the US government has to start paying for things again

https://www.vox.com/policy/367278/us-national-debt-gdp-government-inflation-solutions-recession

by rntn • 2 years ago

68 102 2 years ago

lumb63• 2 years ago

There’s no magic number at which the debt load becomes a full-on crisis.

When the US loses its AAA borrowing status and countless funds are required to sell all US Bonds, you will see that statement is incorrect.

jandrewrogers3• 2 years ago

The US already lost its AAA borrowing status.

GenerWork• 2 years ago

It lost it from one rating company, and the others still have it as AAA.

beaglesss• 2 years ago

The fed can buy those bonds via QE and just pass it as inflation.

makeworld• 2 years ago

That doesn't sound like number to me.

BaculumMeumEst• 2 years ago

Would a national debt of $0 be a point where the debt is a full-on crisis? Would a national debt of $999,999,999,999,999,999,999,999,999 be a point where the debt is a full-on crisis? If only there were some kind of conclusion we could draw from this, even if we don't have an exact number. Oh well, back to eating paste.

lupusreal2• 2 years ago

You might as well say there's no "magic number" of bricks we can stack on top of you before you are squished because we don't know precisely what that number is (yet.) But clearly there is a limit, even though we might have some difficulty saying exactly what it is.

montagg• 2 years ago

The number is, whatever number it is when USD stops being the world’s reserve currency, for reasons unrelated to national debt.

nine_k3• 2 years ago

Indeed, it's not a number. The loss of AAA status would mean the loss of the US's economic, technological, and military superiority first. After that, the specific number would matter as little as it does now.

contagiousflow2• 2 years ago

I mean, that has already happened. But I think the point of that statement is there is no known number where once debt reaches, the US will be downgraded further.

eigenspace5• 2 years ago

And could you remind us at which magic number it is where the USA loses it's AAA borrowing status again?

jorblumesea• 2 years ago

No one knows (really, no one knows) but people will keep bringing it up

polygotdomain3• 2 years ago

But why did the US lose their AAA rating? It has nothing to do with how much debt we have. It has far more to do with a non-functioning congress that simply decided it wasn't going to pay it. As has been said several times in this thread, it's political, not about the numbers themselves.

katzinsky2• 2 years ago

Ignoring sanctions the US has not defaulted on its debt since the 70s. Those periods where a new budget has not been approved resulted in the US being late to fulfill invoices but all of the coupons on the bonds still went out.

If that didn't happen a lot more than just the government's credit would unwind. That's the primary reason debt is still purchased despite the obvious fact that it will never be repaid.

2OEH8eoCRo0• 2 years ago

I worry that the whole US economy is bloated and fragile due to govt spending but I am not an economist.

When the govt spends $7 trillion it basically goes to various Americans for various work. It's a $7 trillion injection to the economy. There are also various leeches or other businesses/work that aren't culled naturally via competition. This all worries me.

pstrateman• 2 years ago

The question is, does that $7 trillion generate real good and services? More or less than the private sector would have generated?

katzinsky2• 2 years ago

From what I've seen not only are they taking it from otherwise productive components of the economy they tend to produce and encourage economic actors that are a net loss themselves.

We'd probably see much higher GDP (after a short period of readjustment) if the spending was stopped cold turkey.

phkahler2• 2 years ago

> The question is, does that $7 trillion generate real good and services? More or less than the private sector would have generated?

That's the wrong question too. It needs to generate enough economic activity such that the TAX on that activity allows repayment of the $7 trillion. AFAICT it does not. If it did we would have a declining debt, but it's going the other direction so that's the answer.

WalterBright8• 2 years ago

A figure I saw years ago was that a government created job cost 3 times what a private sector job would.

I.e. government jobs spending just makes things worse.

bigstrat2003• 2 years ago

I love the lack of self awareness from this author. "My generation of reporters was right to encourage the government to go into debt, but now it's different". No it's not, the consequences of the bad decisions in ~2010 are just catching up to us now. I guarantee you that there are people who want the government to deficit spend today who will say the same sort of thing 20 years from now as they get older and wiser.

eigenspace5• 2 years ago

I don't really think its that simple. There can be situations where debt is a good idea, and there can be situations where debt is a bad idea.

In ~2010, debt financing was incredibly cheap, so if the USA was able to take out debt at that time and use it for productive economic growth that paid more than the financing cost, it would have been a good investment.

The problem in my eyes isn't really that the USA took on debt when it was cheap, the problem was that:

1. it took out so much debt that now as those debts mature, they can't be paid off without taking on newer, much more expensive debts (and instead of treating that borrowing behaviour as temporary/uncertain, the government learned to treat it as a integral part of its budget).

2. the investments the USA made with that debt might not have been very smart investments. There's a huge amount of crumbling infrastructure in the USA that should have been prime targets for replacement in the era of low-cost debt, that are now going to be incredibly painful to maintain or replace, and aren't really optional. Yes, the USA did invest in a lot of things that boosted the GDP, but it's not really clear (to me at least) that the increase of economic activity was particularly productive, useful, or sustainable.

uticus• 2 years ago

There can be situations where debt is a good idea, and there can be situations where debt is a bad idea.

Your examples seem to be saying a “good debt” situation would involve the government being wise in playing the market.

It’s arguable if the government should be playing the markets to any extent at all.

To my knowledge the purpose of (American) government involves the wise use of collecting and spending. It seems to always get in trouble when going after the carrot of investing.

4wsn• 2 years ago

There can be situations where debt is a good idea, and there can be situations where debt is a bad idea. In ~2010, debt financing was incredibly cheap, so if the USA was able to take out debt at that time and use it for productive economic growth that paid more than the financing cost, it would have been a good investment.

Sure, debt can be good idea when it's carefully considered and planned by a well run organization, preferably one where its leaders have their personal finances highly dependent on its success.

However the chronic issue almost every government has is that the government is neither well run, nor do the people running it suffer any financial consequences when things go poorly.

I don't have a realistic fix for this, of course, but it's fun to imagine annual performance reviews for politicians with guillotines available to HR.

trealira• 2 years ago

It makes sense to go into debt to get out of a recession, like the 2008 one. But then during the good times of the economy, we should have been working on paying the debt; instead, we blew it and just took out even more debt.

actuallyalys• 2 years ago

Yeah, there was a pretty strong argument to raise taxes in 2017-2019 in order to prepare for a return of higher interest rates (or at the very least, not cut taxes further) but not much earlier in the decade. Obviously the pandemic necessitated deficit spending again, but we once again have a window of opportunity to put our economic gains into reducing the deficit.

To the Biden administration’s credit, it did pass the Inflation Reduction Act. Hopefully the next administration will let at least some of the Trump administration’s tax cuts expire and raise revenue in other areas.

runako9• 2 years ago

The last time an administration engineered a budget surplus, voters soundly rejected a continuation of that regime in favor of an 8-year spending binge. A substantial number of voters are planning on voting this fall for the candidate whose economic policy has contributed the most to the current debt.

Generally, looking at the last 30 years or so, it is evident that voters do not care about this issue very much.

ericmcer• 2 years ago

I legitimately cant tell who you are referring too, politics is so muddled now that both sides believe wholeheartedly that their side is the one with the correct plan to fix the economy.

runako9• 2 years ago

I wrote it that way intentionally. The data are available, so it's easy enough to find out "who was president during the last budget surplus" and "who presided over the largest increase in the federal debt." Some people will be surprised by the answers and will see the data as partisan.

I'm not linking to sources because people feel the need to find the sources or they don't believe them. But there are a number of graphs of the numbers available on the Internet.

Suffice it to say that any adviser advising a presidential candidate to pay any attention to the deficit beyond lip service is doing that candidate a disservice, as voters have shown time and again that they simply do not care.

adastra223• 2 years ago

There was a surplus in the last year of the Clinton presidency, so I presume he's referring to George W Bush. There was also the whole 9/11 and War on Terror thing in the first year of his presidency though, so it's hardly a fair comparison. Gore would have blown his budget if he'd won too.

Largely speaking democrat administrations reduce the deficit while republican administrations increase the deficit, despite this being the polar opposite of political talking points.

throw0101d7• 2 years ago

I legitimately cant tell who you are referring too

How old are you? If you're a Gen-Xer you should remember Clinton's surpluses if you followed the news:

* https://www.brookings.edu/articles/a-surplus-if-we-can-keep-...

Then Bush got in (beating Gore by ~600 votes in Florida to take the Electoral College), and then did tax cuts and later war spending:

* https://en.wikipedia.org/wiki/Bush_tax_cuts

* https://www.cbpp.org/research/the-legacy-of-the-2001-and-200...

More recently, when the GOP controlled Congress and White House (Trump), they did a bunch of tax cuts:

* https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act

jandrewrogers3• 2 years ago

The US Congress, and the House specifically, are responsible for spending. Looking at who was President at any point in time is misdirection.

runako9• 2 years ago

To the best of my recollection, all of the budgets in the timeframe I mention were signed by the sitting president. (I realize this is not necessary for laws to take effect, but in the years I cited I believe the presidents all signed the budgets into law.)

If you want to argue that presidents are not responsible for laws bearing their signatures, I stridently disagree.

MathMonkeyMan• 2 years ago

I think that the executive proposes the budget, though. Maybe where you end up has a lot to do with where you start.

nine_k3• 2 years ago

While the Congress certainly plays a major role, some of the hugest debt sources are wars, and getting into a war is never done without a presidential decision. Especially starting a war, like in Iraq in 2003.

hackeraccount• 2 years ago

Look at student loan forgiveness. That was gigantic chunk of money that was spent at the President's discretion.

jjk1663• 2 years ago

voters soundly rejected a continuation of that regime

In that election the democrats had net gains in both houses of congress, the democratic presidential candidate won the popular vote, and the presidential election was won by 537 votes. I don't know how this could be called "soundly rejected."

runako9• 2 years ago

Fair! To the point of this discussion, after they saw the Bush deficits, they reelected him.

mlh496• 2 years ago

Congress writes the budget, not the President's administration. What was notable about the late 90s was for the first time in 40 years the Democrats did not control the House of Representatives. One could argue that divided government forces compromise which is a good thing. Personally, I think the financial problems in the United States transcend political party.

runako9• 2 years ago

https://news.ycombinator.com/item?id=41269867

financial problems in the United States transcend political party

Correct, in part because voters do not care.

alaxhn• 2 years ago

I am going to argue slightly on your wording although I fully acknowledge the numbers do line up with your timeline.

RE the budget surplus, the dotcom boom led to a large increase in taxes collected which collapsed from 2000 to 2003. Similarly countries naturally spend more when their population is either skewing old or skewing young. The US hit peak working-age demographics during the period you are describing. The outcome doesn't seem to be "engineered" so much as accidental. In fact taxes on balance were cut during this timeframe while significant contributors to the long term debt / future crisis were unleashed (glass steagall repeal which arguably led to the great financial crisis & federal loans for eduction were dramatically expanded without oversight to ensure the money was being well spent).

Similarly, the covid response caused an explosion in the budget deficit which I wouldn't blame squarely on "a candidate's economic policy". The 2023 deficit in real dollars and as a % of GDP the largest (by a fair amount!) outside of a war, economic crisis, or the covid response. This doesn't even count the ~400? billion in student loan forgiveness that was attempted and failed.

"Generally, looking at the last 30 years or so, it is evident that voters do not care about this issue very much" <- 100% agree.

runako9• 2 years ago

My bias is that I don't give mulligans or asterisks to presidents[1]. Every administration faces a unique set of challenges, and some of those will be financial. Most of the others will involve large-scale finances. So I don't grant escapes to administrations that are hit by recession, war, or plague. That's literally part of the job.

How that relates to the (relevant!) factors you raise is that firstly, most of them were knowable at the time. Bush knew that tax revenue was falling when he proposed his tax cuts. He also planned two foreign wars without planning to pay for them. These were choices that were quite obviously, without the benefit of hindsight, going to lead to increased deficits.

Covid was unpredictable, but the administration had choices on how to handle the deficit spending. Notably, they did not choose to increase revenue in any meaningful way. And the administration was not blocked by Congress in this, raising revenue was simply not a concern mooted by the Executive. (They did not even add spring-loaded revenue increase that would trigger when the economy recovered.)

These choices to increase the deficit were made will roughly all the information we have now. Both choices were contemporaneously derided by deficit hawks; it is not a surprise that they raised the deficit.

But again, Dick Cheney was correct that deficits do not matter (to voters).

1 - https://news.ycombinator.com/item?id=20300697

BadHumans• 2 years ago

What’s growing is spending on Social Security, Medicare, and Medicaid. As you can see in the above chart, the CBO sees spending on “major health care programs” (including Medicare, Medicaid, and Obamacare subsidies) growing from 6.3 percent of GDP in 2024 to 9.8 percent of GDP in 2054; Social Security is set to grow from 5.2 percent of GDP in 2024 to 5.9 percent of GDP in 2054.

The US refuses to do many things that would save it money in the long run. Complete universal healthcare would save money and would enable more entrepreneurs as the US claims to love small business. Mitt Romney knows this and that is why Massachusetts has the best Medicaid coverage and why he wanted to take his Massachusetts plan to the federal level.

WalterBright8• 2 years ago

Complete universal healthcare would save money

Health care costs were far, far lower when the US had a free market healthcare system (before WW2). The more the government took control of it, the more it cost.

jjk1663• 2 years ago

I imagine that has more to do with penicillin being the peak of medical technology at the time.

Presumably you don't credit government interference with boosting life expectancy by 15 years.

throw0101d7• 2 years ago

The more the government took control of it, the more it cost.

The US still has a free market system, both in insurance and treatment. The government only controls VA and Medicare, and those are cheaper to run:

* https://www.citizen.org/news/fact-check-medicare-for-all-wou...

And many other countries do have government-run healthcare (including just north of the border in Canada), and they spend less per capita and have better life expectancy:

* https://en.wikipedia.org/wiki/List_of_countries_by_total_hea...

See also infant and maternal mortality rates:

* https://en.wikipedia.org/wiki/List_of_countries_by_infant_an...

* https://en.wikipedia.org/wiki/List_of_countries_by_maternal_...

resource_waste2• 2 years ago

I'm not sure Medicaid is a great example.

Our clinic wouldnt be sustainable under Medicaid. For 1 hour of Physical Therapy doctor services, it pays $40-$55.

I'm not sure how to pay for the building, note software, or scheduling.

phkahler2• 2 years ago

> A huge share of the US debt is held by the government itself, in vehicles like the trust funds of Social Security and Medicare. Still more was purchased by the Federal Reserve as part of its “quantitative easing” programs to fight the Great Recession and the Covid downturn.
> Thus, it’s money that the federal government owes to itself. That makes it fairly unimportant, economically; it doesn’t actually limit the resources available to the government.

These are very common misunderstandings. The money borrowed from the trust funds are real debt that needs to be repaid. In particular when the boomers retire and the net flow of money is OUT of the funds rather than IN. Up until now, congress has happily spent that net inflow and now they owe it back which makes them hate social security. One politician was claiming its not "real" debt in some way and was corrected by someone at the Federal Reserve who insisted it's as real as any debt purchased by anyone else. Which brings us to the Fed - that's not the government borrowing from itself as the author says. The Fed might be OK with lending at lower rates than the treasury can get otherwise, but they aren't offering an infinite trough for congress to spend - only an emergency bandage.

pdonis6• 2 years ago

Characterizing the problem as "debt" is misleading. The real problem is the government printing money. What we call the "national debt" is just government printed money where whoever "has" it can only draw on a portion of it (the interest) until a certain date (the maturity date of the government bond). And "paying back" the "debt" just means moving the government printed money from one account (the "bond" account) to another (the "bank account" of whoever gets the interest or sells the bond). The actual problem has nothing to do with "not being able to pay back the debt"; the government will just print more dollars (or more precisely, just move more accounting entries from the "bond" account to "bank" accounts). The actual problem is how printing money skews the economy and transfers wealth to the financial system from everyone else.

throw0101d7• 2 years ago

The real problem is the government printing money. What we call the "national debt" is just government printed money […]

The vast majority of money that is in the economy is created by banks with credit creation:

* https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/m...

* https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1905625

The government, especially in the US, hasn't had a money printer for decades.

pdonis6• 2 years ago

The vast majority of money that is in the economy is created by banks with credit creation

That's the way it's described, but banks in this respect are only acting as agents of the government. They can only "create" money under rules prescribed by the government, and the government, through the Fed, controls how much of it they can create.

The government, especially in the US, hasn't had a money printer for decades.

Whether I take this literally or metaphorically, it's false. Taken literally, the government does still print bills. Taken metaphorically, even apart from what is discussed above, the government, through the Fed, has done "quantitative easing" and other things that involve direct manipulation of the money supply, recently enough to make your claim false.

polygotdomain3• 2 years ago

This story is incredibly frustrating because it seems to throw a lot of numbers at things (which isn't a bad thing, it's just not super useful) as if that's going to change things politically. Debt is political and the fundamentals of government debt have not changed at all.

Government debt is a red herring that many fiscal conservatives wave to say we're spending too much. Unfortunately those same conservatives don't actually want "fiscal responsibility", they want to cut programs they don't agree with and continue handing out lucrative military contracts that we arguably don't need.

Government debt has always been about borrowing today to fund growth for tomorrow. However, that's not what we're actually doing at all. Much of our current debt is due to COVID stimulous, which was an incredibly exceptional event. Of course that was more to "keeping things going" than fund growth initiatives. That's not to say that debt was "bad" or that we shouldn't have done it, but that much of the debt we're taking on is not going to fund infrastructure, education, or health which are all things that have significant long term benefits to society.

Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have.

Since it is a political issue, it will be a football and a dog whistle. Cut programs for minorities from the right, and raise taxes on the rich from the left. While one party is likely to be more irresponsible with this than the other, it's still not going to go away because it's never supposed to. Government debt is all about the cost to borrow compared to growth. The challenge we're at is that the cost is no longer cheap and we haven't been truly focusing on growth as much as we should. Instead we've just had political distractions.

eigenspace5• 2 years ago

Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have.

The USA's debt-to-GDP ratio has been increasing for a very long time. Every once in a while, GDP growth starts to overtake debt growth for a few years and then the debt load ratchets up further. So if the plan is to outgrow the debt, that doesn't appear to really be working so far.

polygotdomain3• 2 years ago

The thing that debt to GDP misses is the rates which need to be paid on that debt. For a while those rates were so low, it meant there was little reason to focus on paying down the debt, which is only going to keep that ratio relatively stagnant.

What is far more telling is the debt servicing to GDP ratio, which is far more useful in telling us how much our debt is costing us. This winds up looking wildly different than debt to GDP and has been a lot less concerning up until we've seen the latest spike in rates.

Debt to GDP - https://fred.stlouisfed.org/series/GFDEGDQ188S

Interest to GDP - https://fred.stlouisfed.org/series/FYOIGDA188S

WalterBright8• 2 years ago

The end result of runaway debt will be one of:

1. the government repudiates the debt and the bonds become worthless (FDR did that partially with repudiating the gold bonds by forcibly replacing them with dollar bonds, and pocketing the difference in value).

2. simply print money to pay them off (aka Yellen's trillion dollar coin)

Of course, there would be major consequences from these banana republic measures.

I don't invest in T-bills because of these risks.

arunabha• 2 years ago

I'm curious as to what alternative you invest in. The received wisdom is that TBills are the closest to a 'risk free' investment on the planet. However, as you're pointing out, historically with increasing debt, some kind of debt repudiation(whether explicit or implicit) has always happened.

The practical question becomes what is a safer alternative and perhaps more importantly, can we know that today.

spqrr2• 2 years ago

Gold is less risky (in the counter party risk sense) so perhaps that.

WalterBright8• 2 years ago

I invest in things that are not denoted in dollars, like stocks.

pfannkuchen• 2 years ago

(2) seems a million times more likely because currency supply increase is fairly obfuscated from its effects and the government can plausibly deny that it caused the resulting inflation.

Canceling the debt outright would be far too honest.

throw0101d7• 2 years ago

Time magazine, March 1972, "Is the U.S. Going Broke?":

* https://content.time.com/time/covers/0,16641,19720313,00.htm...

* https://time.com/archive/6639432/money-empty-pockets-on-a-tr...

andrewjl• 2 years ago

Hard to reduce deficits substantially without much bigger policy changes: https://en.wikipedia.org/wiki/Triffin_dilemma

That said, Medicare and other entitlements is where my mind went too as I was reading. Negotiating drug prices is a good step in this direction by the current administration.

https://www.usatoday.com/story/news/local/2024/08/16/10-pres...

lkrubner3• 2 years ago

The last few years have disproven this idea that we need to stop with debt spending. We just conducted a beautiful experiment: since 2020 the USA has had more deficit spending, more economic growth, and less inflation, than the EU, which has had less deficit spending, less growth, and more inflation.

A government without debt would be like a business without debt: obviously wasting good opportunities, instead of pursuing them aggressively.

But even that analogy is wrong, since a business has to make money to pay its debts, so a business does face some ultimate limit on how much debt it can take on. By contrast, the USA faces no such limit. We can always print as much money as we need to pay any debt. So long as we're willing to deal with the inflation, we can print as much money as we need.

But realistically, with birth rates falling, the government will have to engage in more and more stimulus spending as time goes by. We used to be able to rely on population growth to be the real engine of the economy, but we no longer have that. So to keep the economy going in the future, we will have to rely on immigration and deficit spending. And there, too, the EU offers an important counter-point: the USA has had a much easier time integrating immigrants, in part because of our deficit spending. By contrast, the EU is seeing how difficult it is to integrate immigrants in a climate of austerity. The EU is close to stalling, in that it needs immigrants to prop up economic growth but it is not printing enough money to put the immigrants to work -- a stall which could lead to a vicious downward cycle. Meanwhile the USA has pulled in millions of immigrants and also printed enough money to put them to work, resulting in strong economic growth.

TrevorJ• 2 years ago

"The last few moments have disproven this idea that ships need to stop hitting icebergs. Now, dear guests on this great ship Titanic, let us go back to enjoying our dinners!"

Timeframe matters a lot when you run an experiment.

lkrubner3• 2 years ago

Your comment doesn't make any sense. If you want an analogy similar to the USA versus the EU, but involving boats, then you should say: "We just ran a beautiful experiment using the Titanic and the Californian: one sunk and one didn't. And what was the difference in their policy? One ran into an iceberg and one did not. Therefore, we can conclude that ships should not run into icebergs."

We could also include that the Californian was wise to stop moving at night when it knew that icebergs were near.

the US government has to start paying for things again

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