The Richest Country In The World Is Now Bankrupt

[youbet]

if china own all of our debt, then we own them and have all the leverage to make or break them I suppose….

I think you have that backwards. When you owe somebody a lot, they own you.

If you're saying that having the power to renege on debt means you "own" the debt holder, that's not the case. Just the reverse.

 

[youbet]

.. income taxes today are very low compared to historical norms.

Not exactly. From Investopedia:

Federal tax collections hit a record high of $4.9 trillion in nominal dollars for the fiscal year (FY) 2022 that ended September 30, which is $850 billion more than last year's $4.05 trillion in collections (also a record).Oct 13, 2022

It's easy to confuse "tax rates" with "taxes collected." We're collecting record high amounts of taxes and simultaneously building the national debt to record levels. I won't try to posture whether that situation is good or bad. I really don't know. It just is what it is.

 

[stephenson]

Everything is interrelated.

Everyone remember the tax increases related to the 20 years of war in Iraq and Afghanistan? No?

Everyone remember the tax increases related to the bailing the country out of the real estate/banking/automotive support crisis?

Everyone remember your friends saying they support more taxes for the above - and other expenditures supported by both political parties - because increased taxes were the only way to balance the budget?

Remember?

 

[JBTX]

Not exactly. From Investopedia:



It's easy to confuse "tax rates" with "taxes collected." We're collecting record high amounts of taxes and simultaneously building the national debt to record levels. I won't try to posture whether that situation is good or bad. I really don't know. It just is what it is.

Looking at raw tax dollars isn’t very useful. Looking at tax revenues as a percent of GDP is more useful. Current levels are around the general levels which tend to run between 16-20%. Spending used to run around 20-22%, but has spiked up to mid 20’s, mainly due to entitlements and higher interest.



Trying to figure out how much federal debt is a problem is hard to do. We are somewhere between 100-120, depending on what you include. I think Japan is over 250%. But they save a lot such that they can finance it. Where is the breaking point in the US? It is impossible to say.

This article speculated that around 200% will be our limit.


https://budgetmodel.wharton.upenn.e...rofession has long,its effects on the economy.


Of the 33 trillion is around 120% of GDP. But that includes around $6 trillion of debt it owes itself, mainly the social security fund. Take that out and you get to around 100%. And that still includes 5 trillion that is owned by the federal reserve.

So while concerning the situation may not be as dire as one would think., at least for now.


https://www.crfb.org/papers/qa-gros...Federal Reserve,$2.5 trillion of federal debt.

 

[pb4uski]

... income taxes today are very low compared to historical norms.

... It's easy to confuse "tax rates" with "taxes collected." We're collecting record high amounts of taxes and simultaneously building the national debt to record levels. I won't try to posture whether that situation is good or bad. I really don't know. It just is what it is.

I miswrote that. I did indeed mean income tax rates and left "rates" off the post. So sue me.

 

[CaptTom]

I agree with this. That’s what’s happening real time in Argentina, Turkey, Lebanon, Venezuela. I’m not sanguine about our own country avoiding the temptation to print our way out of mushrooming debt payments, which is simply the way of all currencies historically.

High inflation can be sort of like a form of taxation. A way to squeeze more money from the citizens. Personally, I'd rather see tax increases. At least we have a process for trying to make it "fair," although admittedly we can't agree on what that means.

 

[Time2]

Does anyone remember Joseph Granville?
He was doom and gloom in the 70s, 80s, and 90s.

And a Gold Bug.


"Over the 25 years through early 2005, when Hulbert Financial Digest discontinued coverage of Granville's recommended portfolios on the grounds that his coverage had become too vague, they suffered annualized losses so severe as to amount to a total wipeout." From,

https://www.marketwatch.com/story/joe-granville-sees-technical-trouble-ahead-for-dow


Here's one of his Sell Everything calls.

 

[Markola]

High inflation can be sort of like a form of taxation. A way to squeeze more money from the citizens. Personally, I'd rather see tax increases. At least we have a process for trying to make it "fair," although admittedly we can't agree on what that means.

Agree. Many comments here assume taxes must be raised or spending cut to pay the national debt. They do not. Without getting partisan, everyone, raise your hand if you see any serious voter consensus to slash spending, raise taxes, or both sufficient to control the deficit, much less the nation’s debt. I don’t either.

And the voters and govt do not have to rely on that messy, politically impossible route anyway. Unlike a household or business, the US govt has a variety of measures to delay and manage the debt and deficit, which do not rely on voters or politicians at all. We don’t even have to know what they are quietly doing to relieve us and our representatives of hard near-term choices.

Nevertheless, there is no free lunch in nature and people the world over pay the price for US financial repression (see definition in Investopedia), refinanced debt, interest rate manipulation, exporting inflation abroad, monetary expansion/inflation and so on.

Think this very real standard toolkit is fantasy? How much silver does the Pound Sterling buy these days?

We have met the enemy, and it is us.

 

[LateToFIRE]

I read "Rich Dad Poor Dad" decades ago - it had some catchy ideas, not terrible, but short on tangible advice. Then I read a couple of his follow-on books, and those made even less sense. And then I read his articles when he started writing for Yahoo Finance and there he just started wading into full on deranged crazy territory. Now, I just ignore him.

 

[JBTX]

High inflation can be sort of like a form of taxation. A way to squeeze more money from the citizens. Personally, I'd rather see tax increases. At least we have a process for trying to make it "fair," although admittedly we can't agree on what that means.

Higher inflation essentially erodes the value of nominal long term debt, so you could view it as a tax on nominal debt. You could argue that may also be true with equities, but the relationship is more complex. It is in essence a tax on savings.

Using inflation to lower out nominal debt balance doesn’t work if the fed has to increase interest rates to fight inflation and increases the level of debt service.

All this is one reason that TIPS are particularly attractive now.

 

[starry night]

Excerpt….

Could you give some context. Like many here, I am hesitant to click on naked links.

The Real Economy
Is the U.S. going broke? Not remotely.
Jul 06, 2023
Key takeaways

It’s common to hear the U.S. is going broke and cannot afford its spending.

But U.S. finances are relatively healthy within compared to total assets.

Total government debt comprises about 23% of total nonfinancial assets of $143.6 trillion—a manageable amount.
# ECONOMICS THE REAL ECONOMY
It is common to hear that the United States is broke and cannot afford to continue spending and borrowing at its current pace.
Indeed, that was the argument put forward by some to justify the fourth debt ceiling standoff over the past 12 years.
While one can make a credible argument to pull back on government spending during a time of inflation, it is simply not true that the U.S. is on the verge of a debt and deficit crisis.
In contrast, the financial health of the United States is relatively healthy within the context of the total value of U.S. assets.
A much different picture appears once one looks at the underlying asset base of the private and public economy.

[mod edit to comply with copyright regs]

 

[MichaelB]

Agree. Many comments here assume taxes must be raised or spending cut to pay the national debt. They do not. Without getting partisan, everyone, raise your hand if you see any serious voter consensus to slash spending, raise taxes, or both sufficient to control the deficit, much less the nation’s debt. I don’t either.

And the voters and govt do not have to rely on that messy, politically impossible route anyway. Unlike a household or business, the US govt has a variety of measures to delay and manage the debt and deficit, which do not rely on voters or politicians at all. We don’t even have to know what they are quietly doing to relieve us and our representatives of hard near-term choices.

You can’t treat the budget deficit and public debt as one single issue. They are related economically but quite different, and need to be managed differently. It’s not clear the public debt needs to fall or be repaid.

Nevertheless, there is no free lunch in nature and people the world over pay the price for US financial repression (see definition in Investopedia), refinanced debt, interest rate manipulation, exporting inflation abroad, monetary expansion/inflation and so on.

What financial repression are you talking about? If anything, countries around the world take full advantage of US liberal (in the economic sense, not political) economic policy to financially repress their own populations and artificially grow their economies.

Think this very real standard toolkit is fantasy? How much silver does the Pound Sterling buy these days?

This is irrelevant. What matters is economic growth over time, not currency value. A zero inflation currency is of no use to a population that doesn’t have jobs. The pound sterling or US dollar may have declined in nominal value but the citizens of those countries have enjoyed an increase in standard of living unparalleled in history. What matters is standard of living, not currency value.

We have met the enemy, and it is us.

True.

 

[VFK57]

“The problem with socialism is that you eventually run out of other people's money.”

― Margaret Thatcher

Margaret Thatcher was one of the smartest politician GB had.
Yes our Government (GOP or Democrats) were spending during last 2 decades as there is no tomorrow. I am not going to speculate but the enormous National DEBT and Budget deficit is destroying USA and the back bone of the country - the Middle Class.

 

[Jerry1]

The debt is very distressing to me. The size of it is beyond comprehension especially when you consider entitlement obligations. But the worse part about the debt is that our infrastructure is still in pathetic shape. The money was squandered.

 

[DJRR]

The debt is very distressing to me. The size of it is beyond comprehension especially when you consider entitlement obligations. But the worse part about the debt is that our infrastructure is still in pathetic shape. The money was squandered.

Yes, but the point is that the assets of the country are even harder to comprehend. How much is the Federal land in Alaska worth?, mineral rights?, military bases?, national parks? Federal office buildings?, etc. How much could we raise if we charged market rates for grazing and mineral rights in the West? These are political decisions, but easily made if the issue is REALLY that bad.

Not sure where you live, but the infrastructure in Virginia is pretty damn good. We have kept a good credit rating and bonded a lot of construction, we have used innovative private/public partnerships to get huge projects built cost effectively while freeing up budget for smaller projects, etc. People can certainly complain about paying tolls, property tax rates, etc. but there is no free lunch since States need to balance their budget. Some States charge less and have less, again a political decision.

We will never know if the money was squandered since there is no way to prove a negative or evaluate an alternative. For ex. in 2001 we were worried about a terrorist nuke. We spent a ton of money and a 20 year war to try and stop one. It worked. Would it have worked if we spent $0? Maybe. Were we willing to take that chance? No. You can argue about the margins, but I don't believe the money is squandered. Even if it was 100% squandered it still provides a multiplicative effect on the economy that everyone loves.

I certainly don't lose any sleep over it.

 

[stephenson]

Everything is interrelated.

Everyone remember the tax increases related to the 20 years of war in Iraq and Afghanistan? No?

Everyone remember the tax increases related to the bailing the country out of the real estate/banking/automotive support crisis?

Everyone remember your friends saying they support more taxes for the above - and other expenditures supported by both political parties - because increased taxes were the only way to balance the budget?

Remember?

Not sure I got any responses to my simplistic assessment ... is there a relationship between stability and a nearly balanced budget - the basis of which is tax collections? (yes, I know economics indicates there should be a bit of deficit)

Has anyone used this argument at a cocktail party when friends whine about "taxes?" It is a simple thing to complain about the deficit, complain about taxes - and then be asked, "did we pay for the 20 years of war?" When I had done this there is usually someone who has been the loudest complainer who says - "We already pay enough for DoD."

 

[Markola]

You can’t treat the budget deficit and public debt as one single issue. They are related economically but quite different, and need to be managed differently. It’s not clear the public debt needs to fall or be repaid.

What financial repression are you talking about? If anything, countries around the world take full advantage of US liberal (in the economic sense, not political) economic policy to financially repress their own populations and artificially grow their economies.
This is irrelevant. What matters is economic growth over time, not currency value. A zero inflation currency is of no use to a population that doesn’t have jobs. The pound sterling or US dollar may have declined in nominal value but the citizens of those countries have enjoyed an increase in standard of living unparalleled in history. What matters is standard of living, not currency value.

True.

My comments stand and I’ve said what I have to say from my worldview. If you seemed open to actual discussion, I’d engage, but you don’t. You seem of the “everything is fine” school and I just don’t think that $30 trillion that can never possibly be repaid, and is mushrooming further and further, is “fine.”

 

[pb4uski]

My comments stand and I’ve said what I have to say from my worldview. If you seemed open to actual discussion, I’d engage, but you don’t. You seem of the “everything is fine” school and I just don’t think that $30 trillion that can never possibly be repaid, and is mushrooming further and further, is “fine.”

That view is a popular misconception that confuses personal finance with corporate and government finance. Unlike personal debt, corporate, agency and government debt never needs to be repaid. It is typically perpetual, with the proceeds from new debt issuances being used to pay maturities of existing debt.

We have no expectation that our largest corporations "repay" their debt so why would we expect that government debt would be repaid? Unlike people that have limited lives, corporations and governments are perpetual.

I often hear that we are building debt that has to be paid by our kids and grandkids but its not true, it doesn't ever need to be repaid because it is continually rolled over.

On the last part, I am concerned with the rate of growth of the debt compared to the growth of the economy and would agree that the level of annual deficits needs to be addressed, but the level of debt is not yet so extreme to be a concern but could be someday if we don't change our taxes and spending.

Agree. Many comments here assume taxes must be raised or spending cut to pay the national debt. They do not....

Now I'm really confused. If the debt can be repaid without raising taxes or reducing spending, then just were does the money to pay the national debt come from?

 

[aja8888]

That view is a popular misconception that confuses personal finance with corporate and government finance. Unlike personal debt, corporate, agency and government debt never needs to be repaid. It is typically perpetual, with the proceeds from new debt issuances being used to pay maturities of existing debt.

We have no expectation that our largest corporations "repay" their debt so why would we expect that government debt would be repaid? Unlike people that have limited lives, corporations and governments are perpetual.

I often hear that we are bulding debt that has to be paid by of kids and grandkids but its not true, it doesn't ever need to be paid because it is continually rolled over.

On the last part, I am concerned with the rate of growth of the debt vs the growth of the economy and would agree that the level of annual deficits needs to be addressed, but the level of debt is not yet so extreme to be a concern but could be someday if we don't change our taxes and spending.



Now I'm really confused. If the debt can be repaid without raising taxes or reducing spending, then just were does the money to pay the national debt come from?

Eventually not paying corporate debt usually results in bankruptcy. Government just issues more debt and converts it to dollars until the currency fails via inflation

Big difference..

 

[stephenson]

An interesting discussion.

I might point out that the concept of forever debt that rolls over might make sense with a purely scientific data set - but, I would posit that humans, and the governments they create, aren't always predictable to economic philosophy/science.

Most have long calculated some debt as a good thing for the US government, but we we are long past that point. A good start in stabilizing the discussion, the politics (some of which is shrill) and the economy is to raise taxes - at least admit and start addressing it.

 

[Jerry1]

IMHO, the total debt is bad enough but the most concerning thing is that there hasn’t been a balanced budget in decades and likely won’t be in decades to come. Not to mention that the annual deficit gets larger each year. We’re not on a good track.

 

[MichaelB]

My comments stand and I’ve said what I have to say from my worldview. If you seemed open to actual discussion, I’d engage, but you don’t. You seem of the “everything is fine” school and I just don’t think that $30 trillion that can never possibly be repaid, and is mushrooming further and further, is “fine.”

I never said “everything is fine” and it is not my view. My objective is to set aside the hyperbole and rhetoric and provide a more comprehensive look at the US economy based on data.

How much debt is too much? One way to look at it is to ask what we are doing with the debt. If it is to invest in infrastructure and productivity it will pay us back with greater economic growth. If it is to fund current consumption the cost will higher tomorrow.

The US economy has a productivity problem. Productivity is what funds corporate profit growth together with improvements in standard of living for the people. In the absence of increased productivity we are borrowing to fund our current consumption. This is a big problem. We need to shift our spending from consumption to investment and improve productivity.

The US economy (we the people) also has, for lack of a better term, a monetary policy problem. As the reserve currency we add stability and liquidity to the global financial markets, and other countries exploit that to their economic advantage, at our cost. The benefit to this goes to capital owners and holders, but the price is now too steep and the costs are distributed unfairly.

It’s worth pointing out that most of the folks here have seen the asset values of their portfolios grow as a consequence of all that debt and deficit.

There should be no doubt, though, that the US will never deal successfully with the deficit and debt without addressing these two issues.

 

[Qs Laptop]

Most have long calculated some debt as a good thing for the US government, but we we are long past that point.

Well, I'll jump in here and ask a related question to my "how much debt is too much?":

"When did we reach the point that further debt was not a good thing for the US Government?"

 

[pb4uski]

Eventually not paying corporate debt usually results in bankruptcy. Government just issues more debt and converts it to dollars until the currency fails via inflation

Big difference..

True, but absent extreme circumstances corporations just refinance debt, if their financial situation has improved the interest rate is lower or vice versa so your point really has negligible merit.

 

[pb4uski]

Well, I'll jump in here and ask a related question to my "how much debt is too much?":

"When did we reach the point that further debt was not a good thing for the US Government?"

From Bard:

Is the debt level of the United States government too high?

Whether the debt level of the United States government is "too high" is a complex question with no easy answer. There's no single agreed-upon threshold for what constitutes a safe debt level, and economists and policymakers have varying opinions on the matter.

Here are some key points to consider:

The current situation:

• The U.S. government's debt currently stands at over $33 trillion, which is roughly 98% of the country's gross domestic product (GDP). This is the highest debt-to-GDP ratio since World War II.
• The Congressional Budget Office (CBO) projects that the debt will continue to rise in the coming years, reaching 119% of GDP by 2033 and 181% by 2053.

Arguments for concern:

• A high debt level can lead to higher interest rates, as the government borrows more money to pay off existing debt. This can crowd out private investment and slow economic growth.
• If investors lose faith in the government's ability to repay its debts, interest rates could spike dramatically, making it even more expensive for the government to borrow and potentially triggering a financial crisis.
• A large debt burden can also limit the government's ability to respond to future crises, such as recessions or natural disasters.

Arguments against concern:

• The U.S. has a unique advantage as the world's reserve currency, allowing it to borrow at lower interest rates than most other countries.
• As long as the debt is growing slower than the economy, the debt-to-GDP ratio will eventually stabilize.
• Investments financed by debt can be productive, if used for infrastructure, education, or other areas that boost economic growth.

Ultimately, the question of whether the U.S. debt level is "too high" is a matter of opinion and risk tolerance. There are valid arguments to be made on both sides.

Here are some resources where you can learn more and form your own informed opinion:

• Congressional Budget Office: https://www.cbo.gov/publication/56165
• The Penn Wharton Budget Model: https://budgetmodel.wharton.upenn.edu/
• Investopedia: https://www.investopedia.com/updates/usa-national-debt/