Correct me if I'm wrong but isn't there an inherent vicious cycle in that if the price gets too high our ability to pay it off becomes uncertain, at which point the premium for the risk would shoot up dramatically (and so on)?
That's correct. The root cause is that the government is making promises it can't keep, which make those promises worthless. The correction is usually that that government falls, and a new government starts making smaller, more achievable promises that restores trust in it.
USA won't ever default so you will get money back at maturity date. But I will largely question the inflation at that point. If inflation goes significantly higher than the rate you are being paid it becomes self-destructive loop.
US could choose defaulting as a better option to hyperinflation. It would lose all its credibility either way. The only thing it should do now is seriously jack interest rates, and maybe consider some austerity, but the working class is already at a breaking point and asking them to sacrifice even more for the billionaires isn't going to go over well politically (and the billionaires...).
Only of the government both simultaneously refuses to raise taxes and refuses to control spending. Because the central bank can choose to set the rate, as Japan did for decades.
Given the wealth distribution of the population has become so unequal, raising taxes for the purposes of lowering the deficit is a politically impossible option. So the only politically feasible option is controlling spending.
> "Given the wealth distribution of the population has become so unequal, raising taxes for the purposes of lowering the deficit is a politically impossible option. So the only politically feasible option is controlling spending."
I'd like you to spell out your thought process, because I completely disagree with the relationship between your given and your conclusion, and I'd like to know what you're thinking.
In Britain for example, 64% of the population oppose raising income taxes and 84% oppose raising inheritance taxes. The only politically popular tax is a general wealth tax which has 77% in favour.
It is generally accepted a wealth tax will not directly meaningfully lower the deficit. There's also examples of those who would be affected spending massive sums of money lobbying against such taxes and threatening capital flight. These are generally the same group of people as political donors.
Studies also show 84% of people across the top 36 major countries believe wealth inequality is a problem in their country. This leads me to draw the conclusion that politically popular tax policy and wealth inequality are closely intertwined.
All these things considered, a political party evaluating the risk of policy changes on their polling would always pick the option of reducing spending.
I would assume the thought process is that the people with all the wealth are able to use that wealth to purchase political power, and they will not allow themselves to be taxed.
Nope. Government debt has existed for a long time in the US. There is no plan to pay it off ever. Headlines will scream that the debt is too high for a long time to come.
Government debt yields on the short end are set by the Fed. Long yields are "set by the market" based on inflation fears, and mostly guessing what the Fed will set rates to over the next 10+ years.
Japan had way higher Debt-to-GDP for decades, yet the long term yields were low. Why? The central bank said "we anticipate yields to be set low for a long time" and did so for a long time. Recently they said they are going to "respond to inflation" like all other central banks and suprise, surprise the long end is creeping up. "Bond vigilantes" came into existence as soon as the central bank changed their policy.
The inflation fears are part of the vicious cycle. The typical mechanism by which a government would get rid of inconvenient amounts of debt denominated in their own currency is to monetize it and inflate it away. Bond purchasers know about this, and build inflation expectations into the interest rates they are willing to accept. This increases the amount of interest the government has to pay, which makes its financial position even more precarious, which builds in future expectations of either a default or a soft-default through inflation, which pumps interest rates even more.
It is possible to break this cycle, but it requires getting spending under control. As long as you operate in deficit, it requires finding private capital to finance future operations of the government. That private capital will require interest commensurate with the expected future devaluation of its principal to lend; otherwise they are just suckers. If you can bring spending into balance then you can hike rates and bring inflation under control and you'll be somewhat insulated from what bond purchasers are willing to accept, but if you can't then increases in rates just increase government spending as well.
Japan operated at extremely high levels of debt-to-GDP because their deflationary trap turned all major Japanese corporations into large net savers. Why would you hold debt when you have to pay it back in more valuable yen in the future? That created a very large oversupply of private capital, which crowded into government bonds as the spender of last resort.
It is not possible that they won't be able to pay it off, but it is possible they will not pay it off anyway, and it is also possible that they will repay it with useless scraps of green paper.
It is like watching on repeat the EU imploding from the debt crisis in 2009.
The only difference is that the US can inflate away their debts and the world will keep buying the usd.
The EU had to impose strict austerity, and essentially all the banks stopped providing any liquidity to businesses. Entrepreneurship and research just died overnight.
The EU didn't have to impose strict austerity. It was just the policy they went with and it ended up being worse than what the US did in the financial crisis.
Higher interest rates basically mean that asset prices will crash, at least in real terms. The value of an asset is the discounted value of all future cash flows; as the discount rate goes up, the value goes down, particularly for assets (like AI stocks) where the cash flows are far in the future.
Unfortunately the right asset to hold depends on why rates are going up. If you believe that rates are going up because we're in for high inflation rates ahead and so bondholders need to be compensated for expected face-value depreciation, then you should buy hard assets (gold, oil, Bitcoin) or stocks that generate a lot of cash now (utilities, FANGs, commodity producers like oil companies). But if you believe that rates are going up because the Fed is going to hike rates and get inflation under control, the right asset to hold is cash. Every other asset will lose value as rates go up and cash becomes scarce, and then you can pick them up cheap when we get the inevitable steep recession.
And if you believe a rate hike will happen but fail to control inflation due to various trade wars and hot wars, while stocks go down due to large correction on a small number of companies who accounted for most of the growth metrics...?
Then you have to time the market. Cash or short-term treasuries right now, moved into long-term treasuries when rates finished going up, moved into stocks when the economic damage becomes apparent. Getting the timing right is left as an exercise for the reader.
Did anybody think Grumpism was going to go somewhere other than here? It's merely been the spite choice the whole time - a way for economic losers to stick their thumbs in the eyes of people who had been mildly successful. Pure crab bucket mentality, now with $40T more in the hole - and still no actual solutions to the problems we are facing. But that certainly doesn't stop those problems from being brought up to rally support for the next con job. And the people at the top certainly aren't suffering! We have basically squandered the advantages our grandparents sacrificed for, to satisfy some kind of collective ego based around American exceptionalism and ignorant fundamentalism.
(edit: I guess a lot of people still aren't ready to hear it)
Obama sped up the rate of growth of the debt around 2010 and the percentage growth annually has been consistent since then (i.e. linear on the log scale): https://usafacts.org/answers/how-much-debt-does-the-us-have/.... Not even counting the jumps in response to the 2008 recession and COVID.
Let's see, the biggest increases of debts under Democrats have been during the biggest financial crisis since the Great Depression And the biggest worldwide pandemic in a century.
On the other hand, the biggest debt increases under Republican presidents have been to A) Start and fight multi trillion dollar wars in Iraq and Afghanistan and B) To cut taxes for billionaires and corporations.
It's because the country went through the great recession and was attempting to pull out and avoid financial collapse.
Look at Revenue per year as a % of GDP and look at Expenses per year as a % of GDP. It's pretty clear.
Expenses went up avoiding a depression which was done successfully, and revenue dropped due to the falling economy. The president was handed a collapsing economy and saved it.
The issue is the other party that keeps getting handed great economies since the late 90s and fails to do anything but make the problem worse.
To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
If Democrats win they are going to be blamed for being the "bad guys" for increasing taxes, controlling inflation and trying to get the economy back to shape.
For Republicans to burn down the economy during their mandates has paid of as the next government needs to focus on firefighting instead of doing the good that it could have been done.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
Why would you ever think they’d be interested in doing any of that? A non-insignificant fraction of the gop wants to collapse the US entirely.
Genuine question: I think making things worse to motivate later making them better is a relatively common idea. Are there any historical examples of it actually working well?
To me, it seems more likely to concentrate power among people who don't want to make things better and make it easier for them to resist ever changing.
Trump floated that trial balloon a few months back, though currently the administration is proceeding with the much more American plan of widespread voter suppression, intimidation, and bribery, if in the most ham-fisted and unconstitutional way possible.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
The last small-government Republican was Herbert Hoover. Reagan paid lip service to the concept, but he maintained high spending levels to keep former FDR democrats in the fold.
The Republican plan appears to be to run the de jure government into the ground so that the corporations can occupy more and more governmental roles, eliminating what little shreds still remain of our Constitutional/natural rights. So no, I wouldn't assume that there will be some clean collapse, nor that said collapse will leave a power vacuum in which a democratic government could be rebuilt.
The current GOP plan is “if you can’t best them, join them.” So it’ll be a game of both sides buying votes from their constituencies until we need an Argentina-like reset.
You really do seem to love this type of "Democrats made them do it" excuse. At a certain point you've got to ask yourself if you're trying to convince others or mainly just yourself.
Debt per GDP/size of US economy is more useful. Debt/GDP has the 2008 jump as the Obama Admin tried to (but not nearly enough) stimulate out of the housing crisis. Debt/GDP looks flat until 2020.
2008 and 2020 jumps make sense in the setting the 2008 crisis and COVID which was effectively a recession assuming you believe in Keynesian economics.
Paying for US debt if you are the US is cheap when interest rates low. Trump/Bessent/Elon have been doing everything they can to drive up inflation, so now interest rates are necessarily going higher...
Cool story bro? I remember a whole lot of people who complained about the debt during the Obama years (I was right there with them), who are now completely silent or even full-throated support. Perhaps a few of the more "honest" ones you might be able to get a "I don't like everything he does" out of them.
If I recall though, you personally did support Obama? Which would make your point doubly moot.
Also note that my condemnation wasn't just about the debt per se, but rather the decreasing creditworthiness. Say what you will about Obama (I certainly have), but at least he kept up relations with our allies so they saw us as a strong partner worthy of holding their wealth.
> If I recall though, you personally did support Obama? Which would make your point doubly moot.
I did personally support Obama. I still think he was a pretty good President! I’m simply describing the chart I linked to of debt levels on a log scale. Obama increased the slope of debt growth around 2010 and it has stayed around the same slope, with a vertical jump during covid. The point is that the debt growth rate isn’t a Trump thing. It’s the “new normal” since Obama, Trump, Biden, and Trump again.
So you were "simply" responding to one small part of my comment, with a narrative that sane-washes the whole larger picture.
If you personally don't care about the debt, that's fine. But there are a lot of people who had claimed to, who have now turned their denial circuits up to 11. My "$40T more in the hole" aside was aimed at them.
Correct me if I'm wrong but isn't there an inherent vicious cycle in that if the price gets too high our ability to pay it off becomes uncertain, at which point the premium for the risk would shoot up dramatically (and so on)?
That's correct. The root cause is that the government is making promises it can't keep, which make those promises worthless. The correction is usually that that government falls, and a new government starts making smaller, more achievable promises that restores trust in it.
Unfortunately, divestment of the US dollar is like lighting a match in a house looking for the gas leak.
USA won't ever default so you will get money back at maturity date. But I will largely question the inflation at that point. If inflation goes significantly higher than the rate you are being paid it becomes self-destructive loop.
The USA could still choose to default, due to internal dysfunction.
US could choose defaulting as a better option to hyperinflation. It would lose all its credibility either way. The only thing it should do now is seriously jack interest rates, and maybe consider some austerity, but the working class is already at a breaking point and asking them to sacrifice even more for the billionaires isn't going to go over well politically (and the billionaires...).
Only of the government both simultaneously refuses to raise taxes and refuses to control spending. Because the central bank can choose to set the rate, as Japan did for decades.
Given the wealth distribution of the population has become so unequal, raising taxes for the purposes of lowering the deficit is a politically impossible option. So the only politically feasible option is controlling spending.
> "Given the wealth distribution of the population has become so unequal, raising taxes for the purposes of lowering the deficit is a politically impossible option. So the only politically feasible option is controlling spending."
I'd like you to spell out your thought process, because I completely disagree with the relationship between your given and your conclusion, and I'd like to know what you're thinking.
In Britain for example, 64% of the population oppose raising income taxes and 84% oppose raising inheritance taxes. The only politically popular tax is a general wealth tax which has 77% in favour.
It is generally accepted a wealth tax will not directly meaningfully lower the deficit. There's also examples of those who would be affected spending massive sums of money lobbying against such taxes and threatening capital flight. These are generally the same group of people as political donors.
Studies also show 84% of people across the top 36 major countries believe wealth inequality is a problem in their country. This leads me to draw the conclusion that politically popular tax policy and wealth inequality are closely intertwined.
All these things considered, a political party evaluating the risk of policy changes on their polling would always pick the option of reducing spending.
I would assume the thought process is that the people with all the wealth are able to use that wealth to purchase political power, and they will not allow themselves to be taxed.
Your assumption came from your head, not theirs. There are other possibilities too. We gain nothing of value by assuming.
Nope. Government debt has existed for a long time in the US. There is no plan to pay it off ever. Headlines will scream that the debt is too high for a long time to come.
Government debt yields on the short end are set by the Fed. Long yields are "set by the market" based on inflation fears, and mostly guessing what the Fed will set rates to over the next 10+ years.
Japan had way higher Debt-to-GDP for decades, yet the long term yields were low. Why? The central bank said "we anticipate yields to be set low for a long time" and did so for a long time. Recently they said they are going to "respond to inflation" like all other central banks and suprise, surprise the long end is creeping up. "Bond vigilantes" came into existence as soon as the central bank changed their policy.
The inflation fears are part of the vicious cycle. The typical mechanism by which a government would get rid of inconvenient amounts of debt denominated in their own currency is to monetize it and inflate it away. Bond purchasers know about this, and build inflation expectations into the interest rates they are willing to accept. This increases the amount of interest the government has to pay, which makes its financial position even more precarious, which builds in future expectations of either a default or a soft-default through inflation, which pumps interest rates even more.
It is possible to break this cycle, but it requires getting spending under control. As long as you operate in deficit, it requires finding private capital to finance future operations of the government. That private capital will require interest commensurate with the expected future devaluation of its principal to lend; otherwise they are just suckers. If you can bring spending into balance then you can hike rates and bring inflation under control and you'll be somewhat insulated from what bond purchasers are willing to accept, but if you can't then increases in rates just increase government spending as well.
Japan operated at extremely high levels of debt-to-GDP because their deflationary trap turned all major Japanese corporations into large net savers. Why would you hold debt when you have to pay it back in more valuable yen in the future? That created a very large oversupply of private capital, which crowded into government bonds as the spender of last resort.
The US government only borrows in the us dollars. It's not possible that they won't be able to pay it off.
The yield increase is basically the market pricing in the interest rate increases since they're expected now.
It is not possible that they won't be able to pay it off, but it is possible they will not pay it off anyway, and it is also possible that they will repay it with useless scraps of green paper.
No, there is no credit risk, they print the money.
It is like watching on repeat the EU imploding from the debt crisis in 2009.
The only difference is that the US can inflate away their debts and the world will keep buying the usd.
The EU had to impose strict austerity, and essentially all the banks stopped providing any liquidity to businesses. Entrepreneurship and research just died overnight.
The EU didn't have to impose strict austerity. It was just the policy they went with and it ended up being worse than what the US did in the financial crisis.
So what should those in the US and overseas do? Buy things and hoard before they get expensive? Buy gold? Something else? Taking a loan might be bad.
Higher interest rates basically mean that asset prices will crash, at least in real terms. The value of an asset is the discounted value of all future cash flows; as the discount rate goes up, the value goes down, particularly for assets (like AI stocks) where the cash flows are far in the future.
Unfortunately the right asset to hold depends on why rates are going up. If you believe that rates are going up because we're in for high inflation rates ahead and so bondholders need to be compensated for expected face-value depreciation, then you should buy hard assets (gold, oil, Bitcoin) or stocks that generate a lot of cash now (utilities, FANGs, commodity producers like oil companies). But if you believe that rates are going up because the Fed is going to hike rates and get inflation under control, the right asset to hold is cash. Every other asset will lose value as rates go up and cash becomes scarce, and then you can pick them up cheap when we get the inevitable steep recession.
And if you believe a rate hike will happen but fail to control inflation due to various trade wars and hot wars, while stocks go down due to large correction on a small number of companies who accounted for most of the growth metrics...?
Then you have to time the market. Cash or short-term treasuries right now, moved into long-term treasuries when rates finished going up, moved into stocks when the economic damage becomes apparent. Getting the timing right is left as an exercise for the reader.
"I want to get off Mr Bones Wild Ride"
God help me this market has me considering BTAL, DBMF, TAIL puts, intl equity and gold......
So buy stocks. Got it.
Organize
https://archive.today/xgNhC
Did anybody think Grumpism was going to go somewhere other than here? It's merely been the spite choice the whole time - a way for economic losers to stick their thumbs in the eyes of people who had been mildly successful. Pure crab bucket mentality, now with $40T more in the hole - and still no actual solutions to the problems we are facing. But that certainly doesn't stop those problems from being brought up to rally support for the next con job. And the people at the top certainly aren't suffering! We have basically squandered the advantages our grandparents sacrificed for, to satisfy some kind of collective ego based around American exceptionalism and ignorant fundamentalism.
(edit: I guess a lot of people still aren't ready to hear it)
Obama sped up the rate of growth of the debt around 2010 and the percentage growth annually has been consistent since then (i.e. linear on the log scale): https://usafacts.org/answers/how-much-debt-does-the-us-have/.... Not even counting the jumps in response to the 2008 recession and COVID.
Let's see, the biggest increases of debts under Democrats have been during the biggest financial crisis since the Great Depression And the biggest worldwide pandemic in a century.
On the other hand, the biggest debt increases under Republican presidents have been to A) Start and fight multi trillion dollar wars in Iraq and Afghanistan and B) To cut taxes for billionaires and corporations.
And probably C) start a multi trillion dollar war in Iran.
With a $1.5 trillion ~bribe~ rebate to keep them in power.
Is this serious?
It's because the country went through the great recession and was attempting to pull out and avoid financial collapse.
Look at Revenue per year as a % of GDP and look at Expenses per year as a % of GDP. It's pretty clear.
Expenses went up avoiding a depression which was done successfully, and revenue dropped due to the falling economy. The president was handed a collapsing economy and saved it.
The issue is the other party that keeps getting handed great economies since the late 90s and fails to do anything but make the problem worse.
To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
If Democrats win they are going to be blamed for being the "bad guys" for increasing taxes, controlling inflation and trying to get the economy back to shape.
For Republicans to burn down the economy during their mandates has paid of as the next government needs to focus on firefighting instead of doing the good that it could have been done.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
Why would you ever think they’d be interested in doing any of that? A non-insignificant fraction of the gop wants to collapse the US entirely.
And then nobody will vote for them ever again, and it'll be a utopia after the rebuild. Playing the long game.
Genuine question: I think making things worse to motivate later making them better is a relatively common idea. Are there any historical examples of it actually working well?
To me, it seems more likely to concentrate power among people who don't want to make things better and make it easier for them to resist ever changing.
> And then nobody will vote for them ever again, and it'll be a utopia after the rebuild. Playing the long game.
(Sarcasm noted.) There was a bitter joke about Islamist takeovers by elections after the Arab Spring: "One man [literally], one vote, one time."
Trump floated that trial balloon a few months back, though currently the administration is proceeding with the much more American plan of widespread voter suppression, intimidation, and bribery, if in the most ham-fisted and unconstitutional way possible.
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> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
The last small-government Republican was Herbert Hoover. Reagan paid lip service to the concept, but he maintained high spending levels to keep former FDR democrats in the fold.
The Republican plan appears to be to run the de jure government into the ground so that the corporations can occupy more and more governmental roles, eliminating what little shreds still remain of our Constitutional/natural rights. So no, I wouldn't assume that there will be some clean collapse, nor that said collapse will leave a power vacuum in which a democratic government could be rebuilt.
The current GOP plan is “if you can’t best them, join them.” So it’ll be a game of both sides buying votes from their constituencies until we need an Argentina-like reset.
You really do seem to love this type of "Democrats made them do it" excuse. At a certain point you've got to ask yourself if you're trying to convince others or mainly just yourself.
They'll just say economy was doomed because of Biden anyway, and that it's not their fault.
Yes bailing out the banks was great for the common man. This is sarcasm
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https://fred.stlouisfed.org/series/gfdegdq188s
Debt per GDP/size of US economy is more useful. Debt/GDP has the 2008 jump as the Obama Admin tried to (but not nearly enough) stimulate out of the housing crisis. Debt/GDP looks flat until 2020.
2008 and 2020 jumps make sense in the setting the 2008 crisis and COVID which was effectively a recession assuming you believe in Keynesian economics.
Paying for US debt if you are the US is cheap when interest rates low. Trump/Bessent/Elon have been doing everything they can to drive up inflation, so now interest rates are necessarily going higher...
> Debt/GDP has the 2008 jump as the Obama Admin tried to
Remember that 2008 was still Bush, Obama didn't become president until 2009.
ah true, bipartisan stimulus then!
Well, Trump was President in 2020. Biden started January 2021.
Both of your examples show the aims and actions of the Republican Party. It isn’t bipartisan.
Cool story bro? I remember a whole lot of people who complained about the debt during the Obama years (I was right there with them), who are now completely silent or even full-throated support. Perhaps a few of the more "honest" ones you might be able to get a "I don't like everything he does" out of them.
If I recall though, you personally did support Obama? Which would make your point doubly moot.
Also note that my condemnation wasn't just about the debt per se, but rather the decreasing creditworthiness. Say what you will about Obama (I certainly have), but at least he kept up relations with our allies so they saw us as a strong partner worthy of holding their wealth.
> If I recall though, you personally did support Obama? Which would make your point doubly moot.
I did personally support Obama. I still think he was a pretty good President! I’m simply describing the chart I linked to of debt levels on a log scale. Obama increased the slope of debt growth around 2010 and it has stayed around the same slope, with a vertical jump during covid. The point is that the debt growth rate isn’t a Trump thing. It’s the “new normal” since Obama, Trump, Biden, and Trump again.
So you were "simply" responding to one small part of my comment, with a narrative that sane-washes the whole larger picture.
If you personally don't care about the debt, that's fine. But there are a lot of people who had claimed to, who have now turned their denial circuits up to 11. My "$40T more in the hole" aside was aimed at them.