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Comment by kortilla | Hacker News Reader

This is a facile dunk. Economics literature is filled with examples of debt destroying countries’ economies either through hyper inflation or default. Since the US controls its currency, it is very likely to take the inflation route, but if you get enough hawks they might choose to default.

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But perhaps people supposedly becoming in charge of material results should in fact at least have a sketch of an actual nuanced understanding of things.

People who watched Europe through the Great Recession and walk away thinking "I guess austerity works" are not people seriously consuming information, they are ideologues.

The US is transitioning from being a dominant superpower to being one in a herd. Saying that the current approach is works is also difficult position to sustain. They probably should try something different.

The basic position is that a government should raise enough taxes to cover its expenses. You can call that ideological and suggest there are superior options if you want to. Maybe there are, a little debt can be a good thing. But to suggest it won't work is a bit out there. It works. It is one of those simple strategies that is too boring to fail.

Also, if the strategy switches from spending more than you earn to less, obviously there will be a period where people are worse off. It is the same with paying back any obligation. Overspending foolishly obviously increases living standards while it is happening - the problem is the part where people no longer fund the debtor and said debtor didn't invest in productive capital. You need an argument that accounts for that to claim austerity fails. It is expected to do worse than the status quo for a while. Saving money isn't much fun on Day 1 either, it can take a decade to pay off.

A good economics education would let someone be specific about what they think the problem is. What year will the US default on its debt? How much money needs to be cut from the budget to avoid that? To what extent will those cuts slow down the economy and be self-defeating?

If he arms himself with the right mathematical tools, he might just discover that the default he’s expecting is actually not imminent.

To me the elephant in the room is the cost of servicing the debt.

Even if the US has a bunch of runway before shit actually hits the fan, 2024 saw over a trillion dollars servicing the debt. That could be funding a lot of government programs instead.

Let’s look at the numbers:

https://fred.stlouisfed.org/series/FYOIGDA188S

Seems not ideal, but also not terrible. We have much less of a hole to dig our way out of than we did in the 1990s. Certainly doesn’t look like a crisis. The recent jump seems entirely caused by the response to the Covid crisis and not really a structural problem.

Unlike now, in the 90s the US had no competitors with equally strong industrial capacity.

This is insane. Most countries are in debt and there's nothing wrong with that unless it becomes too high. Choosing to default is a choice with no benifits that would crash the world economy for no reason and permanently hobble the country

A default would be a silly thing on a national scale. You'd essentially reset your debt and piss off a lot of foreign powers, but the economy would continue working as before, since you'd immediately print a whole bunch of new (virtual) money. Chances are a great deal of countries will just go along with it to not grind their own economies into pieces when they suddenly can't buy/sell from/to the US any more.

This is assuming you never get to the stage of hyperinflation, but you can probably just print a whole bunch of new physical currency as well.

I have a few degrees in economics. You have absolutely zero idea what you're talking about if you think a US default would have the economy "continue working as before". A US default would make the 08 financial crisis look like a lemonade stand going out of business. This way of thinking is so dangerous because you people don't know what you don't know. Musk and the tech bros are playing Russian roulette with all of our livelihoods.

Yeah, parent comment is scary - glad you called it out. Although I don't have an economics degree, I do a lot of bond future trading on the side and am in fairly good tune with the bond market/how their yields work. The effect on the bond yields alone if the US defaulted would be disastrous.

“I have a few degrees in economics” is an appeal to authority, and a laughable one at that. Economists are historians that tricked themselves into thinking that overfitted models of the past predict the future.

2008 was obvious in retrospect but the government that is full of economists did nothing to stop it. They lauded things like Clinton getting the govt to back housing loans because there is “a school” of economics that claims that’s better than the “other school” of economics that is focused on the moral hazard.

You dont think a single american or american company/bank holds any gov bonds?

a country debt is not like household or business debt. the only way US can default on its debt is if a bunch of idiots in washington DC decide to do so.

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