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Comment by tbronchain | Hacker News Reader

It still amazes me how governments manage to keep borrowing money while being in constant growing deficit. Is there such thing as a real trust in the future possibility of paying the debt back? Or is it a hope of taking as much money as possible while there are inflation opportunities? - then generating more and more inflation. The first option is interesting, the second one quite scary and I can't help thinking Ponzi. Anyone with a better understanding of economics could help seeing a little bit better through this?

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If the % required to service it was growing significantly, that'd be a problem. The debt outstanding growing, on its own, doesn't matter.

The government is not a human who better pay off their debt by 65 or they're screwed. The government'll keep receiving income "forever", in a pretty predictable way. So there is no reason to ever stop borrowing; it'd be leaving money on the table (utility of a dollar now > utility of a dollar later).

Does that validate the guess #1, that there is a trust from lenders in the future of [US] economy, as you're saying that $1 now < value of that $ tomorrow? In other words, it's ok to lend 1$ today because tomorrow that $, even if devaluated, will help people getting more services and maybe getting more $.

That is very interesting. It sounds like we manage to magically create some unlimited resources that is creating the world's wealth and strength. It sounds magical. What's the catch? What's the limitation of creating more wealth, faster? Is today's dollar value simply based on the value that it can potentially have tomorrow? - From a non-economist point of view, it's quite hard to picture.

The federal government’s debt to income ratio is roughly 4:1. Private entities get loans with that level of debt all the time.

How do you get 4:1? Wikipedia pegs the GDP to debt ratio at less than one.[1] So the US owes more than 100% of it’s income. Servicing the debt is approaching 7% of federal spending.[2] Are you using numbers other than GDP and National Debt for your ratio?

[1] https://en.wikipedia.org/wiki/National_debt_of_the_United_St...

[2] http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-abou...

At least for personal loans, debt to income doesn't use your total debt, it uses your monthly payments made on debts against your monthly income. So I assume you would have to compare the yearly payments on the national debt to total federal revenue.

Think OP is talking about public debt (~$15 trillion) not intergovernmental debt (~$20 trillion). GDP has little to do with federal revenue; the federal government doesn’t tax 100% of all exchanged money. Federal revenue is about $3.6 trillion.

A 4:1 debt to income ratio means that you owe 400% of your income.

The US government’s revenue is not 100% of GDP. It could never tax anywhere near that.

Companies are able to attract investors and lenders because of the reasonable expectation of future profits. For the US there is no expectation of ever breaking out of our debt. There's a term for private entities whose only means of ever being able to pay off old investors and lenders is from the funds of new investors and lenders.

You’re mixing two different things (“future profits,” “breaking out of debt”). Companies get loans because lenders have an expectation that the company will have future revenue with which to make debt payments. The US government is virtually guaranteed to have a future income stream. Lenders don’t care if the borrower ever pays off all their other loans. Indeed, companies roll over and refinance their debt all the time.

Look at it another way. Our debt is like a 2% mortgage that we can pay off in 30 years using just 18% of our revenue. Back in boom times people could get interest only mortgages with those parameters.

Your numbers are both technically wrong and misleading. The federal government is currently spending 120% of our annual revenue. Even if we somehow cut enough programs that 18% of our revenue became disposable (which is itself completely unrealistic) you'd be making 0 progress. You need to not only start paying off the principle + interest, but also drop our spending to 100%. That's already about 40% of gross federal revenue.

The misleading aspect is because 40%, and even 18%, don't sound as absurd as they really are. Even cutting spending modestly is incredibly difficult. Cutting it by 18% is arguably impossible without completely reshaping government as we know it. Cutting it by the 40% required to actually make progress on the debt is completely unrealistic at any point in the foreseeable future. And these numbers are getting worse each year, with the difficulty of getting out of debt continuing to increase. And of course this repayment pretends we will both maintain or increase income while never increasing spending beyond growth in said income - for 30 years.

No, no private company is getting a loan in these conditions. Drowning in debt with the only means of possible repayment, both short and longterm, being to hope they can find other lenders to pay off you, as a new lender? That's like a mental version of something between a ponzi and pyramid scheme.

The US government has a long history of repaying it's debts. I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.

USG have a long history of servicing it's debts by taking on more debt. Not that there is anything unusual with that pattern.

The US never pays back, they re finance the debts. Ad infinitum. I mean does anyone think that at this point the US could STOP the deficit? Let alone turn it into a surplus and start buying back debt?

US is too big to fail and rich people have to put their money somewhere. At least with US Treasury bonds you get a small but reliable return. So the train keeps going.

It happened under Clinton, admittedly with the advantage of a roaring economy. I won't rule out completely out, though from today's viewpoint it certainly doesn't look promising.

Well my country DOES try to balance the budget because otherwise the interest rates on the bonds we put out has to increase. But the US is special, it is virtually exempt from the normal laws of economics due to its superpower status.

> I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.

What's the quote about "To believe you can have infinite exponential growth in a finite world means you are either crazy, or an economist."

Infinite != indefinite :)

Actually my statement doesn't depend on exponential growth. If in future GDP were to switch from exponential to logarithmic growth, debt would still be serviceable as long as it also switched to logarithmic growth.

Come on, that's silly. At some point, for all intents and purposes in the real world, logarithmic growth would essentially mean "no growth". Splitting hairs between the continuous math and the math to a reasonable level of precision doesn't add clarity to your statement.

OK maybe over hundreds of years US GDP will go from exponential growth to linear growth, to logarithmic growth, to eventually "no growth". If total debt mirrors this trajectory, can't the US government continue repaying its debts over this period, even at the "no growth" stage?

All of our debt is paid and almost of it gets paid within 10 years and it probably always will be. That's how we do it.

It gets recycled and increased. That is no reason to believe it can continue ongoing.

It's been going since the days of FDR. Whilst I don't claim it will go on forever, the US is in a mich better position to do thos than any other country so it's hard not to.

Modern Monetary Theory (aka Neo-Chartalism) is a reason to believe it can probably keep on going.

I ended up staying in tech instead of pursuing doctoral studies in Economics, but had life broken a different direction my thesis would have been (loosely speaking) related to assessing how governments could leverage MMT differently depending on whether or not they're an issuer of one of the common global reserve currencies.

I was ultimately turned onto the underlying theories after breaking from Neo-Keynesian theories in the wake of QE1 & QE2, but before QE3 was in full swing.

MMT assumes a sovereign can never default. That is not a politically realistic. At a certain debt level, American politicians would default. That ignored threshold, in turn, makes MMT’s suggestions dangerous.

I don't think it has much to do with politicians. It has to do with currency counterparties and economic value created therein. Hence my desire to study where I think MMT can make the biggest net impact. Which is likely in currency issuers who are Too Big To Default™.

All money is just an agreed upon fiction by multiple counterparties, and when there's a lot invested in that fiction it becomes fairly undesirable to be the one(s) to pierce the suspension of disbelief.

That's because the government's deficit is the people's surplus, by simple accounting identity. Paying off the debt would be catastrophic. Andrew Jackson did it, and 1 year later we had a financial crisis. Clinton gave us a surplus, which led to a financial crisis. It's very simple: either the government is in debt to the people, or the people are in debt to the governmet. The latter is a perverse situation.

Please read about Modern Money Theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...

this podcast says its because the usd is the dominant world reserve currency (a lot of trade is priced in usd, critically oil due to USA alliance with saudi arabia) so there is high foreign demand for usd. they allege that keeping it this way - keeping demand for usd high - is why USA occupies the middle east.

it also says that the usd is dying and that the USA's free lunch (ability to borrow endlessly without consequences) is now ending or already ended, though the politicians will deny it.

they also say that if you are russia or china, the obvious move is to hire a bunch of blockchain engineers, try to unload your usd treasury bonds (forcing a financial crisis in the USA in the 2020s when the USA politicians don't realize they can't borrow anymore), and then simply wait, and when the dollar dies you can step in and "save the world" from the dying dollar with their new cryptocurrency.

obviously, russia famously had meetings with Vitalek (ethereum founder) and there is a huge amount of blockchain investment happening in China right now.

https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-en...

The reason oil is priced in dollars has nothing to do with Saudi Arabia or any US involvement there. The US has always (since the 1800s) been a major player in oil markets. The NYMEX futures contract for physical oil is the real reason oil is priced in dollars. OTC physical trades often reference the NYMEX (now CME) price. So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars.

I am not sure what blockchain engineers have to do with selling treasury bonds. The larger issue for China is that they have to do something with their dollars. It's not feasible just to dump them.

Unfortunately (or fortunately depending on your perspective) the USAs ability to continue to borrow does not appear to be ending. It is true that so long as others will lend to you in your own reserve currency you can basically just keep borrowing. I didn't think that the US could borrow $20T but maybe we can borrow $50T or even more. It seems for the time being the sky is the limit.

This is false. The entire story of the petrodollar is lengthy and involves an understanding of economic arrangements in times past, how they worked, how they collapsed, and the details in between. Rather than try to write this all out here, I think an excellent post that does a very good job of summing up these intricacies is available here: https://www.quora.com/Why-is-oil-priced-and-traded-in-U-S-do...

The fact that oil is settled to this day primarily in USD has everything to do with the US and Saudi Arabia. Understanding this system also helps one appreciate the relevance of very contemporary issues like China attempting to push oil producing nations to settle their contracts in yuan. It's not about the short micro level effects, which would essentially just be a currency conversion, but about the macro level effects and implications of what currency the most in demand import in the world is offered in. If China succeeds with their goal, the economic consequences for the US could not be overstated.

> the USAs ability to continue to borrow does not appear to be ending

Argument is that USA borrowing is contingent on foreign superpowers buying US Treasury Bonds, which they "started to stop" doing a couple years ago

> So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars

Other than pissing off the USA who will manufacture some moral imperative to sanction/proxywar/depose said government

It's too bad that this opinion was downvoted, I've just repeated the opinions of a few famous hedge fund managers and investors who have a famously high quality podcast. These are not programmer nerd-activists who give a shit about bitcoin. Here's a page-length quote from the middle of the podcast on this idea that I liked (including one of the cryptocurrency quotes, you can C-F the podcast transcripts to find more): http://www.dustingetz.com/ezpyZXF1ZXN0LXBhcmFtcyB7OmVudGl0eS...,

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