.
It's not that there's nothing to see here, but the sky is not falling.
Now, the stock market overvaluation ... that could be a real problem, but not the same problem.
MMT says a lot of things, but people only seem to follow it when convenient.
https://en.wikipedia.org/wiki/Debt-to-GDP_ratio
> is usually unable take their income streams
It takes a percentage of that, through taxes.
https://en.wikipedia.org/wiki/List_of_sovereign_states_by_ta...
Then it was government, foreign banks who bought the debt and European Central Bank who was on the hook for restructuring, not citizens or general public.
No. It's more like comparing a merchant's debts to the value of the turnover of their inventory. Sure, their revenue isn't the same as their income, but their income tends to be proportional to their revenue. Similarly, while GDP isn't representative of federal income, because most federal income is derived from taxation of activities that contribute to GDP, they tend to be closely correlated. Per Hauser's Law (https://en.wikipedia.org/wiki/Hauser%27s_law), federal tax revenues have been roughly consistent with 20% of the GDP. Since increasing the share the government extracts from the economy produces net drag on the economy, you don't want to get in to a situation where you have to increase that ratio significantly without a dramatic change in what the federal government puts back in to the economy (which also generally doesn't happen).
So yeah, the experts who look at debt to GDP ratios aren't crazy.
We're more like shareholders, and they are never debtors.
Citizens might not become "personally liable" in a legal sense, but they get similar consequences, reduction in wealth, poverty increase, etc, that somebody "personally liable" for their personal debt would get.
A country wide failure of economy can be even more devastating to individuals than some personal debt they default on.
Doesn't matter, since it's a relative comparison, not an absolute one.
And as a proxy of the severity of the issue it's good. The government might not take "all its residents' property, and is usually unable take their income streams", but getting part of those is exactly where it gets the money to pay the debt (plus printing money, with its own side-effects).
Also, watch until 20:38. You will see how screwed up some countries are when it comes to debt.
I do think someone who can hold that much minute, dry details in his brain and can cross reference them is going to be smarter than most of us. He does after all consult for major corporations and the U.S government.
Zeihan’s thesis is that the global economy is no longer global because the US is no longer interested in being the world police patrolling the shipping lane. That is, “the end of globalization and Bretton Woods.”
https://www.youtube.com/watch?v=ZqsVR9Hl2oQ&t=482s
Or, alternatively, US and a bunch of other countries are not going to be ok.
No, it has just as much to do with Democrat attitudes towards spending. You're right that the Republicans are partly to blame. But to balance a budget requires cutting spending as much as, if not more than, increasing revenues. The problem is that ~everyone thinks using their preferred approach ("just raise taxes"/"just cut spending") is more important than getting the budget balanced, so they are unwilling to compromise. And the American people get the shaft, as ever.
Alas, that has two problems: (1) US military spending is our own national version of socialism, in which we prop up communities by providing massive state subsidies, along with housing, healthcare, education and more to a large group of people (2) because of (1), it is hard to convince elected representatives to cut these expenditures because of the very real and direct impact they will have on their communities.
Although both D & R representatives experience the above somewhat equally, there is some imbalance in the relationship between D & R representatives and the military-industrial complex, and that leads to us to a situation where cutting these expenditures is even more difficult than it would be if the only factors were 1+2 above.
Unfortunately I don’t think a majority of either party wants to reign in military spending, considering every admin including Obama and Biden has increased it since Carter, even though likely granting such a blank check is financially irresponsible (i.e. trillions unaccounted for in budget audits [3]). Both parties just want to please that bloc of votes, because it also has ripple effects on the rest of the nation’s votes to be seen as “good on military”.
I personally think our military could be just as effective if we tightened the wallet, but I don’t think either party actually wants to.
[1] https://www.economist.com/united-states/2021/10/14/military-... and https://www.nbcnews.com/think/amp/ncna1245542
[2] https://news.gallup.com/poll/118684/military-veterans-ages-t... (2009, but the trend has only gotten deeper)
[3] https://www.reuters.com/world/us/pentagon-fails-audit-sixth-...
What is true, however, is the most (not all) communities with a functioning US military base close by is a solid voting bloc for NOT cutting military expenditures, at least not insofar as they could lead to base closures (and specifically, their base).
The American military budget is mostly the "America guarantees everyone can do business with anyone else (but mostly America) so that we can be very wealthy" budget. Remember that we built and sailed the Great White Fleet before world war 1.
Everybody has their own pet issues they want to cut.
The reality is only broad taxes on the middle class or massive social spending can really change the long term situation.
Not that cutting military spending wouldn't be smart.
> The reality is only broad taxes on the middle class or massive social spending can really change the long term situation.
Why the middle class, which has mostly been taxed into not existing? How about the upper class? As Warren Buffett says, they've won the class war, and gone a bit far with it. The lower classes are being depleted of their productivity through a kind of tragedy of the commons as they're relentlessly squeezed from above.
Because that's not how the American middle class died? The American middle class died when upper management sold your solid career to the Chinese for a quick buck, and spent all the windfall on enriching themselves for decades. It's amazing you cite Warren Buffet while saying that, who commonly calls for higher taxes on the wealthy.
From what I can tell you misread my post.
With middle class I mean the population at large.
> How about the upper class?
Again, because it simply doesn't work. Its a leftist fantasy to 'tax the billionaires' or 'tax the top 1%'.
Yes of course you can make the tax progressive and collect more from those groups. But that simply want get it done.
This is my point. Everybody has their pet peeve, their pet group or whatever. But that's simply not realistic.
The only thing that can balance the budget are either broad taxes on most of the population, or massive cuts in social spending. Yes, you might not like it, but its true anyway.
> As Warren Buffett says
Buffett can say whatever he likes, it doesn't change the numbers.
Go on the most extreme socialist tax the rich spree, eliminate billionaires take all their wealth. Have fun. Then add lots of new taxes for the Top 10%, have fun.
All of that helps, but doesn't change the fundamentals.
You simply can't have large European welfare state and not have much of the population to pay for it. And the US has such a large welfare state in terms of what they pay, even if not in the outcome.
Defense spending is not just a "pet peeve". We spend more on national defense than China, Russia, India, Saudi Arabia, United Kingdom, Germany, France, South Korea, Japan, and Ukraine — combined. There is ample scope to reduce our defense spending by massive amounts without threatening our national security.
Meanwhile, sure I support higher taxes on the middle class up (but MUCH higher taxes on the top 10% and MUCH MUCH higher taxes on the top 1% and above).
That needs to be coupled to a clear vision of what people are going to get as a result.
Just to undersocre two details that are often forgotten in discussions about how huge the U.S military budget is:
1st: as a percentage of GDP per capita, the U.S. spends less than at least two other countries and only moderately more than several others that aren't normally considered war-loving. (Singapore and Qatar for example).
2nd and more important: Of the total U.S. federal budget, military spending is far from the largest single outlay. Social services in the form of health services in general, social security, income security and medicare in particular take up much, much more Together any one of them (except medicare but smaller only by a tiny margin) is larger than the total defense budget, in some of those cases by a huge margin. Hell, even the total federal education budget for 2023 was nearly the size of the total defense budget.
Overall, of the total 6.3 trillion federal budget for 2023 at least, military spending accounted for just over 10%. A lot for a country as rich as the U.S. but not to the scale implied by a a lot of hyperbole.
Something like half of every dollar I make gets swallowed up by taxes of some sort, either directly or indirectly (by making products and services more expensive). A good portion of it just to fuck around in foreign countries against my wishes. How much more should they take?
Now what about property taxes (or your landlords property taxes if that's the case, which just goes onto your rent)? Sales taxes? Gas taxes? Alcohol and cigarette taxes? Any of 100 other taxes?
If you aren't brave enough to take on the tax code yourself, how much do you have to waste on accounting services so you don't wind up making a mistake that costs you even more?
Beyond that, what about all the taxes that come indirectly to you through the prices of everything you buy?
And while not technically a tax, every dollar you make is slowly eroded away by inflation.
Property tax: $2200/yr Sales tax: hard to say, local rates are in the 5% range
I do my own taxes, have done every year since I moved to the USA 35 years ago.
I don't really have time for this over-generalized argument about "they tax everything", least of all when you try to bring inflation into it.
New mexico is a middle of the road state when it comes to taxes (https://taxfoundation.org/data/all/state/tax-burden-by-state...), so that lowers yours a little bit. Mine is on the higher end of that.
Maybe you don't find the argument that taxes increases your costs in other ways compelling, though I don't see how. I think the usual objection to that is "well its worth it", which could be true, but it should show up in an accurate accounting.
I'd argue the same for inflation (this isn't some novel argument on my part https://en.m.wikipedia.org/wiki/Seigniorage#Seigniorage_as_a...).
I guess back to the original question though. If you're convinced your total tax burden is 22.5%, how much more would you like to have taken?
Well, if we defunded the military 100% and let the world order go to shit and that's exactly how you want it then we'd still need to raise taxes to cover our deficit.
So go ahead and vilify the military all you want, it's your right. But at least be aware that getting rid of the military is not going to solve the issue.
The problem is calling that saving 'debt' and then catastrophising about it.
Draw it out and do the balance sheets. Local importers end up paying the local currency costs of exporters.
https://en.wikipedia.org/wiki/Modern_monetary_theory
"Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment"
The whole point of MMT is simply that the painting is not the item, and money is not value, money is a representation of value and that it's inherently worthless. IE, if you suddenly taxed away 50% of everyone's dollars and cut all dollar-denominated debt by 50%, literally nothing would change except that people would need to get used to new prices being half of what they were.
What MMT says is that printing and taxing are just wealth distribution under the assumption that humans are rational and can adjust to new prices quickly. The issue and all complications are
1. Rebasing all forms of currency including weird things like dollar denominated debt, sovereign reserves, stocks etc is hard.
2. Human's aren't rational and will be mad if you suddenly halve the value of their dollar even if in real terms nothing has changed for them b/c government handouts or whatever.
MMT is more like: "printing money is not limited by the things you think it is".
If that credibility is lost, for example, by creating more money than it intends to tax, then you will see inflation.
And who is this money owed to?
$24T is owed to US domestic entities, while $7T is foreign owned:
* https://usafacts.org/articles/which-countries-own-the-most-u...
Americans are mostly paying money to themselves.
I thought the recent inflation surge has debunked MMT (something which I almost bought, myself). Or is that not enough inflation?
Whether you agree with that identity or not, we've certainly seen a lot of both during the pandemic (government subsidies, tax breaks etc.), which is where the current inflation pretty uncontroversially originates.
(Side: You’re likely referring to the 90s during Clinton’s administration) Reducing the deficit to 0 barely means anything when the overall debt is high. Besides, for your family example, it’s all well and good but families do not have to be concerned about the valuation of an international currency that they’re basing their borrowing off of.
> We owe a bit more than 1 year's GDP.
> Most families that own a house owe substantially more than 1 year's income.
Minor nitpick: A country’s income is not the GDP but rather the tax revenue collection. The US federal tax revenue is around $4.5T as of last year, which is just about 20% of the US’s GDP.
His track record making actual monetary bets on all this has been mixed at best.
Admittedly “if” is doing a lot of work in that sentence, though.
The bickering over the discretionary budget is a sideshow compared to what's happening with Medicare/Medicaid and to a lesser extent Social Security.
With a psychic more people know you need to take it with a grain of salt.
Except of course when they're making astronomical increases in spending that benefits them. Such as increasing military budgets, tax cuts, and petro subsidy.
And of course, while the debt may not be a specific issue, eventually the _interest_ will be.
Capitalism has it's benefits, but there is no magical marketto always provide the right answers.
We need a serious reorg, and that will not happen prior to total destruction of the economy.
I'm not really a doomer, but those in power will absolutely not allow any systemic changes to occur, and we all will suffer the consequences... (inversly proportional to personal wealth of course)
That's one of the dumbest things I've ever heard. I could believe it's from the instability of the political system, from the instability of the capitalist system, or from the effects of climate change. But national debt, please. This is just bullsh*t propaganda to enforce more austerity on the people.
But then their final-word wrap-up at the end is to shoehorn in pumping of specific stocks. (Including one of the most famously over-valued ones, right after the article just called out mis-valuations. Maybe not intentiona, but just an accident of the standard operating procedure of tacking pumping of any arbitrary thing, onto the end of any bearish message -- create a sense of problem, and present a "solution", for retail investors foolishly trying to stock-pick or sector-pick.)
Business 'news' at this point doesn't need an LLM to generate it -- you could do it with a small Perl script.
So the US military opinion on what the doller should be worth is pretty much irrelevant.
https://www.theguardian.com/global-development/2024/jan/31/m...
The choices are tighten the belt and/or increase taxes, war and the appropriation of resources, and/or renege on debt and start printing money. All choices and consequences (in some cases dire) sadly left to the next and future generations.
There are plenty of people who know whats going on, its not even very complex. What people disagree about is the long term implications.
The reality is this, the US getting to the point where the debt servicing costs as much as the military. And future spending is known to be high simply by the already promised social benefits.
And the debt servicing could go much bigger if interest on debt goes up even slightly. Ever 1% of increase debt might result in a whole US military worth of extra debt serving per year.
So, eventually the US will either have to raise taxes broadly on the whole population, or cut social spending by a large amount. Both are politically untenable and thus have a high potential of not happening or resulting in a serious political crisis.
As long as neither of them happens, the situation is getting worse, and critically getting worse with ever increasing speed. And that simply isn't possible to go on forever.
So its easy to go into an exponential curve of things getting worse and worse. All the other countries that ran into problems also had people say 'wouldn't happen here'.
So this isn't a doom for the next couple years, even decades but even until then, spending large parts of your GDP with debt servicing isn't really great way to spend money either.
I like Taleb's writings and agree with him on most things, but seems to me that the sky is not falling.
(Obtained the debt and asset values from Google Bard)
I know that this is true in case of companies and individuals but how this will play our with governments? I don't know. It does not own the majority of these assets but we are talking about government dept as liabilities. Yes, they will not default as they can keep printing money (and compete with cosmic inflation rate /s) but it wouldn't help the economy and will make matter worse with time.
But you will need to fight inflation which in part means you raise interest rate which in turn increase dept service and that would make you more dept. I probably wrong but I don't feel like this is a black and white situation.
So essentially nothing can be liquidated. There's exceptions, like raw materials (from gold to oil), but not many.
The problem is that the other side, valuing the US as the total value of oil in US soil, plus all other assets, is also bullshit.
You also can't sell it or buy it. For example, the natural resources of North Korea far exceed it's GDP. And yet, if I go to 10 banks, and offer kim 10 times North Korean GDP, could I buy North Korea? No ... they would not sell, nor would North Koreans honor the sale if it was made. So the value of all state organisation ... is zero. But for most countries that is the only thing valuable about them.
On top of that the US government debt is mostly owned by US organizations and citizens; it is assets owned by US taxpayers.
A very different situation from the typical debt/inflationary crisis in developed countries where you have a foreign-owned debt and limited tax base; these cause serious credibility issues for governments, which in turn further push up rates.
A bank's first think to look at is affordability, are you able to actually pay the installments on this. Recoverability of initial capital is secondary and only matters in a liquidation event, you don't want to have to worry about a country-wide liquidation event (in truth they can print money, so long as your debts denominated in your currency and they accept this).
If you believe this, do you also believe that debt is meaningless, because you can print money to pay it?
Given that what passes for “exceedingly humiliating” is extremely different between the two cultures, this seems more like packaging the transaction to be more palatable for a domestic Chinese audience that dislikes the idea of their leadership doing business with America.
If we owe a year's income, we are in trouble.
The last reporting year is 2022 and assets were ~$4.9 trillion and liabilities ~$39 trillion.