Everyone expected a recession. The Fed and White House found a way out
washingtonpost.com
washingtonpost.com
https://fred.stlouisfed.org/series/GFDEBTN/
No other first world country adds debt as quickly as the US and the interest payments of servicing this debt grew to $1tn this year.
It is revolving system. Old debt is paid with new debt and then even more debt is taken for consumption. If this stops, it means no one would loan again. They would trade in alternative ways. Or then the rates must go up to match the risk premium of not getting principal back.
End result is probably starting to print money. Which then will just lead to even higher rates to get the return.
I think this would be particularly brutal if unrelated international trade were still in dollars and everyone wanted to cash out.
It’s up less than double, relative to the economy. Given there is public and political attention on the issue, it’s not critical. (Your figure doesn’t account for intergovernmental holdings, which are closer to an accounting manoeuvre than actual debt.)
TL; DR America’s public debt is sustainable. It’s trending in a dangerous direction and will require minor (as in single-digit percentage ppint) course corrections to remain so.
Here you go: https://www.cbo.gov/publication/58946.
If we do nothing, “the deficit amounts to 5.3 percent of gross domestic product (GDP) in 2023, swells to 6.1 percent of GDP in 2024 and 2025, and then declines in the two years that follow. After 2027, deficits increase again, reaching 6.9 percent of GDP in 2033.” It becomes problematic around 2050, when net interest starts approaching 8% of GDP, but that is again if we do nothing (or blow the purse).
We have different priorities.
It's Christmas, instead of consuming 5 plus percent of a single mothers efforts over the year that instead couldve went under the tree, did we ask her what she could afford?
I mean, yes. We can afford it. We choose not to.
The debt that is incurring interest was an enormous factor in growing americas wealth in the past, and continues to be going forward. Your anecdote about a single mom conveniently ignores that.
Most of the debt is very recent. Nothing to do with decades of growth.
Paying interest on 5% of gross product is very anti-growth.
Borrowing to grow is legitimate. But the idea that spending decisions by the US government over the last couple decades were sober financial bets on returns is fantastical.
If that were the case the debt would be getting paid down, with a trajectory to surpluses being the return, not growing.
Especially when it’s USD denominated debts and the dollar is the most desired currency.
The US is in a ridiculously privileged position. We’re riding the gravy train of natural resources and no bad neighbors for the foreseeable future. Quibbling about our debt is dumb.
Europe is fucked tho
If only quibbling were a solution. :)
There just isn't a pattern of the US carefully spending its money in a virtuous borrow and grow cycle. Recently, anyway.
But you are right, the US is like a partner in a common enterprise (the global economy demarcated in dollars), which has the special right to keep giving itself more shares (dollars).
If they were also spending frugally, and wisely, they could flip to a government funds surplus "problem" pretty quickly.
Still, the economy is not dead and an average US citizen works 42 years, so a few years of wages lost is not the end of the world. Also, most of the debt is held within the US borders, so foreign debt is big but only 30% [2]
[0] https://www.usdebtclock.org/
[1] https://fiscaldata.treasury.gov/americas-finance-guide/natio...
[2] https://www.pgpf.org/blog/2023/05/the-federal-government-has...
Nitpick: “owes” (not owed)
> so a few years of wages lost is not the end of the world.
How would anyone pay off a few years wages, while using their wages to live, and paying interest on the balance until it is zero?
Essentially, every tax payer has a small mortgage on the past to pay off.
And the debt is growing!
Sooner or later, the debt will have to be paid down with printed money. Which both reduces the balance, and devalues the balance (due to the increased money supply).
The ability to do that at any time is the primary reason a government can run otherwise unsustainable debt without going bankrupt.
This is a mistake that people often make, and politicians usually encourage when they want to score points and raise scares about the other team's polices. Take note of if they change their tune when in power; or just stop scaring people, while running up more debts via different expenditures or other tax breaks.
But it's not the same kind of thing at all. It's not "like that, only on a larger scale", it is fundamentally unlike that. And the faulty assumption will lead you to faulty conclusions.
NB with the other commenter said: "most of the debt is held within the US borders". How would household debt look if most of the debt is owed to other members of the household and not to banks? How would it look if the household could control the money supply, like a bank.
Of course it's possible to get public debt wrong, but don't assume that getting it wrong looks anything like getting personal debt wrong. With personal debt "smaller is better, larger is worse, simple". But e.g. Eliminating public debt entirely would itself be a mistake, given that it is debt to people or companies in the same country, often in exchange for services. It can fuel growth if used with intent.
“Demographics are destiny.”
Except if Robots & AI & Longevity medicine cause a radical revaluation of labor and humans start to live forever (work forever) and AI causes radical deflation in all core administrative services.
It is possible that is exactly what will happen. Cathie Wood thinks so, anyways.
Demographic collapse seems ominous, but technology superadvancements offsets it. More than offsets it with AI.
There could still be a recession in 2024 if the fed doesn’t get their “soft landing” while doing their planned 3 rate cuts.
I think the economy looks healthy. But underneath it, I think there is a very sizable population that is way worse off than before. This population lost a ton of purchasing power due to inflation. They also don't own homes which means they couldn't take advantage of the 2.5% mortgage rates. Instead, owning home is impossible for them right now. White collar jobs are now harder to come by. Many of these work gig work. So while they're employed and their wages are higher due to inflation, their living standards have collapsed and is in a recession.
https://fred.stlouisfed.org/series/GFDEBTN/
Meaning that much is simply kicking the can a little further.
With interest payments hitting $1tn this year, it is, in my opinion, unrealistic that this is sustainable.
“Be fearful when others are greedy and be greedy only when others are fearful.” -Buffett