Your Thoughts on Government Debt and Your Retirement Future

[ejman]

Almost certainly all borrowing by selling Treasuries.

So if that is the case then about a quarter of our current National debt comes from that war borrowing. So again to double check my simple noodling - that money came from ourselves and foreigners buying treasuries so its sort of a voluntary tax and as long as we and foreigners are willing to pay that tax the current system can continue?

 

[stephenson]

I can't connect war stimulating economies with economies being supported by deficit spending.

Consider spending on infrastructure as a parallel - none of the spending from recent infrastructure bills was financed from current year (income -expenses) ... so, like the MEW we passed bills to authorize and appropriate money we didn't have and weren't going to get (except by selling paper)? And, sure there was stimulus in those and related industries. Again, though, the king's men didn't come to collect higher taxes.

 

[Gumby]

So if that is the case then about a quarter of our current National debt comes from that war borrowing. So again to double check my simple noodling - that money came from ourselves and foreigners buying treasuries so its sort of a voluntary tax and as long as we and foreigners are willing to pay that tax the current system can continue?

There is a fundamental difference between handing over money to the government as a tax that you will never see again and loaning money to the government with the expectation that you will receive it back, plus interest. But yes, as long as the government can still sell treasuries, it can continue deficit spending. The problem is that as the financial imbalance grows larger trust in the government's ability to repay the debt wanes and, as with any borrower, the interest rate on new loans increases, which places further strain on the borrower's resources. Until, one fine day, the borrower can't borrow any more at any price. I have no idea how much government deficit can be financed until there is a buyers' strike on Treasuries and I'd rather not find out.

 

[ejman]

There is a fundamental difference between handing over money to the government as a tax that you will never see again and loaning money to the government with the expectation that you will receive it back, plus interest. But yes, as long as the government can still sell treasuries, it can continue deficit spending. The problem is that as the financial imbalance grows larger, trust in the government's ability to repay the debt wanes and, as with any borrower, the interest rate on new loans increases, which places further strain on the borrower's resources. Until, one fine day, the borrower can't borrow any more at any price. I have no idea how much government deficit can be financed until there is a buyers' strike on Treasuries and I'd rather not find out.

Yes, what you state makes perfect sense. Indeed, a private borrower can live very well indeed as long as the loan money keeps coming but that goes out the window when the loans are no longer available. The part where frankly I loose the thread and my thinking gets bollixed up is that unlike a private borrower, the government can make money out of thin air and as I understand it, that can keep up until society (and the world) at large doesn't accept that paper money anymore and high inflation sets in. That point appears to be highly elastic as for my entire adult life (I'm in my seventies now) there has been a constant drumbeat of the sky is about to fall on account of the national debt. And there have been periods of very high inflation in the past (much higher than now) and yet here we are where it seems the dollar continues to be the best and most stable currency in the world. It baffles me.

 

[Qs Laptop]

... so, like the MEW we passed bills to authorize and appropriate money we didn't have and weren't going to get (except by selling paper)? And, sure there was stimulus in those and related industries. Again, though, the king's men didn't come to collect higher taxes.

OK, now I'm confused. First you say there were tax increases to pay for this war and now you're saying taxes were never collected for this war. Which is it?

 

[Qs Laptop]

for my entire adult life (I'm in my seventies now) there has been a constant drumbeat of the sky is about to fall on account of the national debt. And there have been periods of very high inflation in the past (much higher than now) and yet here we are where it seems the dollar continues to be the best and most stable currency in the world. It baffles me.

It used to baffle me, too. I've simply concluded that high debt is not the impending crisis we've been told about for decades. Someone can cry wolf only so many times.

 

[Texas Proud]

OK, now I'm confused. First you say there were tax increases to pay for this war and now you're saying taxes were never collected for this war. Which is it?

He was making a observation that there WAS NO TAX collected to pay for the war... that it was not paid for except for debt... I think many here have said the same thing in different ways...

 

[madatrub]

That is a great way to get this thread closed...

[Mod Edit]

exactly. Not taking that bait lol

 

[Koolau]

This is unfortunate. We should be able to maintain a civil discussion.

Let me know whenever we do.

 

[Koolau]

Sorry, but by definition if we don't know what too much is, then no one can say we're in trouble because the debt is "too much."

I agree. No one can say we are in trouble because of too much debt (present tense.) When we eventually say that WAS too much, it will be too late and also be past tense.

I happen to think it will be when no one (outside of the USA) wants to buy any more of our debt (or worse - decides to fire-sale what they already own of our debt.) But, what do I know?

 

[GravitySucks]

Pretty much ensured that we will be able to buy Treasuries and collect safe interest for the rest of my days.

 

[stephenson]

I note that I received no argument on the need for higher taxes to support the expenditures we clearly support - and the continuing debt payments we must make?

This is an interesting thread/discussion in that it sometimes helps educate those that don't pay attention to national economic topics, or that do so via a political lens, only. And, perhaps even those who like don't like one category of spending only to find out it is unchangeable, or not as large as they thought, will gain greater insight.

After a bit of international travel to educated, first world countries, one could come away with the impression they are more competent in their national economic structures - yeah, sure, always the debate about how much of a welfare state there is, but ...

 

[Koolau]

I don't think it is productive to calculate a number for how much each individual would need to pay to erase the national debt. That is not going to happen. That is not how the system works.

If the US debt was so bad, why do individuals and nations continue to purchase US treasury offerings?

Yes, “per capita” debt doesn’t make sense, Businesses are taxpayers too benefit from debt and have to service it. Debt has to do with economic activity, so the best way to measure is debt % of GDP.

I don't know whether "per capita" makes any sense or not, but it sure does put things into perspective. No, I don't expect the IRS to come knocking on my door next week asking for DW's and my share (now $200K) but adding every nickel of borrowing we have ever done in 55 years together, we've never come close to borrowing that much under our own names (full disclosure - discounting about 5 months when we were selling an old place to fund the new place and had (in essence) a swing loan by another name.)

Again, it's just for perspective.

Just like I "owe" $10K for the Honolulu Light Rail (45 mph from nowhere to nowhere) and I don't expect it will be paid off before it finally (mercifully) grinds to a rusty halt in a few years. But, knowing that my gummint leaders thought it was all a good idea helps me know what I'm up against going forward. YMMV

 

[Koolau]

If the US debt was so bad, why do individuals and nations continue to purchase US treasury offerings?

Our debt is no longer the only game in town, but it's still pretty desirable compared to everyone else. That's because, so far, most countries are in worse shape than we (USA) are. If that changes in the future (Like EU becomes more like the "United States of Europe" or China/Iran/Russia/N Korea/States-To-Be-Named become the "Evil Empire" (Oooopsss! I think that name has been taken) our debt might no longer be the darling of the world. My SWAG is that sort of thing won't happen, and then won't happen again and then still won't happen and then, suddenly will be a done deal. But what do I know so YMMV.

 

[Koolau]

More likely it’s us on this sight. Since most of us won’t be around long enough to pay off this debt.

Yeah, I'm hoping to be gone before the bill comes due. But, my poor kids....... and GKs......

 

[Koolau]

Is the government getting more or less efficient? A significant portion of the ER crowd is here because they lived "lean and below their means" and probably didn't set out to get "rich". I think saying people would be worse off is a scare tactic. Look at local school and government tax issues. It's almost always a threat to reduce or remove your service if you don't give us more money. We need more accountability for the spending.

I think it's too much debt when we can no longer audit or care to audit where all the dollars are going and have no consequences for poor spending decisions.

Good example is cost of higher education - only quasi-gummint, but...

IIRC my old school's enrollment is about 25% higher than when I attended 50 years ago. But the costs per student are roughly 30 X what I paid. The big difference is the infrastructure (primarily layers of added bureaucracy - gotta have a guy to watch the gal checking the person collecting the data about the statistics covering the new plans for the improvements on the new abcdefg+ studies program headed by the VP of Veracity who reports to the VP of Equality who reports to the VP of Student Services who reports to the VP of...)

I got a $200 academic/needs scholarship out of HS that covered 2/3 of my first year's tuition. $200 wouldn't cover some text books now. The prof that wrote the $200 book likely demands that students use the new and improved 7th edition and the school is okay with that. Only one example so YMMV.

 

[stephenson]

Now. Koolau, you know the reality is far different from your expression. Far more complex, far more involved - and, in most cases a discussion requires data vs perceptions - especially perceptions that cross the barrier of many years.

 

[Koolau]

It used to baffle me, too. I've simply concluded that high debt is not the impending crisis we've been told about for decades. Someone can cry wolf only so many times.

Crying "wolf" only w*rks in areas people actually believe there are wolves. Have we become immune to those crying "wolf" or have we forgotten that there actually ARE wolves?

Returning you now...

 

[Koolau]

Now. Koolau, you know the reality is far different from your expression. Far more complex, far more involved - and, in most cases a discussion requires data vs perceptions - especially perceptions that cross the barrier of many years.

If you have data that disputes my "expression" I'm happy to review it. I gave you data on my old university and explained how such a thing can happen with the addition of questionable bureaucracy.

Even if there's a bit of conjecture (and humor?) included, I doubt many here would suggest that university education is significantly better than 50 years ago - certainly not to the the tune of $100K to $500K for 4 years. I paid all my university expenses w*rking for between $1.25 to $2.00/hr in the summer - with money left over for "fun." Not many summer j*bs today would cover university expenses (fun NOT included) but YMMV.

By the way, here's some data on text book costs if interested. My first years books cost about $40 (of course, I always bought used where possible.)

Average Cost of College Textbooks [2023]: Prices per Year

We examined all the factors involved with the average cost of college textbooks and materials to find out why they're so expensive.

educationdata.org

Oh, and e-books weren't even a gleam in anyone's eye back when I went to school. I guess they can save a good bit these days but still, books have gotten expensive though pretty much in line with all university costs.

 

[stephenson]

Hmmm - went back and reread. Didn’t see data (certainty your perceptions of your experience vs current). Pardon me, but it did sound like what I call “Old Man Disease” - ya know where it isn’t like it was?

Things never are.

 

[Texas Proud]

One of the items mentioned earlier is healthcare spending... we as a country spend a LOT more than any other country...

Look at the graph showing spending vs GDP... we are the green dot way above avg...

And our outcome is not greater than other places... we just spend more...

NOTE: I am not putting this only on the gvmt... just wanted to point out that we as a country spend a lot on some things that others do not...

How does health spending in the U.S. compare to other countries? - Peterson-KFF Health System Tracker

In this chart collection, we examine how U.S. health spending compares to health spending in other OECD countries that are similarly large and wealthy, based on median GDP and median GDP per capita. For this analysis, we reviewed the OECD Health Statistics database and the CMS National Health...

www.healthsystemtracker.org

 

[Qs Laptop]

He was making a observation that there WAS NO TAX collected to pay for the war... that it was not paid for except for debt... I think many here have said the same thing in different ways...

He said there were tax increases to pay for the war.

When my friends lament about how much they pay in Federal tax, I ask them what their thoughts are on the increases during the 20 years of the war in the mid East. They said they didn't like the additional taxes to pay for the war. I guess I should've asked as a follow up, what their thoughts were on taxes decreasing after the war.

Your Thoughts on Government Debt and Your Retirement Future

 

[JBTX]

Does 116% in itself concern me? Not exactly but I am concerned that it could continue to get worse, and I’m not sure how it ever stabilizes. The debt service becomes such that it becomes mathematically difficult or impossible to reverse. But I don’t know what the point is. Japan is something like 250%

It won’t really impact my investing.

 

[Gumby]

He said there were tax increases to pay for the war.



Your Thoughts on Government Debt and Your Retirement Future

Do you not understand irony? His friends said they were unhappy paying additional taxes to fund the war, but they were, in fact, not paying more due to the war, because taxes were never raised to pay for the war. His friends were ill informed. That's the source of many of our woes - a citizenry that is often without a clue but never without an opinion.

 

[MichaelB]

I happen to think it will be when no one (outside of the USA) wants to buy any more of our debt (or worse - decides to fire-sale what they already own of our debt.) But, what do I know?

Foreign central banks do not buy US Treasuries because they want to, it’s because they have no choice.

They deliberately run a trade surplus, which means they will generate a surplus of US$ they refuse to channel back into their own economies. If they did, their own currencies would appreciate and that would lead to more imports and fewer exports.

Instead they keep the $$ surplus in their central bank, which buys mostly US Treasuries.

Foreign central banks invest in US Treasuries as a way of suppressing the value of their currency and minimizing imports.