America's never had such high national debt heading into an economic shock | Hacker News Reader

America's never had such high national debt heading into an economic shock

fortune.com

52 pointsndsipa_pomu50 comments

An yet people will die on the hill of "republican economics." I truly can't understand it.

You'd have to not understand anything, to understand it. "Qualified" people are the most unqualified, and "unqualified" people are geniuses. Just believe what the "unqualified" people say, and you can be a genius too.

Sad part is that, you can basically pick any random date over the past 50 years and this headline would ring true at that time. Our debt always seems to be at an all time high.

I mean, that’s how growth works. Like, if the economy normally grows, the economy is always the biggest it’s ever been. Debt’s always the highest. Human population is always the largest. Number of companies is always increasing. Amount of important economic infrastructure financed by debt is ever growing.

To be fair, I’m not saying our debt is in a good place. But just that we should expect it to always be the most it’s ever been, just like we’d always expect the economy to be the largest it’s ever been.

By itself, it doesn’t mean anything if it’s always increasing, what matters more is how quickly debt is growing and if we aren’t keeping up in how we pay it off

> Debt’s always the highest.

You don’t need to fund growth with debt necessarily- look at Norway for example. They have modest gdp growth and a net asset position. (And yes I know it’s because of their mineral wealth I’m just saying that growth doesn’t necessarily entail growing debt).

That’s just not true. At the end of the 90s the US had a budget surplus and there was a discussion of how we were going to handle it.

Then George W. Bush enacted a big tax cut in 2001 that no one remembers because it was heavily weighted toward the top 1%. Suddenly we didn’t have a surplus problem anymore.

The surplus had dried up before Bush’s election, as the dot com bust tanked federal tax revenues.

Bush tax cuts did add to the deficit though.

There might have been a budget surplus but we were still in debt.

https://www.investopedia.com/us-national-debt-by-year-749929...

Here they show the debt increasing through the 90s but by less than most other decades. I don't know if it takes into account inflation though so maybe that would have made the debt have less value. Seems like they didn't use any of the surplus to pay off the debt.

That wasn't necessarily Bush personally, who was never the sharpest knife in the drawer, but his strategists. The Republicans had convinced themselves that surpluses encouraged government spending so by wiping them out and "starving the beast" as they put it the resulting financial crunch would create a need to slash spending, cut social welfare, and reduce the size of government.

Actually now that it's set out like that, the strategists were just as much in la-la land as Bush was.

That George Bush the 2nd is a doofus is a finely crafted PR image.

He knew exactly what he was doing.

But they never did starve anything. Even DOGE didn't cut a significant fraction of the budget. They just eliminated a bunch of ideological enemies and quit early.

They didn't even pretend to reduce the entitlement programs that they claim to hate, but are fiercely defended by the elderly, who overwhelmingly vote for them.

What is the hedge for this? Digging a really deep hole somewhere?

Hedging against currency collapse is notoriously difficult. But a reasonable set of hedges are assets that will have value regardless of currency changeovers. Eg housing, land, gold etc.

I just assume the USA will be the place where violent "repurposing" of land will happen because of all the guns here. Housing seems risky for that reason.

Anything that has steady value - land, gold, real estate with global appeal, manufacturing for the global market, etc.

> What is the hedge for this?

Cash. So you can buy into the dip. It’s historically a losing position, however.

It feels like inflation negates that hedge somewhat.

> feels like inflation negates that hedge

A true hedge isn’t ever free. Paying some inflation today to score cheap assets tomorrow is fine. (Also, “cash” means cash and cash equivalents. You can lend your money to the USG for one month well above most inflation [1].)

[1] https://home.treasury.gov/resource-center/data-chart-center/...

The hedge is the Russia '98 play, which is already in various stages of progress.

1. Default on ruble-denominated debt (replace with dollar-denominated), and trigger a recession and currency crisis.

2. Military attack on a border state to fight secession (replace with narco-terror) and advance nationalist agenda.

3. Vote in a strongman who promises to take the country back from evil capitalist influence (replace with communist) and restore their rightful place in the pantheon of great civilizations.

4. Come to power and intimidate/co-opt independent media into docile acquiescence, convince corporations to do your bidding in exchange for favorable treatment, restructure elections to your advantage.

https://archive.is/wfGKF

As an American, I hear "8 trillion dollars in debt" and it seems like monopoly money.

Nobody lets you borrow 8 trillion dollars without paying some of it back.

As far as I'm concerned, it's a made-up number, it's only gotten bigger every moment I've been alive, and nothing ever comes of it.

When the universe dies, the US national debt will be at one gajillion...

Actually bill clinton paid some of it back (and created 22 million new jobs and an internship).

also the us debt is 38 trillion

also the U.S. unfunded liabilities is over 100 trillion*

* That was the number that I first heard, but a quick search shows it's estimated anywhere from 80 trillion to 210 trillion dollars.

  > also the us debt is 38 trillion

It's sort of like being given one fine that's $100, and one fine that's $250 billion.

You may as well keep increasing the number of second fine, because in no earthly circumstance will I ever be able to pay it back.

>You may as well keep increasing the number of second fine, because in no earthly circumstance will I ever be able to pay it back.

When that's the case, you'd be surprised what happens when the breaking point comes.

Or do you think countries haven't gone bankrupt before?

mmm..

A better analogy would be this:

You have $100k income, and $800k debt, on which you have to pay ~$40,000 interest every year. That takes up a good chunk of your income. But if the debt doubled, at the same interest rate, you could really be in trouble.

If I pay $40K interest every year on my $100K salary, I’m in trouble. If I owe $80K in interest every year on my $100K salary, the bank is in trouble.

Or are they, really?

Not if your income was partly “getting loans from the bank” and now the bank won’t lend you money anymore, which is more in line with what the debt means for the us.

> because in no earthly circumstance will I ever be able to pay it back.

Well at that point, all hell breaks loose - that's the Weimar story all over again.

The minute the US isn't able to project power globally, and the minute the Gulf states shift even a single transaction away from the petrodollar, the USD is finished. At that point, it might not make sense for them to accept the USD or dollar-denominated debt, either because of constant devaluation or the pointlessness of holding onto US Treasuries (because the US won't pay its debt). No one would buy US debt as a safe haven any more, which means the US won't be able to fund its budget.

You’re missing the magic sauce: every other government is also equally fiscally irresponsible.

Doubt. Western governments sure, but not Asian governments, who are the majority buyers of Middle Eastern oil.

And also not all western governments..

You’ve been able to buy gulf oil in non-us currency all along. You can buy it in yuan, pounds, euros etc.

Dollar hegemony isn’t because of the petrodollar. It’s the other way around. The oil states throw off huge amounts of profit and oil is such a big market you need the dollars reach to service it.

You can't buy them off the bat from a petrostate. Heck, even China had to enter multi-year special negotiations with Saudi Arabia to even get a batch of oil sold in yuan terms. Gaddafi and Saddam Hussein were the two proponents of selling oil in euros, and look where that led them.

The spot market is different but that's not where most of the world's oil is sold.

> The oil states throw off huge amounts of profit and oil is such a big market you need the dollars reach to service it.

The oil states prefer dollars (and have pegged their currency to the dollar) solely because of a number of historical decisions that enabled dollar hegemony, which made the oil states peg their currency to the dollar and prefer the USD. That's changing now, but only very recently and at a snail's pace.

You can’t trade oil in any currency off the bat. It’s a complex market involving globe spanning logistics and geopolitics.

But I’ve personally traded oil in euros and know people that trade it in pounds daily. The yuan negotiations were complex because China wanted to get the currency controls set right so that it didn’t destabilize their peg while the saudis didn’t want get stuck with the worlds most illiberal currency.

This week India went back to trading for oil in rupees with an American global adversary at the behest of the US president.

The gulf states bargain on security was a boon for them and the states, but again the correlation was reversed. The Americans provided security, a willing and ravenous market for the goods and a stable liberal currency when few others could.

> I’ve personally traded oil in euros and know people that trade it in pounds daily.

Don't equate spot market buying with what countries do for national supply. When countries buys from Petro states, they're not buying on the spot market.

You cannot buy oil from Saudi Aramco in pounds or euros because why not. They will simply laugh you out of the office and tell you to deal with an oil trader (the actual people you're dealing with, on the spot market). But you can actually buy from them directly in USD (which a lot of the aforementioned trading firms like Glencore, Trafigura and even Jane Street actually do).

Your hypothesis then is that if Oman prices a single term contract not in dollars that will _cause_ the end of dollar hegemony rather than be the result of it?

Even though the largest oil producer in the world will continue to price in dollars no matter what. The third largest oil producer was forcibly dedollarized already and the gulf state national producers already sell oil into the spot market outside of dollars today?

Clinton didn’t do much of anything to pay down the total amount of outstanding debt, but he (and Congress!) did have positive effects by balancing the government’s budget. Outstanding US government debt chart from FRED: https://fred.stlouisfed.org/series/GFDEBTN

The budget was balanced and/or a surplus for the years from 1997-2001, which meant a lot less money was borrowed (or fewer bonds were sold, depending on how you want to look at it.)

The percentage of public debt to GDP also fell substantially from 1993-2000, which is a better metric than gross debt levels anyways. Here’s a chart of that from FRED: https://fred.stlouisfed.org/series/GFDEGDQ188S

> (and created 22 million new jobs and an internship)

I appreciate the humor you hid in this aside.

The US government does spent a pretty large amount of its budget paying some of the debt back. More now that there's been multiple brinkmanship games of threatening a default for political points.

The interest on the debt alone, is 1 trillion dollars a year.

And that's at basically the lowest interest you can possibly get a loan.

The U.S. GDP is about 31 trillion, so 3 percent of that isn't bad, as long as we can continue to grow more than that, forever.

Federal Outlays: Interest as Percent of Gross Domestic Product (FYOIGDA188S) https://fred.stlouisfed.org/series/FYOIGDA188S

Although according the the article, the interest payments account for one fifth of revenue, projected to be one quarter in ten years.

The core of the issue is that the new debt isn't taken at low 3% interest right? So the servicing costs are rising faster than the economy is growing.

>as long as we can continue to grow more than that, forever.

"Being chased while on foot by a pack of hungry cheetahs is not that bad, as long as we can keep our distance"

You also have to understand that the foundation of money is debt in the sense that if we paid back all the debt, money wouldn't continue to exist. The sum total of debt exceeds the total quantity of money.

paying off one credit card with another credit card doesnt really pass the threshold of "paying some of the debt back"

it means we gave $8T to someone and slowly pay it.

https://www.youtube.com/watch?v=KLQlOK3AWSs

We pay it back all the time. Our debt exists in the form of Treasury bills and bonds, which are dutifully paid when they mature (anywhere from a month to 30 years later).

The total debt goes up because we keep issuing new bonds. But bondholders are satisfied that we do pay back our debts, so they're willing to loan us more money. They're so confident that we get the lowest interest rates; every other interest rate is pegged to that.

It's important not to be misled by analogy to personal debt. You will die some day; countries do not. If somebody loans you money they have to take into account if you will die before you pay it off. That's not a problem for the country. (Or a company; many corporations also have permanently revolving debt.)

Now, if we ever fail to pay back a debt, that entire house of cards collapses very, very quickly. We're currently at no risk of that; we make enough money to pay our debts as they come due. But a government could decide to fix the "debt problem" by failing to pay them, and that would be so unbelievably bad that it's hard to imagine why politicians even suggest it.

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