Government to borrow nearly $1 trillion this year 84 percent jump from last year

http://www.chicagotribune.com/news/nationworld/politics/ct-spending-debt-analysis-20180203-story.html

by gscott • 8 years ago

95 87 8 years ago

chicagotribune.com

seba_dos1• 8 years ago

US government, in case you're like me and start with reading the comments before checking out the article.

GunlogAlm• 8 years ago

Thanks. My first question was "Government? Which government?"

lifeformed• 8 years ago

At this point I just assume any news article is based on the US by default, unless stated otherwise.

thisacctforreal• 8 years ago

It does say chicagotribune.com.

jimrandomh• 8 years ago

The word "borrow" is not entirely accurate. Exactly what happens when the US federal government has a deficit is complicated, but it's closer to issuing new money than it is to taking out a loan.

devereaux3• 8 years ago

coinmarketcap says: Market Cap: $398,126,739,977 so about 0.4 trillions for all crypto - everything and the kitchensync included.

This article says that this year alone, the government is borrowing 1 trillion.

I wonder if people who say crypto is a bubble are factoring in seignorage, especially in this order of magnitude.

tehlike• 8 years ago

:) how much of that money is used for transacting/buying/selling goods - that is why it is a bubble.

Theodores• 8 years ago

So if there are 50 million people with anything from $10 to 0.4 trillion in crypto, I reckon that it is on average at the lower end of that scale, the ponzi schemes, freely printed 'Tethers' and 'valuation' boosting that figure up into some absurd number. Plus you always have the guy who mined his first bitcoins on a 386DX 66MHz machine with a maths co-processor and Hercules graphics card, however, he saved his bitcoins onto a 3" Sony drive that is not compatible with modern day 3 1/2" drives.

The main market has had a bit of a tough time, the crypto side show is nothing. However it is a bubble. The bigger bubble in the economy is because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts. Where else do you put your money when banks are no more useful than hiding hard currency under the mattress?

Meanwhile a large part of the world does not have access to printing presses and cannot just print money, as per the USA. These places have to buy dollars before they can buy oil. Yet these other places seem to balance their books. For instance, the Russians, despite the childish sanctions from America are managing to balance the books and not live in deficit. As for China, no deficit problem there despite the boom in development.

The elephant in the room is the military spending and adventures. It would be cheaper for the USA to trade with the world on fair terms rather than have to borrow lots of money to have bases and battleships everywhere.

tryptophan2• 8 years ago

Not really - What I assume you are thinking about is the Fed buying the treasuries(with their money printing skills) that are issued in their QE program. However QE is winding down, and a larger and larger % of that borrowed money comes from private investors using their own money. While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over.

analyst74• 8 years ago

While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over.

That is hard to say, fed is planning to wind down QE, but it's also trying to hit a certain interest rate, when those two objective collide, i.e. interest rate going up too fast, it'll be interesting to see what happens then.

nerfhammer• 8 years ago

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

the fed hasn't increased its bond holdings in 4 years. treasury debt has obviously increased over the same time period. so, yes, this debt is not just financed by printing money, despite whatever they're saying on youtube these days.

jganetsk7• 8 years ago

Yes really. It's called modern money theory.

https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...

The US federal government pays for things by crediting bank accounts (hence money creation). The fact that the federal government also issues Treasury securities is a political constraint, not strictly required from a technical standpoint. The Federal Reserve then uses Treasures as a reserve drain when they are trying to hit their overnight interest rate targets.

mikeash• 8 years ago

How so? I thought the Treasury sold bonds on the open market to finance the deficit.

jganetsk7• 8 years ago

It's a widely held misconception that the government needs to finance its spending. It doesn't. It just spends money into existence. Treasuries are a political constraint, not a technical one.

Please read about Modern Money Theory.

https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-... https://www.youtube.com/watch?v=TDL4c8fMODk

rokhayakebe• 8 years ago

Geniune question: Instead of printing new money, would it be a good idea for the government to launch a cryptocurrency and raise the money that way? This would be a gov backed coin. Thoughts.

knieveltech• 8 years ago

Beyond providing employment for a few folks involved in implementation and systems maintenance, in what way does launching a government-backed cryptocurrency benefit over the existing state-backed currency?

ohiovr2• 8 years ago

Probably not because it puts into question the value of the existing monitary base.

Zigurd2• 8 years ago

A digital cross of gold? No thanks.

devereaux3• 8 years ago

Fun thought: they could lock it in value 1 to 1 to the USD, while not making it convertible.

They could even call it "tether".

It would be almost indistinguishable from the recent situation - except tether is a private company, and the govt does not like competition.

ohiovr2• 8 years ago

Intentionally slashing revenue for political gain has consequences.

hkmurakami• 8 years ago

More relevant would probably be the net increase in the cost to service the debt?

Gustomaximus4• 8 years ago

A good measure is Debt to GDP to allow for economic growth etc.

https://tradingeconomics.com/united-states/government-debt-t...

A common rule of thumb is 120% means debt is in serious trouble.

Here is a comparison of the G20: https://tradingeconomics.com/country-list/government-debt-to...

dandare• 8 years ago

Funny thing I learned recently - the US federal budget deficit has little to do with how much the government borrows: federal institutions can borrow money on their own, that is why for instance the US government debt can grow faster this year even if the deficit is lower than the previous year.

Zigurd2• 8 years ago

I thought we would get stagflation after 2008. Then I thought Janet Yellen was going to actually unwind qe without inflation or high interest rates. And now a goofball pseudo president could screw it all up.

ramzyo• 8 years ago

Previous discussion: https://news.ycombinator.com/item?id=16300892

jhiska• 8 years ago

So much for the lie that Trump would "end big gov".

More like end having a sustainable budget.

adventured2• 8 years ago

The US hasn't had a sustainable budget since 2002.

The Obama years added ~$10 trillion in debt in eight years. How was that sustainable exactly?

For the last decade, the CBO has been forecasting blown out budget deficits starting about now, because of entitlement costs. There's no scenario where the budget deficit doesn't explode, unless you cut entitlements, dramatically raise taxes, or both.

Have a look:

https://www.cbo.gov/sites/default/files/cbofiles/images/pubs...

melling• 8 years ago

It looks like most of that was during the Great Recession. Does anyone have any details?

We spent $1 trillion in Iraq and another trillion in Afghanistan, but that should have shown up earlier?

dragonwriter• 8 years ago

So much for the lie that Trump would "end big gov".

The Republicans like to talk about fiscal responsibility to attack “tax and spend” Democrats, but when the Republicans are in power they are much more inclined to cut taxes than spending (they certainly redirect spending, but they never cut as much as they cut taxes.)

fencepost3• 8 years ago

I believe "looting" may be the word you're looking for.

indubitable5• 8 years ago

I don't think the actions and the goal are inconsistent. As you quoted it's all about 'ending big government.'

Taxing and spending increases the size of government. And it arguably has no end. Government is the ultimate bureaucracy and will spend every penny it receives, and then some. Even Finland, whose government takes more than 40% of its national GDP in taxes, is now somehow facing mounting government debt. It has phenomenal state programs, but will they prove to be sustainable or not? Since the government is a bureaucracy, the only way to reduce its spending is to reduce the amount of money it has available. As Milton Friedman put it, reducing taxes 'cuts the government's allowance.' Reducing taxes results in either programs being cut out of necessity, or the eventual collapse of the government under its own debt. In either case it certainly 'ends big government.'

The big hypocrisy is not in the tax cuts, but in the spending of presidents like Bush. We spent one can only imagine how many trillions in Iraq and Afghanistan. And while perhaps the military can be considered distinct from government in general, spending money on poorly justified wars we can't afford certainly precludes any notion of fiscal purpose.

bedhead• 8 years ago

We live beyond our means, have unsustainable quality of life. Gonna catch up one day.

adventured2• 8 years ago

Fortunately we don't have an unsustainable quality of life.

It's pretty simple mathematically. Not so simple politically.

You slash $250 billion off the US military. You slash $100 billion in local+state+federal spending off of all the activities related to the war on drugs.

You very lightly cut entitlements.

You raise taxes on the top 10% by quite a bit. You raise taxes on the next quarter by a modest amount.

Your budget is now close to break-even. You haven't impacted the standard of living of ~95% of Americans at all.

Quite the opposite, you just dramatically boosted the long-term prospects of the quality of life for the average American. Hundreds of billions in wasted revenue can now flow into highly productive use over time, whether healthcare or transportation/infrastructure (or just not running up debt interest by exceeding the budget). Just by not running up that debt interest, you'll save trillions of dollars over time.

If you really wanted to dramatically boost the US standard of living, you'd squeeze the healthcare cost monster to death. The monetary benefit of that system overwhelmingly flows to the top quarter of Americans, who are already doing extraordinarily well. We have a ton of room to work with in that area, that could improve our situation by hundreds of billions of dollars per year. It's not even necessary to get creative, all we have to do is begin copying any number of several highly function systems from around the world.

Cutting the military etc. will harm the economy you might say? Except that's obviously wrong. It'll further unleash the economy, releasing that money to far superior productive, compounding use. Most US military spending is for soldiers, who are contributing very little to the US economy as is versus their peers, their labor is low productivity and low innovation. They make nothing, they're nearly strictly consumption engines. No other prosperous developed economies have the need to spend on such things at such a high rate, neither does the US. It merely requires that the US accept that it's not the world police and doesn't need to be.

d--b• 8 years ago

Definitely agree with all that. Yet this is all quite unpopular.

I can't help thinking that all economic woes are self inflicted because of bad culture.

geggam• 8 years ago

The question I have is if the govt is truly printing our currency who is the govt borrowing money from. If the govt was truly making more money then it would simply balance the books by making enough money.

When you start talking about the Federal reserve as a non govt entity people call you crazy. Yet I have not heard why the govt borrows money from the govt.

wavefunction• 8 years ago

The GOP offers tax cuts to the wealthy, inducing a higher debt-load for the US.

The wealthy turn around and buy US government bonds.

The rest of us pay the wealthy bond interest and pay taxes against the debt accrued by offering tax cuts to the wealthy so they could buy US bonds.

t3soro• 8 years ago

The government borrows by selling treasury bonds, then the Fed buys them and keeps them on their books, and the Treasury gets US currency in exchange.

The Fed can also buy other assets besides T-bills and use them to back new issuance of US currency notes.

You can read the federal reserve act at Frb.gov

jganetsk7• 8 years ago

You are absolutely right, and you have discovered Modern Money Theory. https://www.youtube.com/watch?v=tEiNLmg2tYA

tbronchain2• 8 years ago

It still amazes me how governments manage to keep borrowing money while being in constant growing deficit. Is there such thing as a real trust in the future possibility of paying the debt back? Or is it a hope of taking as much money as possible while there are inflation opportunities? - then generating more and more inflation. The first option is interesting, the second one quite scary and I can't help thinking Ponzi. Anyone with a better understanding of economics could help seeing a little bit better through this?

MarkMc3• 8 years ago

The US government has a long history of repaying it's debts. I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.

im3w1l• 8 years ago

USG have a long history of servicing it's debts by taking on more debt. Not that there is anything unusual with that pattern.

Feniks2• 8 years ago

The US never pays back, they re finance the debts. Ad infinitum. I mean does anyone think that at this point the US could STOP the deficit? Let alone turn it into a surplus and start buying back debt?

US is too big to fail and rich people have to put their money somewhere. At least with US Treasury bonds you get a small but reliable return. So the train keeps going.

hn_throwaway_992• 8 years ago

I'd say that can continue indefinitely, so long as the debt-to-GDP ratio remains manageable.

What's the quote about "To believe you can have infinite exponential growth in a finite world means you are either crazy, or an economist."

tootie• 8 years ago

All of our debt is paid and almost of it gets paid within 10 years and it probably always will be. That's how we do it.

Gustomaximus4• 8 years ago

It gets recycled and increased. That is no reason to believe it can continue ongoing.

axau• 8 years ago

If the % required to service it was growing significantly, that'd be a problem. The debt outstanding growing, on its own, doesn't matter.

The government is not a human who better pay off their debt by 65 or they're screwed. The government'll keep receiving income "forever", in a pretty predictable way. So there is no reason to ever stop borrowing; it'd be leaving money on the table (utility of a dollar now > utility of a dollar later).

tbronchain2• 8 years ago

Does that validate the guess #1, that there is a trust from lenders in the future of [US] economy, as you're saying that $1 now < value of that $ tomorrow? In other words, it's ok to lend 1$ today because tomorrow that $, even if devaluated, will help people getting more services and maybe getting more $.

That is very interesting. It sounds like we manage to magically create some unlimited resources that is creating the world's wealth and strength. It sounds magical. What's the catch? What's the limitation of creating more wealth, faster? Is today's dollar value simply based on the value that it can potentially have tomorrow? - From a non-economist point of view, it's quite hard to picture.

rayiner3• 8 years ago

The federal government’s debt to income ratio is roughly 4:1. Private entities get loans with that level of debt all the time.

poof131• 8 years ago

How do you get 4:1? Wikipedia pegs the GDP to debt ratio at less than one.[1] So the US owes more than 100% of it’s income. Servicing the debt is approaching 7% of federal spending.[2] Are you using numbers other than GDP and National Debt for your ratio?

[1] https://en.wikipedia.org/wiki/National_debt_of_the_United_St...

[2] http://www.pewresearch.org/fact-tank/2017/08/17/5-facts-abou...

indubitable5• 8 years ago

Companies are able to attract investors and lenders because of the reasonable expectation of future profits. For the US there is no expectation of ever breaking out of our debt. There's a term for private entities whose only means of ever being able to pay off old investors and lenders is from the funds of new investors and lenders.

dustingetz3• 8 years ago

this podcast says its because the usd is the dominant world reserve currency (a lot of trade is priced in usd, critically oil due to USA alliance with saudi arabia) so there is high foreign demand for usd. they allege that keeping it this way - keeping demand for usd high - is why USA occupies the middle east.

it also says that the usd is dying and that the USA's free lunch (ability to borrow endlessly without consequences) is now ending or already ended, though the politicians will deny it.

they also say that if you are russia or china, the obvious move is to hire a bunch of blockchain engineers, try to unload your usd treasury bonds (forcing a financial crisis in the USA in the 2020s when the USA politicians don't realize they can't borrow anymore), and then simply wait, and when the dollar dies you can step in and "save the world" from the dying dollar with their new cryptocurrency.

obviously, russia famously had meetings with Vitalek (ethereum founder) and there is a huge amount of blockchain investment happening in China right now.

https://www.macrovoices.com/336-anatomy-of-the-u-s-dollar-en...

sseveran• 8 years ago

The reason oil is priced in dollars has nothing to do with Saudi Arabia or any US involvement there. The US has always (since the 1800s) been a major player in oil markets. The NYMEX futures contract for physical oil is the real reason oil is priced in dollars. OTC physical trades often reference the NYMEX (now CME) price. So much of the infrastructure just operates using dollars but nothing is stopping anyone from not using dollars.

I am not sure what blockchain engineers have to do with selling treasury bonds. The larger issue for China is that they have to do something with their dollars. It's not feasible just to dump them.

Unfortunately (or fortunately depending on your perspective) the USAs ability to continue to borrow does not appear to be ending. It is true that so long as others will lend to you in your own reserve currency you can basically just keep borrowing. I didn't think that the US could borrow $20T but maybe we can borrow $50T or even more. It seems for the time being the sky is the limit.

dustingetz3• 8 years ago

It's too bad that this opinion was downvoted, I've just repeated the opinions of a few famous hedge fund managers and investors who have a famously high quality podcast. These are not programmer nerd-activists who give a shit about bitcoin. Here's a page-length quote from the middle of the podcast on this idea that I liked (including one of the cryptocurrency quotes, you can C-F the podcast transcripts to find more): http://www.dustingetz.com/ezpyZXF1ZXN0LXBhcmFtcyB7OmVudGl0eS...,

jganetsk7• 8 years ago

That's because the government's deficit is the people's surplus, by simple accounting identity. Paying off the debt would be catastrophic. Andrew Jackson did it, and 1 year later we had a financial crisis. Clinton gave us a surplus, which led to a financial crisis. It's very simple: either the government is in debt to the people, or the people are in debt to the governmet. The latter is a perverse situation.

Please read about Modern Money Theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...

jaequery• 8 years ago

What will come first guys, the San Andreas fault letting go or the American stock market bubble? Both been steadily developing for quite some time now.

Gustomaximus4• 8 years ago

I've can't understand why this isn't more of a concern;

- The rate of increase is taking this debt rapidly to somewhere unsustainable.

- With the fractured politics this becomes so much more dangerous/likely to be an issue.

- Interest rates are pushing up adding to the servicing costs, currently about 500 billion/yr and probably likely to become the single largest payment line on the federal budget.

- Pension funds are going to be increasingly liquidating treasuries as boomers retire and they hit their own funding issues.

- Countries like China are selling off holdings.

- The debt is going to be an increasing drag on the economy to grow or safely inflate out of it.

- I cant see the political parties reducing military or social security costs of any significance to reduce the growing pressure.

The only positives seem;

- The amazing strength and scope of the US economy.

- Trump once proposed a one-time wealth levy/tax to pay this down, so if this happened it would be a game changer.

So I do believe the US is capable of sorting this out if the political will/intelligence was there. But I dont see this mood and feel people like to kick the can down the road these days. Time will tell.

indubitable5• 8 years ago

I think it's a perspective problem. Since this issue is more complex, I'll use a simpler one - nuclear weapons. There has not been major unrestrained warfare directly between modern nations in what's approaching a century. Very few people alive today have lived through this sort of warfare. So it becomes a unicorn. Yet we still have things like nuclear weapons. And people see these as a relic of times past. Why would you want these sort of weapons when this sort of warfare no longer exists? And so naturally we have an increasing push to try to get rid of nuclear weapons, a stark reminder of a 'less enlightened times.'

Of course the reality is that this era of peace we've created has largely been enabled by nuclear weapons. Mutually assured destruction is indeed MAD but it has been the one thing, in the entire history of our species, that has managed to prevent this sort of conflict. Without nuclear weapons nations like the US, China, and Russia would certainly have long since came to 'hot war' in the process of determining who's ideology will be the world ideology. And that certainly would have drawn in the rest of the world, one way or the other: to wit, World War 3.

And so too today in economics, most people have lived during an era when the US has been more than capable of 'printing' (not how many is made - another complex topic) vast sums of money while suffering no real economic consequence, as well as being involved a system where we are only able to pay off old debts by taking on new debts - with no expectation of this ever really changing. If a private organization was behaving as we do, it would be considered a Ponzi Scheme. The reasons for this economic immunity are complex -- the fact our currency is indirectly backed by oil is a major player. But the point is is that people don't see any nuance here. We've always been able to behave this way (from the perspective of most people), so why would anything suddenly change? Probably a similar scenario to what happens at the end of any other meaningfully long era.

jganetsk7• 8 years ago

There are a lot of misconceptions about the nature of national debt. You should read about Modern Money Theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-...

Remember, the US is monetarily sovereign. The government has the ability to create and destroy US dollars. Things you don't need to worry about:

- Default. If it happens, it would be a purely political move, not an economic or financial one. The US federal government can always afford payments. A check from the federal government never bounces. They can always just credit bank accounts. In fact, the government can abolish the debt instantly. They can simply redeem all Treasuries with bank reserves.

- Interest rates. The Federal reserve controls short-term interest rates. And the supply of long-term Treasuries doesn't impact interest rates: increased government deficits lead to an increase in the size of bank reserves which lead to an increase in demand in Treasury bonds that matches the increased supply, since banks want to swap low-paying reserves with higher-paying debt instruments.

- China. Treasuries are like a savings account, while bank reserves are like a checking account. If China or pension funds (or anyone) sell off their Treasuries, it's akin to transferring money from a savings account to a checking account. What's the harm in that? And why would they do that? That would decrease their interest income.

Here are real concerns about ballooning national debt:

- Inflation. This can happen since the government is stimulating aggregate demand, in a classical Keynesian way. But it hasn't happened for a while, and if it does, the government can raise taxes. That shrinks the debt and decreases aggregate demand.

- Foreign exchange. With all the new USD floating around (because government spending = money creation and taxation = money destruction), there's a risk of a weaker dollar. But that has its upsides. And China's currency peg at least keeps the prices of Chinese goods fixed.

- Spending it unwisely. The government can't buy everone a pony. There aren't enough ponies in the world, and it would wreck the pony market.

Gustomaximus4• 8 years ago

Thanks for the comprehensive answer. From some of your points I see it differently;

NYT article: This comes from an economist that loves to push MMT. I actually studied economies under the guy that coined this term. He's a super smart guy but I dont agree with it in the theory probably works in a bubble. It seems a classic case of academia vs reality. Very unusual for economists haha. I'd suggest you read some criticisms of MMT if you haven't before you push it as a truism.

- Default: This attitude is cant happen to a monetarily sovereign nation is a little ignorant of history. Sure US can print/credit but then inflation. And being the worlds reserve currency give a bunch of leeway but this isnt a fixed variable, and is increasingly under threat. End of the day it's a confidence point and the US can lose this creating a run domestically and/or internationally.

- Interest rates are only under control while the market has confidence they will be repaid. Sure some FI's are held to a certain level of treasuries but plenty of existing market demand can leave, taking with it the Feds ability to control rates. At the end of the day if the risk/reward ratio get outta whack the fed will lose their ability to control rates at any scale and especially when they attempt to recycle existing debt.

- China. I dont understand your logic here. It's a supply and demand market. If its (do I understanding you?) as easy as the Feb buying up any excess demand that is a limited game. The FED probably did well with QE but that's a limited tool, needs to unwind at some point, and we wont truly know the effect for some time.

Inflation: Possibly. What if we hit stagflation? And US has a strong resistance to tax increases. There is a possibility for US to inflate their way out of this debt. It would need to be well managed for many decades which seems low probability with the current political management.

Don't get me wrong. I am not saying default will happen. We'd needs some serious events to trigger this. I do feel it is a possibility and am amazed some people feel it's in the risk likelihood of a meteor strike.

mythrwy• 8 years ago

http://www.businessinsider.com/the-costs-of-us-wars-have-lin...

The US is (or was as of 2013) still making payments to children of Civil War veterans. Granted it's only 2 of them and less than a grand a year apiece but still.

Government to borrow nearly $1 trillion this year 84 percent jump from last year

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