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Comment by munk-a | Hacker News Reader

The US National Debt being viewed like a bad loan is a load of BS - that's a sum invested and leveraged against the projected continued growth of the country and, honestly, nobody on earth has the ability to forcefully collect from the US government.

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As far as I understand it, it has nothing to do with creditor’s ability to collect but the interest future creditors will be willing to part with their money for.

With an institution even a fraction the size of the US federal government, I don’t think people can reasonably collect, and instead the incentive to take care of current creditors is to give future creditors confidence that their investment is safe. Historically this allows the US to borrow at very low rates.

People often get all full of bravado about this, but they miss your point. It isn't about the money already loaned, it is about the billions a year the US government needs to borrow to stay functional. Scare off investors and they'll find somewhere else to keep their money safe.

Who are those creditors? Who set's that interest rate?

It's largely the FED, right? What prevents the FED from keeping the interests low, if the US-Gov does not want to pay?

When we talk about debt, we are usually talking about bills, notes, and bonds the US treasury issues. The Federal reserve does buy lots of treasury bonds but it’s a fraction of the public market as a whole. Most of the debt is held by American institutions and private individuals, then American government agencies and the fed, then the remaining third or so are foreign governments/institutions.

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

My understanding is that the Fed buys treasuries at the market rate and does attempt to keep interest low that way by creating some demand at the current rate, but that it’s ability to influence the treasury rates is not as important as the perception that American debt is rock solid. It works by buying a small amount to “soothe markets” and keep other players interested, and is unable to create all the demand by itself without basically destroying the value of the dollar.

Disclaimer: I’m not an economist and probably have massive gaps in the details and mechanics of The US’s fiscal policy (or monetary when we talk about fed creating credit to buy treasuries).

Interest Rates! You nailed it. Nobody is going to collect on the US, but if we default we basically lower our national credit score. It then becomes harder to get/give loans internationally. Debt is also super complicated. The most recent estimate is only ~40% of all public debt owed is foreign. That means the rest of our debs it owned by Americans themselves or intergovernmental. This article is mostly highlighting that we will need to borrow in order to fund some of these programs. I doubt that will be difficult for us considering our current credit rating. https://sgp.fas.org/crs/misc/RS22331.pdf

You can see this in their article on Chicago, too.

https://www.truthinaccounting.org/news/detail/chicago-in-deb...

"Chicago in debt despite balanced budget and federal aid"

Well, yeah. I have a balanced household budget and a big mortgage (debt). It works fine.

You aren’t taking a new mortgage every year though.

Neither is Chicago.

"Chicago's annual revenue is $11 billion but its pension credit card debt is $33 billion."

Comparing annual revenue to total pension liabilities is silly.

(As is calling it "credit card debt" to make people think it's incurring 20% interest penalties. That's a deliberate choice to prompt a false impression when reading the article, IMO.)

Chicago's pension debt continues to expand while its revenue is in peril [1] [2]. They will eventually need to reduce services and maximize revenue transfer to these obligations if they're unable to default or renegotiate them. Typically, your mortgage balance does not grow more rapidly than your household income (unless you have a negative amortization mortgage). The state attempted to pass a progressive income tax [3] increase to help fill some pension gaps (with PR help from the governor's own finances to the tune of ~$56 million), but it failed, and those dollars have to come from somewhere (income tax, property tax, etc).

[1] https://news.wttw.com/2021/07/07/chicago-pension-debt-increa... (Chicago’s pension debt soared by approximately $1.1 billion in 2020, according to the city’s audited annual financial report for 2020.)

[2] https://wirepoints.org/new-irs-migration-data-illinois-third... (New IRS migration data: Illinois third-biggest loser of people, biggest loser of incomes, to other states in 2019 – Wirepoints)

[3] https://www.nbcchicago.com/news/local/chicago-politics/illin... (Illinois Lt. Gov. Stratton Warns 20% Income Tax Hike Possible if Graduated Tax Proposal Doesn't Pass)

> Chicago’s pension debt soared by approximately $1.1 billion in 2020, according to the city’s audited annual financial report for 2020.

So, by about 3%, and about 10% of annual revenue. (In an... unusual year.)

Buy a house and chances are your debt soars by more than 10% of annual salary, right?

I don't believe you're making an accurate comparison between a household balance sheet and unfunded pension liabilities Chicago (and Illinois) have.

The point: As with a mortgage, Chicago's pension liabilities are due over years, not all at once. That makes comparisons like "$11B annual revenue, $33B pensions" disingenuous.

And even if they could collect, its in US Dollars, which they can print.

That, unfortunately, is not as great of a loophole as you might imagine - you can ask interwar Germany and the Papiermark[1] how that worked out for them. Effective debt (a concept I'm coining here) is essentially the product of: 1) the abstract value of a debt and 2) the ability of anyone to actually collect that debt - this is why it's hard to get a loan in the US if you're a government backed organization in Russia - since the issuing bank can only expect repayment on pure faith. The US government can now (and for the foreseeable future) fend off any potential collection attempts with a combination of military might, economic might, international good will and self-destructive power - this may change in the future (at which point the debt will become a lot more critical) but for the time being the US is pretty immune to collections. It always pays back its interest (that itself contributes to the continued good will) but nobody can forcefully collect the lump sum of debt.

1. https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...

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