Who Owns the US National Debt?
thebalance.com
thebalance.com
"The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."
At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
> A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds.
In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way.
Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
A real ponzi scheme is one which is not producing stuff, but requires new investment to pay out old investors.
Stocks are not ponzi schemes, because a stock does not require a new investor, because the company behind the stock is earning profit. A new investor is willing to buy the old stock for a higher price than originally sold, because the company is making more money (and is expected to make even more in the future).
(In reality there's a spectrum of how speculative any given investment is; basic things like food and land are certainly subject to some speculation, and even hyped penny stocks probably have a nonzero fundamentals case for why they're valuable. But that doesn't mean there's no distinction at all)
So it "doesn't matter" where the prices are - because a well planned retirement means you convert some % of your allocation to a more stable asset, like bonds, and live off those bonds. In the mean time, fluctuations of the stocks doesn't affect you as much, and you can strategically sell when the prices are "high".
A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain.
You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
It sure can, but this doesn't go far enough.
The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times.
The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
> Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt.
Kind of repetitive, but at least it's not clickbait.
Bonds held by government programs are real (not optional) demands on future government revenue. When Congress passes a budget each year, that budget has to cover all payments on outstanding debt, including intragovernmental holdings, not just those held by the public.
Social Security bonds, when redeemed, fund Social Security benefits, which go to real Americans. Defaulting on bonds held by Social Security would result in real reductions in income outside the government.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Most honest brokers will never cite the meaningless number, but rather the "debt held by the public".
Intragovernmental debt isn't what gets you to "most" or anything, but it should not be counted in any situation where we're talking about the fiscal or macroeconomic situation, rather than a political point.
Consider 2 situations.
1. Social Security lends the government a trillion dollars.
2. Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
What makes the former "Utterly meaningless", but the latter not?
It's not like Social Security is... Planning on forgiving that debt.
But with Bob that isn't the case.
So how can it be that on the one hand, it "doesn't matter", but on the other hand, the debt is touted as being unable to be serviced?
The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).
No, it isn't. Sorry, but this just isn't up for debate.
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
If I take a loan from the bank for $1000, but also have $1000 in a bank account in another bank, then my debt is 0. Social Security is a bit like the second bank account.
That is correct.
In the case of social security, you also have to account the total amount that social security owes to its contributors.
Because at the end of the day, Social Security has to pay out benefits, this debt isn't just pointless accounting fiction.
"Social security owns government debt" very clearly communicates that the government indiscriminately defaulting on loans will mean that social security beneficiaries will have to take a haircut - just like if I replace the words "Social security" with "XYZ pension fund." Just because the government runs this particular pension fund doesn't mean that it's all that much different, accounting-wise from a private one.
This is a nonsense step. There is no meaning to the social security lending the government any money, as social security is the government
> Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
This scenario is just "The government buys back some of its debt, reducing its outstanding debt." The "Social Security" part is just a random detail that doesn't add anything.
(BTW, Social Security doesn't actually do this. They hold special bonds that are not the same ones available to the public.)
Debt is debt.
This fictional accounting is a silly marketting gimmick, not a meaningful distinction. It's a government program just like all other forms of welfare.
Do you think that there were decades when lots of folks were contributing and no one was collecting?
If it is funded by taxes, it is funded by government.
You could argue that the social security trust funds are loaning money to the general fund, but that’s like saying your savings account and money market account are loaning money to your checking account.
It's like saying that it's meaningless for you to loan yourself money, because it is (except when there is some other, external reason that it carries meaning, not by rules you made yourself.) We constantly ignore these internal self-debts for people and for companies.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
Congress may step in and directly fund certain SS programs through some other means once the ss trust fund fails to cover these expenses, but that outcome is far from guaranteed, so the ability of this fund to generate revenue through lending to other parts of the federal government remains material.
Social Security happens to buy US debt with that surplus, but it could have invested it elsewhere ie stocks if it were allowed to.
(Of course there are pros and cons to this https://www.wsj.com/articles/should-the-social-security-trus...)
Uncle Sam could cut payments to China or Japan in a crisis. It’s much harder to cut payments to your own people. It would instantly make any crisis much worse.
> It’s much harder to cut payments to your own people.
also, ive heard its an advantage to japan to have its govt debt owned by its own people as well...
curious to hear counter points!
Keep in mind that debt is a liquid asset. If you were foolish enough to not pay out Chinese debt holders, they would simply sell to Americans. The notion of "lets not pay xyz" has spectacularly bad outcomes because it signals to the world that you are not a serious nation when it comes to debt.
In the long term, the US strategy has clearly paid off.
The US has excellent credit because it has largest military and is the dominant global player. That makes money parked in US T-bills safe. Liquidity and good, healthy economy (but not perfect) helps.
A country with a reputation for stealing people’s money does not attract foreign investment no matter how big the military. Does a robber seem trustworthy to you just because he’s got a big gun?
Maybe the USA is looking for a reason to not pay?
You never have to when you control the actual production of the currency.
A foreign entity might demand to be paid back in actual assets, whereas joe citizen will have to accept any monkey money the USD decides to pay him back with.
If the past 2 decades haven't blown the "deficit/inflation" correlation myth out of the water, just wait until the US goes all Japan and turns up the printers even more and have absolutely nothing of consequence happen to it (especially considering the US is even more isolated from raw resource allocation cuz of all the sheer size and diversity of the economy).
Simply the evolution of the economic output moving from manufacturing driven to what it is now makes the comparison a little less jarring.
It flips the inference the author of that website is pushing on its head if you consider what those numbers are actually indicating with the context of what the definition is. Maybe it means the "Volume of input" has been greatly improved because of technological assistance, maybe it means human elements contributing to economic input have more help from advancement in sciences, maybe there are a lot more complex factors at play here than what we are aware of.
tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
https://economicsfromthetopdown.com/2020/01/17/debunking-the...
> tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
Oh snap. I read your link but not the tl;dr, oops.
I'm inclined to side with the other comment nearby: cutting payments to foreign creditors is easy, cutting payments to your own citizens is a disaster. Sure, there's this magic pixie dust of MMT, but with inflation already poking it's sharp edge into every day life, I doubt we can print our way back to prosperity.
That's not insignificant and will be much harder to write off than paper social security liabilities.
Here's the crux: The US goes into 'debt', to pay for something. Where did the money (resources) come from?
- it printed it itself -> that isn't debt, just 'money creation'
- someone else -> it is debt, owed to another entity
You can't pay your groceries by taking a loan from yourself, you either have the money or you don't
By way of analogy, think of the first as physics and the second chemistry (the study of emergent phenomena from the more fundamental relationships). But less rigorous than physics/chemistry, at least so far.
It's like you're saving for you holidays and your hourly rate goes down because of it.
pay using credit card and then repay the the cc (with interest) over the next few months / years.
That would be also applicable to all loans. So yeah country would loan from future generations and they will have to pay it back.
> You can't pay your groceries by taking a loan from yourself,
No, but countries with their own currency can.
Inflation isn't the thing they need to worry about. What they need to worry about is making sure their particular job's wage inflation is keeping up with the average.
You know that this is false, why say so?
Putting your money under a mattress is not responsible, putting it on an investment which will accrue interest is, and imagine what. That interest will compound not only from inflation but ensuring good gains
There are other good reasons to borrow from a macroeconomic perspective (e.g. a liquidity crisis). In such a case you hope the side effects are less than the primary effects. This case is like the doctors’ Hippocrateic Oath: yes, first do no harm, but sometimes you have to cut a hole in the patient to heal them.
A country's central bank (The Fed) is not the same as the country (U.S.A.), or more specifically, the government of a country (PoTUS, Congress, ...Treasury).
The central bank is an entity, like a company is an entity, that is lending to the Government, which is often more than one specific entity. The Public.
It can be confusing in the same way that explaining how BGP is used to route TCP packets, across an IP network, with an AES representation of some data that can be used to store value.
That said, money !== resources.
The Fed does issue money which is exactly just 'money creation'. But... It issues bonds to show that other entities will hold the other side, or a 'loan' of the money just created.
This money system was built into what it is now by the Medici: https://en.wikipedia.org/wiki/House_of_Medici
Niall Ferguson wrote a great book which gives a detailed history called 'The Ascent of Money'(2008). Niall's other books are worth a read too.
In many ways it worse (PoW for Bitcoin), in some its better (banking for the bankless). However you can have Crypto that has an inflationary mechanism that's codified (can still be gamed), none the less it can be inline with modern monetary schemes.
It's funny because the Warburgs could trace their lineage back to Venice.
And guess who makes the banking laws.
Mostly because finance as much as financiers desperately want it to be a science it isn’t. For the most part they’re guessing in the dark and presenting it like hard science, using baselines that are very generic and seeing if their associated metrics change all the while speaking in cryptic language.
Good example is Greenspan’s one number to rule them all.
In general I’ve noticed the same behavior in life too, whenever people start speaking in overly complex ways they’re usually (though not always) masking incompetence in the subject matter.
This article in general felt more like a forced down your throat PSA than anything else. Don’t worry it’s not foreign countries owning your future, it’s your own retirements at work for you. Your country working for you. There’s a name for that, propaganda.
The article didn’t really explain anything about debt, it just used government publications to recite to you how the government segregated the owners of US treasuries. Same as when an analyst will tell you what kind of institutions own AAPL. Hint: the same.
I agree it could be better presented, but a sibling comment actually presents this in a way that makes more sense than OP, but without disparaging the whole field.
The complexity of economic discussion is 100% politics. Nearly everyone in the debate is looking for justifications as to why they & theirs should get more stuff and not have to do anything for it.
I think there is an important difference between “this is needlessly complicated” and “I don’t understand this yet.”
Nations are very large things, and national governments have powers and responsibilities that are different from the individuals and organizations within them. So, it is logical that government finances don’t work the same way as the personal and business finances we are used to in every day life.
That doesn’t mean government finances are optimal or perfect. But I think it’s reasonable to expect that it will take some effort to understand it as it exists today.
In other words when you need a bailout because you made some stupid financial decisions due to greed the govt wont bail you out but if you are a too big to fail institution and have friends in high places, the govt will bail you out even though you made some reckless decisions, you just have to tell everyone that its very complicated.
To be fair that seemed to be the reaction of several HNers, too
The US doesn't go into debt to pay for things, it goes into debt voluntarily to play-act that it is using a commodity rather than fiat currency. Or perhaps out of political inertia since it once did use such a currency.
Pointing this simple fact out (hello, Modern Monetary Theory) gets very serious people very mad, though.
Monetary policy is what central banks do, and includes quantitative easing (QE) which is often referred to as "money printing". Monetary policy also includes setting interest rates, managing the supply of physical currency and acting as a clearing house for bank operations.
The two are separate things but get conflated a lot in discussion - including on here - which makes the whole thing way more confusing than it could be. These Bank of England pamphlets on money in the modern economy are the clearest layman's overviews of the monetary policy side of things I've found:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
It has been going up since the global financial crisis and accelerated during COVID. Central banks keep saying they’re going to taper but it will be very, very slow tapering in order to not hurt the economy.
In essence, currency is being debased when central banks buy debt to protect the financial system from sudden shocks, and keep buying it because the economy remains fragile and gets hooked on the central bank asset purchases.
Due to artificially low interest rates (because of said debt purchases) asset bubbles are formed elsewhere in the economy, and the ones who gain disproportionately the most from this are people who own invested assets, while those who don’t are no longer able to afford financialised assets like housing, or goods affected by inflation.
Soros is also advocating perpetual bonds for the EU/ECB, especially Club Med countries, with the whole union guaranteeing the debt. Northern EU member states are already subsidising the south/east member states, something like this would set it in stone for a long time.
Then there's also the market expectations of whether the Fed is willing to go with negative interest rates, which would influence the behavior of bond traders.
None of these things look artificial to me. This is an argument that central banks should be doing more debt purchases, not less. The long game of the central banks is to raise long term rates (the reverse of the current situation), but they either haven't been successful at it or think things will improve on their own.
Central banks have a couple of primary mandates - (consumer) price stability ie. keeping inflation in check, and sustainable growth / employment.
As long as the economy is weak and the official CPI figures don't show sustained inflation, they will keep printing (buying debt), in order to protect growth, employment and financial stability. We are getting to the limits of how much you can print without affecting inflation.
They are unable to let longer term rates rise (by stopping or tapering debt purchaces) because the it will negatively impact the fragile economy - unless there is clear indication of sustained inflation, in which case they are mandated to act. This would also be very bad for the economy (inflation/rate rises plus economy stagnating).
The only way out of this mess is for central banks to reduce buying debt very, very slowly and hope the economy doesn't choke and grows out of this. There is no other way.
All modern currency is debt. All of it. The amount of debt created and the amount of new money created is equal, because x=x for all x. It's just that simple - there isn't a difference.
There are the printed bills (that everyone has access to), there's the digital base money printed by the Fed that you keep hearing about, it's the liabilities side of their balance sheet (that only select large financial institutions have access to), then there are govt bonds and govt-guaranteed bonds (Mortgage-backed securities) (which again everyone has access to, but they're impractical for day-to-day conduct of business; they're extremely liquid though, you can convert them by the hundreds of millions to bills/base money by a single phone call). But all of this is money, just different types / quality of money.
Operations such as QE are just a means of conversion between the types of money. For example since 2008 we have continuous conversion of high quality bonds (govt and govt-guaranteed) into base money (the top quality money). All of it is still a government liability, since the Fed is a part of the government.
Similarly, the Social Security buying Treasury bonds is just an internal government operation. Pension liabilities are just like government bonds (it's a promise to deliver money at a later point in time), if you fund a pension liability with tbonds you're just doing some internal reshuffling within the federal government books. No actual funding takes place, i.e. no one is delaying their personal (or corporate or nonprofit) consumption in exchange for a future payoff.
If you don't believe me then please try to explain why hasn't Japan experienced a double or triple digit inflation. They are so much more advanced in the "central bank money magic".
PS. I'm using "quality" to refer to types money to simplify a bit, the more accurate first order approximation term would be "duration". Then there are further technicalities such as coupon structures, whether or not the coupons depend on the CPI (TIPS), whether or not they exist at all and maybe you just get a lump base money sum at the end, etc.
PS2. I've skipped the (actually larger) private credit. Yes, bank credit and the bond market also create money, though definitely lower quality than anything discussed above. Private credit is allowed to disappear at any given point in time. The Fed is currently not allowed to touch private credit whatsoever (this might change if the Congress decides so), they very briefly violated their own rules in March of 2020 by doing a weird type of deal with the Treasury (which is allowed to deal in the private credit, as the Treasury is allowed to spend; buying a bond that later defaults is effectively spending). And by the way: their announcement of an intervention in the non-govt guaranteed credit markets was the exact bottom of the covid market panic.
It's important to note that Japan should not be viewed as a template for the US. Both countries are quite different in many regards. The former is one of biggest creditor nations with private sector deleveraging for almost 2 decades thus compensating for significant part of the government leveraging, meanwhile the latter is the world's biggest debtor nation with both private and government sectors becoming more and more leveraged (see [0] for a more thorough comparison). The ultimate question is: for how long the US will be able to maintain USD as the main reserve currency. We already can see that foreign governments and investors do not wish to buy more T-bonds and even tend to sell them.
"x=x for all x" - this is true if you mean to say everything on the Fed's balance sheet is 'Debt' ... but that's wrong - it's referred to as 'Assets'. The currency itself is the 'Liability'.
A Central Bank issues currencies for assets, in which case the 'currency' is 'backed by' those assets. Ostensibly, one could trade the currency back for those assets.
That's not generally what we think of as 'debt'.
Now, much of the 'Assets' are actually US TBills, which is 'debt' - but - not all of the Fed's Balance sheet is TBills.
So 'x' does not equal 'x'.
The US Fed Balance sheet [1]
ECB Balance Sheet [2]
Historically the asset would be gold - and that still makes up part of the Fed's balance sheet. Since 2008, the US Fed has issued currency based on mortgage securities, essentially, it owns homes.
Otherwise, the Fed owns TBills, i.e. US Government debt, as assets, which is part of the basis of this article: The US Fed is one of the 'major owners' of TBills.
Yes, it's legit to point out that 'Internal Operations' are relevant and partly why Japan is not having major inflation, but your denotation of 'Internal' as being 'Government Agencies' is not quite right: by 'Internal' what we really would mean is 'internal to the Japanese economy'.
So Japanese debt is held by Japanese individuals and institutions of all kinds, public, private etc.. So 'Internal' means anything in their entire economy.
For a breakdown of a Central Banks Balance Sheet have a look here [3] which breaks down ECB balance sheet growth over the last while.
[1] https://www.investopedia.com/articles/economics/10/understan...
[2] https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystembalanc...
My overall point was that the central bank, the public pensions system and the treasury are all a part of the federal government. When they "trade" with each other and maintain separate balance sheets that really means very little. What's the large scale difference between a tbill and base money if the Fed maintains an open market operations center and guarantees to trade them in unlimited quantities (repo and reverse repo) to keep them priced 1:1 to enforce their monetary policy? I mean I know you cannot take a tbill to a drugstore, but you can trade it back to a spendable private bank account balance in an instant, and you will always be able to.
So yes - 'most of the assets that back currency is just government debt' and 'much of that debt is held not just by the Central Bank but also by other government agencies'.
Which makes a good chunk of the system just a matter of accounting.
But: "balance sheets that really means very little"
No, it still means a lot.
Both the 'internal accounting' stuff matters, and you can't forget that most TBills are not held by 'other government agencies'.
Yes - the fact that the value of currency cay be 'fuzzy' is relevant, but it's not entirely fuzzy. All of that accounting matters still.
Unfortunately once the Baby Boom retires and their SS payments come due, there is no reasonable path to the US government being able to actually pay. Doubly not when expenses from Medicare is projected to double in the next decade.
And yes, I know it is popular to say that we can just cut the military. But that is not enough. In fact if we eliminated all government programs except social security, medicare and medicaid, by the middle of this century our federal budget still can't add up. :-(
The only question is whether or not the currency can retain its ability to procure labor and materials.
I have no qualms about getting the numbers I am owed from social security deposited into my account. I do wonder how much I will be able to buy with it though.
As i understand it, more or less everyone (excluding fringe groups) agrees that:
1. All money is created by the state or other banks acting under state licence
2. Money only has value because the government promises to back it
3. because taxes must be paid in government-issued money
4. Therefore government spending comes before taxation
The bone of contention as i understand it is the 5th tennet:
5. Government deficits are necessary and good because without them the means to make settlement would not exist in our economy
As i understand the argument, it boils down to a disagreement about whether public investment can crowd out private.
EDIT: points from https://www.google.com/amp/s/criticalfinance.org/2019/02/06/...
The only way for the economy to grow if the Government is running surpluses is with increasing private debt (so not really "paying down" anything but just transferring debt from one sector of the economy to another), and/or with a big enough trade surplus to cancel out the other sectors.
In any event, the parents take on 2 is not exactly correct. MMT people say that a primary source of demand for a currency is that taxes may only be paid in that currency. Governments spend money into existence and tax it out of existence.
> [...] a primary source of demand [...]
That indeed sounds much more plausible.
[0] https://www.wnycstudios.org/podcasts/radiolab/articles/more-...
When communism fell, I remember how the west promoted the ‘shock therapy’ to former communist countries, which was devastating to them. Another junk science that lead to a ‘lost decade’ and misery in eastern countries.
It was a ‘rip the Bandaid’ type of approach, which failed as it didn’t account that some countries needed time to adjust to the new capital system and it led to the closure of many lines of production that were actually profitable, as it was a ‘hard reset’
Be very wary when someone peddles a new ‘theory’ which is unproved, as a magical cure. Communism was one of them as well.
But also as an outlay of currency, QE is one of the least effective uses to support or generate productive capacity.
How do we know when we’re getting close to full utilization
You'll know the economy is neat 100% because inflation will kick in.
Also, deflation.
Zimbabwe’s economy and currency collapsed because the government stole productive assets and gave them to people who did not know how to do anything with them, basically destroying the productive capacity of the nation within a few weeks.
Recent history of Zimbabwe (<http://imgur.com/a/VdQdD>)
So if your trade + investment balance remains favourable, it's not a problem. If there's a major flight of investors (to where?), capital, or a thing you must import at any price (usually oil), then inflation kicks in even without money printing.
The US need not worry about inflation until a bigger more stable economy comes along, which is a long way off.
You raised a good point about inflation not necessarily being tied to printing money, but you ignored the fact that if you print more money (without an obvious productive place for it to go) then you simply increase supply without increasing demand which causes inflation. It's happening right now in the US by just about every metric, and there is good reason to believe it is about to go up a lot more.
So no, the US not only is currently experiencing inflation like it has not seen for decades but there is likely to be a lot more in the near future. The Fed is printing money like crazy (I believe we've printed approximately 30% of our total money supply in the past ~2 years, so in ~2 years we've printed approximately half as much money as we did in the previous ~200 years) which deflates the value of our currency. I actually rounded all the numbers down to make it seem less problematic than it is - I encourage you to check the data for yourself.
Doesn't that money start disappearing as soon as the QE stops?
War can be profitable. Climate change can be profitable. Making unsafe airplanes can be profitable. Financial system brittleness can be profitable.
With allocation of capital being the primary incentive setter, and the Fed playing a role of removing the pain and sting of artificially inflated assets, I'm not convinced that Market reality even tracks well with reality anymore.
Where is the surge of investment in physical and supply chain investment in light of all of the logistical difficulty we've run into? Where is the funding of domestic manufacture? Where is the wage growth? Where is the transparency in medical cost reduction?
These are all signs that the economy, instead of focusing on getting real work done, is off chasing purely fiscal optimization rather than societal risk mitigation.
So... Beg your pardon, but I think your measures of success and mine are different enough that I can reasonably say that by my metrics, those "experts" are failing to deliver at anything except perpetuating the status quo that keeps them in a job.
That's just me though.
In 2021 you need to remove the weed drug testing provision and then hope that you will get applicants.
Printing 3T dollars and handing out 3k/month to everyone has caused the cost of labor to double or triple in some areas. In other words the way out of the social security insolvency is to reduce the quality of labor a dollar buys.
In 2040 you should expect to get 4k/month from social security and for that to cover your food and housing, but hiring a person to replace your gutters will cost $90/hour
Maybe they’re just feeling kind. More likely: they’re having trouble finding people to become delivery drivers.
https://www.aboutamazon.com/news/operations/update-on-our-vi...
I assume the drivers Amazon employs are actual truck drivers under the purview of the Department of Transportion, and are probably still drug tested to satisfy whatever federal requirements they have to satisfy.
> We will no longer include marijuana in our comprehensive drug screening program for any positions not regulated by the Department of Transportation, and will instead treat it the same as alcohol use.
Most of their drivers are not long-haul, but last mile delivery.
https://www.bloomberg.com/news/articles/2021-05-05/amazon-wo...
According to this article, Amazon is suggesting the companies they pay to make the home deliveries to skip marijuana testing in order to find more drivers:
https://www.latimes.com/business/technology/story/2021-09-01...
The distinction is important because Amazon seems to be wanting the companies they pay to make the home deliveries to pick up possible liabilities from not testing drivers for marijuana use, but it is not clear if Amazon has chosen to accept that liability as well.
https://duckduckgo.com/?q=do+you+need+a+cdl+to+drive+for+Ama...
The people under Amazon's purview that are DOT regulated would be CDL holders driving semi trucks and similar. Those are strictly drug and alcohol regulated, with fed mandated preemployment and ongoing random tests.
Right, they have a pass-through setup where they dodge liability by employing them through nominally independent companies. They're still in full control over their employment conditions in practice.
Of course now Amazon is in the news for asking their contracted local delivery "partners" to not reject driver applicants for weed. Although this time around it's not because of weed directly, it's the general lack of applicants; Amazon's already expressed concern that, due to turnover, they may have already cycled through most of their potential workers.
Nationalization is also a potential and underrated part of the toolbox.
A nationalized-health-care system could be a huge lever on inflation. On a basic level, it would enjoy near or full monopsony status on many products and labour categories, so it would be easy to say "our reimbursement rates rise 2% per annum, and if you want to sell ANY product, you'll take it and like it." An even more aggressive process could take medical education and supply production directly under a state umbrella, further reducing market pressure for ever-growing margins.
Similarly, a "free state universities for all" program could come with strict restrictions on program costs to clamp down on spiraling costs.
Other forms of state intervention-- subsidized goods, for example, or even WWII-style ration books-- could help to mitigate the negative consumer-facing effects of inflation. You might have to pay $100 per kilo of ground beef on the open market, but if we had a functional ration system, everyone still gets sufficient coupons to have a hamburger once or twice a week. If the only things you need "dollars" for are luxury nonsubsidized/nonrationed goods, then the dollar can crash and burn every few decades with minimal quality-of-life impact.
No, because there are no new services, just nationalization of services people are already paying for, and removing to the extent the industry has profits (or surplus revenues in the nonprofit components), nationalization would provide free revenue in first-order effect.
If there was political agreement that those plans worked then there would be no link to currency or debt. They'd be good ideas all weather and all systems.
But they aren't good ideas, they are increasingly clever perpetual motion machines, claiming to make things cheaper while moving the cost around (without making it smaller) until it isn't clear where it is. Because there isn't a step in them to make things cheaper that doesn't involve waving a magic wand and saying "but if the government says it is cheap it will be cheap".
That's the magic wand.
Note that many high-value companies (eg, Uber, Amazon) historically run on razor thin to negative margins when they want to grow their revenue.
However the price of assets like blue chip stock or a house has increased massively, we cannot really afford them anymore.
Today there is no way make back principal after even 30 years with returns/dividend on most blue chip stock or rent on a house you buy/invest in.
The returns are mostly based on the asset appreciating even more.
This wealth inflation has resulted in being priced out of housing or generate retirement savings etc and the wealth inequality has widened so much already.
The biggest problem isn't boomers but the life expectancy of gens X, Z. Luckily(?) they look less healthy than their parents.
SS can be boosted by charging SS on unearned income and income over the limit.
EDIT: Asking a question to be more specific is being downvoted leads me to believe there is a party that hates these particular questions being asked, and is antithetical to the idea of community dialogue and shared ideas.
I really think the whole internet forum thing has much to be desired.
If the debts were not paid back, then why would anyone want to buy the debts from the original lender?
Say I lend you $1000 and you agree by contract to pay be back $1000 in 2030. I want my $1000 now. You have no obligation to give it back to me now. If you decide you wont, I will consider selling the debt it on.
If you are a government there is a market for me to sell it on easily.
Yes, because purchasing a bond is just purchasing cash flow at various points in time. It does not matter who makes that cash flow happen, as long as you receive the cash.
> If you are a government there is a market for me to sell it on easily.
There only exists a market for you to sell on easily because similar debts have been previously paid back.
Calling anyone in the following 18-20 years part of the one-year boom has always felt contrived, though I’m clearly swimming against the tide here.
As someone on the tail end of a “generation”, its odd being lumped together with people who could easily be my parents - with people who weren’t exposed to computers until over a decade into their professional careers.
It wasn't a one-year boom; demobilization wasn't immediate, and anyhow its wasn't just a soldiers-returning effect. Birth rate didn't drop to the pre-war level until the late 1960s.
Source: https://www.statista.com/statistics/1033027/fertility-rate-u...
Besides, the choice to default on dollar denominated debt is completely the US government’s.
The current situation with social security is that the expenditures for benefits exceed the revenues from taxes. The difference is being made up by the social security reserve fund.
This fund consists of the US Treasuries referenced in the article. There had not been any issue with the government paying these debts. They are an expected part of the budget.
The point at which we get into trouble is when the reserve fund is exhausted. Then the government will have to spend more money to keep social security benefits at their current levels. This additional expense is not currently budgeted for.
The fact that your social security taxes are "hypothecated" to be for your retirement is a nonsense designed to confuse.
The obvious counterpart here is: assuming social security was invested in non-govermnent US-based assets, and the USA was no long able to pay its debts, how much would those assets actually be worth (i.e., the economy/country is likely in a very bad shape)?
[My personal conclusion is that really, at the end of the day, the currently-retired people are intrinsically supported by the currently-working people, and all the money-tracking is about keeping this exchange reasonably fair. But if the currently-working people are unable to support the retired ones, no financial magic is going to fix that.]
Well, there is a way to work around this: to invest into foreign assets. In other words, domestic retirees will be supported by people working abroad. This approach certainly has its risks, but even before that the modern US is the biggest world debtor, not creditor.
You'd create mass unemployment of young people to pay out the unemployment of old people.
You (I'm not in the US) should cut your military not to lower taxes, but to increase spending in actually productive areas of the economy. Military spending is not productive, by definition, most of what it spends is buying stuff and people that are supposed to be disposable via war.
There is certainly a case that military spending is not the most effective way to multiply the economic effect that other kinds of spending like infrastructure, education or healthcare, research etc . All of these have huge secondary effects in simulating the economy that military probably does not have .
Citation Needed
From what I've seen SS can be fixed by either
- raising the retirement age (originally, life expectancy was barely older than retirement)
- applying SS tax to all income and even capital gains
The social security time bomb is a political invention.
You'd also have to figure out how to eliminate other tax loopholes at the same time, like taxing unearned income from investment at a far lower rate than earned income from actual work.
If Social Security cannot pay it’s obligations to recipients, it is funded by the general treasury. The treasury doesn’t have the funds either, so is funded by treasuries.
If at all possible it would probably be best to freeze payouts and let inflation solve the issue.
The US dollar is whatever the US military says it is.
This system is not right, moral, proper, ethical, just, or in any other way virtuous.
It just is.
Philip & Alexander, Genghis Khan, Augustus, Pax-Brittanica, ad nauseam. They all worked the same.
Empires consume humans to feed growth. Grow or die. Money is a shared hallucination.
While the USA's military industrial complex is an unqualified evil, the alternative is worse. No empire means chaos, world war, all against all.
Just a guess.
I think it will be more like a dozen+ regional powers scattered all over the world. And their economies tied up through a mesh of trade and military ties/enmities.
Only people who really suffer from the collapse of an empire is the citizens of that empire. Everybody else just moves on.
(The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
There is a real utility to having a vehicle for investing free of credit risk.
You realize how unrealistic that is right?
https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).
https://www.treasury.gov/resource-center/data-chart-center/i...
Not sure if there are also un-adjusted treasuries though. Probably?
If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.
The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%.
https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c...
(This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)
You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing.
Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue.
Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts.
The government is a sector of the economy that will maintain a positive debt level just as households and corporates.
That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero.
So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.
My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?
I think there are plenty of people around here who would be very satisfied if the government of the US did exactly that, as long as it didn't try to claim Medicare.
Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.
Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.
Really confused and scared here.
It can have a serious prolonged correction. "The economy" is the sum total of the productivity of a country, and in some ways is a measure of the expectation of what one can expect to come out of the country, especially stability. The glue that holds it together is trust amongst its participants, and I would say that a currency's desirability is a combination of the trust one has in the ability for a society to continue delivery desirable goods (including stability).
People in society also have expectations about their future quality of life, based on assumptions that may or may not be true. Debt is priced based on these assumptions, and it is certainly possible that if assumed rates of economic growth are not met, then debt will be defaulted on. It has already happened in some local governments (e.g. Detroit), and I assume it plays out the same way. Members of the society that experience the default will go through pain and suffer losses. On a national level, one might experience revolution or violence.
But it all depends on the level of trust and cohesiveness amongst the members of society. Right now, based on the USD's purchasing power, it seems that relative to other societies in the world, a lot of people around the world still assume US society and government will be relatively stable and able to deliver desirable goods and services for the foreseeable future.
Of course, this is all speculation, and any society at any given point in time may be in an inevitable downward spiral, or in a temporary downward trajectory, or just about to hit the local minima and about to experience a boom.
Our major growth industry mostly makes apps. We don’t even have a proper semiconductor industry in America. People are getting older. Where is all this productivity going to come from? From everyone switching to web development and making more TikTok apps? That’s the productivity that we think will pay trillions of dollars worth of Medicare/social security? I don’t really see it.
I just read a wsj article about how men have pretty much stopped going to college:
https://www.wsj.com/articles/college-university-fall-higher-...
What is this productive future we are envisioning here? Bunch of SaaS apps?
There are various options. You can print money to pay off the debt, which comes with its own tradeoffs. You can reduce the payouts in a way that doesn't look like defaulting - raise the social security / medicaid eligibility age, reduce what's covered by medicaid - or outright reduce the payouts, or take an orderly haircut. Or, yes, you could do an outright disorderly default, which would probably be unwise.
It's manipulative strategy that takes advantage of people wrongly thinking that national debt is like personal debt.
There are plenty of countries with higer national "debt" as % of GDP and with a higher quality of life than the US:
https://en.wikipedia.org/wiki/List_of_countries_by_external_...
https://en.wikipedia.org/wiki/List_of_countries_by_public_de...
In other words, the average US citizen has, over the years, been taxed way harder than they've ever realized.
And the argument that this is a "debt" and can therefore be "repaid" at some point does not hold, since it will be repaid in USD, whose value generally decreases over time and is controlled by the USG (they can produce arbitrary amounts of it).
Nice way to boil the frog.
I look at it through the shares of income to the Treasury.
In 1950 the Treasury took in $39 billion, adjusted for inflation that would be $458 billion today. 40% of that was individual income taxes, 10% was social security. 26% was corporate taxes, and 20% was excise taxes.
In 2020 the Treasury took in $3,421 billion. 47% of this was individual income taxes, 38% was social security. 6% were corporate taxes, and 2.5% was excise taxes.
The individual burden went from 50% to 85% over the past 70 years.
After all that data, how did they come to this conclusion? Based on numbers in the article, SS and pensions account for only 13%. The clear largest holder is the federal reserve + government at 35%. Whether or not this means US citizens effectively own most of the debt is another discussion.