US debt surpasses $23T for first time | Hacker News Reader

US debt surpasses $23T for first time

thehill.com

63 pointsspking66 comments

Well, just to inject a little bit of perspective here -- high absolute or (or even) relative debt levels are not necessarily a hugely bad thing.

For example, Japan has 2x or more the per-capita debt that we in the US do. Their debt is 2X their GDP! [1]

But Japan has a pretty high likelihood of repaying it, so it's not a problem. We also are highly likely to repay our US backed debt (and we have the hidden but dangerous capability to devalue our currency). And add to that the notion that we've been getting debt issued at highly favorable interest rates, so we borrowed for cheap.

With that said, however, as with one's household debt (this is one aspect where comparing with a household is not wildly stupid) -- did we spend it on things that were worthwhile? Are we getting a lot for having borrowed this money or stimulus? Did we spend for future potential in our economy? Just because we got it cheap doesn't mean it was a good expenditure.

I am inclined to say no. Our borrowing in this last year was pissed away on unsustainable tax cuts, frivolous give backs, and a brute force cutting for the symbolic gesture based on mostly fallacious logic. And when the recession comes, our ammo will have been already spent. I mean borrowed.

And the kids will pay of course, for our midlife crisis Camaro.

[1] https://www.marketwatch.com/story/heres-a-lesson-from-japan-...

And the kids will pay of course

And that's the big problem here. The policy of "run large deficits funded by residents buying government bonds" effects a large wealth transfer from millennials and post-millennials to baby boomers.

That’s really not how it works at all. Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP. It will also never (and should never) be paid down. Because growing the GDP is the same thing as paying down debt. The GDP will continue to grow, so even if its 50T by the time kids today are grown up, that’s fine as long as the GDP has kept up. Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older. It would be a problem if debt was $0, because that would mean the government had paid an enormous opportunity cost at the expense of growing the economy.

> Total dollar value of debt is irrelevant, only thing that matters is ratio to GDP.

The debt to GDP ratio has also been increasing since the end of the Cold War.

> Unlike people, governments don’t have a fixed lifespan, so it’s not like the current generation is going to be on the hook for it when they’re older.

Never paying down the principal doesn't get you out of paying the interest for your whole life. Recapitalizing the interest doesn't do that either, because that's an opportunity cost which could otherwise have allowed for spending or tax relief at the same level of outstanding debt.

> The debt to GDP ratio has also been increasing since the end of the Cold War.

Think about how crazy that is. We were in a multi decade arms race with a super power and after ‘winning’ we never bothered to slow down our military spending.

> The debt to GDP ratio has also been increasing since the end of the Cold War.

And if government spending was perfectly optimal, it will continue to increase to the most productive level possible.

> The debt to GDP ratio has also been increasing since the end of the Cold War.

The principal and the interest are continually repaid and reissued.

Every dollar of public debt is immediately put to use in the economy. Public debt is also incredibly cheap to service. Ideally public debt would always be as high as you could possibly make it, and would be put to the most productive (growth stimulating) use possible. It’s very easy for the government to spend money in a way that offsets the cost of its debt. Now, you could debate how good the government actually is at spending money, but that’s a seperate argument to the economic utility of public debt.

Except those large deficits are largely funded by baby boomers buying bonds, not millenials.

And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher).

And those yield bearing instruments are then left to the boomers' children when they die.

Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that.

If you want to look for intergenerational wealth transfers this isn't the place to look.

> Except those large deficits are largely funded by baby boomers buying bonds, not millenials.

Lending someone money doesn't cost you money, it earns you interest. They still have all of that money and generally expect to get it back (to spend it down during their retirement) before they die.

> And the interest is by and large around the level inflation is at (sometimes lower, sometimes higher).

That may be true, but the interest payments are still flowing in a specific direction. One side has a risk-free place to park their money until they want to spend it while not having it eroded by inflation, the other side has to pay the inflation.

> And those yield bearing instruments are then left to the boomers' children when they die.

That is increasingly not happening because people are living longer and consequently having less left over in the end. There has also been an increase in predatory financial instruments like reverse mortgages that prevent that from happening in practice.

> Moreover, if that national debt is being used to pay for national assets like infrastructure, the younger generation get to benefit from that.

Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare.

>Lending someone money doesn't cost you money, it earns you interest.

In the case of government bonds, barely.

>That may be true, but the interest payments are still flowing in a specific direction.

Sub-inflation interest payments mean that wealth flows in the opposite direction.

>That is increasingly not happening because people are living longer

Life expectancy has dropped for the 3rd year in a row.

>Which would be true if it was mostly being used to pay for national assets like infrastructure, but it's mostly being used to expand social security and medicare.

I think you misspelled pointless wars, but yes, it would be better if it was spent on infrastructure instead...

> In the case of government bonds, barely.

Interest on the debt totals nearly $600B/year -- about the same amount we spend on the military.

> Sub-inflation interest payments mean that wealth flows in the opposite direction.

People are paying a premium in order to have a risk-free place to park their money. It's worth something to not have to hoard gold in a hole in your back yard (and pay money to insure it against theft). That cost often gets partially or entirely offset by the return on capital, but it remains a valuable service that they are in fact receiving even when it costs more than the risk-free rate of return.

Meanwhile the taxpayer is still paying ~$600B/year. There is no way to spin that as a profit; it's money that wouldn't have to be paid if we had borrowed less in years past.

> Life expectancy has dropped for the 3rd year in a row.

Basically entirely due to an increase in suicides, and in particular suicides of working-aged people, which makes the problem worse rather than better.

More to the point, it remains the case that the life expectancy today is significantly longer than it was when social security was created, and yet we still have the same retirement age.

> I think you misspelled pointless wars

https://www.nationalpriorities.org/budget-basics/federal-bud...

Have a look at the "Total Federal Spending" chart near the end. The Social Security and Medicare slices are each significantly larger than Military.

> but yes, it would be better if it was spent on infrastructure instead...

But that's the entire point! As it is it's an inter-generational transfer. If the money went to something else -- or even just middle class tax cuts -- then it might not be, but that isn't the case.

Oddly, it's the bondholders' money that's funding government spending as they buy bonds. But treasuries are so close to cash that they're almost considered equivalent, so they get to keep the money too. Apparently, increases in government debt effectively create new money, plus an income stream paying very low interest.

So you might say any inflationary pressure from increasing the money supply should have already happened? The question is whether to reduce the money supply and income stream by paying off the bonds, keep it going by rolling them over, or remove the interest payment stream while keeping the money supply almost the same by monetizing the debt.

>For example, Japan...

I'm not sure a country that's essentially stagnated for the past 20 years (in economic growth terms) is a country that you want to emulate.

IIRC when Japan hit that "2X" mark circa 1991 it lead to an economic stall that appears to be permanent. Their economy has been stalled / zero-growth for almost 30 years now. They are cautionary example not an aspirational one.

Their story highlights the importance of a far greater influence upon a market than debt: population growth. Negative population growth is bad.

We need to find a way to live with negative growth in such things, because we'll quickly meet the limits of this planet if we try to continue exponential growth in people and resource usage.

Negative growth and debt don’t go well together.

I'm afraid that negative growth and generosity won't go well together.

So I kind of agree with you very deeply and kind of don’t.

I do think we need to figure out a “closed system”. Meaning having a throwaway economy isn’t sustainable with a finite earth. Further, it doesn’t seem right to expect every person to have the wits to figure that out, agree with it, and how to properly execute a sustainable life. Ant colonies are clearly not ran by that model. But I also see the resources of space being quite impressive and offering pretty big growth opportunities through just being huge and containing other places for us to setup and live. Though the resources there are definitely prohibitively sparse so they still should be used wisely.

Edit-I also can’t help but wonder where we would be if money value was clearly tied to energy. Oil effectively adds wealth to the economy by literally fueling it. Basing a currency on gold, for instance, sets the pace of monetary growth at the rate of gold extraction. I think oil is similarly pressing upon USD.

If you look at GDP per working age person it doesn’t look so bad, their ageing population skews the figures.

Their high national debt is more of a consequence of their stalling economy than a result of it though - in the form of counter cyclical fiscal spending. In the 90s nobody wanted to spend so if the government didn't step in and act as a "spender of last resort" the economy would have imploded.

Either way it's not a cause of their economic problems, and the doom-mongering around too high a national debt leading to hyperinflation proved to be the exact opposite of the truth - they struggled with deflation.

They're a sign for the future to come for everyone: population decline.

People are willing to accept living conditions for themselves, especially when they're young that are really not conducive to raising a family.

Many people reach the stage where they would otherwise have children and realize that they just don't want that life in the cramped, high cost housing or long commute times and just don't want to afford a family so they don't.

The problem is not that we can't repay the debt. The problem is that we are so dependent on increasing our debt with deficit spending. If we inflate our currency to get out, then new debt will be at a higher interest rate and so will all debt we roll over into new debt.

Then, all of a sudden we are in a spiral of high interest rates.

It's like we are hooked on debt, and that's fine as long as it's free and keeps coming. But when the party is over it will be very painful to see that federal spending has to fall by a third overnight.

Specifically on devaluing the currency: this doesn't really work like people imagine it would since the US continually turns over its debt by paying older bonds and issuing new ones. If it started to look like the US was devaluing its currency we'd quickly find ourselves unable to issue new bonds, and it basically turns into the mother of all margin calls.

We should judge governments at least a little bit the way we judge people. If people have debt, why do they have it? Are they even trying to pay it off? Are they counting on dying before somebody tries to collect, leaving it to your kids to deal with?

Only marginally related, but I highly recommend reading Debt: The First 5000 Years [0] by David Graeber. By examining and analyzing anthropological records, the author proposed a heterodox economic theory. Unlike the conventional economic model which says the human economic system comes from barter, currency, and finally debt/credit, the author argued that most historical evidence showed that the origin of the human economic system is actually debt/credit - The concept of debt came from the gift economy of early human communities: one friendly person shares one item to one's neighbor, and expect the neighbor provides something in return to help in the future. Barter was the extraordinary rather than the norm: it was only used with outside strangers (because they were not accountable under the human credit system of the local gift economy).

Money and currency is actually a much later development as a method to quantify the debt, in this process, subjective human emotion is removed and replaced with an autonomous and objective economic machine.

From this point, the author gave an alternative interpretation and analysis of human history. His conclusion is that the boom and bust of debt is an important driving force in human history, in this process, the debt bubble becomes bigger and bigger - until the unavoidable explosion of debt crisis. Then there will be a radical breakdown of social order, Finally, a new society is rebuilt, and all the debt from the previous society is canceled - this is a periodic cycle that occurs at a scale of 100-300 years. And the author argued, since the 1970, we have returned to (the beginning) of a new cycle.

You don't have to agree everything that the author claims, but the author is good at telling a story, and it's a fascinating read. My summary is not exactly what the author said, the Wikipedia article the P2P Foundation Wiki [1] has a better summary, it includes transcripts of interviews.

[0] https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years

[1] https://wiki.p2pfoundation.net/First_Five_Thousand_Years_of_...

> And the author argued, since the 1970, we are reaching the next cycle.

So... when was the last time this supposedly happened? Because I can't think of even a single time in human history where there has been "a radical breakdown of social order... a new society is rebuilt, and all the debts from the previous society is canceled."

What's the credit score of the U.S. government? 700s? 600s? 500s? 400s? People won't understand the seriousness of the situation if it isn't boiled down. There needs to be a simple credit score of the US government and people can compare if they're better.

The debt of the United States is in Dollars. So the question isn't what they can repay (they'll just print as much as needed) but what the value of the dollar will be after.

WW2 where most of Europe was destroyed. Contrary to what mainstream media will say is that a large part of it was Germany unable to pay war reparations from WW1 and entering stages of hyper inflation during Weimar Republic. This of course led to a certain party that was really against international bankers. After the resulting chaos we have Pax Americana.

Not a good example, Weimar republic debt wasn't caused by a bubble, it was caused by the punishing burden placed on it by the Allies.

If you look at the actual timeline between 1919 and 1933. The hyperinflation occurred 1921 and 1923. Not surprising since that is in the immediate aftermath of WWI. The actual rise to power of those guys in spiffy uniforms was 1929-1933 and was due to austerity in the face of deflation and banking collapse. Same thing happened in the US under Mellon. Only difference is the Germans picked the guy with the Charlie Chaplin Stash and the US picked a kindly man in a wheelchair.

Which is why WWII and WWI are closely related: had I been writing that comment, I would have said that the revolution in social order and cancellation in debt happened in the period from WWI through to the end of WWII.

In 1910, Europe was an aristocracy, and even the US social order was defined by some enormous winners at the top. WW1 itself dramatically reoriented the power dynamics internationally, which led to dramatic political change everywhere, which setup the conflicts that resulted in WW2.

Sure, but none of this supports the stated thesis that these revolutions happen every 100-300 years and that they are a result of debt bubbles. WWI was not a debt bubble, it was a war. Not the same thing. It was also much less than 100 years before the alleged onset of the current revolutionary cycle in the 1970s.

This is good. I kind of buy into this theory. About the 100-300 year cycle, that stands as well. History is littered with changing reserve currencies.

Lots of comments saying "the absolute numbers don't matter". Which is pretty much true, but the debt to GDP ratio is currently ~105%. The last time it was that high was WWII.

The scary thing about that is we are in a booming expansion. Next time we hit a recession or some other even mild shock to the system debt-to-GDP will skyrocket even further.

Related, remember when the Republicans cared about the debt[1]?

[1] https://www.crfb.org/blogs/23-senate-republicans-urge-obama-...

Does it make sense to look at these figures in isolation? Like its psychologically significant but GDP is also growing and so is inflation. It seems like we would need to look at at least all of those together to get a better understanding of whats happening.

Is this inherently “bad” ?

There are multiple ways to look at it. One bad sign is the large increase in the budget deficit at a time of economy expansion (from $585B in 2016 to $980B in 2019). Another aspect is how much of the budget has to be allocated to paying the interest on the debt ($376B in 2019). The CBO listed consequences of high debt in 2014: http://www.crfb.org/blogs/cbo-consequences-growing-national-...

My suspicion is that the GOP strategy, if there is one, is to run large deficits when they have power so that when Democrats get power they feel that they are unable to spend on social welfare . Reagan, W, and Trump increased the deficits while Clinton and Obama, after the stimulus, reduced it.

You don't have to be suspicious, this has been explicitly stated by many fiscal conservatives on many occasions.

https://en.wikipedia.org/wiki/Starve_the_beast

This quote from Alan Greenspan (emphasis mine) is a little unsettling:

> Let us remember that the basic purpose of any tax cut program in today's environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.

I wonder where that limit lies and what circumstances will we be in when we find it.

Expecting to get downvoted to death without any discussion for this comment but here goes.

The GOP plan is to audit the Federal Reserve and discover how badly they have misused their authority. Once that is done, they'll cancel that debt and disband the Fed and its IRS arm.

That's why the military spending bill was so big. Running up the credit card before filing bankruptcy.

The US is ruled by two political parties and neither care about the debt. Saving for a rainy day during times of prosperity is the exception rather than the rule.

If we owe future generations anything it is 1) a sustainable environment and 2) a sustainable balance sheet. We may leave them neither.

It's not correct to say that neither party cares about the debt. Only one has made it a lot worse.

Agreed. It's always the one who happens to be in control of the purse strings at any given time.

It's the debt to income ratio that really matters.

Absolute numbers like these are not very interesting and quite meaningless. Much more interesting is debt to gdp ratio. Which also happens to be quite high at the moment.

The US government has been continuously running a deficit for a long while. I'm not sure what is the significance of $23T (over 22T, or any other number). It's not even necessarily bad that we run a deficit, although perhaps it should be limited to be in proportion of nominal GDP growth.

Does anyone of you know who owns this debt? What will happen when citizens decide to null it?

I'm not sure the existence of debt in itself is as much of a problem on a macro scale as people think it is - the negative association to debt comes from an intuition over personal debt like loans/credit cards, which doesn't necessarily make sense on a macro scale.

Say company A lends $10 to B. B lends that $10 to C. C lends $1 each to 5 people.

The total debt in this case is $10 (B owes A) + $10 (C owes B) + $5 (5 people owe C) = $25. Each borrower-lender pair increases the debt, even though its all about the same $10.

Now if C defaults on their debt, it has ramifications all the way upto A. But it won't cause a collapse unless the lenders start treating the debt as less risky than it is. In the case of 2008, banks treated mortgage debt as virtually risk-free and borrowed using that debt as collateral - so the problem was that the debt was certified and treated as much less risky than it really was.

I’d like the next person and all the people following who veto an idea because of national debt to be forced to provide a thing which one dollar of debt keeps the US government from doing. They need to provide 23T worth of effects in the economy that are positive from paying 23T in USD debt off.

If I own 1000$ in US treasury bonds then I will make some return (like 3%) after it vests some time from now. But if the US government tracts me down and pays me the principle of 1000$ ahead of schedule then I have lost the scheduled rate of return. It’s a harm to me and in aggregate a harm to social wealth growth.

And as long as the treasury can sell debt for basically nothing it will continue to surpass higher and higher numbers. I'm not holding out hope for spending getting under control regardless of who gets elected in a year.

Most treasuries were held by the U.S. government itself, particularly the Social Security Trust Fund. But the trust fund has now switched to net withdrawal of its savings, which means the total outstanding debt will increasingly be held by commercial and foreign ownership, rates may increase, and, worse, become more volatile as the Trust Fund won't be there as a cushion.

The upshot is that the ability of the U.S. to fund and service debt will become increasingly vulnerable to the global economy. One reason why demand for U.S. treasuries are so high is because it was cushioned from global economic forces. The U.S. was a safe haven. Debt-to-GDP ratio is important as an indicator of your ability to weather global slowdowns and remain in control of domestic budgeting.

So what the future brings is accelerating volatility as the forces which conspired to keep rates stable and low will begin to conspire to do the opposite. Whether rates become burdensome long-term depends on many factors, but the increased volatility alone could be hugely disruptive and costly.

This is an interesting point. For those curious about how US debt actually breaks down among holders, there's a good summary in [1]. It depends "which" debt you're talking about to determine who owns the most of it.

[1] https://www.thebalance.com/who-owns-the-u-s-national-debt-33...

Serious question - who cares? I'm really not trying to be flippant. We keep kicking the can down the road and that will never change.

One wonders when the US currency/debt crisis will occur. It will be bad.

Combine this with the fact that the largest asset the US government holds $1.5T in student loans, and we've got a recipe for disaster.

"Let's borrow more from China, we can repay it with the proceeds from Billy's liberal arts degree"

That's the way it is. If the US has a trade deficit and the companies and private households are net savers, then there is only one sector left who can make the required debt (without new debt, no new savings). Simple accounting.

If you don't want the government to make new debt (or at least not as much), you have to force one of the other 3 sectors to make it.

- Private households: You can't do that.

- Companies: Everywhere we see tax cuts, so why would a country increase taxes? Bad, but that's the way the world is these days.

- Foreign countries (trade deficit): Looks like the only way at the moment. Sorry, but Trump is on to something if he talks about fair trade.

In all honesty, even foreign countries won't work.

You would need to find foreign nations meeting all three of the following criteria:

-Wealthy enough to buy goods. Can't really sell much to Lesotho for instance.

-Net consumers as opposed to net savers. Places like China you have that dreaded 90/90 trap. Where 90 percent or more of families feel a need to save 90 percent or more of their disposable income. Probably because they have both a one child policy and a completely nonexistent social safety net.

-Which is a good segué for the third necessary condition, a government willing to grease the gears of consumption with fiscal and monetary policy. Policies like, for instance, providing their citizens with a reliable safety net. (In addition to cultural tendencies of course.)

At any rate, as we look around the world, you just don't see any nations out there meeting all those criteria. The trade war is more about trying to turn China into a country that does meet those criteria. I'm not too hopeful that will happen though to be honest. The Chinese proclivity to save is not born simply of a lack of a safety net to look after you in old age, it's also deeply ingrained culturally. Has been for thousands of years. Chinese have to be pretty wealthy before they become spendthrifts. And like you said, how do you force a guy to spend money instead of saving?

It's a tough problem all the way around.

Exit stock positions into cash, short most "unicorns" that are pure product of QE: Pinterest, PagerDuty, etc. Exchange some cash for BTC, in case the Fed won't be able to contains inflation when the bottom falls out.

As someone who bought on the dip in 2008, 30% cash is the sweet spot. 20% buying into the dip. 10% to keep you from having any cash flow problems that make you sell off to stay above water.

Only $120 billion in fed overnight loans to prop up liquidity to keep blowing money on short term treasury auctions. Totally not a 5 alarm economic fire raging.

The one chart to rule them all, https://fred.stlouisfed.org/series/HTRUCKSSAAR

If that were lower I would be less worried. The sky high market is why I worry. If the Fed has to prop things up that bad in an all time high economy they will have no control in a free fall crash.

Current gov has no interest in paying off debt. All conspiracy theories lead to the elites plundering the existing system and then defaulting. This will lead to the collapse of the USD and a new digital currency will take its place.

the elites!

It's clear most people have no idea how government debt works. Everyone thinks it's like a household, that the government spends it's revenue and borrows money from someone else.

Imagine you are the JohnDoe family. You are able to issue JohnDoe bucks. You spend the JohnDoe bucks first and then later ask for some of them back (as taxes). The difference between what you spend and what you get back is called the JohnDoe deficit. And the aggregate of the deficit is the JohnDoe "debt".

On the other side of the transaction, those that provide services to the JohnDoe family now have JohnDoe bucks and because they didn't have to give all of them back to the JohnDoe family they keep some in bank accounts.

Another way to say this, the US debt can also be called "US people's savings".

JohnDoe also issues bonds with a percent return. Some of the people with these JohnDoe bucks might buy the bonds to get the return.

The question is, is the JohnDoe family ever in danger of not paying those bonds back? The clear answer is no, they can always pay back any debt as long as it's denominated in JohnDoe bucks.

Wouldn't you like to be the JohnDoe family?

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