Will America's debt doom us?
usatoday.com
usatoday.com
No it's not. Debt is measured in dollars. GDP is dollars per year.
Debt/GDP is $/($/yr)=yr
This ratio converts debt, a number it's hard to have intuition for, to years. It tells us how many years of productivity we owe. For those of us who don't manage $30 billion in assets years of productivity probably carries more meaning than big numbers with 12 zeros.
You could divide by other numbers - an example the author gives is hard assets- and come up with a different percentage.
Noam Chomsky is a great resource if you want to go deeper on this topic.
If you want to read a serious progressive economist, go for Dani Rodrik. Or hell, read Marx. Marx was a real social scientist. Chomsky, no.
> Chomsky is a prominent political dissident. His political views have changed little since his childhood, when he was influenced by the emphasis on political activism that was ingrained in Jewish working-class tradition.
If you want confirmation bias or arguments to feed your matching viewpoint, sure, but neutral, reasoned analysis? Not so much.
[1] https://en.wikipedia.org/wiki/Noam_Chomsky#Political_views
The US will use all its might if someone threatens the stability and dominance of the dollar.
Summary of the 2018 National Defense Strategy of the USA https://dod.defense.gov/Portals/1/Documents/pubs/2018-Nation... (11 pages, easy read)
First page: "Failure to meet our defense objectives will result in decreasing U.S. global influence, eroding cohesion among allies and partners, and reduced access to markets that will contribute to a decline in our prosperity and standard of living"
I'll leave it to the reader to decide if this supports the above argument, it's just USA propaganda but I found it certainly interesting to read with a cynical eye.
The real counter to the US military is China, both in a direct military sense, as well as economically/softpower-y.
The government could choose to reduce the productivity value of the debt by reducing the value of the dollar (quantitative easing), or numerous other monetary policy levers it can pull. How many years of "productivity we owe" isn't a sensible metric when it's not to be paid now, and we can manipulate the number between now and maturity.
I like the finance wonks word for debt- leverage. Taking on debt is like going out further on a lever- the debter is more exposed to swings in the overall economy. While it's worked out fine so far, a high debt to gdp ratio exposes the US to higher risk on the downside.
But you never really have to do that. You can just keep rolling them. If we could keep the debt at the same absolute level inflation and productivity increases would drive it into insignificance.
Of course the idea of keeping it at the same level is a fantasy.
In the last 40 years, the 30 year treasury bond has gone for rates of less than 2% and more than 14%. The interest as a percent of tax revenue metric would have predicted the death of America in the 1980s, while oppositely making it look like things will be forever rosy today. Neither of those perspectives accurately characterizes the debt burden.
If the USA falls into a debt crisis the result will be global economic disruption.
If the world falls into runaway climate change the result will be the extinction of the human race and possibly all life on earth.
Personally I'm more comfortable with the possibility of the first than of the second.
If we could have runaway climate change somehow not disrupt global economy, we could eventually tech our way out of it. But the game over point is when the economy stops, and humanity no longer has capability to slow down and mitigate the effects of warming. At that point there isn't much left of humanity anyway.
E.g. how easy would it be for us to bootstrap back to space capabilities after a catastrophic war wiped out a large portion of world economic capability?
If something pulled the plug on our economy, all the technology we have today would disappear in few years to decades. Devices wearing out with no way of repairing them or producing new ones. We'd regress to medieval times, because that would be the most advanced things available energy sources would support.
The industrial revolution happened because we had easy access to high-density energy source in the form of coal. Maybe, given enough time, some survivors would figure out how to do a new industrial revolution without it, though I'm not having high hopes. So whatever is left of humanity would have to wait until the Earth recycles enough living matter to create new deposits of high-energy something.
Only if you can find people or institutions willing to buy the new bonds.
_if_ those cannot be found, the ‘easy’ (easy because all it’s debts are in US dollars) way out for the USA is to print money, but a country that has to print money because nobody wants to lend it money will find it hard to buy stuff from other countries.
Ultimately, what is and isn't possible for a state to do stems from the vagaries of what all other states are currently doing.
It's somewhat rooted in economic output, but there are a lot of other independent variables in the pot.
I'm not against debt[0] so much as I like interesting units and metrics. If you want to compare debt levels of different countries across history getting the local currency to cancel out means no converting 1870 dollars to 2019 dollars, no converting 1920 Yen to 1995 Azerbaijani Manats, etc.
The fact that Debt-to-GDP reduces to years, even if it's unclear what that means, lets us make years-to-years comparisons and makes charts like this possible[1].
[0] - Though I think what it's being spent on really matters cough: https://en.wikipedia.org/wiki/United_States_federal_budget [1] - https://en.wikipedia.org/w/index.php?title=File:Gdp_to_debt_...
That's not accurate though. We can pay off the debt tomorrow and skip the years of productivity. It really is an apples to oranges comparison. The debt isn't denominated in productivity. It's denominated in dollars that the government can create for "free". Of course there are knock on effects of creating enough dollars to zero out the debt, but it's not equivalent to the entire country working for years.
One of the very smart things the U.S. has done is take a good portion of those printed dollars and invest in weapons which allow us to force the world to accept the same printed dollars. That's what really allows our government to be in that globally unique position. Resistance to this by other nations has various consequences. If you're a country that doesn't have a certain level of military deterrent you become victim of "regime change". If you are a country that meets that deterrent threshold you become victim of the foreign boogeyman FUD.
The government cannot create wealth "for free". It can print more dollars, but in doing so it makes each dollar worth less. No wealth is actually gained.
> there are knock on effects of creating enough dollars to zero out the debt
Doing that is impossible, though. Reducing the value of a dollar means that you'll need even more dollars to repay that debt than you would have needed otherwise. There is no net gain here.
That's the point. The government isn't on the hook for wealth. They are on the hook for dollars. And dollars, to the US government, are "free".
>Doing that is impossible, though. Reducing the value of a dollar means that you'll need even more dollars to repay that debt than you would have needed otherwise. There is no net gain here.
The amount of debt doesn't go up if the value of the dollar goes down.
The interest rate goes up almost instantly when the government prints money. That's not exactly equivalent to increasing the debt value, but it's more than enough to make the "just inflate it away" strategy fail 100% of the times some country tries it.
Same with US dollars. Half of them might be held by non-US persons. Another quarter by US population. Printing dollars is a wealth redistribution excersice and a very effective one.
> years of productivity
You got the units wrong: the GDP isn't productivity, it's production (it's even consumption actually,but this is another subject).
However, I will concede that GDP as a measure of productivity is hard to measure, easy to manipulate, and less effective than other measures of productivity.
We see this currently in Germany, the German government is proud of their budget but at the same time the infrastructure is crumbling, trains are delayed, bridges are in need for repair or even replacement, broadband doesn't reach all places and I don't want to talk about climate change and the structural issue to which it will lead.
There is also one more thing about state debt, many people invest in state debt because it is a secure investment for the retirement and when a country no longer takes debt, this possibility is gone.
The ideology to have little or no state debt is hurting the economy and will do so in the future. And I'm not even talking about a recession or a depression which will come sooner or later.
EDIT
Please don't turn this into a flame war. I am slightly worried about the effects of mainstream media, as I've seen these kind of posts on Reddit also.
People keep hearing about the low/inexistent economic growth of countries like Germany or Japan and start thinking that these countries are a deep mess. The reality is quite far from it.
Assuming linear failure to fault (e.g. rust or structural weakening), an overbuilt bridge makes a big difference if one is skimping on maintenance costs.
Here are some more information in German though: https://www.deutschlandfunk.de/autobahnbruecken-in-deutschla... https://www.dw.com/de/bahnfahren-auf-verschleiß/a-46623921
Ideology can be pretty dangerous. This seems like your main point. Back up, though:
> [...] state debt is not like personal or corparate debt. If you cut your spending to pay of a loan, it is usually not a problem.
How is it less of a problem for a person, or for a corporation, than for a government, to have to reduce spending?
The difference is actually very simple. Persons and corporations are not closed systems. If you safe money, the impact is very small. Even when a big corporation safes money it doesn't really matter. But the state is huge and spends a lot of money. And many companies depend on state contracts.
I give you a simple example. The German state is subsidising public transport, if the state cuts theses costs, the company providing this service has only a few choices, such as cutting service or increasing prices. These will leads the consumer to have higher costs. If the company cuts lay off people to compensate, those will lose their income and the state must even pay them unemployment benefits.
So the state budget is not really a question if something is be paid but rather by whom and at what point. It is essentially a closed system.
P.S. Very export depended countries can essentially export this partially to other countries. There is this argument that Germany did that with Greece. While Germany consolidated its budget, the debt of Greece increased.
Either the state taxes and provides public services, or the state taxes less and private services are provided.
I think the bigger point is about the state's role as a consumer- and lender- of last resort.
Through its ability to deficit spend (enabled by its supposed future ability to tax) or its ability to print currency (through its central bank), there are functions the only states have access to. Which become incredibly valuable when everyone else is economically terrified.
Current interest rates can give a somewhat distorted picture for the US. Banks buy US debt because they have to due to regulation, other countries buy US debt as part of their economic policy, the net effect is that the US government is able to borrow money more cheaply that it should based purely on credit risk. Even so, the US is able to borrow money at historically cheap rates.
My understanding is that if current trends is health care costs and economic growth continue then in the long run the US will be unable to service its debt and maintain its current spending programs without raising taxes. Most spending is on the military, Medicare, Medicaid and Social Security, so there will be some difficult political decisions. However, that doesn't mean the US is close to a debt crisis today.
I don’t think anybody is making that claim. Problem is: if you can only rank values that have a total order (https://en.wikipedia.org/wiki/Total_order), so if you want to rank countries, you have to simplify.
For the judgment of “how deep is a country in debt” it also seems desirable to have the property that splitting a country into equal parts yields smaller countries that are equally deep in debt.
If you want that, “debt” on its own doesn’t cut it. Debt/population and debt/GDP are two metrics that have that property. They also are simple, so do not seem doctored, which correcting for modeled/guessed at/hoped for future growth or correcting for the age distribution of the population, average fertility, etc. easily could.
”GDP today is not a perfect proxy for GDP in 10 years”
Again: I don’t think anybody is claiming ‘perfect’.
However, even the fanciest mental tricks are never going to change the fundamental laws of reality.
In the entire article he dances around second order effects and demonstrates why they're meaningless. Great, but there's one measure that actually matters: the percentage of our annual budget spent servicing existing debt. Right now that number is at 6%, and there's some share under 100% where it will cause our country to effectively go bankrupt. The closer we get to 100%, the exponentially higher the chance of bankruptcy.
Right now there's two things which make me scared this number is going to go up considerably:
One, US tax revenue is going up around 2% a year, but our outstanding debt is going up around 20% a year. The debt is rapidly outpacing economic and tax revenue growth. If nothing changes, paying off the debt will be 25% of our national budget in around 20 years, and 50% in 40 years. That's well within most our lifetimes, and is well in the extreme bankruptcy risk area.
Two, the US has access to unprecedented low rates of interest right now. The average rate on it's 23 trillion in debt is 1%. If that were to go up to a more historical 3%, interest repayment would jump to 24%. Due to the length of government debt, this transition would probably take around 20 years to fully happen.
Now combine the two into a nightmare scenario: debt continues to rise over the next 20 years at its current rate, and interest rates return to their historical 3%; and within 20 years repaying debt will explode to 75% of our budget. There is your potential black swan event.
Hopefully action is taken before any of this happens, but something has to give from where we are now, and pretending that there's no troubled waters on the horizon is absolutely insane and irresponsible.
Some comments: income taxes are the most stupid taxes ever. Rich people don't have incomes, they have capital gains. Increasing income taxes hurts middle-class: the rich wannabe. We need to abolish income tax, and turn it into asset tax, or at very least increase the capital taxes significantly. Tax people that are already rich, not the ones that are motivated to try to get there! Once they get there - then you can tax them.
Having said that - the taxes can't be too high, because people don't like taxes and rich people have plenty of resources to run away with their wealth.
So... there's no really easy way to get out of this mess.
Socialism != taxing the wealthy a lot.
Maybe part of your "hatred" of socialism comes from a misunderstanding of it? I make the suggestion because the rest of your comment pretty much outlines some of the many major problems with unlimited accumulation and concentration of wealth.
If we want to increase tax revenue to fund our current and future liabilities, the money is almost certainly going to have to come from tax increases on the middle class (who don't pay meaningful amounts of federal income tax for the most part) in the form of a VAT, as almost every other developed nation has already determined.
[0] https://taxfoundation.org/taxes-on-the-rich-1950s-not-high/
You've missed a velocity vector in your analysis.
Ask yourself this: if you get dollars for your maturing Treasury, where do those dollars end up in aggregate? They are either taxed away due to them circulating past tax points as they are spent and respent, which eliminates the need for a bond, or they are saved which increases the demand for a new bond from the individual, the deposit holding bank and the central bank (on the same dollar due to the hierarchy of money).
Where's the problem?
The solar system is an extremely stable system, while our economic system is not at all stable.
Your proposed money cycle is based on the concept of a closed system, which the US economy is definitely not.
If the US government starts having to pay an unbearable amount of debt, money is going to outflow to other countries and make it harder for the US to issue new debt.
If the US just issues enough money to pay the debt off, then interest rates are going to go through the roof and overcompensate for what just happened, making the situation even worse. The US economy would probably collapse.
For interest rates to go up, bond prices have to go down. If the Fed just buys up bonds that drop below par with new dollars, how can interest rates go up?
As for your analysis of what happens when you receive payment for a bond, you seem to be saying that the government gets the money back, either by taxing spending or by you buying a new bond. I don't buy that analysis, for two reasons. First, I could receive payment for a Treasury, and buy some other investment with it. And second, your analysis would remain unchanged even if the result was hyperinflation (that's "hitting the ground" in my first paragraph).
You could. But that is just an asset swap. The person who gets your cash is then faced with the same choice you were - spend it (which will result in taxation) or save the money (which ends up with a bond purchase).
Always remember that money doesn't stop at the first use.
In particular, people in aggregate can decide to invest less money in Treasury bonds. This has in fact been happening - there have been Treasury auctions that have "failed", which in practice means that dealers buy the remaining bonds. But they can't do that forever, because the dealers don't have infinite money.
And even the static picture that you present isn't enough, because the government is running a deficit, and therefore needs more money to come into Treasury bonds. The same amount isn't enough. Even the same amount plus the interest earned isn't enough.
That $175T wealth figure is measured at the peak of everything bubble in the US. Real estate, stock market, bonds - everything is at the all time highs, after debt and low yields fueled decade. And yet still, according to the article government would have to confiscate 10% of all wealth in the America to pay the debt.
And that's just the official debt. What about unfounded liabilities, which are many, many times higher? https://www.forbes.com/sites/johnmauldin/2017/10/10/your-pen...
So basically optimists here say, that to pay the debt the government will need confiscate more than a half of all the total wealth in US, at its peak, without causing economic slowdown and without causing inflation (and thus yields) to spike. And that assuming the government doesn't accrue any new debt as it is running a balanced budget. And considering that fiscal spending is an important part of keeping this struggling economy going ... that balanced budget would have to come from the tax... like you would never seen before (basically double?). And again... all these taxation without crippling the economy.
And all that inflation and taxation, without people noticing and trying to counteract to preserve their wealth (tax avoidance, running into PM, crypto, foreign assets, whatever.)
Yeah... whatever keeps you sleep well at night. :D
How else would your explain negative interest rates? That have not happened in the recorded history before and doesn't really make sense. There is a certain CB manipulation involved, sure, but generally - it's the result of many people competing to preserve and invest their savings. This trend will reverse - and then... wow... these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.
Um, central banks that are charging negative interest on reserves.
>these Boomers are in for a surprise when it turns out we've spent their money on stuff like WeWork and other huge startups with no positive cash-flow, and rest was spent by the government.
Current misspending doesn't particularly impact future retirees. It impacts current retirees and workers. Current aggregate retiree spending is always equal to aggregate worker saving plus tax transfers from workers to retirees. This misspending means that material wealth that could have been consumed by either retirees or workers is instead wasted.
The only ways for Boomers to be wealthier in retirement, as a class, are for society to be wealthier or for a higher percentage of society's real production to be allocated to Boomers via taxes or sold for their savings.
Exactly. Deflation (financial asset cost inflation) now, for inflation (financial asset cost deflation) later, right?
> Current misspending doesn't particularly impact future retirees.
I agree with everything, except this part. Have we used all this surplus productivity to actually increase future productivity (invented some life changing gene therapy, cheaper transportation methods, better medical treatments, and so forth) and government used that debt to increase productivity as well (better infrastructure etc.), the quality of life would improve for everyone (including retirees), making the society as a whole spend more of their productivity voluntarily giving back more to the investments boomers bought with their savings.
It didn't have to be a bubble if it delivered the value. The future inflation and capital reallocation from society to the retired could have been offseted by an increase in productivity, keeping everone's quality of life raise, or at lest not fall.
But obviously, you can't pull ground breaking discoveries and great bussinesess out of the hat, and make government more efficient, just because there is more money to be invested. Quite the opposite. Surplus was mostly wasted and reallocation will have to come at the cost of the quality of life.
I think we agree more than you think here. There weren't any good investments to be made, so the extra money thrown at investments is wasted through malinvestment rather than consumed. The big difference is that I'm explicitly trading off malinvestment with current consumption, rather than the inaccessible hypothetical world in which productive investment opportunities were pulled out of a hat.
Which means that the Fed has been keeping interest rates already artificially low by printing money.
It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs.
The govt will have to make a choice between cutting services vs paying the debt.
The Fed creates most of the money, but it isn't the only mechanism.
The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt jobs.
People lose jobs
Govt pays out more social security benefits
Govt earns lesser tax revenue
Govt interest payments on bonds are still at pre recession levels
So, govt has to issue more bonds
Nobody has the money to pay for those bonds
Thus, interest rates would naturally rise.
The fed could print money to buy bonds causing inflation or the fed could not print money causing rise in interest rates and furthering economic decline.
This is how the deficits have out the fed between a rock and a hard place.
One lesson of QE seems to be that the Fed can print money in a recession without causing inflation. Or at least only inflation of asset prices, not wage/consumer goods inflation.
You nailed it. There was inflation with the last QE. We just changed what counts towards inflation.
The Federal Reserve is part of the government. The Board of Governors is an independent government agency, with members appointed by the President. The individual banks are set up more like private corporations, but it's the Board of Governors that set the orders for new money being minted. Saying that it isn't the government that has the ability to print money and pay debt when this is the case is a little obtuse.
Well, no. These bonds are held in the Social Security Trust Fund, and while yes in one sense they are both an asset and a liability, they are also funding a future liability (although not all of it). So you can cancel them out against the future liability or the current one, but not both.
(As to Social Security being underfunded, I had an econ professor explain Social Security could be fully funded immediately if the Treasury could just issue a new class of bonds which cost a penny and are redeemed for a trillion dollars in ten years, and sell them to the Trust Fund.)
Social Security's funding level is completely irrelevant - what matters is primarily how wealthy society is when current workers retire, and secondarily how much future workers will be willing to save and pay taxes.
Nowadays, America's largest export isn't soybeans or corn, it's the American Dollar. See this link for more info on the Petrodollar: https://www.thebalance.com/what-is-a-petrodollar-3306358
Nothing wrong with that, and if everyone knows about it it's hardly misleading anyone. They all take it into account.
9.8% of all of our government's revenues (tax dollars) are wasted on paying interest on the $22 trillion dollars of national debt(1)(2).
At some point people will start demanding the government provide everything because they’ve been told debt doesn’t matter and we can print money. It looks like we’re reaching that point because “Main Street” seeemingly realized in 2008 that there was no limit. That it’s a game of chicken with the Fed. Let’s give everyone $2000 / mo and free healthcare and education. Why have any limit on government spending? The Fed will monetize it after all!
Yang might not win this time around, but Yang #2 will be more popular and have bigger demands. Especially when another downtown and another bailout occurs. It’s getting very hard to convince Joe Sixpack that the printing press should only be used for the banks. Yang is the canary in the coal mine.
If you owe someone 100K and you cannot pay - you are in deep trouble.
If you owe someone 1 trillion and cannot pay - they are in deep trouble.
First it says debt as a percentage of GDP used to be higher so it should have been scarier. Then it says current interest rates are low but doesn't give anywhere near the weight to that statement they should.
Even in the article they state 8% interest was normal 30 years ago but then go on to say sustained 8% interest going forward is crazy talk. WHY? Why wouldn't interest rates go up? They certainly can't go much lower...
If they did go up our debt would take a much higher percentage of the budget than the 18% of the 80's and 90s. This is a very real problem.
How did western economies function prior to this? I wish I was educated on the matter. I've not found good reading for this topic outside of the enclave of academia.
How much would taxes have to go up (because spending can't go down, right?) for citizens to contribute their fair share of paying down the debt?
One thing you aren't accounting for is tax receipts going up because the economy grows. It's usually the case that spending goes up at the same time, but it doesn't have to go up.
I just know I read a lot of headlines about how government programs are underfunded. I feel like the base of a lot of Democratic candidate campaigns is about wanting to spend more money for people who need it (impoverished people, etc.)
https://www.ft.com/content/9ce05a54-c424-11e9-a8e9-296ca6651...
So it seems like we have the choice of voting for left-wing politicians who run on increasing spending on new forms of entitlements, and spending will increase precipitously - or voting for right-wing politicians who run on not spending like the neocons do, then just do it anyway, and spending will increase precipitously.
Also: A half reasonable single-payer health care system should save a lot of money over-all. The fiscal conservatives should be all over that one.
E.g., https://www.healthsystemtracker.org/chart-collection/health-...
(BTW, when talking about the overall cost, it doesn't make sense not to count the costs of employer-provided plans.)
The real question is how to we transition from the broken, hodgepodge system we have now to one of those proven better, and cheaper systems.
I think it would be worthwhile to have a pilot program of it here, say with a single small state introducing it. It could show us how it would end up working in practice.
The thing to do is to encourage many more people to do primary care.
... by borrowing from the social security trust fund.
Government debt is different than private debt.
If you put 6.2% (12.4% total with employer contribution) of your income away into index funds that grew at 7% per year, at $100k/yr gross salary ($12.4k/yr) from ages 25 - 65 (40 years), you would end up with $2.6m (in today's dollars).
$2.6m converted into dividend funds with a 3% yield would be $6.6k/mo.
I don't know anybody getting $6.6k/mo from Social Security...
Social security is security: no matter how I get screwed, I'm only poor when I'm old, not poverty stricken and dead.
Am I missing something here?
Social security has less volatility and has an associated cost for that.
Ref: https://smartasset.com/retirement/the-average-salary-by-age
Of course you don't. The maximum benefit in 2019 is $3,770/mo for people who retire at 70. If you retire at 66, then the max is $2,861/mo. And these are only what you get if you maxed out 35 years of SS payments. Besides, SS is designed to only replace 40% of your pre-retirement income.
How much would you have had to contribute between 18-70 to achieve this number?
[0] https://www.cbpp.org/research/social-security/policy-basics-...
I know, but based on my calculations above, don't you agree that the end user (citizens) are not getting the best bang for their buck?
Social Security doesn't exist to maximize returns, it exists to protect the elderly from extreme poverty once they are no longer able to work. Because of that, the funds are invested in a very risk averse manner.
I'd certainly be open to the idea of a US sovereign wealth fund in some sense, but I don't think privatization or anything else where individuals are making decisions about their own Social Security account is a good idea, since we'll have to create another Social Security-like program to support the people who invested poorly and are unable to support themselves.
I wish it had, I'd love to dedicate X% of my SS check to investing in the stock market.
If anything it was how weak the 2000 correction was that lead to the housing bubble.
It's also relevant because, at a certain point, the productive portion of the population will fall below that necessary to make payment on the debt at which point the shit hits the fan in a big way.
The cutoff for top 40% is around 40k/year.
PS: Numbers are 5 years old but should be a good ballpark.
Anyway, people getting Social Security should really mess with this calculation as someone could be making 150k, but up to 45k of that is from the government.
In a country which prints dollars, and borrows dollars, future debt cannot constrain action.
The fear here is whether people will stop lending you dollars, but as we can see in the US we are nowhere close to that situation. (Europe/Germany, which is pathologically committed to not having debts has it even worse/better...people are paying them to take their money).
Of course, they've borrowed heavily to accomplish this...
I have more faith in modern politics that one man can veto an entire cabinet of elected officials on what to spend. Whether or not one man can influence them or ask them to keep spending, I have no doubts. But... how many elected lifetime professional politicians sign off on budgets + spending? I am going to guess it is more than "one man".
Most candidates are running on a platform of directing the taxes citizens pay towards services the citizens want. It's easy, and dishonest, to deride these as "free things" if you don't want them. Even the tax cut tooth fairy is supposed to be deficit neutral due to "dynamic accounting" gimmickry. The difficult lift is to discern what promises are based on flimflam and which are based on honest accounting and reasonable, time-tested assumptions.
What does "fair share" mean?
https://tradingeconomics.com/united-states/government-spendi...
It has been going down since the Great Recession (44% in 2009 vs. 38% in 2016). Taxation:
https://fred.stlouisfed.org/series/FYFRGDA188S
Taxation was going up a bit relative to GDP towards the end of Obama’s term (which is why the deficit was shrinking), but taxation is now going down (hence the deficit is rising again under Trump).
this seems like a weird statement. what is "fair share"? i am a middle class person with a job with fantastic benefits, yet i easily pay over 30% in taxes (probably closer to 40% if one really counts all the "hidden" taxes) and still have to put up with shit infrastructure, terrible public transportation, expensive non-public transportation, expensive insurance, etc. at what point is it considered that i and others are paying our "fair share"?
Why not? Or was that tongue-in-cheek?
If we are intent on fairness, the generations that incurred the debts should be the ones forced to pay them off. So for the sake of argument, let's divide the populace by birth year, and institute a tax called the Debt Retirement Tax (DRT).
I took the historic debt from 1791, and divided it into 40 buckets. For each subsequent year, I charged each bucket 2% over inflation, dumped each bucket into the bucket to its left (except the leftmost), and divided the increase in debt, after interest, evenly across all 40 buckets. In years when the debt shrank, the reduction was divided evenly across all buckets with a debt balance.
This was to simulate the relative contributions to paying off and incurring more debt for working persons for each age 25-64, and all people 65 years or older. I presumed that age brackets younger than 24 have too little political power to significantly affect national debt. Scrolling down to 2018, the age 65+ bucket is now responsible for over 59% of the extant debt. Looking at the numbers over the years, and the clusters of zeroes in particular, whenever the debt is reduced, it is always the younger workers paying off the older people's debts. The eldest have never paid off their share of debt. At the 1835 minimum, the algorithm I used puts 100% of the responsibility for that last bit of debt on the age 65+ bucket. But instead of paying it off, they used their political power to charge up more debt, based on the willingness of the younger folks to work harder pay it off.
For the DRT, you could pay an income tax based on how much debt is in your age cohort's bucket, and if your year's bucket gets emptied, then you don't pay DRT the next year unless the debt goes up, and the interest charged on the other buckets doesn't cover your cohort's 1/40th share of it. The DRT can also include an inheritance tax component, so if you die with more debt in your age bucket, the state takes more out of your estate.
What is happening now is like identity theft. Elders are running up credit debt for their own benefit when their grandchildren's names are the ones on the accounts. What could possibly be "fair", when that situation is never addressed?
If I expand the number of buckets to 100, modeling for 11-year-olds up to 110-year-old and older (but mostly the dead), the responsibility for the debt in 2018 still shakes out to 20% in the 110+ bucket.
We're still paying the debts of dead people. 1846 is the last year in which the national debt could be truly said to belong entirely to the living, and 1974 was the last year we actually paid off any of the debts of the dead, rather than perpetually refinancing them.
You can't exhume dead bodies and demand that they pay more tax. And the method for allocating new debt to birthyear-based buckets is probably not in line with where the responsibility actually lies.
The people who pay these "everything will turn in a dine when people really understand" narratives are usually people who the markets are telling them they are wrong and cannot accept it.
Every dollar we spend on interest is not spent on investment.
Similarly, if you borrow money and invest it, and the investment pays more than the interest on the debt, there's no particular reason to ever pay back the debt.
That money is owed to the people, and they're probably doing to need it. Especially considering that Social Security, Medicare, and Medicaid account for 36% of the federal budget - which is....let me do the math - one third.
https://www.thebalance.com/u-s-federal-budget-breakdown-3305...
I guess the thinking goes that we can it's easier to renegotiate social security and medicare benefits than to renegotiate the interest payments on a bond. Not sure that's true -- it seems like inflation is the only reasonable solution to either of those problems.
... the U.S. current account deficit and the country’s high level of income inequality distort the structure and amount of American savings.
[1] https://www.thebalance.com/u-s-federal-budget-breakdown-3305...
The US is in a unique situation that lets it print a lot more money than other countries. At the end of the day, we will end this debt by printing money. Anyone buying bonds has to factor in the possibility that the US dollar the coupons are paid in will be devalued. It's not a "risk-free asset". It just depends on when and how the US will start printing money, and where that money will go. We did quantitative easing for years, but the banks didn't increase lending very much.
A good economy is when we should have been raising taxes and paying down our debt. But instead, the Trump administration presides over the biggest debt, deficit and trade deficit in our country's history. So it seems to me that the next Bernie administration will absolutely need to do large infra projects a la FDR, Green New Deal etc. because the recession may be severe.
Normally this risks runaway inflation, but inflation has been subpar of late such that some "printing" may not hurt. However, it's a bad habit to get into.
To force discipline, we need something similar to a balanced budget amendment that allows Keynesian stimulus when warranted. However, it will probably have to have a "timer clause" to kick in several years away and gradually, because the side-effects could be a dampening of the economy, hurting current law-maker's reelection. Spreading the bitter medicine out over time may make it more politically acceptable.
TLDR: not many of these were cashed, because people loved the idea of having his signature on a piece of paper and kept the checks.
So, effectively, every time he paid with a check, he essentially got products and services for free.
Now, if you take the dollar - essentially a fed IOU - and in theory ultimately redeemable against some sort of tangible piece of American property (real estate, infrastructure, intellectual property, etc ...), it is very tempting to draw a parallel, namely;
As long as the dollar is the world's currency reserve and people stockpile it, greenbacks are just like Picasso's checks: the IOU never gets exercised.
And America can keep on issuing debt for ever ...
[1] https://www.fool.com/investing/small-cap/2004/12/08/picassos...
without debt there is no money. the art is to not inflate too much too quick.
Less glibly, this article presents a good set of arguments for why not. The doomsayers need to be clearer with exactly how their proposed doom would come about - and why there would be no effective government response, and how this could happen without the rest of the world economy also getting into trouble and fleeing to the safety of the US dollar.
The Fed is doing something similar with quantitative easing, but at a by far smaller scale, and the money mostly goes to banks anyway. It's injecting printed money into the real economy that spells trouble, and that is currently not happening in the US.
Also, while the military is definitely a boon to the US economy, most of that is indirect via guaranteed jobs and income, not via projected force.
Plus, in case of a hyperinflation, the military would become unmaintainable very quickly, exactly because of it's size.
All that said, your comment had basically nothing to do with the topic (debt), so there is where the downvotes come from.