Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

https://fortune.com/2024/01/31/nassim-nicholas-taleb-black-swan-author-national-debt-death-spiral/

by pg_1234 • 2 years ago

96 225 2 years ago

fortune.com

TacticalCoder• 2 years ago

https://archive.is/nMSuQ

loeber• 2 years ago

man who made a career making bombastic claims makes another bombastic claim... more news at 11.

foobarian• 2 years ago

sooner or later he will get one right!

beachtaxidriver• 2 years ago

Isn't the "miracle" just a persistent unexpectedly higher level of inflation, over a long period of time, doing a soft-default and screwing over long bongholders?

That seems like the most painless way out.

VirusNewbie• 2 years ago

it's not painless because it exacerbates income inequality. Remember, debt holders (especially those leveraged into assets with debt) benefit from monetary inflation.

If you factor in equities that hold debt, the upper class actually holds more debt than the lower class, especially per capita.

nocoiner3• 2 years ago

Yes, either that, or a relatively stable fiscal picture coupled with moderate economic growth. Keep the deficit low-ish, and keep posting the growth numbers that have marked most of the last decade, and the debt situation looks a lot more manageable after not all that long.

balderdash• 2 years ago

Painless for who? It’s just a tax on savers in another form.

vitiral• 2 years ago

screwing over long bongholders

I think the _bongholders_ will probably come out pretty painless dude

fuzzfactor2• 2 years ago

Not everybody remembers what it was like before Bob Marley became popular outside of the Caribbean.

"Bong" was not widely recognized in the US vocabulary since it referred only to one of the legendary Rastafarian techniques for smoking their ganja, other than "spliffs", and not very many Americans had even heard of the Rastas at all back then.

This was a bamboo tube about 2 inches in diameter with a water chamber at the bottom and a smoking inlet there. All other "water pipes" which had become popular with the hippies had been derived from South Asian hookahs, which had been readily available in all sizes imported from India for decorative use since before there were hippies.

Nobody ever called them "bongs" until the Jamaican came along.

And these were 4-foot long pieces of bamboo, anything less was not considered a "bong" until a number of years later.

Long bong holders indeed.

dmckeon• 2 years ago

Congress-people have few incentives to restrain or reduce the national debt. There is plenty of talk, but little action. The event horizon may be distant, but the pull is inexorable. What could possibly solve this? Could we give representatives and senators bonuses for spending less and taxing more?

chiefalchemist• 2 years ago

Not sure about that solution, but we could elect representation that does the right thing(s), and not just the thing(s) that get them reelected.

jjtheblunt• 2 years ago

I don’t know the answer to this question, but would removing the ability to be reelected cause a change in the equilibrium?

jcims• 2 years ago

That’s not how selection works unfortunately.

jbm• 2 years ago

We could choose, for instance, to restrict people to single terms. I don't think long term exposure to power is actually that helpful, and it creates brand names and political careers, none of which really seems to be that helpful.

I think restricting the presidency to 2 terms is actually quite positive, and I wish we had a similar system in Canada (although generally it works out to be more or less the same)

blitzar• 2 years ago

we elect representation that does the right thing(s), and not just the thing(s) that get them reelected

Every candidate who has stood up and said they will do the right thing (tm) was not elected.

The problem is the "we", the elected representation give people exactly what they want, and in a democracy what they (collectively) deserve.

panarky• 2 years ago

The clue that this guy is a right-wing crank is that he blames the problem on "Congress extending the debt limit".

The root cause of the problem happens long before the meaningless semiannual debt limit ritual.

The root cause is that Congress approved more spending, while also approving tax cuts, so that the spending isn't funded by tax revenue.

The whole debt limit fiasco doesn't fix this fundamental problem. The debt limit nonsense is just coming along later, after all the spending and tax cut legislation has been signed into law, and threatening to default on the nation's obligations.

It's like trying to solve the problem of leaving the barn doors open and letting the horses escape by coming along after the horses are gone and threatening to burn down the barn.

not_really• 2 years ago

The clue that this guy is a right-wing crank

Stopped reading after seeing a clue that this guy is a far-left extremist.

Kon-Peki• 2 years ago

There is plenty of talk, but little action

Because that's how you win elections. The voters want to spend less on the things they don't like and more on the things they do. When people say things like "reduce the deficit", "balance the budget", or something like that they don't actually mean it. All they want is to take money away from the other side. If they really wanted to reduce the national debt, they'd vote differently. And Washington knows it.

jalapenos4• 2 years ago

It's a solved problem - the gold standard.

The only thing that makes the current situation tenable is being able to print money.

Put simply, the government doesn't actually view it as a problem. If you have an unlimited credit card you never have to repay, that's not a problem for you but for everyone else.

Bit of an unfortunate omission from the US constitution really. That's the only way they'd have kept it - otherwise the moment you get any "economic crisis" they'd just "suspend" it again.

owlstuffing• 2 years ago

Right. . . however the problems with fiat currency are unavoidable and end in collapse.

Considering the petrodollar, its time is near. Oil is quickly becoming a negotiable commodity between nations. Following the current trajectory, the USD will lose its global hegemony in 5-10 years. War will expedite that pace.

LargeTomato4• 2 years ago

Which gold standard? There are many.

Is everything backed by gold? So no loans, debt, or bonds? This is deflationary because the total value of stuff grows but the monetary base stays the same.

Is there a fiat currency backed by gold? How will you avoid the monetary base growing larger than the total quantity of gold in the world? How is this functionally different from today?

panick21_11• 2 years ago

Nonsense. The Gold Standard in no way prevents somebody (anybody) from taking on to much debt and going bust.

The only thing that makes the current situation tenable is being able to print money.

That is factually wrong. The current situation isn't untenable from a financial standpoint. But over the medium term it would require hard choices.

cvalka• 2 years ago

A balanced budget amendment.

dventimihasura• 2 years ago

Oh, rubbish

https://youtu.be/NGAOLoYbZ6k?si=VQT5iNFhL7wZjPaL

calvinmorrison• 2 years ago

On a long enough timeline, all empires return to smaller states

happytiger11• 2 years ago

Let’s answer this man with his own damn quote:

History is useful for the thrill of knowing the past, and for the narrative (indeed), provided it remains a harmless narrative. One should learn under severe caution. History is certainly not a place to theorize or derive general knowledge, nor is it meant to help in the future, without some caution. We can get negative confirmation from history, which is invaluable, but we get plenty of illusions of knowledge along with it.

Lets also then consider that this gentleman has made a career from a book about the unpredictability of events, and should no more be venerated for his prediction capabilities than someone working under the neon lights of a flickering roadside Psychic sign.

Looking at the highest US national debt levels in history while declaring that we are in for a debt crisis is on the same level of prediction. Of course the most likely scenario is debt spiral. That is the lesson of history, and the pattern of civilization, as leaders aren’t wise and austerity isn’t popular.

astrodust• 2 years ago

The real black swan event was him coming up with the concept of black swan events. Everything else he's done has been increasingly ridiculous.

happytiger11• 2 years ago

“My major hobby is teasing people who take themselves and the quality of their knowledge too seriously.”

“But it remains the case that you know what is wrong with a lot more confidence than you know what is right.”

“Unlike a well-defined, precise game like Russian roulette, where the risks are visible to anyone capable of multiplying and dividing by six, one does not observe the barrel of reality.”

— three quotes by Nassim Taleb

jalapenos4• 2 years ago

Isn't he just saying it's inevitable from what's observable? E.g. approaching the point where servicing the debt itself becomes untenable?

There's nothing historical or predictive involved that I can see. If a group of people are telling you again and again, for decades, that "we're just not ever going to even slow down the pace we're wracking up unrepayable debt, no matter what", isn't it just a case of take them at their word, and extrapolate to the obvious?

Like, if a car is heading towards a cliff, with the driver loudly yelling out the window "I'm driving off this cliff!", can't we just take him at his word?

happytiger11• 2 years ago

The “who correctly called the 2008 financial crisis” in the headline supports nonsensical predictionism, even if the supporting article is entirely different.

Also bear in mind there’s a quote from the author for prediction as well though it is more than a tad offensive to modern sensibilities:

“If one puts an infinite number of monkeys in front of typewriters, and lets them clap away, there is a certainty that one of them will come out with an exact version of the 'Iliad.”

The idea that somehow we should put more credence on a man speaking on the future of the markets and is calling for a “miracle” who is famous for writing a book about unpredictable events is just hilarious, and my point.

Who else should we take our advice from about the most predictable events of history? Steven Hawking from the grave? Perhaps a successful advice columnist?

Let us not get lost in the obviousness of the prediction or the durability of the prediction of bears when we can enjoy the stupidity of the media presenting an author of a book about unpredictability as some kind of novel expert in the inevitability of the collapse of the western financial system due to unsustainable debts. It’s rich and delicious irony and, especially combined with all of the famous things this man has said that are the opposite of linear predictability being more common than we realize is, as I said earlier, just utterly hilarious.

Stealthisbook2• 2 years ago

Servicing the debt is an entirely political act. If the US government wants to pay its bills, it does. The alternative is unlikely, but interesting-what if the US just says no? What enforcement mechanism is there? The biggest trade partner, biggest military, and cultural hegemon says "what are you gonna do about it?" and you do what?

lucas_membrane3• 2 years ago

Keynes was aware of the argument. It was he who said that, "The long run is a misleading guide to current affairs. In the long run, we are all dead."

Extrapolate the obvious

OK. The list of things that are going to get worse before they get better is going to get longer before it gets shorter. There is a lot that has to change if we want to keep doing what we are doing. We are all in this alone, but we are chained to each other, and we can move only forward. Get used to it.

AlbertCory6• 2 years ago

You seem to have a personal thing about Taleb ("his own damn quote", "this gentleman has made a career from a book about the unpredictability of events").

Taking the 2nd one first: he's written at least five books, and they're about much more than "unpredictability of events." Have you actually read any of them?

As for his own damn quote: a debt crisis is a matter of financial arithmetic, not "a flickering roadside Psychic sign."

If indeed the US tacitly admitted that it was never going to pay its debts, then the interest rates would rise. You don't have to be psychic to predict that.

happytiger11• 2 years ago

Nothing personal.

Yes all of them.

Disagree. Economics is not pure math it is deeply political.

Indeed. The point.

gmuslera• 2 years ago

We don't know the future.

That glass that you have in the border of the table may never fall, may not break if fall, even if a lot of people walk by its side not noticing it. But watching it may be obvious that the entire situation is fragile, odds are high that someone will bump that glass, it will fall, and it will break if everything continue as it is going, and even worse with trends pushing to make the situation even more unstable.

Things may change, or that risk somewhat never materializes. But someone that made a career showing up patterns of fragility in several kinds of systems think that the trend points to some kind of crash.

RcouF1uZ4gsC• 2 years ago

I would take a bet that the U.S. remains a super power longer than Nassim Taleb remains alive.

He will go into a literal ‘death spiral’ before the US goes into a figurative ‘death spiral’

drawkward• 2 years ago

Ah, the old,

God is dead.

-Nietzsche

Nietzsche is dead.

-God

zeroonetwothree• 2 years ago

They could both be right

BlueTemplar2• 2 years ago

Yeah, but that issue also applies to your bet. Which probably also explains why this problem exists (much easier to kick the can when you probably won't be alive to see the consequences...)

no_wizard3• 2 years ago

Does this correctly factor in that currently the US is the western worlds de facto military, more or less?

Because as long as we hold that position I don’t imagine the US government will be shut out of the debt markets at all. This is part of the problem I wager is there is still enormous incentive to keep the scheme afloat by other nations too

mullingitover• 2 years ago

The dollar is still backed by a heavy metal, it just switched from gold to plutonium.

HKH2• 2 years ago

I guess that makes sense because plutonium goes missing too.

mrguyorama3• 2 years ago

America would do everything it possibly could to avoid a nuclear exchange. It's literally the only feasible military threat to the country. As long as nukes remain taboo, America gets to play world police and mostly get away with being a bully in some places, because what are you going to do, fight them?

If you are willing to die to American soldiers 10:1 like the NVA or most of the middle east, you can prevent America from "winning", but you're still going to be living in a bombed out hellhole while teens share celebrity gossip in American homes with zero fear for their lives.

csomar5• 2 years ago

It didn't help the Soviet Union. I think people over-estimate the value of the military in this context. A default will dissolve the military as you can no longer pay its members. The Western world is mostly united behind the US because it's getting free defense (who doesn't want free stuff?). If you remove that, I highly doubt they'll align as much with the US.

no_wizard3• 2 years ago

The Soviet Union lacked a domestic economy that could keep up with the needs of its population, and there by fell apart internally.

I'd argue the US can do the same, but our domestic economy - at least on paper - is more functional the Soviet Unions ever was and can provide for its citizenry and is an important market for nations all over the world.

That's a major difference than with the Soviet Union, and a key one.

PaulDavisThe1st13• 2 years ago

We owe a bit more than 1 year's GDP.

Most families that own a house owe substantially more than 1 year's income.

Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible". We've demonstrated in my lifetime that we can do this. The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.

MMT says we don't need to think about this the way we think about personal and corporate debt.

It's not that there's nothing to see here, but the sky is not falling.

Now, the stock market overvaluation ... that could be a real problem, but not the same problem.

nickff• 2 years ago

Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams.

MMT says a lot of things, but people only seem to follow it when convenient.

ot• 2 years ago

Comparing debt to GDP is very much mainstream economics, not MMT.

https://en.wikipedia.org/wiki/Debt-to-GDP_ratio

is usually unable take their income streams

It takes a percentage of that, through taxes.

https://en.wikipedia.org/wiki/List_of_sovereign_states_by_ta...

cbsmith• 2 years ago

Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues.

No. It's more like comparing a merchant's debts to the value of the turnover of their inventory. Sure, their revenue isn't the same as their income, but their income tends to be proportional to their revenue. Similarly, while GDP isn't representative of federal income, because most federal income is derived from taxation of activities that contribute to GDP, they tend to be closely correlated. Per Hauser's Law (https://en.wikipedia.org/wiki/Hauser%27s_law), federal tax revenues have been roughly consistent with 20% of the GDP. Since increasing the share the government extracts from the economy produces net drag on the economy, you don't want to get in to a situation where you have to increase that ratio significantly without a dramatic change in what the federal government puts back in to the economy (which also generally doesn't happen).

So yeah, the experts who look at debt to GDP ratios aren't crazy.

PaulDavisThe1st13• 2 years ago

The debt is owed by us, the American people. Thus we compare to the total (economic) resources available to us, the American people.

casercaramel1442• 2 years ago

Except it can. The way it does that is by printing and taxing. Both can be used to pay debt and are "taking income streams" / "seizing property" in disguise.

coldtea2• 2 years ago

Comparing a government's debt to its GDP is like comparing a couple's debt to their employers' total revenues. The country's government doesn't own all its residents' property, and is usually unable take their income streams.

Doesn't matter, since it's a relative comparison, not an absolute one.

And as a proxy of the severity of the issue it's good. The government might not take "all its residents' property, and is usually unable take their income streams", but getting part of those is exactly where it gets the money to pay the debt (plus printing money, with its own side-effects).

berserk10102• 2 years ago

Take a look at Zeihan's video where he shows in a graph how US debt level compares to other major economies. https://youtu.be/mcZPOuI-vcU?t=939. US is in the middle of the pack. US is going to be ok.

Also, watch until 20:38. You will see how screwed up some countries are when it comes to debt.

matthewaveryusa2• 2 years ago

I started watching and couldn't stop until the end. Now the only question I have is how much should I believe Zeihan? He makes a lot of bold assertions, what's his track record?

badpun• 2 years ago

US is going to be ok.

Or, alternatively, US and a bunch of other countries are not going to be ok.

bigstrat2003• 2 years ago

The fact that "we" don't want to right now has more to do with Republican attitudes towards taxation than anything else.

No, it has just as much to do with Democrat attitudes towards spending. You're right that the Republicans are partly to blame. But to balance a budget requires cutting spending as much as, if not more than, increasing revenues. The problem is that ~everyone thinks using their preferred approach ("just raise taxes"/"just cut spending") is more important than getting the budget balanced, so they are unwilling to compromise. And the American people get the shaft, as ever.

PaulDavisThe1st13• 2 years ago

A lot of Democrats (not all, for sure) would be very happy to massively cut defense expenditure, which is a vast slice of federal expenditure.

Alas, that has two problems: (1) US military spending is our own national version of socialism, in which we prop up communities by providing massive state subsidies, along with housing, healthcare, education and more to a large group of people (2) because of (1), it is hard to convince elected representatives to cut these expenditures because of the very real and direct impact they will have on their communities.

Although both D & R representatives experience the above somewhat equally, there is some imbalance in the relationship between D & R representatives and the military-industrial complex, and that leads to us to a situation where cutting these expenditures is even more difficult than it would be if the only factors were 1+2 above.

LargeTomato4• 2 years ago

Our taxes cover entitlements, military, and debt. That's it. Everything else is coming from the deficit. The Republicans have cut taxes to an unsustainable level. No matter how big or small the rest of the government is, the tax base is too low to support it.

slowhand09• 2 years ago

MMT basically says "its ok, we can just print more money". How did that work for Venuzuela? Lets see... 1.00 US Dollar = 3,615,588.83 Venezuelan Bolívares. The 6 inch thick stack of currency required to buy a roll of toilet paper would be more efficient than the toilet paper. Printing more money just devalues the work product of everyone before that. Republican attitudes about tax? Surely you jest.

raincom• 2 years ago

MMT works well, if exporters want to swap their real assets (commodities, food, chips, metals, labor) with US dollars (nominal). No one wants to export their real stuff to Venezuela unless the latter pays in US dollars.

casercaramel1442• 2 years ago

Except this is the exact opposite of what MMT says? Since MMT is such a boogeyman nowadays and people on the internet can't agree on a single definition, lets take the wikipedia article explaining it (2 seconds of research you didn't do before posting).

https://en.wikipedia.org/wiki/Modern_monetary_theory

"Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment"

The whole point of MMT is simply that the painting is not the item, and money is not value, money is a representation of value and that it's inherently worthless. IE, if you suddenly taxed away 50% of everyone's dollars and cut all dollar-denominated debt by 50%, literally nothing would change except that people would need to get used to new prices being half of what they were.

What MMT says is that printing and taxing are just wealth distribution under the assumption that humans are rational and can adjust to new prices quickly. The issue and all complications are

1. Rebasing all forms of currency including weird things like dollar denominated debt, sovereign reserves, stocks etc is hard.

2. Human's aren't rational and will be mad if you suddenly halve the value of their dollar even if in real terms nothing has changed for them b/c government handouts or whatever.

comice• 2 years ago

That's not what MMT basically says.

MMT is more like: "printing money is not limited by the things you think it is".

imtringued• 2 years ago

MMT is more about the fact that money isn't some alien artifact but is created by a government that needs to credibly demonstrate that the money it issued is needed for tax payments.

If that credibility is lost, for example, by creating more money than it intends to tax, then you will see inflation.

throw0101d• 2 years ago

We owe a bit more than 1 year's GDP.

And who is this money owed to?

$24T is owed to US domestic entities, while $7T is foreign owned:

* https://usafacts.org/articles/which-countries-own-the-most-u...

Americans are mostly paying money to themselves.

_lvbh• 2 years ago

I might be completely off but wouldn’t having more foreign owned debt be better since America can just say “we won’t pay that” and nobody has the power to collect? The military can always just crush whomever disagrees.

csomar5• 2 years ago

MMT says we don't need to think about this the way we think about personal and corporate debt.

I thought the recent inflation surge has debunked MMT (something which I almost bought, myself). Or is that not enough inflation?

lxgr• 2 years ago

Where do you see the contradiction here? MMT says that government spending and money creation are two sides of the same coin, and the practical limit for both is inflation.

Whether you agree with that identity or not, we've certainly seen a lot of both during the pandemic (government subsidies, tax breaks etc.), which is where the current inflation pretty uncontroversially originates.

rajnathani2• 2 years ago

Last time we reduced the annual deficit to zero, the usual debt hawks all reversed their position and said "this is terrible".

(Side: You’re likely referring to the 90s during Clinton’s administration) Reducing the deficit to 0 barely means anything when the overall debt is high. Besides, for your family example, it’s all well and good but families do not have to be concerned about the valuation of an international currency that they’re basing their borrowing off of.

rajnathani2• 2 years ago

(Couldn’t edit my previous sibling comment as it is out of the edit period)

We owe a bit more than 1 year's GDP.
Most families that own a house owe substantially more than 1 year's income.

Minor nitpick: A country’s income is not the GDP but rather the tax revenue collection. The US federal tax revenue is around $4.5T as of last year, which is just about 20% of the US’s GDP.

CPLX• 2 years ago

He’s a smart guy and his books are insightful but he says this basically every year.

His track record making actual monetary bets on all this has been mixed at best.

nocoiner3• 2 years ago

Is the U.S. primary deficit really all that much more than GDP growth? Seems like if we could make it a decade or so without deficit-financed tax cuts (TCJA), new entitlements (Medicare Part D) or some catastrophe requiring massive fiscal stimulus (GFC, Covid), the debt situation should look quite a bit more manageable just on the basis of economic growth.

Admittedly “if” is doing a lot of work in that sentence, though.

jackcosgrove• 2 years ago

Demographics present an intractable problem that no amount of fiscal rectitude can fix. The old age dependency ratios we're going to see in the future guarantee deficits.

The bickering over the discretionary budget is a sideshow compared to what's happening with Medicare/Medicaid and to a lesser extent Social Security.

nocoiner3• 2 years ago

Health care spending has been basically flat in terms of GDP for the past decade. The doom and gloom of the early part of this century is, so far, not coming to pass, and so it’s not clear at all right now that Medicare/Medicaid is a crisis. The solution to Social Security solvency is pretty straightforward forward - when the trust fund runs out around 2035-2040, either cut benefits by 25% or raise taxes by ~1% of GDP, and it’s solvent for the next century. At that point, it’s merely a political question as to which option is more palatable to the politicians. Of course the most painless way to solve the issue would be to do something about it today, but, well, you know.

mempko• 2 years ago

You have it backwards. GDP growth is a function of government spending. Observe when they accelerated spending as covid stimulus, we had a large amount of GDP growth. As soon as spending growth slows down, so will the GDP.

starkparker• 2 years ago

Oh big deal, Weather is Happening has been saying that for at least 11 years: https://www.boston.com/news/weather/2022/02/09/weather-is-ha...

monetus• 2 years ago

"You want to know what will happen in the future, ask a crystal ball, not me. I'm an economist" - Richard Wolff

fuzzfactor2• 2 years ago

It could be more worthwhile getting advice from a psychic rather than a professional economist though.

With a psychic more people know you need to take it with a grain of salt.

brack23678• 2 years ago

This guy doesn't believe what he's saying. The US has issued a lot of bonds in the world's reserve currency over many years. So what. Money is made of debt.

johnea• 2 years ago

Wing-nuts do love to spout off about the debt 8-)

Except of course when they're making astronomical increases in spending that benefits them. Such as increasing military budgets, tax cuts, and petro subsidy.

And of course, while the debt may not be a specific issue, eventually the _interest_ will be.

Capitalism has it's benefits, but there is no magical marketto always provide the right answers.

We need a serious reorg, and that will not happen prior to total destruction of the economy.

I'm not really a doomer, but those in power will absolutely not allow any systemic changes to occur, and we all will suffer the consequences... (inversly proportional to personal wealth of course)

thehappypm• 2 years ago

If we’re being honest, this is why people vote Trump. They see these as real existential problems (along with China taking over manufacturing, illegal immigration, “woke” culture, and so on).

hollandheese• 2 years ago

I mean I could absolutely believe that the US is in a death spiral, but from the national debt?!?!?

That's one of the dumbest things I've ever heard. I could believe it's from the instability of the political system, from the instability of the capitalist system, or from the effects of climate change. But national debt, please. This is just bullsh*t propaganda to enforce more austerity on the people.

Guzba• 2 years ago

The actual quote seems to be “So long as you have Congress keep extending the debt limit and doing deals because they’re afraid of the consequences of doing the right thing, that’s the political structure of the political system, eventually you’re going to have a debt spiral,” he explained, per Bloomberg. “And a debt spiral is like a death spiral.”

neilv• 2 years ago

This piece mentions an important situation, and has weighty quotes from noteworthy people, and -- despite the business 'news' formula of simple noise generation around market direction predictions -- you think just maybe they're trying to say something meaningful, just this once...

But then their final-word wrap-up at the end is to shoehorn in pumping of specific stocks. (Including one of the most famously over-valued ones, right after the article just called out mis-valuations. Maybe not intentiona, but just an accident of the standard operating procedure of tacking pumping of any arbitrary thing, onto the end of any bearish message -- create a sense of problem, and present a "solution", for retail investors foolishly trying to stock-pick or sector-pick.)

Business 'news' at this point doesn't need an LLM to generate it -- you could do it with a small Perl script.

Stealthisbook2• 2 years ago

He doesn't seem to recognize that the government debt is backed by not only the entire productive capacity of the nation, but also the willingness of creditors to tank the world denominated currency. It's possible that some political fights could temporarily sway the market but it would take a broader societal collapse to actually kill the dollar.

specialist5• 2 years ago

Yes and: The US dollar is worth as much as the US military says it is.

panick21_11• 2 years ago

That's not how markets work. And the US military does not control the world either. The US military couldn't even the value of currency in Baghdad.

fragmede• 2 years ago

The fentanyl drug addiction crisis and the TikTok digital addiction crisis are more of a problem than government debt, from where I'm standing. there's also the housing crisis to consider, as well as the job market. government debt death spiral isn't a thing. fentanyl is.

WhereIsTheTruth• 2 years ago

TikTok is the least of your problems

https://www.theguardian.com/global-development/2024/jan/31/m...

npv789• 2 years ago

ditch the dollar, buy bitcoin (balaji srinivasan)

aryehof• 2 years ago

The USA can continue overspending, lending and making payments, all while taxing minimally - for a limited time only. Eventually, that equation will need to change.

The choices are tighten the belt and/or increase taxes, war and the appropriation of resources, and/or renege on debt and start printing money. All choices and consequences (in some cases dire) sadly left to the next and future generations.

pavs• 2 years ago

You know I have been hearing this and its many incarnation debt related doom scenario for atleast 20+ years, when I first started following it. Probably longer. Every few years, when debt related doomed future story pops, I feel lile no one really knows what is going on, or even worse what they are talking about.

dikaio2• 2 years ago

Personally, I don’t think @aryehof is wrong, it’s just that governments do really well at pushing the ball down four more years, until they can’t. It’s like that with all Empires.

panick21_11• 2 years ago

Nobody that is serious about the topic believed in some kind of doom scenarios. Indeed people who are actually in this topic pretty much agree on the general numbers on the topic. The 'doom' talk is from people who don't know shit. However that doesn't mean there is no problem.

There are plenty of people who know whats going on, its not even very complex. What people disagree about is the long term implications.

The reality is this, the US getting to the point where the debt servicing costs as much as the military. And future spending is known to be high simply by the already promised social benefits.

And the debt servicing could go much bigger if interest on debt goes up even slightly. Ever 1% of increase debt might result in a whole US military worth of extra debt serving per year.

So, eventually the US will either have to raise taxes broadly on the whole population, or cut social spending by a large amount. Both are politically untenable and thus have a high potential of not happening or resulting in a serious political crisis.

As long as neither of them happens, the situation is getting worse, and critically getting worse with ever increasing speed. And that simply isn't possible to go on forever.

So its easy to go into an exponential curve of things getting worse and worse. All the other countries that ran into problems also had people say 'wouldn't happen here'.

So this isn't a doom for the next couple years, even decades but even until then, spending large parts of your GDP with debt servicing isn't really great way to spend money either.

NoGravitas• 2 years ago

Yeah, I've been hearing it since the Clinton administration.

CygnusX-1• 2 years ago

Why compare debt against GDP? For a person, debt to income ratio is important, but I think debt to assets is a better indicator of how likely the debt is likely to be paid off (vs being defaulted.) For the US, if you divide debt ($33T) by assets ($270T), that ratio is just 12%. This ratio will grow into a big problem only in a massively deflationary scenario when the value of all assets goes down a lot while debt stays constant. In an inflationary scenario, 12% is not a problem.

I like Taleb's writings and agree with him on most things, but seems to me that the sky is not falling.

(Obtained the debt and asset values from Google Bard)

elashri• 2 years ago

Doesn't this mean also you need to get an estimate on a more complex number, which is how much of US assets can be liquidated in a way that would help you pay the dept?

I know that this is true in case of companies and individuals but how this will play our with governments? I don't know. It does not own the majority of these assets but we are talking about government dept as liabilities. Yes, they will not default as they can keep printing money (and compete with cosmic inflation rate /s) but it wouldn't help the economy and will make matter worse with time.

But you will need to fight inflation which in part means you raise interest rate which in turn increase dept service and that would make you more dept. I probably wrong but I don't feel like this is a black and white situation.

candiodari• 2 years ago

No, it wouldn't. Like most companies, the US "is" what it's people do. That's where the actual value is. From plumbers fixing pipes to soldiers fighting in Africa to carrier groups in the pacific. The buildings and assets inside the US support that, but actually represent zero of the value.

So essentially nothing can be liquidated. There's exceptions, like raw materials (from gold to oil), but not many.

The problem is that the other side, valuing the US as the total value of oil in US soil, plus all other assets, is also bullshit.

You also can't sell it or buy it. For example, the natural resources of North Korea far exceed it's GDP. And yet, if I go to 10 banks, and offer kim 10 times North Korean GDP, could I buy North Korea? No ... they would not sell, nor would North Koreans honor the sale if it was made. So the value of all state organisation ... is zero. But for most countries that is the only thing valuable about them.

dimitar• 2 years ago

The very best metric is what % of the budget is spent servicing debt, for the US it is around 15%.

On top of that the US government debt is mostly owned by US organizations and citizens; it is assets owned by US taxpayers.

A very different situation from the typical debt/inflationary crisis in developed countries where you have a foreign-owned debt and limited tax base; these cause serious credibility issues for governments, which in turn further push up rates.

KoolKat234• 2 years ago

Your asset base is in truth meaningless (and often very inflated). The true measure is your ability to pay this debt and in order to pay this debt you need to generate revenue, at a country scale this revenue is GDP.

A bank's first think to look at is affordability, are you able to actually pay the installments on this. Recoverability of initial capital is secondary and only matters in a liquidation event, you don't want to have to worry about a country-wide liquidation event (in truth they can print money, so long as your debts denominated in your currency and they accept this).

bdjsiqoocwk• 2 years ago

Your asset base is in truth meaningless

If you believe this, do you also believe that debt is meaningless, because you can print money to pay it?

Gow8876• 2 years ago

For USA debts, it is falling. The last 3 years Fed need to buy the left over new bills unsold. In the past, 100% being sold to public and sovereign. But the last 3 years spooked US Treasury as routinely only half sold. Janet even had to fly over to China to "kowtow" to Xi to not sell but buy. It wasn't reported much in the west, but widely in the east and exceedingly humiliating if you able to read the chinese reporting. Essentially now, Fed is directly printing money to American public without going through hoops. Coincidentally the last 3 years inflation exceed way higher than 2% even though interest has been increased from 0% to 4+%.

Our_Benefactors• 2 years ago

exceedingly humiliating if you able to read the chinese reporting

Given that what passes for “exceedingly humiliating” is extremely different between the two cultures, this seems more like packaging the transaction to be more palatable for a domestic Chinese audience that dislikes the idea of their leadership doing business with America.

RecycledEle3• 2 years ago

$27 trillion compares to a GNP of $26 trillion.

If we owe a year's income, we are in trouble.

csomar5• 2 years ago

You are comparing the debt of the government to the assets of the country...

nonameiguess• 2 years ago

I have no idea why you would ask Google Bard about the financial position of the US government. The Treasury department publishes financial statements for public consumption just as law requires. Here you go: https://www.fiscal.treasury.gov/reports-statements/financial...

The last reporting year is 2022 and assets were ~$4.9 trillion and liabilities ~$39 trillion.

apexalpha• 2 years ago

I think that's a bit overblown. The US debt-to-GDP isn't that high.

Though, I have to say, running 6,5% deficits in fiscal years with no immediate crisis or direct war seems a bit extravagant. If that becomes the norm it could spiral out of control.

littlestymaar• 2 years ago

All that matters is the comparison between debt to GDP ratio, interest rates, deficit and nominal GDP growth (that is: “real” growth + inflation) see:

Let R be the debt/GDP ratio, g the “real” GDP growth, i the inflation rate, and r the interest rate, the deficit that stabilizes the debt/GDP ratio is the following: R(g+i-r).

For the US in 2023 you have:

    g=3.3%
    r=2.9%
    R=120%
    i=3.4%

Which means that the stabilizing deficit level is 4.5%. So the current deficit is 2% higher than it should. And at this deficit level, the debt/GDP ratio would stabilize around 170%, it won't “spiral out of control”.

That being said, even though the death spiral narrative is BS, the fact that governments of developed countries stopped taxing the rich and started borrowing from them instead is indeed a problem…

specialist5• 2 years ago

Government spending is an investment in civil society, which is repaid thru taxation.

If everyone paid their fair share of taxes, there would be no problem.

pylua3• 2 years ago

It’s not always a good return on investment. When you spend someone else’s money you aren’t going to penny pinch or bargain hunt like you need to.

specialist5• 2 years ago

What determines a good investment? Who decides?

fallingfrog• 2 years ago

There’s something that a lot of people get wrong about inflation.

What you have to keep in mind is that the debt is in US dollars. So, while printing money and causing inflation to pay the debt sucks, it won’t cause a Weimar Germany situation. that only happens when the debt is in an external currency. When you inflate your currency and the debt is in your currency, it becomes easier to pay as the currency inflates. But when it’s in a foreign currency, the exchange rate tanks, and so the more money you print, the more the debt appears to increase. So you then need to print more money faster and faster to continue to make the payments.

A government would only do this under threat of attack or if they thought someone would organize a coup against their government if they failed to pay. That was the exact situation in Venezuela, for instance, which is why they kept printing money to make the payments on their imf loans.

But for us, it might suck, but the economy won’t collapse.

RecycledEle3• 2 years ago

Ron Paul said this in 1984.

Imagine an alternate reality where the USA elected Dr. Ron Paul president in 1984, passed a constitutional amendment requiring a balanced budget in 1985, paid off its debt by 1992, and never allowed the federal government nor any state to runa deficit again because any cash flow shortfall automatically triggered an increase in all tax rates by double the percentage of the shortfall. So if the government of the State of California spent 10% more than they took in in 2023, they would see all tax rates automatically increase by 20% in 2024, which would provide pressure on their state government to stop spending.

pylua3• 2 years ago

I didn’t know this is how it would work. I had hoped they would just confiscate the elected officials personal property or throw them all in jail.

Those sorts of variance in taxes would not be good for anyone.

RecycledEle3• 2 years ago

Those sorts of variance in taxes would not be good for anyone.

The sharp and unexpected tax increases would be good for future generations. Most voting populations* would only need one of them to help them learn to vote* for financially responsible politicians.

Such sharp and unrepealable (at least for that year) tax increases would be like punishing a disobedient child. Society would learn to vote* for more fiscally conservative leaders.

* This assumes we have any role in electing anyone. Given the reality of rigged elections, it is obvious when the powers that be refuse to allow balanced budget amendments. Such an amendment would trigger a desire to throw the bums out, which would be frustrated by rigged elections, which would lead to unacceptable things like people arresting their leaders. I can see why no balanced budget amendment can ever pass.

boffinAudio• 2 years ago

One bomb dropped every twenty minutes for the last twenty years is a HELL OF A DRUG.

You're still paying for it, and your children will be paying for it, and their children will be paying for it.

So ask yourselves, Americans: is all this EXPENSIVE MURDER really in your best interest?

Your debt is realy only the second worst thing you're allowing to happen to your nation.

The first worst thing is the willful rule by war criminals which allows them to spend whatever they want, murdering whomever they deem culturally inferior, and that is what they are doing.

The debt won't go away until the war criminals that incur it, are rotting in chains in The Hague, where they belong ..

w0de0• 2 years ago

Well no WHOEVER they feel culturally inferior. The Belgians, for instance, have yet to be bombed.

neilwilson7• 2 years ago

He's wrong.

The US debt is just the amount of savings in US dollars that the non-government sector has accumulated from government spending that hasn't yet been paid back in taxes.

In other words it is a component of the money supply that allows people to save safely for the future.

The problem is the idea that this saving has to be rewarded in some way. It doesn't. The saving will happen anyway for status and insurance purposes and then have to be accommodated by additional spending.

It's the belief amongst economists like Powell that they are 'guided by the stars' that is the issue. We should not be using interest rates as a control knob. After 15 years it should be clear they don't work as advertised.

The stabilisation policy for an economy needs to be in the market for labour, not the market for money.

c7THEC2DDFVV2V• 2 years ago

Can you expand on this, I'm not 100% familiar with the way this is communicated and it just seems like mental gymnastics to avoid calling debt what it is.

neilwilson7• 2 years ago

If you hold a government Treasury are you in debt or do you have a saving asset?

strawberryfie3• 2 years ago

Interesting definition of government debt, but those “paying back” the debt in future taxes are very unlikely to have any connection to those who incurred the costs to start with.

neilwilson7• 2 years ago

But they will have inherited the asset side of the debt from grandad won’t they.

That’s the connection. Debt is really saving and when people spend those savings it eliminates the debt.

csomar5• 2 years ago

That's using a lot of fancy words to define debt. Debt is debt: money or value to be paid back, in the future.

In other words it is a component of the money supply that allows people to save safely for the future.

All debts have risk. There is no zero risk instrument, as the currency itself can devalue even if you get your basis back.

The stabilisation policy for an economy needs to be in the market for labour, not the market for money.

Not sure what this means. Maybe you have an idea that you want to better articulate?

sheepscreek2• 2 years ago

If not interest rates, what would you advise the Fed to use for controlling inflation?

Please don’t say there’s no need to control inflation. That will wipe out any savings anyone has. Your money will be worth We’ve seen its ill effects time and again.

Argentina has 211% inflation right now. It is a vibrant economy, crippled by inflation. People cannot save. Either spend all you have (it will be worth 1/4th in a year) or buy forex.

(I apologize if the following sounds a bit ranty):

We need to keep in our minds that a lot of economics is human psychology. Inflation is a mass psychology phenomenon. The stock markets work on psychology. Which is why we have these insane “valuations”. Why would anyone think NVIDIA is worth $1.5 Trillion dollars is beyond me. I’ll explain - 1) Traders gotta trade. 2) Investors have got to invest. When despite such high interest rates, people invest in the markets - that’s got to be greed - likely caused by a high inflation recency bias. Still operating as if their money will be worth much less next year.

Also it’s noteworthy that just before 2020, the valuations were 1/4 of what we have now. Has the productivity of the world suddenly increased manifold? No. It was fuelled by two things 1) Near 0 interest rates that forced safe investors to pull their money out of bonds and savings accounts 2) Collapse of office real estate. The second one is on-going, so my guess is a lot of the money in the markets is coming from ex-office real estate investors.

sudosysgen• 2 years ago

Taxes. Taxes are the other tool that can be used to control inflation, especially when most of the money supply is in the hands of relatively few and has questionable productivity.

It's a shame however that taxation isn't used for monetary policy due to the political system just not being set up that way.

hnfong• 2 years ago

Interest rates are not the only way of controlling inflation.

GP's post is just a rather convoluted way of saying the US needs to increase taxes.

Not sure whether they actually intended this, but it seemed the only logical conclusion. Unless they really were advocating for a zero interest rate environment... to which I agree with your points.

lamontcg2• 2 years ago

We need more inflation than 2% though. The fact that 211% is too high doesn't mean that 2% isn't too low. And the low inflation expectations leads to low interest rates which reduces the cost of money which is creating our financial sector inflation/bubble.

rsync• 2 years ago

I am not your parent but…

I believe the prevailing answer to your question (among people who think we shouldn’t use interest rates as our lever) is taxed - specifically, corporate taxes.

I don’t have strong feelings about this one way or another, but I believe that is the answer you will be given.

object-a• 2 years ago

The United States is not Argentina. Argentina, unlike the United States, has to finance most of it's debt from external parties in foreign denominated currency.

Argentina has a vibrant economy, but it's export revenues are almost entirely from agricultural products. Since ag prices are volatile, it's harder for Argentina to acquire the foreign currency it needs to pay debts.

Inflation is a mass psychology phenomenon

Inflation is a supply and demand phenomenon. If inflation is caused by constraints/shocks to supply, then increasing production capacity is a better long term solution than raising interest rates.

we have these insane “valuations

This is a completely different problem than goods inflation. Stock market valuations can spike at times when inflation is well under control, and may even crash if inflation is too high. There was a long period where we had near-0 interest rates, high valuations, and little-to-no inflation after the 2008 crash

tarsinge• 2 years ago

Does that definition hold when a significant part of the debt is owned by foreign entities?

mo_42• 2 years ago

Some part of governmental debt is held by the central bank. So the interest that the government pays on this debt goes back to the government because the central bank somewhat belongs to the government too.

tfehring• 2 years ago

Long-term interest rates aren’t set by the Fed, they’re market rates based on the Treasury’s demand for borrowing and investors’ demand for purchasing US government debt. If there were enough demand for zero-interest US government debt to support the Treasury’s borrowing needs, then the interest rate on that debt would already be zero.

I’m curious, how would you advocate for using the labor market directly as a stabilization tool?

neilwilson7• 2 years ago

Look up Japan. Then tell me long term government debt rates are set by the market

cyanydeez• 2 years ago

if the US dollar wasn't a reserve currency globally, these statements would be rational.

makerdiety• 2 years ago

In other words, the U.S. government owes its citizens what money tries to represent. Which is a better life found outside the current global trend toward dysfunctional economics.

U.S. debt proportionally indexes how bad the state treats its citizens. Rather, how bad the U.S. state is at being a state worth living under.

Because production should always be disproportionately done and not at all coming from a mass of ordinary people. A dictator should be the only producer of all goods within a country.

Workers work and consumers consume. A simple division of labor.

pwarner• 2 years ago

There's such big potential to tax boomer wealth as they die that are are allowing to slip away. It has big potential to reduce the debt.

narrator• 2 years ago

The biggest problem with the U.S debt is it means there are people with no creativity and entrepreneurial risk-taking ability that are earning 5% on a trillion dollars through taxation of the people who are. This is an enormous waste.

In China, where people aren't allowed to take money out of the country easily and there is no huge government debt market, people must invest in something that could possibly not turn out well and which is likely to increases the capital stock of the country in terms of factories, housing, infrastructure, etc. if it does. In the U.S it's just dumb money getting billions for exercising no creativity and risk-taking ability.

Log_out_• 2 years ago

? And the US is not even borrowing from its citizens. It borrows from the empire currency which the world values high, because the free trade, non mercantilist capitalism world order was the best thing we got so far and nobody offers an reliable alternative.

If the US cities were nuked tomorrow, but harbors and barracks and nerve centers remained, that machine would life on like nothing happened.

China, with its current value system is clear mercantilist and can not replace the machinery with all the ships in the world. Europe can't do free trade, even if Ukraines life in grenades depended on it.

lucas_membrane3• 2 years ago

The odd thing is that the federal government's balance sheet does not have to balance, and thus no credible federal balance sheet exists. The total (accounting, market, or replacement) value of all the nationally owned assets is not reported, nor is their annual depreciation. Thus, the net worth of the national government is largely unknown. That is good; if it were reported, many citizens might desire that the government be sold off and the proceeds distributed to the taxpayers as a dividend. Of course, it has already been sold off, but no one was paying attention.

Would it be better if government had to report like a business (as government requires it to report), or if business got to report like the government, or if the reporting rules were just reversed for a while so each could understand the other's problems? I think Taleb is just playing games with us. He knows that modern civilization is not a clear-cut logical proposition, that maybe no one understands how it works and evolves, and perhaps that, whatever form it takes, one of its fundamental requirements is that we maintain an optimum level of confusion. He has found his niche revealing the peculiarities of engines of ignorance that run on knowledge as explained by, e.g., Fortune.

JoBrad• 2 years ago

Not sure I’m really following you. The assets of a government are primarily GDP and economy. Those figures are reported quite regularly in the US and many other countries.

lucas_membrane3• 2 years ago

I'm talking about tangible non-financial assets -- e.g. hydrogen bombs, hospital beds in VA hospitals, US and interstate highways, national parks, national laboratories, etc. IIRC, state and local governments are required to either report the value of similar state-owned assets and recognize their depreciation as an expense when it occurs, or, in some cases, to maintain them so that they do not significantly depreciate. The federal government doesn't do that. That means that whenever federal borrowing (debt) increases, people somewhat inaccurately infer that the government is operating at a loss. Private firms can increase their borrowing while they are profitable, and many have done that to pay higher dividends or buy stock in themselves in relatively recent times. But the figures in the unified budget of the US government and its various related trust funds don't tell us much about the net costs and benefits of having a government or how much it is worth.

JohnnyLarue• 2 years ago

Who does Nassim Taleb think the debt holders are?

Nassim Taleb says the U.S. is in a ‘death spiral’ over government debt

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