Nassim Taleb: U.S. is in a 'death spiral' over government debt

https://finance.yahoo.com/news/black-swan-author-nassim-taleb-112918333.html

by paulpauper • 2 years ago

22 26 2 years ago

finance.yahoo.com

david927• 2 years ago

That's really the best way to put it.

don_neufeld2• 2 years ago

I’m usually a fan of Taleb, but these hyperbolic analogies get real old.

I’ve been hearing about “end times debt levels are right around the corner” since I was a kid 40 years ago (my parents were “financial doomers”, always willing to talk about how demographics or interest rates or something else was going to kill the economy)

All I’ve ever seen that perspective do is result in people making very bad financial decisions for themselves.

Not a fan of that.

The truth of all this is very simple:

1. We, as a society make investments. In infrastructure, our kids, etc.

2. We, as a society pay for those investments over time.

As long as our return on the investments we’re making is decent, there is never a level at which debt is a problem.

If you think that we’re making bad investments (as a society), that’s a separate question than the overall level of debt in the society.

tharmas3• 2 years ago

Agreed. As long as the US Dollar is the global currency the Govt can simply print more money to cover that debt. Other countries cant do this however.

FredPret4• 2 years ago

They can and they do. The Yen is nowhere near the Dollar for global power, and yet they have much more debt than the USA.

The mechanism that gives the US government the power to print more money is the capacity of the US economy to churn out ever more goods and services while absorbing regular price increases.

Quarrel• 2 years ago

No.

As long as you can issue debt in your own currency, then your Govt can simply print more money to cover that debt.

This is true for lots of developed nations, not just the USA.

don_neufeld2• 2 years ago

I don’t think that’s the essence of it at all.

Is it helpful to be the reserve currency?

Hugely yes, it gives the society a buffer it otherwise wouldn’t have. And that buffer is very, very valuable.

But having a buffer misses the mechanics. It all comes down to one thing:

Are the investments we are making returning at a competitive rate?

Any country where that answer is NO for a long enough time is going to have a reckoning.

Lerc• 2 years ago

As the old saying goes

"Economists have predicted 2n(±1d6) of the last n recessions."

(remember to use an n value to best support the narrative you are currently pushing.)

Ericson2314• 2 years ago

When we mint the coin, we should put Taleb's face on it

berserk10103• 2 years ago

dupe: https://news.ycombinator.com/item?id=39211473

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.

thrill• 2 years ago

Rank ordering what people paid for their seats in an airliner crash has just as much relevance.

berserk10103• 2 years ago

Most developed countries' economies have in the range of debt that Zeihan described, so not sure what you're getting at, unless you think the developed countries as a whole is crashing. Not seeing that really anywhere with low unemployment and rising stock market.

stratigos• 2 years ago

Anytime people talk about failing western economies, I find it easy to make a "you should see the other guy!" argument. We dont have > 500 million people at risk of starving to death in the next 10-15 years, and were not at risk for total energy collapse. Were not trying to gaslight the world that we are not looting all of the fish in their seas due to impending food source collapse. Were in horrible shape but compared to most of the major economies of the world, were relatively o.k.

This does not mean things are o.k. in the USA, or that we dont need to fix things. Its just that were not the ones that truly need to panic, "collapse" in the West is different than in the old world, just like "poverty" in the USA is radically different than what it means on most of the world.

marcusverus2• 2 years ago

This is a distraction. If you're in terrible financial shape, the fact that others are in worse financial shape might make you feel better, but it doesn't change the fact that you are in terrible financial shape.

The US owes ~$250K per worker. The the average worker pays something like ~$8K per year in federal taxes. We added another 12.8K per worker in 2023.

Our system in incapable of the kind of action which is required to save of from this death spiral. The political incentive to lie--to tell the people that everything will be okay, and to tear down anyone arguing for drastic and painful solutions--is simply too high. Our elites will lie to us until the final collapse is underway, and the majority will happily follow them into oblivion.

berserk10103• 2 years ago

It's not a distraction; most of the developed countries have similar level of range of debt. Maybe that's how modern developed economies are suppose to function.

mywittyname2• 2 years ago

The US owes ~$250K per worker. The the average worker pays something like ~$8K per year in federal taxes. We added another 12.8K per worker in 2023.

But how much does the average tax paying entity hold in t-bonds? Directly, or indirectly (i.e., holding stock in companies that hold t-bonds). For example, Apple holds like $60B in t-bonds.

People tend to misunderstand government debt. The Treasury is essentially a gigantic bank. There are some entities that are so large and flush with cash that they have no alternative but to park their cash in the Treasury. If we were talking about a private bank, we'd call these deposits "liabilities." But "Treasury liabilities" doesn't have the same negative ring to it that "government debt" does.

Apple gives the Treasury $60 billion bucks, and suddenly "the government" is in $60B of debt. But in X years, it's going to give that $60B back to Apple, plus a little bit in interest. It's quit likely that the 1% interest that the government will pay Apple is orders of magnitude less than the taxes Apple will pay to the government over those 10,20,30 years that bond will take to yield. So the government still comes out ahead.

The political incentive to lie--to tell the people that everything will be okay,

The lie being pushed by politicians is that the debt is something to worry about. Politicians have warned about debt since the country's birth. Yet, no current politician is concerned enough about the debt to actually address it.

They could pass a tax that directly covers interest payments on the national debt. But they don't do that. Instead, they lie and say that cutting spending is the only way to cut the debt. Which completely ignores the fact that Apple can buy t-bonds (thus creating national debt) and that money can not be spent - the government still goes into debt in this instance.

BlueTemplar• 2 years ago

So, who is going to be left holding worthless IOUs ?

Including both private and public debt holders, the top three December 2020 national holders of American public debt are Japan ($1.2 trillion or 17.7%), China ($1.1 trillion or 15.2%),

DaleNeumann2• 2 years ago

Just raise the ceiling as any reasonable government would do, it seems to me as if whether it was Obama or Biden or Trump who did so, the outcome was pretty much status quo for the economy and after the hoorah things went back to usual.

Republicans feed on fear it's no secret.

FredPret4• 2 years ago

Both parties feed on fear. Each one tells the world that the other one will ruin everything with their sinister plans.

But the reality is, as always, somewhere in the middle of where the two opposing marketing machines are spewing at one another.

DaleNeumann2• 2 years ago

Trump had no problems with increasing the nation's debt, republicans cheered him on, because debt is a political pawn that both parties move where they see fit when they need too. Republicans in general use fear tactics and 'exestential' threats or religious context to get things done because they are fear mongers.

FredPret4• 2 years ago

"Doom around the corner" is a great marketing schtick if your stock in trade is "unconventional thinking".

He may or may not have some good points; I enjoyed the concept of anti-fragility and arguments about Chesterton's fence. But his public persona is so smug and off-putting, it's hard not to discount all his ideas.

mywittyname2• 2 years ago

I'm of the thinking that the only risk US government debt possess is Congress deciding to default on it. But seeing as its illegal for the government to default on its debt, I don't see this actually happening.

Where are companies going to park their dollars, if not in t-bonds? They really don't have much choice. Stock buybacks/dividends get the dollars off the books, but investors pay the taxes on the funds, then are forced to make this same decision themselves. They can invest in real estate, but that's a distraction and still has the drain of property taxes and maintenance. Buying foreign bonds provides diversity, but raises the risk of forex swings. Maybe overpriced private equity?

This same thing goes for every entity who buys up t-bonds. There is no good alternative to t-bonds. Think US companies are going to start moving their USD to Euros? Yeah, no, not with Russia actively invading a neighbor. China? Good luck ever getting that money back out of the country. Switzerland? Good choice, but the economy is far too small, and the deflationary crisis that would result from capital inflows would be swiftly handled by the government. India? Saudi Arabia? Face it, there's no good alternative to US t-bonds.

The "national debt crisis" has been going on for decades now. There's really no evidence to suggest that it's actually a crisis at all. Nobody can say for sure at what level the debt becomes an actual issue, and what exactly the fallout will be. People make predictions at what level the debt becomes an issue, but we keep passing those milestones and the economy keeps going.

It seems like political posturing to me. "Deficit Hawks" bitch about the debt on national TV with the other party is in power, then make up BS on how their platform of doing everything except directing more money to paying it off debt will actually reduce the deficit. I guarantee the Venn diagram of people who supported the TJCA (which the GAO said would greatly increase the national debt) and who are currently telling us how dangerous the national debt is, is basically a perfect circle.

Nassim Taleb: U.S. is in a 'death spiral' over government debt

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