Oy. I'm no fiscal conservative, but the US federal government absolutely needs to balance its budget. Otherwise, it's bound to either choke on interest payments, devalue the dollar, or both.
Unlike most Trumpists, I see the the problem as a revenue issue, not expenditures; unlike many non-Trumpists, I doubt "tax the rich" is going to be enough to plug the hole.
Government healthcare payments would be a good start -- it seems likely that the amount most employees already (effectively) pay for health insurance could fund equivalent government coverage with some money left over to help pay for other government expenses.
A good faith cooperate tax would solve most if not all of our deficit, and arguably increase our GDP growth.
A 5% revenue tax on the fortune 500 would get us half way there. I could not quickly get a number for total revenue of more than the fortune 500, but I would not be surprised if a 3% VAT would cover the entire deficit. We lose so much tax revenue due to all the loop holes deliberately left in the corporate tax code.
On top of that, ban stock buy backs entirely, that way more of the record breaking profits have to go to wages or other means of investing in the business.
It is absolutely a spending problem. The Department of Agriculture has 100k employees and a $500B dollar budget. That’s just one department of many. Throw a dart at the MTS [1] report and you’ll find dozens of other agencies with similar levels of spending.
There are plenty of places to cut spending before we start raising taxes on the W2 wage earners that are contributing the most to federal tax receipts.
How would nationalizing health insurance even make a dent in spending? Ultimately the same amount of healthcare will be consumed. You are truly clueless about the federal fisc if you think these are even remotely serious ideas for fixing the federal budget deficit.
Yeah, cut the $1T/year in defense spending and raise taxes to pay down the debt (to cut $1T/year in interest expenses) and balance the budget. Entitlements remain because workers are entitled to those benefits they worked for. The same workers the wealthiest need to suck $5T+ dollars a year of profit out of the economy.
We used to have 94% top tax bracket rate at one point, and higher tax rates in general. We’ll find the will to raise taxes as soon as the bond market compels the spineless in Congress to find the will (as the cost of debt continues to rise into the future), because you cannot deceive the bond market.
- In projections that the Congressional Budget Office produced last February, net interest costs are already at $1 trillion this year and on track to reach $2 trillion by 2035, meaning that much of federal spending is needed just to service old bills.
- But those projections assumed 10-year Treasury yields were in the ballpark of 4.3%. They're now nearly a full percentage point higher than that.
- In startling numbers that CBO released this week, in a scenario in which interest rates were 1 percentage point higher than its baseline, debt held by the public would grow to 222% of GDP in 2056, 47 percentage points higher than the baseline.
They are called “entitlements” because we have a reasonable expectation of getting what we were promised when we agreed to pay taxes as our part of the social contract.
If you say, “We should have invested more,” I point you to the 40% of current retirees that were not in a position to invest because their jobs didn't pay them enough above the cost of existing. And then there are any number of events, such as age discrimination, common medical issues, divorce, and bankruptcy, that destroy retirement plans.
From what I can tell, it's not possible for the vast majority of the population to be able to save for a 20 plus year retirement.
One of the things that keep people from saving are the activities driven by their investing in the stock market. To increase returns, "Activist investors" and private equity drive companies to shed jobs. You shed a job, you destroy a person's ability to save for retirement, which makes them more dependent on the social contract of Social Security and Medicare.
Cutting benefits will only cause suffering. The cost will fall on society in other ways in terms of elderly homeless people filling the ERs, begging in the streets, or committing suicide. Is it time for a "Modest Proposal II"?
Totally false. It was balanced in the 90s. Its just that raising taxes has to be part of the equation. Guess what, three successive republican administrations have lowered taxes. So maybe just roll those back.
But that's not comparable. If the tax take/GDP was the same today as it was when the budget was balanced then (19.9%), there would still be a deficit well over a trillion dollars. The US is simply spending a lot more. In terms of entitlements, certain things have changed structurally.
For example in the year 2000, people aged over 65 were 12.4% of the U.S. population. Today, that demographic has grown dramatically to 19% of the population. That's fewer people working and paying taxes while also simultaneously drawing more from medicare and social security.
This doesn't mean it's "impossible". But to balance the budget today without major spending cuts would require raising taxes 39%. It's just so different than it was then to make the math work out.
If the remaining deficit is around a trillion dollars, and we spend more than that on needless wars in the middle east, it's easy to see what to cut to balance the budget....
One thing to do would be get rid of the $184k cutoff on payroll tax. That would greatly extend the life of the Social Security and Medicare trust funds.
That gives a lot more time to phase in any longer term changes to those programs.
But that is because of wars and stimulus because of failed policies like bush’s push for home ownership and mortgage deregulation and Clinton’s move to deregulate banks. The policy could and should be that if emergency events happen emergency taxes are levied over time when the economy allows.
Also not all deficits are bad. It is reasonable to borrow to invest in basic infrastructure. The return on investment from nasa and the university system and darpa to the US economy dwarf the cost of borrowing.
> Bond market is in revolt about the national debt and I hear crickets from Washington. You think this would be a crisis. Amazing really.
Some combination of the bond market rejecting Treasuries for other similar investments while also pushing up other debt costs causing excessive failures in interest rate sensitive parts of the economy. Hard to predict when, but it’ll look strikingly familiar to the 2008 GFC I think, the day Bear Stearns collapsed. An event will occur, and there will be a cascading loss of confidence in the bond market. Not a great time when diesel fuel is also at record high prices and will be for at least the next year.
That may be true, but why is Congress the metric? Congress is broken. In how many of the last 20 years have they actually passed a budget? It might be two; I'm pretty sure it's not more than five. That's their most basic job, and they can't or won't do it.
Whether Congress cares does not tell you whether there's a problem. The fact that Congress doesn't care is part of the problem - maybe the biggest part.
Instead of blaming Congress, perhaps blame democracy.
Voters loath austerity, and they support spending.
Watch the experiment happening live in New Zealand elections. Our incumbant conservative party (National) is aiming for a budget at about 30% of GDP. Our progressive party (Labour) wants to increase taxes and increase spending to maybe 33% of GDP.
You can see if voters care about keeping spending in check, because it seems likely to be a central issue of campaigns. Although we have MMP voting so it isn't totally clear. Also note that I think most of our politicians would be seen as left-wing if looked at by anyone on the right.
There's this perception that the majority of US government spending is on the military which is completely untrue.
Defence is only 12% of the US federal budget - what are you going to cut it to? It's not going to solve the issue even if it's abolished. Over the last 10 years health, Medicare and Social Security have grown 103%, 83% and 78% respectively for an increase of $1.64 trillion to $3.55t vs a $916b on defence. With an aging population it's only going to cost more and more over time, you can't continue to put higher taxes on a shrinking share of productive population to care for more and more unproductive retirees under any economic system.
Single payer Healthcare would flatten that curve by removing the incentive that insurance companies and health providers have to raise prices in coordination. Insurance is only allowed a certain percentage of admin costs (salaries etc) and profit from premiums so their incentive is to raise premiums but they can only do that by showing increased costs. Health providers have an incentive to show their costs aren't fully paid by insurance so they can also justify inflation of expenses.
Universal SPH would save a net $300B to $1T, reduce paperwork, reduce deaths/improve outcomes, and provide better care. The FUD canards of "rationing", "waiting lists", and "communism" as well as classism and corrupt profiteering are the barriers to less suffering. Just give everyone the same coverage that doesn't have a 20% hole or lifetime limits... and that eliminates Medicare, Medicaid, Tricare, CHIP, ACA, and most private insurance, and most billing coding and prior-auth nonsense. Not doing so wastes money and kills people, just like parts of the BBB coming into effect after the midterms is going to bankrupt and kill thousands of people.
I agree. I own home health care agencies in 14 states. The admin we have to fund is absolutely ridiculous and wasteful. But republicans use clerical errors to scream about waste fraud and abuse because that justifies cutting spending and so the system operates inefficiently and costs keep rising on the public and private side.
Nothing will change in a lasting manner without first leadership addressing political and campaign corruption. Then and only then can SPH and nationalization/re-regulation/nonprofitization happen. For-profit healthcare should be allowed on the periphery but only under a carefully proscribed and uniformly-regulated manner rather than the predatory manner (i.e., private equity) allowed now. Nearly all healthcare should be nonprofit, government, and/or small businesses vaguely similar to the UK NHS or how it worked 50 years ago.
I did. I wrote several papers on it. The OECD spends far less for better outcomes than the US with lower slope of growth. And the growth is in large part due to demographic changes as populations age. Changes in demographics shouldn't be used to say health care doesn't answer cant work. Its ratios of spending across a population as some pay in when they are healthy and some consume as they age. Change the ratio and cost as a ratio also changes.
Let's pick one dimension: hip replacement costs in NZ versus USA. A poor example since fewer of working age.
Looks like surgical costs are similar when adjusted for GDP. The USA system isn't more expensive in comparison with the NZ system.
Replacement is free on the NZ public health system, but I've seen the painful years of waiting, the majority in my experience have to endure. A critical situation like my solo-mum friend who needed hips replaced was grossly delayed: hellish years trying to bring up her young children.
Defense might not be a cure all for the deficit, but reducing expenses to the tune of 12% sure is a heck of a start. Clearly defense spending isn't buying us that much if the our armed forces can't deal with a middle income country (Hormuz blockage) and a group of rebels (Bab al Mandeb blockage).
Cutting defense doesn't even need to be complicated. Just stop forever wars in the middle east. It won't hurt our actual defense capabilities and will raise America's stature in the world. Heck, we have the best defense imaginable given to us for free (the Pacific and the Atlantic oceans), to the extent that two world wars combined didn't see a major attack on the US mainland.
Cutting (or better still privatizing) social security, medicare and medicaid, while being the Republican wet dream, actually translates to direct harm to millions of citizens.
We would have to raise federal taxes by an average of at least 39% per household and on businesses =just= to balance the deficit.
The reason the US is a comparably "low tax" country is because we're borrowing the difference.
What worries me the most is that this is at a high point in our economic cycle, when tax collection is arguably the highest. The deficit and debt will expand significantly in the next recession.
The modern US is a great example that maybe you should have tax and fiscal policy somewhat removed from democratic hands.
I.e. have a Fed-like entity that gives Congress a max in spending for the current tax policy, and Congress is required by law to stay below that number
Fixing US debt has always been politically unpopular, and it always will be.
Checks and balances were supposed to do that. Federalism was supposed to do that. Republicans have played a 60 year strategic game really well and blocked the checks and balances. Here we are. With no way back quite frankly
In what way would checks and balances do that at all? The only branch that has any sort of leeway to pass unpopular policies is the Supreme Court, and setting budgetary constraints is far outside their purview.
In a world where the president wasn’t politically associated with Congress (the US system It’s different from most in that the executive is not elected from the legislature), the President could theoretically demand Congress send them a balanced budget to sign, otherwise they would be responsible for the cuts.
Unfortunately the U.S. constitution was written with the, in hindsight, naive assumption that political parties could be avoided.
This just led to a system that has political parties but doesn’t really acknowledge their existence and therefore makes it difficult to regulate their behavior.
Madison talked about this problem during the Virginia ratifying convention. There is no government structure that can survive bad actors. His solution was that informed voters would punish bad actors. -- We're in short supply of informed voters and accountability isn't a thing anymore.
Punishing bad actors depends on informed voters, but in a larger population democracy it also depends on the informed voter : uninformed voter ratio staying above some value.
The lower the ratio sinks, the less weight informed voters have, and the less intelligent the outcome gets.
The modern party duopoly exacerbated the issue (parties mobilize uninformed voters and often actively work against informing them), but voter enfranchisement also seriously impacted.
Universal suffrage is amazing from a human rights and ensuring everyone has political power standpoint, but troublesome when you have poor levels of universal education and ability for voters to inform themselves.
In modern times, with modern populations (US or larger), it feels like indirect democracy might be a better answer.
Allow voters to directly elect non-partisan voting representatives (many, so elections are hyper-local and candidates individually canvas), then pay those representatives a stipend for a few months (like jury duty) which they spend educating themselves on issues. Then have those representatives vote.
Sorry. This is utopian. If those, let's call them electors, "educated themselves" with sources from RAND or worse, Fox/Breitbart types. Or to be non-ideologically biased about the point, communistUSA. Then they too would act as bad actors when they voted.
At the end of the day, when all the BS gets boiled away and we are left with raw/brutal reality. -- Any group of people attempting to govern themselves will end up with the government their collective will and (i'll use the loaded term) virtue deserves. The only caveat is time.
Putting fiscal policy in technocrats hands seems like a bad idea to me. Most technocrats are completely divorced from the experience of average people. Since their incentives dont align they would end up implementing bad policy thinking it was good. Tax policy could certainly work though. Most tax law is written by technocrats today, they just need a politician to champion it after its written for it to become a law.
Imho, the way to do it is to allow the unelected technocrat body to set the general parameters (e.g. max available spending for current tax policy) while leaving the specific params (e.g. budget items) to Congress.
Technocrat bodies seem to do okay with setting scientifically-supported, non-specific directions, that can then be decomposed into specific directions by people better connected to constituents.
This couldn't ever work. In a crisis like 2007 the US rapidly going into deficit spending is the only thing that kept the financial system running. Have a hard cap during the next crisis and the Great Depression will start having numbers beside it. Economics is a soft science and politics isn't a science at all.
This is precisely my point. Who decides what is and is not a crisis. Germany tried a version of what you're advocating for and recently realized it was unsustainable, and declared a crisis so they could up defense spending.
Trump has declared crisis events no less than 20 times to justify his insane policy decisions.
The entire point of the Fed et al. is to remove the ability to decide what is and isn't exceptional from those who have political stakes in declaring everything exceptional.
In America the 6-7figure households pay almost all of taxes. Lower incomes, higher incomes pay almost nothing.
These are the W2 workhorses who receive also no explicit current benefits from the gov (bar national security). They already pay taxes to the tune of 30-40% for zero benefits.
It will be hard to tell these folks that they need to pay 60–80% taxes on their W2.
Stock market dynamics now are fundamentally different now compared to the last period of sustained high inflation (70s)... And they've done fantastically over the last few years of stubborn inflation.
The roaring 20s were driven by a money cycle formed with post WWI farm machinery foreign demand, US factory growth to meet that stimulated demand, stocks to fund factory export growth market, and debt generated by unsecured customer financing.
Eventually the cycle/bubble collapsed, and the same 1930s tariff policy literally starved people for almost a decade.
I really hope we don't repeat that history. However, the Bear market distant roar can't be ignored. =3
Stocks keep marching higher, to stable yet irrational levels, because the .1% need to put their money somewhere. That level of wealth grows so quickly that it's impossible to know what to do with it. A literal embarrassment of riches.
Don't get me wrong, I want to be in that category, but still.. this is our reality. It's an interesting experiment we are running. Without external factors like global wars and climate catastrophe, could the market even crash in our current environment?
The equal-weight S&P 500 has been on a steady march downwards since it became apparent in August that the Iran war was not even close to over, and is now getting close to correction territory (7% down). This is exactly what you would expect given the news. It is the opposite of what you would expect from the inflation story, which would lift the earnings of everything in the S&P 500 (which, after all, is composed of the 500 largest companies and overweights monopolies or oligopolies in broad industries).
The S&P 500, however, has been basically flat over that same time period, holding at the 7700 level. It basically has a leg down over the course of the week, and then always pumps on Friday to regain the previous level. I'm not sure if it's government intervention or irrational exuberance in a small set of AI stocks, but the divergence between the broad market and the S&P 10 is becoming increasingly noticeable.
But as you say, it's the Iran war and other factors that are to blame. Inflation is lurking in the background but various things will always appear in the foreground to occupy the market's attention for a bit.
But on the scale of years inflation will dominate all transient idiosyncracies.
I'm not convinced of that, and I don't think the market is showing that it's convinced. At least not abnormal, above-2% inflation like we've had for the last 5 years.
I think there's a decent chance that Warsh gets inflation under control. The recent rise in bond yields is 100% due to Fed action: the Fed stopped rolling over long-term treasuries and MBS into like-kinded securities in June, instead rolling them over to short-term treasuries. This shrinks the Fed's balance sheet on the long end of the curve and adds to it on the short end, just like Warsh said that he would do. It's net-neutral for the Fed's balance sheet as a whole, but the effect is to push up long-term yields, hold short-term yields steady (which have a floor of the Fed funds rate), and steepen the yield curve.
The next step - and Warsh has made no secret that this is his plan - is that once the long-term Treasury market finds an equilibrium without Fed support, use that information to figure out what the neutral rate is, and set short-term rates accordingly. The price action we're seeing is a strong indication that the neutral rate is significantly higher than anybody expects right now.
The bond market is also not expecting significant inflation over the next 10 years. You can see this through the TIPS spread, the difference in rates between the 10-year TIPS and the 10-year Treasury bond. It currently stands at about 2.35%, indicating that the market as a whole expects about 2.35% (CPI) inflation over the next 10 years.
Anyone under 40 that still doesn't own their home did not need to carry more debt burden, and some mortgages will go further below water.
The US markets consolidated focus around 8 companies circular investment hype as growth isn't rational self-interest, but looks more like an exit strategy on the US economy.
I hope the Bears are wrong on this one, as last time 3 million US citizens just getting by had their homes equity legally stolen. =3
It's very hard to gauge realistically what this means. There are a lot of vested interests in the financial system not crashing and those put strong reinforcing effects back on things. But in the end it is a game of chicken where eventually being the last to bail out becomes higher risk than continuing to support a system where an imminent crash is possible. It feels like there are strong non-linear tipping points where things could go exponential pretty suddenly here.
The problem is that the level of debt overall in the US - across both private and public sector - is just astronomical. We are truly in unchartered waters, outside of a world war. There's just no model or playbook for how this should work from here forward.
The primary issue is Social Security. It’s the biggest driver of spending, and nobody wants to do anything to cap its costs such as means testing or straight up lowering the amount it can pay out.
As for the people that will inevitably bleat about how this is just horrible and we need to lift the cap on taxable SS income, that wouldn’t solve the core problem either unless you pair it with spending caps or cuts.
"Means testing" is the bad Social Security idea of the year. SS isn't a welfare program. Trimming benefits, changing retirement date (for all) and uncapping contributions are much more palatable to voters.
Social Security is not the issue no wealth tax, capital gains tax being less than income tax are the problem. Social security and government expenses going up are the symptom of the same problem ie not taxing capital gain which has resulting in prices for everything to keep shooting higher than incomes.
Social Security is funded by the people paying in, plus the money in funds like OASI. Yes, OASI is treasuries, so it’s connected, but the reason OASI exists is to cover the changing demographics as baby boomers retire. It’s not designed to be, long-term, the way the Social Security system works. The idea is that you collect income on the boomers greater than payouts while their cohort is in the workforce, and the pay that money back out when they retire.
Yes, there are reasons why this isn’t working out as planned. But the idea that “Social Security is the biggest driver of spending” is not a cogent argument.
The OASI fund was at ~$ 2.4 trillion in around 2025. That's only about 1.5 years of payments given no contributions. The net interest from the fund is only around $ 60 billion. If you add in the DI fund, it only changes by about 10%. The $ 1.7 T cost of Social Security in 2026 will not be meaningfully affected by these funds. Mandatory spending payouts will thus have to come from contributions (which are fundamentally just another tax that could be redirected to other priorities) and from the general fund. The contributions brought in around $ 1.3 T in 2026, leaving somewhere around $300 B to be paid out of the funds.
Thus, I think "Social Security is the biggest driver of spending" is a perfectly cogent argument. The mandatory social security contribution is just another kind of income tax.
Obviously we can't just turn off Social Security, for many political, moral, and practical reasons, but any solution to the deficit or debt that ignores social security will be fighting with one hand tied behind its back.
There are more 401k millionaires now than ever before. I wonder if in 20-25 years decrease in SS payout will be more palatable as people rely on other, far more valuable, retirement accounts.
On the other hand, I’ve been paying into ss for like 3 decades easy. Bitch better have my money!
It’s not Social Security, it’s Health and Human Services. It’s been the top line item in the federal budget for several years, and it’s growing at the fastest rate and has the largest unfunded liabilities.
Social security is easy to fix. Just raise the retirement age. Or do nothing and benefits drop by 25% or whatever it takes to become balanced based on current tax revenue.
Good luck rationing hip replacements and breast cancer treatments whose provision is statutorily required by law and whose cost will continue to rise with inflation.
None of this even begins to consider interest on the debt. As interest rates continue to rise and the debt continues to grow this line item will eventually dwarf everything.
Social Security is chump change compared to these two. But at least it’s nominally fixable by faking the CPI numbers used to set the cost of living increases. You can’t charge less for hip replacements or cancer treatments, they cost what they cost.
My knowledge of new-gen-econ is pretty subpar, but isn't the strategy of US "don't dare to bet against us, we're writing new rules of the game"? It feels like all governments are acknowledging "letting it rip will suck for everyone, so why would we even bother". Normal monetary policy has been thrown out of the window, and every large state bank has stated it very openly throughout the wars that have started in this decade. And this leads to a lot of state-level financial backdoor discussions, deals and "stuff" that I'm not knowledgeable enough to even think about.
Wild times. Maybe it's information overload, since it probably happened in the past as well. But being bombarded with implications of these changes left and right is kinda weird.
Well, it's still complicated because of the global economy.
- Most of the AI Companies are HQed in the US, and that's the 'hot thing' for the market overall
- Google and Apple have enough presence (i.e. some may be doing tax things but...) in the US and at least one of them has gotten 'too big to properly antitrust'.
- If we look deep enough, even some of the fanciest ASML tech is a result of IP sharing from US companies that are almost certainly government backed (i.e. ASML might be the ones working with other companies to help make it useful/scalable, but the tech is invented here.)
Ironically, something I would have listed at the top 10-15 years ago but is now last on the list...
- For the last (well, now) 80 years the US has been able to project an outward image of overall economic stability and relative growth; The closest it came to a crisis in the past was when the Bretton-Woods system collapsed and France came over and collected their gold.
On the flip side, there is the 'guard'.
- Any current bondholders have to choose between holding at the current rate, or selling at a discount. It becomes a 'Well do we really thing it will all fall apart before then or do we just hold?'. Because any new bonds, even at the current rate, would be carrying that risk on the open market if a sell-off occurred. IOW 'Is a bond I have now less the arbitrage cost going to be worth more than just holding it'.
What's important is what happens next. If we look at the Bretton-Woods collapse, there were a number of actions taken, many (most?) of them questionable, however it was pulling a bunch of levers at once and unpulling versus debating which lever to pull.
There is the confounding factor where parties are arguing that there is market manipulation going on, that changes the question of whether to hold onto existing bonds rather than making other options. After a certain maturity percentage one has to ask whether you hold or sell based on climate.
> There is the confounding factor where parties are arguing that there is market manipulation going on
My understanding is, it’s not even an argument anymore. Like the latest Yen intervention from the states was basically a state level manipulation, no? I mean there’s nothing really illegal. And it makes sense, and very much public. But one can assume there are just many more behind-the-scenes activity going on as well.
You want to see what's really bad, a train wreck in slow motion, just look at what France is doing.
They've been subject to EU Excessive Deficit Procedures for multiple years, must bring deficit-to-GDP ratio from ~5.8% down to 3% within 3 years despite virtually no GDP growth and complete political and societal paralysis about reducing any public benefit or welfare whatsoever.
ECB will most likely get involved after 2029 to start austerity measures. You can predict how that will go over with the French public especially if Le Pen takes the presidency, which looks likely.
Very tough times ahead and the EU is facing a critical point about its future.
They can lose some monetary discretion if it goes on for too long. I'm not sure what "corrective net expenditure path" means in practice, but it sounds like other members get to decide that one at the time.
The ECB doesn’t have the political power to force France to give up any monetary control. The EU might govern France, but France (and Germany) govern the EU.
That's why I said that it is a coming crisis of confidence for the EU.
France has snowballing debt with virtually no prospects of growing out of it by itself. So what is going to happen? It's a very dangerous situation that is only feeding the euroskeptics even more.
Why is this relevant? Athens was bailed out by other European countries and by the IMF. That’s why it had no leverage. France is not in a similar position, partly because its population is also a huge investor itself.
While the far right in France has been gaining traction with full throttle populism on fertile grounds, I wouldn't overestimate their chances to make it to the presidency and discount the fierce opposition that will be expressed the day people cast their vote.
It is still a weak (but loud) political movement which lacks backbone and network.
The Macron government went out of its way to cut taxes for the wealthiest percentiles. Debt exploded, costs were cut, infrastructure went unmaintained (which only ended up adding to structural costs), but the GDP growth remained anemic.
However the wealth of the wealthiest increased substantially, so there's that, I guess.
I think austerity measures are counterproductive. After seeing how they worked (or rather didn't work) when imposed on multiple nations by the world bank, and self imposed in the UK and Germany, I don't think austerity works at this state of inequality.
Perhaps short periods of austerity work in decades past when enough of the foundation was still establish for public goods, but a this point of neoliberal economics, austerity just causes economies to slow or shrink
Austerity can work in short doses and is intended for that.
However, most western institutions and governments have used periods which required austerity to bake in long term privatization and government service cuts for ideological reasons, as opposed to treating it as a chapter 11 bankruptcy, for example, where they use it to clean and streamline their operations and programs and restart the services on a better footing.
The point of austerity isnt really that it works. The point is that its possible for an external actor to force a country into austerity. Its a last resort that is used when the domestic government is unable to or refuses to come up with a workable budget.
It's weird how the discussion on this rarely mentions Trump's giant 2017 and 2025 tax cuts, plus the insane increase in military spending. Somehow it's always about we need to cut entitlements.
According to the CBO, the TCJA and 2025 cuts/extensions have reduced revenues by about $430B per year. That's only 20% of the current annual deficit. It's just so small compared to the trillions per year in entitlement spending. And of course, that's just a first-order reading of the tax cuts. The second-order effect is that the tax cuts led to more private sector spending and investment, which spurred a little more GDP growth. The CBO estimates $2.6T of cumulative GDP growth as a result of the tax cuts through 2028.
So that's about $52B per year in taxation added back on that extra GDP growth, so the net effect of the cuts are around $380B reduced federal revenue per year, or 18% of the deficit.
18% of the deficit is a lot but if you could snap your fingers and undo it, you now have a $1.7T problem instead of a $2.1T problem. Eventually you have to look at entitlements. There's just no way around it.
If you cross your eyes and squint a little bit, the following categories of 2026 spending are around the same size:
$ 1 T : total defense (roughly)
$ 1.7 T : total social security
$ 1.1 T : total medicare
$ 0.7 T : total medicaid
$ 0.7 T : total other entitlements (SNAP, VA, etc)
$ 1.1 T : net interest on the debt
$ 1.0 T : all other discretionary spending
The US took in somewhere around $5.6T in revenue in 2026. That's a net deficit of just under $2 T. Or roughly double the average size of the "block" of those separate spending categories. These are abased on Feb 2026 CBO assumptions. Net interest is going to keep rising as the Treasury yield rises.
So ... we can't fix this by doing any one thing. Even if we were willing to completely end social security (while keeping the separate contribution tax), that wouldn't be enough. If we threw away our military entirely, we would only be half way there.
We need to do everything a little bit, all at once.
Raise taxes - corporate and personal, on every bracket, progressively more on the rich ... but this will not even be half of enough because of the strength of the debt bomb and the global flexibility of corporations.
Cut defense spending - but not too much, because we also need to provide funding to repair alliances, rebuild our ancient navy, and rebuild our standoff and interceptor stockpiles after the recent middle east adventurism.
Repair social security - cut benefits, add a means test, raise the contribution amount and limits ... lots of things to do here.
Fix health care - it's just too damn expensive across the board; the US pays for this in the VA, medicare, medicaid, and the poor health of its workforce. I have no idea where to start on this one.
The CBO has a ton of data on this kind of thing. I like their budget options page for exploring the forecasts for specific changes. Of course it's not as simple as adding the numbers together to get to the deficit, but it's a good place to learn more and ground some assumptions.
That's because even fully undoing those things wouldn't be sufficient to fix the deficit. When federal revenue is $5 trillion, entitlements cost $4 trillion, and interest on the existing debt is $1 trillion, you just fundamentally can't balance the budget without cutting entitlements. All of the revenue is already spoken for before funding anything in the rest of the government!
In a world of continuous population growth, there is some excuse (but not justification) for running governments at deficit, which is essentially a bet that future generations will produce enough to meet their needs and fulfill debt obligations from past generations. When population growth halts, so should deficit spending. Smith himself, in The Wealth of Nations: "What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom."
Now let's see some data from the past 5 or so years of the total sum of ransoms paid behind closed doors (ontop the few that are forced to disclose publically)
Sure but did the global economy roar in that period or did we just create inflation? The answer likely is the second. Aka most of our global investment did not create viable economic activity.
I am wondering how much of this is because AI capex is pulling dollars from everything else because it’s so lucrative.
Note that it is widely predicted that transformative AI will increase real interest rates for several reasons. I’m not sure we are there yet. But if progress continues I expect things to get weirder.
It probably doesn't help rates to spike oil prices by starting a(nother) war of choice in the middle east while inflation is already running hot. Eventually you get demand destruction and outstanding debts don't look so good.
Go Brandon go. Or whatever stupid maga phrase is appropriate. Can we ask trumps dad to buy treasury bills like he bought casino chips to bail out the Casino?
Different factors have been discussed in the comments, like tax cuts, military spending, social security etc.
But the yields are going up simply because investors do not want to buy at lower interest anymore. It indicates that investors view the bond as riskier than before. A real fear is materializing that US will default on it's debt. Sure, the fed can always print money to bail them out, but the inflation is on track to cost the Republicans in the midterms.
There are a combination of factors which is causing this fear- those are radical changes in immigration, trade and military policies. The stability of the bond market is built on the trust that US will act rationally when it comes to skilled immigration, free trade and avoiding direct military conflict. Clearly it's no longer the case.
US population view themselves as immune to fallouts from global events. But we're starting to see that when you breaki promises left and right, people lose trust, and you pay the price, even when you're a superpower.
But why don't they want to buy treasury bills. Could it be because they see the US decoupling from the global trading network and predict we will be poorer? Or we are losing the reserve currency status? Or we don't have the political discipline to run a responsible budget and will hit a fiscal crisis. Who cares if you earn 8% on your money if we don't have market access around the world for our goods and services and we get less products because we erect barriers that mean less goods enter our market. We will feel as poor as we will become.
Strange that this is happening globally. I get that this is a US site, but this does not seem to be a US story at all. EU yields are up to 3.5% (not far behind US), and the same goes for individual countries (France 4.8%, Netherlands 3.6%, Spain 3.6%, Austria 3.8%, Germany 3.6%, Japan 3.1%, ..., all up from zero to negative 3 years ago, Poland 6.4%, Czechnya 5.3%, Hungary 5.8%, Australia 5.5%, ... all up from 0.5-2% 3 years ago). The same pattern is all over the place.
There's some details, like Hungary actually being down to 5.8%, presumably through more trust in the current government vs the last. But the pattern vs 3 years ago is one of constant rise.
And there are exceptions, India, for example, is showing a different pattern. China does not make sense (but I'm sure that's just by design). Russia, but I have a guess for that one. Ukraine ...
Almost like bond investors are expecting something dramatic to happen soon, with odds rising fast, at least across US and EU, including individual countries. At the very least, investors are expecting an economic disaster for the next 10 years (at least compared to the last 10 years)
Bessent challenged Bloomberg bros to take him on, since he’s the house now, and it’s safe to say he lost that challenge.
Even if it goes down going forward, Bessent was incredibly reckless. Basic emotions have a surprisingly significant influence on financial markets’ behavior. I won’t be surprised if the rates would have been at least a few basis points lower if it wasn’t for Bessent’s silly bravado.
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[ 3.1 ms ] story [ 83.1 ms ] threadUnlike most Trumpists, I see the the problem as a revenue issue, not expenditures; unlike many non-Trumpists, I doubt "tax the rich" is going to be enough to plug the hole.
Government healthcare payments would be a good start -- it seems likely that the amount most employees already (effectively) pay for health insurance could fund equivalent government coverage with some money left over to help pay for other government expenses.
A 5% revenue tax on the fortune 500 would get us half way there. I could not quickly get a number for total revenue of more than the fortune 500, but I would not be surprised if a 3% VAT would cover the entire deficit. We lose so much tax revenue due to all the loop holes deliberately left in the corporate tax code.
On top of that, ban stock buy backs entirely, that way more of the record breaking profits have to go to wages or other means of investing in the business.
https://m.youtube.com/watch?v=AmzadQE9UD4&pp=ygUKQmlsbGlvbmF...
There are plenty of places to cut spending before we start raising taxes on the W2 wage earners that are contributing the most to federal tax receipts.
How would nationalizing health insurance even make a dent in spending? Ultimately the same amount of healthcare will be consumed. You are truly clueless about the federal fisc if you think these are even remotely serious ideas for fixing the federal budget deficit.
1. https://fiscaldata.treasury.gov/static-data/published-report...
That's before the military, foreign aid, and everything that starts with "Department of"
We used to have 94% top tax bracket rate at one point, and higher tax rates in general. We’ll find the will to raise taxes as soon as the bond market compels the spineless in Congress to find the will (as the cost of debt continues to rise into the future), because you cannot deceive the bond market.
https://taxfoundation.org/data/all/federal/historical-income...
https://www.axios.com/2026/09/27/rates-borrowing-yields-fisc...
- In projections that the Congressional Budget Office produced last February, net interest costs are already at $1 trillion this year and on track to reach $2 trillion by 2035, meaning that much of federal spending is needed just to service old bills.
- But those projections assumed 10-year Treasury yields were in the ballpark of 4.3%. They're now nearly a full percentage point higher than that.
- In startling numbers that CBO released this week, in a scenario in which interest rates were 1 percentage point higher than its baseline, debt held by the public would grow to 222% of GDP in 2056, 47 percentage points higher than the baseline.
https://www.cbo.gov/publication/62758
If you say, “We should have invested more,” I point you to the 40% of current retirees that were not in a position to invest because their jobs didn't pay them enough above the cost of existing. And then there are any number of events, such as age discrimination, common medical issues, divorce, and bankruptcy, that destroy retirement plans.
From what I can tell, it's not possible for the vast majority of the population to be able to save for a 20 plus year retirement.
One of the things that keep people from saving are the activities driven by their investing in the stock market. To increase returns, "Activist investors" and private equity drive companies to shed jobs. You shed a job, you destroy a person's ability to save for retirement, which makes them more dependent on the social contract of Social Security and Medicare.
Cutting benefits will only cause suffering. The cost will fall on society in other ways in terms of elderly homeless people filling the ERs, begging in the streets, or committing suicide. Is it time for a "Modest Proposal II"?
For example in the year 2000, people aged over 65 were 12.4% of the U.S. population. Today, that demographic has grown dramatically to 19% of the population. That's fewer people working and paying taxes while also simultaneously drawing more from medicare and social security.
This doesn't mean it's "impossible". But to balance the budget today without major spending cuts would require raising taxes 39%. It's just so different than it was then to make the math work out.
That gives a lot more time to phase in any longer term changes to those programs.
Also not all deficits are bad. It is reasonable to borrow to invest in basic infrastructure. The return on investment from nasa and the university system and darpa to the US economy dwarf the cost of borrowing.
> Bond market is in revolt about the national debt and I hear crickets from Washington. You think this would be a crisis. Amazing really.
Some combination of the bond market rejecting Treasuries for other similar investments while also pushing up other debt costs causing excessive failures in interest rate sensitive parts of the economy. Hard to predict when, but it’ll look strikingly familiar to the 2008 GFC I think, the day Bear Stearns collapsed. An event will occur, and there will be a cascading loss of confidence in the bond market. Not a great time when diesel fuel is also at record high prices and will be for at least the next year.
Whether Congress cares does not tell you whether there's a problem. The fact that Congress doesn't care is part of the problem - maybe the biggest part.
Instead of blaming Congress, perhaps blame democracy.
Voters loath austerity, and they support spending.
Watch the experiment happening live in New Zealand elections. Our incumbant conservative party (National) is aiming for a budget at about 30% of GDP. Our progressive party (Labour) wants to increase taxes and increase spending to maybe 33% of GDP.
You can see if voters care about keeping spending in check, because it seems likely to be a central issue of campaigns. Although we have MMP voting so it isn't totally clear. Also note that I think most of our politicians would be seen as left-wing if looked at by anyone on the right.
Defence is only 12% of the US federal budget - what are you going to cut it to? It's not going to solve the issue even if it's abolished. Over the last 10 years health, Medicare and Social Security have grown 103%, 83% and 78% respectively for an increase of $1.64 trillion to $3.55t vs a $916b on defence. With an aging population it's only going to cost more and more over time, you can't continue to put higher taxes on a shrinking share of productive population to care for more and more unproductive retirees under any economic system.
Have you studied them in other countries? I suggest you inspect your assumptions by looking at what already happens.
Voters want infinite "free" healthcare from their politicians, so healthcare costs continuously increase. You have little recourse to say no to taxes.
In New Zealand ~17% of government expenditure was on health in 2000 and in 2026 it was ~22%.
In NZD it went from ~$10B to ~$40B (inflation and demographics are also an influence).
Privately paid also exists, but only ~1/3 the spending of public health. NZ government ACC spending is also huge.
Government ownership does not fix the problems you wishfully hope it might.
Looks like surgical costs are similar when adjusted for GDP. The USA system isn't more expensive in comparison with the NZ system.
Replacement is free on the NZ public health system, but I've seen the painful years of waiting, the majority in my experience have to endure. A critical situation like my solo-mum friend who needed hips replaced was grossly delayed: hellish years trying to bring up her young children.
Statistics are very different from outcomes.
Cutting defense doesn't even need to be complicated. Just stop forever wars in the middle east. It won't hurt our actual defense capabilities and will raise America's stature in the world. Heck, we have the best defense imaginable given to us for free (the Pacific and the Atlantic oceans), to the extent that two world wars combined didn't see a major attack on the US mainland.
Cutting (or better still privatizing) social security, medicare and medicaid, while being the Republican wet dream, actually translates to direct harm to millions of citizens.
Only? My understanding is that this is double, triple many European countries.
Medicare, Social Security: not discretionary spending. Also self-funded programs (well, Part A of Medicare).
Considering what is going on in Europe right now, maybe this is not a good point to try to make.
In 2025, federal gov revenues (total, not just tax) were $5.26T: https://fiscaldata.treasury.gov/americas-finance-guide/gover...
In 2026, entitlements plus interest is projected to cost $5.45T: https://fiscaldata.treasury.gov/americas-finance-guide/feder...
The reason the US is a comparably "low tax" country is because we're borrowing the difference.
What worries me the most is that this is at a high point in our economic cycle, when tax collection is arguably the highest. The deficit and debt will expand significantly in the next recession.
I.e. have a Fed-like entity that gives Congress a max in spending for the current tax policy, and Congress is required by law to stay below that number
Fixing US debt has always been politically unpopular, and it always will be.
Unfortunately the U.S. constitution was written with the, in hindsight, naive assumption that political parties could be avoided.
This just led to a system that has political parties but doesn’t really acknowledge their existence and therefore makes it difficult to regulate their behavior.
The lower the ratio sinks, the less weight informed voters have, and the less intelligent the outcome gets.
The modern party duopoly exacerbated the issue (parties mobilize uninformed voters and often actively work against informing them), but voter enfranchisement also seriously impacted.
Universal suffrage is amazing from a human rights and ensuring everyone has political power standpoint, but troublesome when you have poor levels of universal education and ability for voters to inform themselves.
In modern times, with modern populations (US or larger), it feels like indirect democracy might be a better answer.
Allow voters to directly elect non-partisan voting representatives (many, so elections are hyper-local and candidates individually canvas), then pay those representatives a stipend for a few months (like jury duty) which they spend educating themselves on issues. Then have those representatives vote.
At the end of the day, when all the BS gets boiled away and we are left with raw/brutal reality. -- Any group of people attempting to govern themselves will end up with the government their collective will and (i'll use the loaded term) virtue deserves. The only caveat is time.
Technocrat bodies seem to do okay with setting scientifically-supported, non-specific directions, that can then be decomposed into specific directions by people better connected to constituents.
Such a body presumably would also realize that deficit spending on an average non-crisis Tuesday should be much more tightly reigned in.
I chose the Fed as an example because, whether they're correct or not, they absolutely pivot around exceptions.
Trump has declared crisis events no less than 20 times to justify his insane policy decisions.
We're just playing pretend games now.
These are the W2 workhorses who receive also no explicit current benefits from the gov (bar national security). They already pay taxes to the tune of 30-40% for zero benefits.
It will be hard to tell these folks that they need to pay 60–80% taxes on their W2.
Stock market dynamics now are fundamentally different now compared to the last period of sustained high inflation (70s)... And they've done fantastically over the last few years of stubborn inflation.
Eventually the cycle/bubble collapsed, and the same 1930s tariff policy literally starved people for almost a decade.
I really hope we don't repeat that history. However, the Bear market distant roar can't be ignored. =3
Don't get me wrong, I want to be in that category, but still.. this is our reality. It's an interesting experiment we are running. Without external factors like global wars and climate catastrophe, could the market even crash in our current environment?
Take a look at the S&P 500 vs. the equal-weight S&P 500 over the last 6 months:
https://finance.yahoo.com/quote/ES%3DF/
https://finance.yahoo.com/quote/RSP/
The equal-weight S&P 500 has been on a steady march downwards since it became apparent in August that the Iran war was not even close to over, and is now getting close to correction territory (7% down). This is exactly what you would expect given the news. It is the opposite of what you would expect from the inflation story, which would lift the earnings of everything in the S&P 500 (which, after all, is composed of the 500 largest companies and overweights monopolies or oligopolies in broad industries).
The S&P 500, however, has been basically flat over that same time period, holding at the 7700 level. It basically has a leg down over the course of the week, and then always pumps on Friday to regain the previous level. I'm not sure if it's government intervention or irrational exuberance in a small set of AI stocks, but the divergence between the broad market and the S&P 10 is becoming increasingly noticeable.
But on the scale of years inflation will dominate all transient idiosyncracies.
I think there's a decent chance that Warsh gets inflation under control. The recent rise in bond yields is 100% due to Fed action: the Fed stopped rolling over long-term treasuries and MBS into like-kinded securities in June, instead rolling them over to short-term treasuries. This shrinks the Fed's balance sheet on the long end of the curve and adds to it on the short end, just like Warsh said that he would do. It's net-neutral for the Fed's balance sheet as a whole, but the effect is to push up long-term yields, hold short-term yields steady (which have a floor of the Fed funds rate), and steepen the yield curve.
The next step - and Warsh has made no secret that this is his plan - is that once the long-term Treasury market finds an equilibrium without Fed support, use that information to figure out what the neutral rate is, and set short-term rates accordingly. The price action we're seeing is a strong indication that the neutral rate is significantly higher than anybody expects right now.
The bond market is also not expecting significant inflation over the next 10 years. You can see this through the TIPS spread, the difference in rates between the 10-year TIPS and the 10-year Treasury bond. It currently stands at about 2.35%, indicating that the market as a whole expects about 2.35% (CPI) inflation over the next 10 years.
https://en.macromicro.me/collections/51/us-treasury-bond/846...
The US markets consolidated focus around 8 companies circular investment hype as growth isn't rational self-interest, but looks more like an exit strategy on the US economy.
I hope the Bears are wrong on this one, as last time 3 million US citizens just getting by had their homes equity legally stolen. =3
The problem is that the level of debt overall in the US - across both private and public sector - is just astronomical. We are truly in unchartered waters, outside of a world war. There's just no model or playbook for how this should work from here forward.
There you go. After ww2 USA just inflated away its debt. It's actually chartered territory.
As for the people that will inevitably bleat about how this is just horrible and we need to lift the cap on taxable SS income, that wouldn’t solve the core problem either unless you pair it with spending caps or cuts.
Yes, there are reasons why this isn’t working out as planned. But the idea that “Social Security is the biggest driver of spending” is not a cogent argument.
Thus, I think "Social Security is the biggest driver of spending" is a perfectly cogent argument. The mandatory social security contribution is just another kind of income tax.
Obviously we can't just turn off Social Security, for many political, moral, and practical reasons, but any solution to the deficit or debt that ignores social security will be fighting with one hand tied behind its back.
No it's not. It's about 15% of the 2 trillion dollar defecit. Whoever told you that mislead you.
It’s literally not a spending problem at all.
On the other hand, I’ve been paying into ss for like 3 decades easy. Bitch better have my money!
You forgot the huge one, which is uncapping the amount of income it is applied to.
Social security is easy to fix. Just raise the retirement age. Or do nothing and benefits drop by 25% or whatever it takes to become balanced based on current tax revenue.
Good luck rationing hip replacements and breast cancer treatments whose provision is statutorily required by law and whose cost will continue to rise with inflation.
None of this even begins to consider interest on the debt. As interest rates continue to rise and the debt continues to grow this line item will eventually dwarf everything.
Social Security is chump change compared to these two. But at least it’s nominally fixable by faking the CPI numbers used to set the cost of living increases. You can’t charge less for hip replacements or cancer treatments, they cost what they cost.
[1] https://www.usaspending.gov/explorer/budget_function
Wild times. Maybe it's information overload, since it probably happened in the past as well. But being bombarded with implications of these changes left and right is kinda weird.
- Most of the AI Companies are HQed in the US, and that's the 'hot thing' for the market overall
- Google and Apple have enough presence (i.e. some may be doing tax things but...) in the US and at least one of them has gotten 'too big to properly antitrust'.
- If we look deep enough, even some of the fanciest ASML tech is a result of IP sharing from US companies that are almost certainly government backed (i.e. ASML might be the ones working with other companies to help make it useful/scalable, but the tech is invented here.)
Ironically, something I would have listed at the top 10-15 years ago but is now last on the list...
- For the last (well, now) 80 years the US has been able to project an outward image of overall economic stability and relative growth; The closest it came to a crisis in the past was when the Bretton-Woods system collapsed and France came over and collected their gold.
On the flip side, there is the 'guard'.
- Any current bondholders have to choose between holding at the current rate, or selling at a discount. It becomes a 'Well do we really thing it will all fall apart before then or do we just hold?'. Because any new bonds, even at the current rate, would be carrying that risk on the open market if a sell-off occurred. IOW 'Is a bond I have now less the arbitrage cost going to be worth more than just holding it'.
What's important is what happens next. If we look at the Bretton-Woods collapse, there were a number of actions taken, many (most?) of them questionable, however it was pulling a bunch of levers at once and unpulling versus debating which lever to pull.
There is the confounding factor where parties are arguing that there is market manipulation going on, that changes the question of whether to hold onto existing bonds rather than making other options. After a certain maturity percentage one has to ask whether you hold or sell based on climate.
> There is the confounding factor where parties are arguing that there is market manipulation going on
My understanding is, it’s not even an argument anymore. Like the latest Yen intervention from the states was basically a state level manipulation, no? I mean there’s nothing really illegal. And it makes sense, and very much public. But one can assume there are just many more behind-the-scenes activity going on as well.
They've been subject to EU Excessive Deficit Procedures for multiple years, must bring deficit-to-GDP ratio from ~5.8% down to 3% within 3 years despite virtually no GDP growth and complete political and societal paralysis about reducing any public benefit or welfare whatsoever.
ECB will most likely get involved after 2029 to start austerity measures. You can predict how that will go over with the French public especially if Le Pen takes the presidency, which looks likely.
Very tough times ahead and the EU is facing a critical point about its future.
Or what? (Seriously.)
Greece was forced to the table because the market wouldn’t lend to it. So long as France has lenders, why does this rule matter?
France has snowballing debt with virtually no prospects of growing out of it by itself. So what is going to happen? It's a very dangerous situation that is only feeding the euroskeptics even more.
Really, because the ECB wouldn't support it. Lots of EU economies (at the time) had great difficulties accessing the markets.
Why is this relevant? Athens was bailed out by other European countries and by the IMF. That’s why it had no leverage. France is not in a similar position, partly because its population is also a huge investor itself.
Because it demonstrates that this is a political process, not a technocratic one.
It is still a weak (but loud) political movement which lacks backbone and network.
However the wealth of the wealthiest increased substantially, so there's that, I guess.
Perhaps short periods of austerity work in decades past when enough of the foundation was still establish for public goods, but a this point of neoliberal economics, austerity just causes economies to slow or shrink
However, most western institutions and governments have used periods which required austerity to bake in long term privatization and government service cuts for ideological reasons, as opposed to treating it as a chapter 11 bankruptcy, for example, where they use it to clean and streamline their operations and programs and restart the services on a better footing.
People need to study this graph https://fred.stlouisfed.org/series/FYFSD and think about what changed when.
https://www.cbo.gov/publication/54994
So that's about $52B per year in taxation added back on that extra GDP growth, so the net effect of the cuts are around $380B reduced federal revenue per year, or 18% of the deficit.
18% of the deficit is a lot but if you could snap your fingers and undo it, you now have a $1.7T problem instead of a $2.1T problem. Eventually you have to look at entitlements. There's just no way around it.
So ... we can't fix this by doing any one thing. Even if we were willing to completely end social security (while keeping the separate contribution tax), that wouldn't be enough. If we threw away our military entirely, we would only be half way there.
We need to do everything a little bit, all at once.
Raise taxes - corporate and personal, on every bracket, progressively more on the rich ... but this will not even be half of enough because of the strength of the debt bomb and the global flexibility of corporations.
Cut defense spending - but not too much, because we also need to provide funding to repair alliances, rebuild our ancient navy, and rebuild our standoff and interceptor stockpiles after the recent middle east adventurism.
Repair social security - cut benefits, add a means test, raise the contribution amount and limits ... lots of things to do here.
Fix health care - it's just too damn expensive across the board; the US pays for this in the VA, medicare, medicaid, and the poor health of its workforce. I have no idea where to start on this one.
The CBO has a ton of data on this kind of thing. I like their budget options page for exploring the forecasts for specific changes. Of course it's not as simple as adding the numbers together to get to the deficit, but it's a good place to learn more and ground some assumptions.
https://www.cbo.gov/budget-options
I got some of these numbers from:
https://www.cbo.gov/publication/62105
I used Claude to research this, but I wrote the post myself.
Maybe we collectively just over-lend at very high interest rates and the real economy cannot anymore catch up with the promises?
Note that it is widely predicted that transformative AI will increase real interest rates for several reasons. I’m not sure we are there yet. But if progress continues I expect things to get weirder.
But the yields are going up simply because investors do not want to buy at lower interest anymore. It indicates that investors view the bond as riskier than before. A real fear is materializing that US will default on it's debt. Sure, the fed can always print money to bail them out, but the inflation is on track to cost the Republicans in the midterms.
There are a combination of factors which is causing this fear- those are radical changes in immigration, trade and military policies. The stability of the bond market is built on the trust that US will act rationally when it comes to skilled immigration, free trade and avoiding direct military conflict. Clearly it's no longer the case.
US population view themselves as immune to fallouts from global events. But we're starting to see that when you breaki promises left and right, people lose trust, and you pay the price, even when you're a superpower.
My money is on 8% yield by the end of Q1 '27.
Steady march towards Argentina
There's some details, like Hungary actually being down to 5.8%, presumably through more trust in the current government vs the last. But the pattern vs 3 years ago is one of constant rise.
And there are exceptions, India, for example, is showing a different pattern. China does not make sense (but I'm sure that's just by design). Russia, but I have a guess for that one. Ukraine ...
Almost like bond investors are expecting something dramatic to happen soon, with odds rising fast, at least across US and EU, including individual countries. At the very least, investors are expecting an economic disaster for the next 10 years (at least compared to the last 10 years)
Even if it goes down going forward, Bessent was incredibly reckless. Basic emotions have a surprisingly significant influence on financial markets’ behavior. I won’t be surprised if the rates would have been at least a few basis points lower if it wasn’t for Bessent’s silly bravado.