In fact, the further we go into debt - the more we are implicitly betting our society on an AI hail mary.
I see this sentiment a lot, they are not equivalent. The US must reduce spending, if it wants to protect the dollar. Tax increases may also help.
The relationship between tax rates, GDP, government revenue, the market value of new US debt, and the value of the dollar, is complicated and depends on uncertain estimates and models of the economy. Increasing taxes can reduce GDP, which needs to increase to outgrow the debt, there is an optimal tax rate, more doesn't always help. Decreasing spending is a more straightforward relationship, no new debt, no new dollars.
How it gets done is separate from that. Given that the only demographic that can comfortably weather a recession is also starting to collect social security, paid for by younger generations who would be meaningfully affected by a recession, "old people are scamming us" may actually be an effective message.
https://fiscaldata.treasury.gov/americas-finance-guide/feder...
It's sort of like looking at the IRS and saying "look how much it costs!"
People have been saying that SS will run out since the 70s, at least. I've heard it all.
I don't live in a costal state, but when I do consulting work typically at charity rates alongside my standard full-time job, I have to pay 24% federal tax, 15.3% FICA, and 7.85% state tax. I am already taxed whenever I want to help anyone at 47.15%. That's before the required tax structures and consulting for doing all the invoicing legally. God himself only wanted 10%, so it seems a government playing God is awfully expensive.
You can't raise taxes any further before I'm done, and I don't think I'm alone, businesses and consultants are already crushed in taxes. I have to bill $40K to hopefully take home $20K; at which point, is it even worth my time? But if I don't consult because it isn't worth it, are small businesses suddenly going to afford an agency or a dedicated software developer? Of course not, so their growth is handicapped, and I wonder what the effects of that tax-wise are.
If you don't want a tax-based solution, I do hope you are agitating for SS and medicare cuts.
I don't believe this, actually. I think that we will raise more revenue, yes, by squeezing more from the Fortune 500; but you will absolutely crush small business and consultancy work further. It's kind of like how an 80% tax rate on everyone making over $100K would do a fantastic job of raising revenue, but it's fundamentally stupid and would kill all future golden geese.
(On that note, I see this comment a lot about how we had huge tax rates, 91% in the 1950s; but this is misleading. The effective tax rate for those earners was only 41%, due to the sheer number of exemptions, according to modern analysis. We have never had an actual effective 91% tax rate, or anywhere close to it. Those rates were theater, never reality.)
On that note, you have no evidence that economists focus solely on tax rates on the curve independently of the economy at large. By definition, the curve is determined from external factors and economic measurements, none of which currently resemble 2012. If the economy crashed and there was 20% unemployment, do you still think they'd stand behind the same curve?
As always, the question with economists is "why aren't you rich?". You would get much better answers about macro-economic counterfactuals by going to a macro-trading firm like Bridgewater and asking the employees "what do you think would happen if..."
They stop paying taxes and work off the books instead but you don't announce that publicly for obvious reasons.
The incentive to do this increases with tax pressure. The willingness of people to pay for tax-free work equally increases because you'll pay less.
There's also an increasing asymmetry of what the government gains from a tax hike versus how oppressive it becomes that becomes unfavorable as tax rates go up.
You say you consult at charity rates and then point to taxation as the sole reason it isn't worth your time...
They'd still have to pay for Medicare, but it knocks 12.4% off their estimated taxes for consulting.
If they're single, then the math is different. 24% for single people starts at just over $100k and runs to about $200k so they may have to pay those taxes. It's always frustrating when people whine about taxes but giving insufficient information to evaluate their complaint.
Wanted 10% but offered nothing real in return. At least you get some services from your taxes, like unlawful detention/extradition of suspicious people.
You see it everywhere in things they can’t inflate. The price of houses and gold most obviously, but you see it in commodities that can’t expand production quickly as well. The solution is to buy assets of course.
It's no longer the early 20th, there are other competitive & well-run jurisdictions for creditors to dump their money in if they lose faith in the US.
Where, pray tell are these competitive and well-run jurisdictions?
China has capital controls so that probably won't work. The EU might work if they ever get their sh*t together and centralise their bonds and markets, otherwise no.
Like, I too believe that the US is on an unsustainable path, but I just don't see where all that money is gonna go (specifically referring to the foreign investment in the US companies/markets here).
Plus, even worse-run higher yield jurisdictions become more appealing as the US fails.
Still not big enough though. I feel like eurobonds or remnibi bonds are the only options, but both don't work for various reasons.
Creditors do not fund government spending; they hold safe interest-bearing assets created by it. The real risks to society are not financial but productive and ecological. What matters is whether we are using our labor, technology, and resources to meet real needs, not the size of a number on a balance sheet.
Richard Murphy is that you?
Snark aside, this is just straight up MMT which you're presenting as gospel, but absolutely isn't.
The very shortest way to debunk MMT is that every single government would be printing their way to prosperity if it was possible. Their ultimate desire is to be in power, and a happy prosperous population will keep electing them. No government has ever follow MMT to it's natural conclusion.
It is simplistic and wrong.
So all the entities that want to hold the debt (social security administration, mutual funds, pension funds etc) where should they go instead? Riskier assets is what you're saying right? Is that a great idea?
Probably the closest US bond equivalent would be debt from well-run Asian countries. I would avoid fixed-income dollar denominated assets.
in what way? as a sovereign currency issuer, the US can't ever be made to default or can it?
What definition of unsustainable fits?
What event could cause public debt growth to reach some kind of insurmountable maximum?
It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outstanding public debt could be executed tomorrow without collecting another penny in taxes. I wouldn't recommend it, but it could be done.
Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.
This goes in the bin:
>> recommend learning traditional macro
It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions.
So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws.
Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference.
With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in?
Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy)
Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?)
So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this.
The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.
Yes, it comes in at the 'fair market bids' part. When yields spike, the mechanism still “works” legally, but the government’s interest costs and financial stability risks explode in real terms.
The “law” doesn’t immunize you from inflation, balance sheet stress, or a collapsing yield curve. The Fed can’t conjure real resources; it can only reprice claims on them. Monetizing debt isn’t free. Ask the U.K. gilt market in 2022 how far “sovereign currency issuer” logic got them before the Bank of England had to step in. The government isn't immune from market forces.
No, you’re confused. The legally obligated “fair market bids” - a tongue in cheek term - isn’t conducted in dollars. I believe you’re thinking of the secondary market activity which occurs at a later time - where private buyers purchase from the primary dealer banks and those txns are in dollars.
At the primary dealer purchase stage, the fed provides the funds to purchase via the PDCF. “The market” has precisely zero influence over this process.
You’re kind of randomly firing in different directions with the last paragraph, its too removed from reality to make much of a useful comment on.
The surface way it's wrong is that investors could have invested in Nvidia 10 years ago instead of gold. Because they didn't, their investments "eroded" even more.
The deeper way it's wrong is that people who say this almost always have the unstated premise that gold is "real" money, that every price should be measured against it. That premise is false.
When gold was allowed to float in terms of the US dollar, it went up to $200, then dropped down to $100. When it dropped to $100, the dollar didn't become worth twice as much. Or, to use a more recent example, there has not been a factor of 4 inflation over the last 10 years. So gold is not a fixed measuring stick, against which all other things are measured.
Cost to service the debt is about 60% of what it was in the 1980's. All those bonds are long since paid off. This is a meme. Should we adjust to something more sustainable? Yes. Is the "burden" too high to bear? No, it's just not.
Everyone outside of the American empire knows that the gig is up. When Uncle Sam has his money printing press on full blast, the American people don't feel the full effect, but everyone in the global majority, where there are no dollar printing machines, gets to see too many dollars chasing the same goods, a.k.a. inflation.
The day when the American people elect a fiscally prudent government, for Americans to work hard, pay their taxes and get that deficit to a manageable number is never going to happen. But that is not a problem, the situation is out of America's hands now.
It was the 2022 sanctions on Russia that made the BRICS alliance take note. Freezing their foreign reserves was not well received. Hence we now have China trading in their own currency with their trading partners happy with that.
Soon we will have a situation where there is no 'exorbitant privilege' (reserve currency, which can only ever end up with massive deficits), instead the various BRICS currencies will be anchored to valuable commodities such as rare earth metals, gold and everything else that is 'proof of work' and important to the future. So that means no more 'petro-dollar', the store of value won't be hydrocarbons.
This sounds better than going back to a gold standard. As I see it, the problem with the gold standard is that you kind of know already who has all the gold and we don't want them to be the masters of the universe, because it will be the same bankers.
As for an AI 'Hail Mary', I do hope so. The money printed by Uncle Sam to end up in the Magnificent Seven means that it will be relatively easy to write this money off.
IMO, it was the barriers imposed on the trade of oil, mostly from Iran and Syria. Not really Russia, because they adapted quickly. The countries on the group's name all had alternatives at that time.
Either way, the BRICS trading system wasn't a serious thing until this year. And what really kicked it out was Trump.