The U.S. Government Will Soon Spend More on Interest Payments Than Defense

https://www.wsj.com/finance/the-u-s-government-will-soon-spend-more-on-interest-payments-than-defense-ee6fbeec

by cebert • 2 years ago

48 32 2 years ago

cebert• 2 years ago

jamesredd• 2 years ago

The truth is that the US can no longer afford to be the police of the world, and as this recent Houthi situation has shown, lacks the capacity to do so. What's even more worrisome is the nuclear arsenal of the US could fall into the wrong hands in the event of a civil war - with the upcoming presidential election. Disarmament, of conventional and nuclear weapons, should be a long term goal of the US.

CommanderData• 2 years ago

Disarmament goes in hand with being less aggressive in other parts of the world.

Practically means receding army bases including the biggest American outpost the US has in the middle east at the moment (I'll let you guess which country that is).

It will never happen because it does not align at all with it's foreign / soft expansion policies.

matthewfelgate• 2 years ago

You think the world would be less aggressive without American policing?

It's an interesting argument...

m0llusk• 2 years ago

Recent Houthi situation? That mess has been festering since 2004.

devjab• 2 years ago

We’ve had warships fighting pirates in the area for two decades, we being Denmark. The US does very little “policing” in the area compare to European nations. Which isn’t too weird considering we’re much more affected by these things.

The US is mostly present when the US wants to do US things in the region. Which is rarely “policing” it, and more about having strong influence. I’m not going to judge whether or not the US should keep a strong geopolitical presence in the world or not, but if you don’t, someone else will probably do it instead making. I know a lot of Americans don’t think of the soft power and influence you guys have around the globe through your hard power, but it would be a very different world if you gave it up.

A4ET8a8uTh02• 2 years ago

It is interesting ( and a little scary ), because we are very much on a path that could easily unravel existing status quo ( and yes, overall as a beneficiary of it, I would it to mostly stay as it is ).

Why I say it is interesting? The article is from WSJ, which has rather specific target audience in mind ( not me ). The fact that it is recognized as a real problem suggests that it may no longer be a can that can be easily kicked down the road ( and FED is unlikely to make adjustments to help that situation either ).

Note that it will likely serve as a call for austerity with social security and medicare taking the brunt of it ( the chart will serve as a clear indicator that it is the real culprit ) along with a message to anyone who suggests otherwise: 'we have a war coming up yo; you don't want to cut defense spending'.

It is all rather depressing, because it is predictable and was avoidable.

Now, and I harped on this for a while, we have only a set of really difficult decisions ahead ( raising taxes AND cutting services ). No one will like this.

ta12432• 2 years ago

Now, and I harped on this for a while, we have only a set of really difficult decisions ahead ( raising taxes AND cutting services ). No one will like this.

The value of America's largest 500 companies (or whatever the S&P is) has increased by $6T in the last 12 months, $16T in the last 5 years.

This is talking about $1T of payments over the next 10 years, or $100b a year -- well under 5% of the gains that America's companies have increased in value solely because of an American Hegemony led world leading to such stability.

A4ET8a8uTh02• 2 years ago

But this 'value' does not address the underlying issue unless you are suggesting that it is just a question of carving out that value for the purpose of debt payment.

Am I misreading something?

wongarsu• 2 years ago

So you are saying America should raise taxes on the S&P500 (or their shareholders) so the government can pay for providing this insane value?

acdha• 2 years ago

That paper value only helps if you can realize it by taxing it. Our debt is so high because there is a significant political faction dedicated to cutting taxes by incurring debt for future generations to deal with. It’s easy to forget but the budget was balanced at the turn of the century, and successive rounds of tax cuts for the wealthiest people – the WSJ demographic and holders of most of those stocks – added trillions in debt. Those low tax rates are also factored into assumptions of those companies’ long term value so stock prices will decline if we do start taxing more.

fallingknife3• 2 years ago

And those 500 companies combined make significantly less than $1T of profit per year, so the example you used to try to minimize the magnitude of the problem actually does the opposite.

seatac76• 2 years ago

Before we get to cutting benefits, there’s other stuff we can do. American economic system is very fat in the middle lot of middlemen involved.

On big ticket government spending items we can do a lot of things to improve efficiency.

- Healthcare: price transparency and elimination of PBMs would reduce cost significantly.

- Defense: Undoing some of the consolidation, yes obviously will take time, but this fixed cost plus shenanigans that inflate defense spending is insane.

There are other places too, lot of things can be done before talking about austerity.

bedhead• 2 years ago

We live beyond our means. It won’t end well.

cuckatoo• 2 years ago

Turns out the same dumb people that max out their credit cards are also the ones running the country. Surprise!

fallingknife3• 2 years ago

In a democracy the leadership will resemble its population

azemetre• 2 years ago

I’d believe this argument if the house of representatives wasn’t capped and DC became a state.

smileysteve2• 2 years ago

Inclusive the same people that bankrupted casinos and utilize on public funding of baseball stadiums.

metricspaces• 2 years ago

plot thickens: the people who own the banks fund the dumb people who borrow from the banks to buy guns from the MIC who the very same people who own the banks and the press also own.

beej71• 2 years ago

But it also seems like people with great personal wealth are the ones running the country.

bjnewman85• 2 years ago

Yeah man, our government borrows money. We used it to build the largest economy in the world. Now we continue to do that, but we also send part of the money our government borrows to people all around the world.

In exchange for this ultra stable source of revenue backed by the wealth of our current and future taxpayers and our military, they might forgive us for all the horrible things we have done.

smileysteve2• 2 years ago

More important than foreign aid is a huge defense budget and an 20 year occupation.

fallingknife3• 2 years ago

But we aren't using it to build the economy. We are mostly using it to pay interest and entitlement payments.

xyzzy4747• 2 years ago

The interest payments go into the pockets of entities or people who then use it to spend in the global economy. So the interest alone isn’t an issue from a macro economic perspective.

howeyc• 2 years ago

This is correct. Interest payments go into bank accounts. Some of that money gets spent into the economy, some stays and gets reinvested into more treasuries.

There's a reason real GDP growth is higher than it's usually been, money is being injected into the economy via interest payments.

Timber-6539• 2 years ago

Nothing to see here. The AI boom will defuse this time bomb.

jcfrei• 2 years ago

Not surprising given the inflation reduction act spends an additional $891 billion and the Chips act which adds another $280B to the governments debt - taken together about 19% of the usual yearly federal expenditure. It also contributed to the high government debt to GDP ratio of 144% - for comparison the EU is at 81%. It's quite a gamble by the Biden administration - if it creates lots of flourishing businesses it will be well worth it. But if a lot of the funded ventures collapse after the money is spent then this additional debt will be a burden for the American taxpayer for quite some time.

username332211• 2 years ago

It's quite a gamble by the Biden administration - if it creates lots of flourishing businesses it will be well worth it. But if a lot of the funded ventures collapse after the money is spent then this additional debt will be a burden for the American taxpayer for quite some time.

Both will happen. First, businesses will expand to absorb the subsidies, then over time their assets will be sold to private equity to be destroyed.

Why run a business that earns 7% ROI, when you can get 5% risk free from the treasury?

madaxe_again• 2 years ago

Here’s TFA for anyone without a sub

https://archive.ph/mbz1p

My take…

Treasuries yield based on desirability and confidence. If either confidence or desirability are low, yields go up, in order to make them a more attractive investment.

Currently, confidence seems to be about the same as ever - the U.S. defaulting is as unlikely as it ever was - however desirability is down, as since the pandemic retail ETFs and equities have exploded in popularity, and bonds are pretty unsexy instruments at the best of times - so the yield goes up to try to attract investors.

Of course, there’s also interest rates going up and inflation to factor in, however inflation doesn’t really change the picture when you’re the one printing the money, as while it pushes absolute figures up the devaluation is commensurate.

So, all in all, this should actually be read as “in absolute terms, the defence budget has shrunk” - which is kinda true, kinda not, as quite a bit of what once sat under defence now sits under various discretionary spending schemes rather than “money for the DoD”.

Simulacra• 2 years ago

The unregulated printing of dollars has consequences. Whether it's for Ukraine, or for pandemic stimulus checks. There's no such thing as free money.

simonblack• 2 years ago

It's called arithmetic. There is no escape.

The U.S. Government Will Soon Spend More on Interest Payments Than Defense

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