You can quip about how sustainable this state of affairs is, but of the three, only federal debt is growing... And, if you look at inflation-adjusted metrics, that growth is very minor.
Baloney. Take a look at a graph of US federal deficit as a percentage of GDP. In 2018 the deficit was 3.8% of GDP, in 2019 it's expected to be 5.1%. If those were the values during a recession, that would be understandable, but during what is supposed to be a "great, amazing" economy, those structurally high values is what scares people.
However, you'll notice that the debt/gdp ratio has been stable for the past 5 years, or so.
Mandatory spending items will at some point soon crowd out all other spending. This comes at a time when, over the last 4 or 5 years, foreign creditors have stopped financing our deficit by buying ever growing quantities of US treasuries. So, for the first time in decades, US domestic private sector will be tasked with financing their own spending.
It is about to matter very soon, as baby boomers retire en masse. The endless talk of government spending leading to inflation didn't manifest (except in asset prices) because foreigners recycled their surpluses into treasuries. That this has mostly stopped will change the dynamic. The Fed will need to monetize the debt (resume QE) because there is simply too much treasury issuance, and growing, to be funded by US domestic sector alone, either in taxes or buying bonds.
If you look up last couple years US debt issuance has been bought up mostly by private sector, while central banks are buying gold. Recipe for it being the bond bull market peak and that debt being paid back in nominal but lower real terms = inflation. The only way to retire the massive and growing federal debt. Call it MMT or whatever you want, but it's coming. The loser will be the $.
[0] https://nationalinterest.org/blog/buzz/2025-us-interest-paym...
Consists of:
1: Regulate the bond market to be very illiquid
2: Touch off deflation scare to herd the masses into USTs & sovereigns while CBs buy gold
3: Implement aggressive version of MMT
4: Watch bond bulls burn in real terms after you've lit their "Hotel California" on fire (MMT, monetize debt, devalue $)
MMT depends on recognizing when inflation runs hot and adjusting their methods. I doubt this will be as easy as they seem to assume. And moreover, they underestimate the effect on the currency. They do reference the carrying capacity of debt within the economy, but once that cat is out of the bag, faith in the $ will decline, and the political will to adjust spending and debt will not be there. But on balance, some form of this is probably inevitable. I just think $ and US Treasury holders won't be happy with the outcome.
These aren't my own ideas, I'll give a reference to financial analyst Luke Gromen (one of many) articulating this thesis [1] that I've come to agree with.
I think the only question is what is an actionable investment thesis. I say $ down, gold, Bitcoin up in 2, 5, 10 years. The rise in MMT as serious policy proposal is not an accident. It will give legitimacy to what would have been necessary anyways, and which was likely impossible politically to avoid given sluggish labor and wage growth after decades of equity bull run and growing inequality. Dollar is too strong, preventing domestic manufacturing from being viable and boosting capital surplus / trade deficit. Politically I think this has to change.
what would have been necessary anyway? I'm reading currency devaluation?
From the first page of the paper you cite.
To supply some evidence for the other side: Even Krugman considers MMT to be insane, and he's the economist who should be most favorable to it (since he's the most borrow-and-spend, deficits-don't-matter of any economist I am familiar with).
And the concern is that the Federal government has structurally degraded its budget such that it is running larger and larger deficits.
And unfortunately when you give away money as tax cuts it's often politically impossible to reverse it.
And if there are recession fears, the last thing you want to do is raise taxes. The problem is where the tax cuts are, not that they are tax cuts; you want to cut taxes on people who spend a high proportion of their income on consumption, not wealthy people who will sit on it.
As for the political impossibility of reversing tax cuts, in the case of cuts for the rich, this is not at all due to public pressure, but private pressure, and in that the impossibility of reversing tax cuts is no different from the impossibility of not enacting them. When politicians are more obligated to voters than donors, taxes on wealthy people will rise. There is zero pressure from voters to maintain tax cuts on wealthy people, other than general support for an entire package of tax cuts if very visible middle class subsidy is mixed in with them.
As for the idea that the latest tax reform only helped the wealthy:
"The analysis Doggett referenced indeed indicates benefits will accrue to the very wealthy over time. Yet in the first year of changes, the top 1 percent are projected to draw a little over half the tax savings. The threshold of 80 percent going to the top 1 percent is projected for the tenth year. Also, Doggett’s stated figure for incomes is too low; it ties to the first year of implementation."
https://www.politifact.com/texas/statements/2017/oct/20/lloy...
https://en.wiktionary.org/wiki/appropriate
"From Middle English appropriaten, borrowed from Latin appropriatus, past participle of approprio (“to make one's own”), from ad (“to”) + proprio (“to make one's own”), from proprius (“one's own, private”)."
So when you write, "when you give away money as tax cuts" it gives the impression that allowing people to keep more of their earnings is giving them things, it comes across as Orwellian. Legislation was passed, and signed into law. In the U.S., following the law is not giving people things, but income taxes are giving the federal government things (sometimes states too).
Isn't that what the federal govt does too? The US sells treasury bonds and China buys them.
https://www.investopedia.com/articles/investing/040115/reaso...