[HN Gopher] US public debt projected to reach 181% of economic a...
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US public debt projected to reach 181% of economic activity in 30
years
Author : geox
Score : 35 points
Date : 2023-06-28 22:14 UTC (48 minutes ago)
(HTM) web link (apnews.com)
(TXT) w3m dump (apnews.com)
| detourdog wrote:
| 30 years is too far out to make sense.
| brookst wrote:
| I'm old enough to remember when the debt was expected to be paid
| off in less than 10 years:
| https://clintonwhitehouse4.archives.gov/textonly/WH/new/html...
|
| Not that I'm a doomer, just saying it is normal for people to
| project what will happen if nothing changes, even while we all
| know things will change.
| bagels wrote:
| Is that really that problematic? Most households have more debt
| (mortgage) than their yearly economic output.
| rjbwork wrote:
| Most households with a mortgage are also not, on a yearly
| basis, severely outspending their income. The problem is not
| necessarily the debt - it's the debt plus the deficit.
| onlyrealcuzzo wrote:
| It's probably a problem if you're borrowing money and getting
| nothing in return and making future generations pay for it.
|
| It's subjective if you think our borrowed spending is causing
| more harm than good.
| blindriver wrote:
| Japan debt to GDP ratio is already over 220% public debt. The
| best thing about it is that the Fed holds most of that debt so
| they kind of monetized it with no major repercussions.
|
| Modern Monetary Theory has stated that high public debt loads
| isn't a problem, and frankly so far it doesn't seem like the
| markets will ever care. Until it does, and then it will be a
| disaster but both Japan and the US will never pay off its debts.
| ur-whale wrote:
| > Modern Monetary Theory
|
| Modern Monetary Theory basically enshrines the fact that
| scamming the general public of its wealth is a perfectly fine
| practice, especially when they don't notice it's happening,
| boiling frog style.
|
| It also only works if - like in the case of Japan - the debt is
| held internally to a country, a captive audience if you will,
| which has no choice but to be ridden roughshod by its rulers.
|
| Is the US sovereign debt held internally? I don't know, but my
| bet would be that a large chunk isn't.
|
| Although that may no matter as long as they are the planet's
| hegemon, which sort of makes any debt holder internal.
|
| But that latter status quo may not last very much longer.
| karaterobot wrote:
| I'm dubious about MMT, and unfortunately it seems like only a
| string of disasters would conclusively disprove it.
| onlyrealcuzzo wrote:
| > The best thing about it is that the Fed holds most of that
| debt so they kind of monetized it with no major repercussions.
|
| You mean beside a lost 30 years, one of the lowest rates of
| family formation, and a high rate of suicide among young
| people?
|
| Sure.
| threeseed wrote:
| > one of the lowest rates of family formation, and a high
| rate of suicide among young people
|
| Which is comparable with South Korea.
|
| And looks to be tied to poor work-life balance, lack of
| workplace flexibility, lack of parental leave, high cost of
| living etc rather that macro-enonomic issues like debt
| levels.
| 40acres wrote:
| What does that have to do with the debt?
| EA-3167 wrote:
| They're talking about the US Fed, aka the US debt, and now
| you're talking about Japan.
|
| Anyway lets be real, the reason why sudden think pieces on
| the debt are coming out is that it's going to be election
| season soon, and a Democrat is the incumbent.
| onlyrealcuzzo wrote:
| OP was talking about Japan having 220% public debt to GDP -
| which is what I was responding to.
| NoMoreNicksLeft wrote:
| 1. Will there ever come a point where the debts can't
| reasonably be repaid?
|
| 2. Will the people who are owed the money have the political
| power/influence to be able to force the issue?
|
| 3. The issue forced, will there be any feasible mechanism of
| paying it back other than raising taxes rapidly and
| horrifically?
|
| 4. Given that this is a public (United States) that is
| massively in debt (to the tune of nearly twice our annual GDP),
| will they be able to absorb that hit on top of everything else?
|
| I'm not sure I subscribe to the school of economics that says
| money is magical and debt never has to be paid back, but if I'm
| wrong in that, I'd love to here what part of this I
| misunderstand.
| anders_p wrote:
| >...the school of economics that says money is magical and
| debt never has to be paid back
|
| Well...debt generally has to be paid back, but unlike people
| countries don't get old and retire.
|
| Countries have an unending supply of new taxpayers being born
| every year.
|
| There's no hard limit to how much a country can renew and
| restructure its debts.
|
| Only the market's belief in a country's future economic
| prospects affect the price of rolling the debts forward,
| through the issuing of new state-backed bonds.
| HPMOR wrote:
| Sovereign debt is fundamentally different to any other kind of
| liability. So yes, I believe that your comment "it doesn't seem
| like the markets will ever care" should remain true so long as
| the real economic activity of the USA is paramount to global
| functioning.
| mimikatz wrote:
| Just because they don't care now doesn't mean they won't in the
| future and like you said it is a potential disaster if they do.
| Because it will come at the worst time because that is when
| these things happen. I think a reasonable amount of debt is
| healthy and fine, but people want to spend and think that the
| bill doesn't ever come due. Sometimes inflation eats it and it
| was good that you spent the money, sometimes your face will get
| ripped off and you need to be careful.
| creatonez wrote:
| Here is a broad overview of some current Modern Monetary Theory
| thinking. It's a good read, dispels a lot of fearmongering
| while also exposing where the real problems lie.
|
| https://fictitiouscapital.substack.com/p/money-myths-and-deb...
|
| https://fictitiouscapital.substack.com/p/5
|
| https://fictitiouscapital.substack.com/p/8-the-global-reserv...
| onlyrealcuzzo wrote:
| MMT is simply a way to get rid of progressive income tax and
| wealth taxes (property).
|
| Instead, everyone pays equally through inflation, and
| retirees get screwed as their savings get inflated to dust
| and they have no income to make it up.
|
| Maybe that's what you want.
|
| But if you think you can just magically fund the government
| on unicorns because the market is dumb, I have some 1000 year
| T-bills at -10% yield to sell you.
| 111111IIIIIII wrote:
| Markets don't have a choice. US dollar dominance is backstopped
| by US military dominance.
| stainablesteel wrote:
| the only thing i can predict in 30 years is that people will
| still be breathing, and that just makes me honest
| steelframe wrote:
| > the only thing i can predict in 30 years is that people will
| still be breathing
|
| Whoa whoa whoa -- let's not get carried away there, Mr.
| Optimistic-pants.
| quickthrower2 wrote:
| And the AIs will be multiplying matrices.
| tvchurch wrote:
| Always hard to put these number in perspective.
|
| Here's the one that worries me: Interest payments on the debt are
| projected to grow to 6.7 percent of GDP in thirty years (right
| now they're 1.9 percent and Social Security outlays are 4.9
| percent).
|
| Deficits are projected to be 10 percent of GDP then, meaning
| 2/3rds of our borrowing will be done to pay off existing
| borrowing. That's not good.
| sokoloff wrote:
| It's not like the latter division is an obviously stable way to
| analyze the issue.
|
| If we just ran a larger deficit, say 27% of GDP, that ratio
| would be (temporarily) much lower at only 25% of new borrowing.
| But that wouldn't be obviously "better".
| VWWHFSfQ wrote:
| There's no such thing as "publicly held debt" in USA. USA borrows
| immense amounts of money from foreign economies (China and
| others) with no intention whatsoever to ever pay the principal
| back. Happy to just pay the interest for all of eternity. On and
| on in perpetuity forever.
|
| USA spends a huge portion of the money that it borrows on its
| military. If those countries ever want to "call" their money back
| then they will face USA's military if the negotiations
| deteriorate to that level.
| imchillyb wrote:
| The debt will accrue debt, which will require debt to pay.
|
| This is, of course, occurring currently we're just talking about
| a sliding scale now.
|
| A debt for our children's children's children to worry over.
| Nothing to see here. Move along citizen.
| raincom wrote:
| As long foreign countries swap their real assets (oil, grains,
| metals, manufactured goods, etc) with printed US dollars (nominal
| assets), they can increase (print) public debt (more dollars).
| That's why it is important for the US to have USD as the global
| currency, thereby giving an ability to print whatever money
| needed. This luxury is not available for most of the countries.
| That's the crux of modern monetary theory.
| ralusek wrote:
| It seems as though national debt has transitioned from something
| that ever needs to be paid off to instead just being a graph of
| inflation. The Fed holds the majority of the US Debt, and that
| will likely increasingly be the case.
|
| Governments don't need to tax anymore, they simply generate the
| money they need by borrowing from the reserve. There is no longer
| any expectation that this will ever be paid back. The debt is
| really nothing more than a graph showing the expansion of the
| money supply, and the interest rate is nothing more than the
| vector of where the debt is going.
| mensetmanusman wrote:
| We spent like the population would continue to grow. Wups!
| 40acres wrote:
| Someone framed debt to gdp ratio like this: if your debt is 150%
| of your GDP. It would take a year and a half to pay off your debt
| if all the national income (gdp) was allocated to payments.
|
| No obviously this isn't a realistic policy - but if we can have
| "war-time" economies as proven in the past it reasons that we can
| have an economy solely focused on the repayment of debt (idk,
| high taxes for a decade?). Am I tripping?
| jandrese wrote:
| Maybe a better comparison is to a post war economy? The US paid
| off the WW2 debt in about 17 years through ordinary taxation,
| but US taxes today are much lower than they were after WW2, at
| least for the very rich.
| onlyrealcuzzo wrote:
| You're tripping if you think everyone is going to give all
| their output for a year to pay for debt without a revolution.
|
| Almost half of households have less than $1000 in savings. How
| are they making it through the whole year without income?
|
| How are all the old people who live off social security making
| it without 5% of GDP set aside to finance their lives?
| kortex wrote:
| I get that countries don't exactly operate like a family budget,
| but can someone explain what the intended steady state is?
| There's only really three options: pay it off, keep it at the
| current debt level (or keep it steady at some percent level), or
| continuing to let it grow, and it seems like the first two
| options aren't (credibly) on the table.
| dragonwriter wrote:
| > but can someone explain what the intended steady state is?
|
| There is no intended steady state. (Also, projections of
| government debt to size of the economy into the future
| fluctuate wildly based on current circumstances, because they
| almost never have a reasonable basis for predicting the
| combination of future economic conditions and future fiscal
| decisions.)
| dkjaudyeqooe wrote:
| You missed what the US actually does: it grows its economy
| until the debt is insignificant. The US has never (in modern
| times) substantially reduced its debt level in dollar terms.
| quickthrower2 wrote:
| So the US is like a Google or Amazon, always growing? And so
| it can take on more debt.
| oatmeal1 wrote:
| I'm guessing 300% in 30 years. There's always going to be another
| crisis that 'demands' short term spending boosts.
| youniverse wrote:
| I watched this recent interview with Stanley Druckenmiller (one
| of the best macro investors with an incredible track record) on
| more problems we will be facing in a few years. Mainly about how
| the US is not going to be able to pay for our older generations
| healthcare unless taxes get hiked to obscene levels. And that
| these predictions they made years ago are coming to fruition
| slowly but that their predictions of course could not predict the
| wild COVID spending that occurred. Future looks interesting to be
| sure!
|
| https://www.youtube.com/watch?v=53wThFFuOqU
| greesil wrote:
| But not the cost to service the debt. Sorta misleading headline.
| mindvirus wrote:
| US debt is such a tough thing to wrap my head around.
|
| About half of the debt is to... the US government. In US dollars,
| that the US government can print.
|
| So the US could get out of debt tomorrow if they wanted,
| forgiving the loans it made to itself, and then printing enough
| to pay off the rest. Which presumably wouldn't impact its ability
| to lend money to itself.
|
| The tough part for me to wrap my head around is why the debt is
| important at all, given the US is more or less fully in control
| of it.
| option wrote:
| <<forgiving the loans it made to itself". Wouldn't something
| like that mean that some ex-gov employees won't get their
| pensions?
| conductr wrote:
| I think this quirk is easier to wrap your head around if you
| think of the consequences of doing it. Modern economics have
| baffled me at times, but I'd fully expect our currency to be
| extremely devalued if they did that. Currency holders would end
| up paying for it as they couldn't purchase as much.
| seanmcdirmid wrote:
| Many of the loans made to itself are wrapped up in pension
| funds, SSI, lots of future expenses to cover, etc...so just
| forgiving the loans wouldn't help much unless you want a bunch
| of angry old people rioting on the street.
|
| Another way of thinking about it is the US deficit is high
| because savings needs are also high. It isn't just a "we need
| to spend more money", it is also a "we need to borrow more
| money." The problem is that we aren't using those savings needs
| productively enough, so we are still going to get hit in the
| future.
| superkuh wrote:
| This is literally the inevitable conclusion of any economic
| system based on fractional reserve banking where chartered banks
| are able to produce new currency from nothing on their balance
| sheets as debt. There will never be enough money supply (M0) to
| pay off debt. And unlike more civilized cultures like the ancient
| Babylonians we don't have periodic jubilees for debt forgiveness
| for human people.
| karpierz wrote:
| Given that society has relied on fractional reserve banking
| since the 1600s, what is the alternative banking process you
| had in mind?
| jesusofnazarath wrote:
| [dead]
| NoMoreNicksLeft wrote:
| I've tried very hard these past few decades to understand
| what fractional reserve banking is without spiraling into
| becoming some whackjob conspiracy theorist. Can someone tell
| me if this is substantially wrong?
|
| Through some combination of poorly chosen policies in
| centuries past, social inertia, and perhaps even a little
| ignorance even on the part of the experts, we now have a
| society that has normalized the idea that banks get to
| authorize people (and companies) to receive resources they
| don't currently have enough cash to purchase outright. When
| they authorize this, they pay the seller with imaginary money
| that they say they have (but don't really have). Thus the
| seller is (most of the time) made whole.
|
| In return for this authorization, the borrowers pay the bank
| that principal back, along with interest.
|
| In some more conservative ways of thinking, interest is the
| idea that when a lender risks his or her money loaning it to
| you, they should receive compensation for that risk.
|
| But the bank didn't have the money to loan to them either.
| Whether this means the bank is taking less risk, or more
| risk, I can't even properly process at this point... but
| regardless of any hypothetical risk that it might be taking,
| what the interest really is for is nothing more than the fee
| for them authorizing that the person/company receive those
| resources. On that point I'm quite certain, the interest pays
| that "fee".
|
| I do not believe this is a particularly biased take on the
| matter. I don't believe I've injected much politics into it.
| I think this system (such as it is) has arisen organically,
| and without much in the way of design or any group steering
| it to this.
|
| It seems quite insane to me. Beyond the bounds of mere
| lunacy. Lovecraft never spoke of eldritch abominations so
| horrifying that they might cause a madness as profound as
| this.
|
| Why are we allowing banks to do this? I get it that society
| needs _someone_ to do this function. But...
|
| 1. Why are banks and their staff the most qualified to
| undertake the function?
|
| 2. How did legislatures and even monarchs ever allow this
| particular power to slip away from them, without even so much
| as a debate about why they couldn't be trusted to do it?
|
| 3. Even if we need this functionality, how do we know how
| often it should happen (and for whom), and why would this
| system both keep it from happening not enough and from
| happening too much? Especially since banks are incentivized
| to lend as much as possible in many (maybe even all)
| circumstances? Isn't this sort of like putting the crackhead
| in charge of the medicine locker key?
|
| 4. Why is no one talking about it in this way? Maybe I'm just
| fucked in the head, but I've never heard it explained like
| this, and it makes me wonder if I've got it all wrong. But
| none of the extant explanations are less crazy-sounding, not
| that I've ever found.
| creatonez wrote:
| You don't necessarily need to switch off of such a system.
| But you do need to properly characterize it, rather than
| having nobel prize winning economists (and crappy news
| articles like this) get twisted into a pretzel trying to
| maintain incorrect dogmas about how it works.
| dragontamer wrote:
| Ehhh... I don't like either of your characterizations.
|
| USA started on... very chaotic period. Continental Dollar was
| a failure in 1780s and the citizenry largely used the Spanish
| Peso, at least until the next Dollar came out IIRC.
| Eventually US Banking solidified upon the dual-standard of
| silver and gold. But... not really? A lot of those banks
| didn't actually hold that physical silver or gold, it was all
| virtual notes and paper pretending to be silver or gold. (Is
| this fractional reserve banking but on the silver standard?
| Depends on who you ask)
|
| In the 1880s (if I got that right), the Silver standard was
| eradicated and the USA was largely on the gold standard. We
| were in a pretty turbulent time regardless, until the big-
| whammy hit in 1930s.
|
| While "technically" on the Gold standard, FDR then issued
| Executive Order 6102 making gold illegal. Simultaneously,
| from the 1910s in this period, the US banking system was
| transitioning to the modern Federal Reserve system. I'm not
| sure exactly when fractional reserve banking hit in the
| Federal Reserve system, but I remember some important laws
| passing in the 1930s as well. Its all a moving target and
| difficult to say "X happened" at a particular point of
| history.
|
| It was all happening at the same time. Different banks,
| different parts of the country, different states were in a
| complex web of Silver, Gold, dollars, independent notes, and
| so forth.
|
| I'd personally say by the 1930s, with Gold becoming literally
| illegal, was when the USA fully transitioned into fractional
| reserve banking for the masses. Gold remained illegal until
| Nixon re-legalized it in the 1970s, but also finally removed
| gold from officially backing our currency (granted: with Gold
| being illegal, it didn't practically back our currency
| anymore for decades, so Nixon just made Gold float to the
| market rate and match reality, as opposed to pretending that
| we had a gold-backed system).
|
| But that's just my opinion on the matter. Others can draw
| lines in the sand and almost arbitrarily argue any of these
| points we were "doing fractional reserve banking", or "on the
| gold standard", or whatever.
| superkuh wrote:
| Because fractional reserve banking is the least worst way and
| it's very unlikely to change we have to acknowledge this
| power bias and mitigate it.
|
| If chartered consumer bank is creating new M0 money supply as
| debt through loans or other processes it should not be
| legally allowed to be involved in stock and other market
| investments. Deposit and investment banks should not legally
| be allowed to mix. The immense profits and power to create
| new currency as debt should not have all it's incentives and
| value siphoned off into non-productive market manipulations
| and vehicles.
|
| In the USA this is one first step, one we've taken before in
| recent history, that needs to be taken again to mitigate the
| centralized (~4k chartered banks in the USA) money supply
| creation issue of fractional reserve banking.
| sebzim4500 wrote:
| >we don't have periodic jubilees for debt forgiveness for human
| people.
|
| How would that even work? Why would you ever repay debt if you
| could just wait for it to be forgiven?
| quickthrower2 wrote:
| Also you would need to technically zero out all positive bank
| accounts, since they are debt owed to people by the bank.
| BitwiseFool wrote:
| And on the flip side, why would you ever loan money to
| someone if you knew you would be forced to forgive some
| portion of it?
| nine_zeros wrote:
| This. If the only way for more money (credit) to come into
| existence is debt, then someone will have to keep taking debt.
| For past debts to be paid off, more debt needs to be created.
|
| How exactly is this a stable system? Who the fuck thought this
| would last?
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(page generated 2023-06-28 23:03 UTC)