U.S. on Track to Add $19T in New Debt over 10 Years
nytimes.com
nytimes.com
This is actually not the easiest thing to pin down, but the best analysis I've seen is at https://www.usgovernmentspending.com/year2022_0.html.
In summary:
17% to pension programs (e.g. social security)
23% to healthcare
19% to education
12% to defense
7% to welfare
3.6% to police/fire/prisons
4% to transportation infrastructure
14% to everything else (scientific research, the courts, the Department of Agriculture, etc.)
The US budget deficit doesn't come from overspending in any particular area, and there is no single fix that is going to get us back to parity. A focus on efficient spending and reducing waste might help, but it would need to be applied systematically across the entire government.
We are simply spending too much money everywhere, and getting too little value for the expenditure.
- Health Care 28%
- Pensions 24%
- Defense 20%
Defense seems like an easy cut, but we are not currently in any major conflicts anyway. And our allies might not take to kindly if we start pulling bases from around the world.
Pensions are entitlements and we can't really touch those.
I think though that we are underrating the effectiveness of efficiency reforms around our healthcare system. For both private patients and taxpayers.
Alternatively we could raise taxes a little bit.
Disagree. The war with Russia has been slowly but steadily escalating and more directly involving NATO countries. It's not unthinkable it could turn into WW3.
My point was that we are unlikely to find any "easy" cuts in defense spending - and a major conflict could make us regret it.
There is zero chance of this becoming WW3. Any Russian escalation targeting NATO countries will likely be met with increased border defenses, possibly a no-fly zone, and giving Ukraine another 1% of defense spending collectively across NATO, but this time with all the long range missiles they want, the freedom to target Russia, and whatever aircraft NATO has in the back of the pantry...
That’s really inaccurate; a lot of what Ukraine got is modern kit. It’s true that a lot of the really heavy equipment was ex-Soviet gear that was (or is now, if it wasn’t before) being replaced by more modern Western gear, and some of the rest was for speed current operational gear that the operators could do without even if it wasn’t planned for imminent replacement. But even some of the heavy gear (especially more recently) is new and modern, like NASAMS, and that seems to be more than case with announced and upcoming deliveries (heck, for the Ground-Launched Small Diameter Bomb – a funny name for a long-range artillery rocket – they are not merely getting new and modern Western kit, they are going to be the first operator.)
https://www.thebalancemoney.com/u-s-federal-budget-breakdown...
> The government expects to spend $6.011 trillion in 2022. More than 65% of that pays for mandated benefits such as Social Security, Medicare, and Medicaid.
> Military spending includes the Departments of Homeland Security, State, and Veterans Affairs. All of these military costs combined equal $943.9 billion.
> Pensions are entitlements and we can't really touch those.
They are touched all the time. Implicitly via decreased purchasing power of currency that is not made up for via cost of living adjustments, and explicitly via things like increasing retirement age and changes to benefit formula.
Healthcare spending is also frequently adjusted via reduced remuneration and policies for remuneration to providers changing the quantity and quality of services received.
Is it also worth reviewing
1. are we likely to ever increase incoming tax revenue (which loopholes stand to benefit the country's income the most without hurting it's citizens/economy/the businesses (and its employees who are basically the citizens) inside of it) enough to offset the debt-GDP ratio
2. if we are (or even if we aren't) going to increase taxation, are we going to lower spending in a significant manner or can we count on spending to pretty much stay the same or grow to offset the debt-GDP ratio
so far in the past like, 15 years, we've shown we're going to keep taxes roughly the same and keep spending roughly the same (continue to grow it year over year)
therefore we have no indication that we're headed towards anything but a debt/GDP ratio of 120-150% next 10 years, correct?
I would like to bring that into question.
https://en.wikipedia.org/wiki/Tax_Cuts_and_Jobs_Act_of_2017
> The CBO estimated that implementing the Act would add an estimated $2.289 trillion to the national debt over ten years, or about $1.891 trillion after taking into account macroeconomic feedback effects, in addition to the $9.8 trillion increase forecast under the current policy baseline and existing $20 trillion national debt.
... And of course the time between 2017 and 2023 has been great for the economy with improved revenue growth offsetting the reduction in taxes.
Where does this go?
In most counties, property taxes fund local schools. Public AND private universities are largely unaffordable without huge loans. Seems like most of this money is being squandered, with maybe a few billion going to decent NSF grants.
Pre primary thru secondary education 152.2 0.0 7.3 789.9 949.4 [+] Tertiary education 481.3 0.0 292.8 49.7 823.7 [+] Education not definable by level 59.0 -112.0 80.6 13.3 40.9 [+] Subsidiary services to education 0.0 0.0 0.0 0.0 0.0 [+] R and D Education 0.0 0.0 0.0 0.0 0.0 [+] Education n.e.c. 0.0 0.0 0.0 0.0 0.0
You are right, but even more, the US budget deficit doesn’t come from overspending at all. The deficit is about 2% of GDP. The US taxes at about 8.5% of GDP less than the OECD average. The US deficit is from undertaxing.
OECD tax vs GDP [1]
OECD rates US most progressive [2] (the rich pay more of the tax base, even when relative to their share of income).
[1] https://www.oecd.org/coronavirus/en/data-insights/tax-to-gdp...
[2] https://taxfoundation.org/news-obama-oecd-says-united-states...
For instance, does it include payroll taxes? Because that would skew the data pretty significantly.
If you don't like the date, also dig around on their site to find anything up to date you like. The point I made is correct - and it's well backed by the OECD databases.
When you have a long-term fixed rate mortgage, only some of the value is paid off by principal payments. The rest is being paid off naturally by inflation. Imagine paying off a mortgage made in 2003 dollars with dollars you made in 2023. The payment is the same, but only a pittance of the same value.
The theory goes that inflation is not completely a result of monetary policy - there is also a market adjustment of the dollar to the amount of government debt issued. To oversimplify, government debt will be paid back - if not through taxes, then through inflation.
The implication is that MMT gets it partially right - worrying about debt to GDP is somewhat irrelevant. And if it can issue debt at less than the rate of inflation, the government can get free money! But we are clearly well past that point.
The silver lining is that default is not really a risk here (maybe a political one) - inflation will cap out whenever the value of the money "catches up" with the debt level. (That said, if we continue to add to the debt, that means inflation will never stop).
Some of them honestly believe that halving inflation doubles price no matter how many times you do it.
Bitcoin people dont get that wrong, the "1 bitcoin = 1 bitcoin" meme is popular for that reason.
Having said that, fiat has no bottom, so bitcoin has no top. It will continue to increase in fiat value for the rest of its existence as long as the network technicals stay sound.
You've got camp 1 saying "you can go to 300% Gross Federal Debt to GDP without side effects/it's a new paradigm that history can't guide us on/there are no downsides to printed funny money/everything is fine/there's no risk of the US defaulting/spending 7% of tax revenue a year on interest on the debt"
and the other camp says it's going to lead to our demise, etc.
Will we ever see a surplus or breakeven in the next 10-50 years? Why should/shouldn't we? Is it worth it to target a surplus? Obviously it must not be because we're nowhere near it.
Also the USA is in a unique situation in the world due to the status of the dollar, so comparison with other countries have very little validity. If argentina prints money it just loses value immediately and triggers crazy inflation. If the US prints money it is still not that big of a deal compared to all the dollars used everywhere in the world so the negative effects are much lower.
I hope this remains true. I fear for the USD's status as the world's reserve currency due to our abusing it to print, our oil producing Arab allies starting to accept other currencies, our disconnecting Russia from our financial system motivating countries to try to be independent of us etc.
I think this is a glamorization of the past. I'll bet most exchange throughout history was being done with some level of fraud baked into the system highly up the chain. Our modern fiscal institutions haven't even been cooking for 100 years and look at all the shit the weird sages in the crown city keep pulling with our green coinage.
"it's a feature not a bug."
That doesn't sound correct. There isn't a limited supply, but introducing more currency into circulation can reduce the value of it, which is a proper use of debasing.
As a contrived example, if the treasury printed 100 trillion dollars and handed it out to everyone, I'm doubtful that bread would still be $1 a loaf.
That's different than (e.g.) Roman-era debasement where they were using less valuable metals to mint coins and the value of the coin was based on the perceived metal content of the coin, rather than being fiat currency that follows supply and demand trends.
If the currency was debased, inflation would have occurred fairly evenly across the economy, since the currency would be literally worth less. Instead we saw inflated prices chase sectors of the economy where there was either an over supply of money (e.g. PE buying up housing, driving up the price) or an undersupply of product (e.g. cheap eggs).
Nothing makes this necessarily true. As an example, if the government printed everyone in the world 100 trillion dollars, and everyone used it to buy as much house they could, and nothing else, then houses would skyrocket in price as this money spurred demand for houses causing a shortage of housing stock (as prices are a matter of supply vs demand). Bread wouldn't change a dime in this scenario, because no one used the new money to buy more bread than normal, causing a supply shortage of bread. Ergo, nothing necessitates that inflation occurs evenly across the economy. Not even in Roman times. Inflation only occurs where demand happens. If demand, demands it be stored in bank accounts, then bank accounts inflate.
We saw some inflation on food and gas prices in 2022 (for reason not directly related to monetary policy), but not in 2020 or 2021 when the cash was added to the economy - we saw inflation in assets because the Fed handed out cash to investors who deployed it on a limited pool of assets.
And since I am looking at it all through a lens of an individual of US, to me it is clear that making US drown in debt is bad for USD price against, well, everything. For the longest time, US had been the place to park your cash due to stability alone ( and the fact that dollar was worth something ).
That stability is currently not assured. That said, any analysis on the matter I heard was oddly optimistic ( and I will admit that I don't get the optimism ). Not sure if it is the lack of alternatives or something else, but it does not seem US treasury has problems selling bonds.
I think the issue is that one side is saying "Borrowing is terrible!" And the other side is saying "No, borrowing cheap money is somewhere between fine and great!" And the real answer is "Borrowing can be smart if you use it well, but we are using it poorly."
If the US was borrowing money to build and renovate roads, bridges, ports, update the electrical grid, build new nuclear power plants, engage in basic science research and similar projects likely to yield good return on investment - that was be amazing financial planning. My limited understanding of what the government actually spends its money on - wasteful healthcare, social security, the military, and intelligence agencies - is that the money is actually just being squandered.
The relevant question is can the US continue producing goods and services that are desirable on a global scale, one of which is a trustworthy society where you can mostly depend on the judicial system keeping things in order, for better or for worse.
So nobody is ever concerned about debt; you just say screw it let someone else worry about it, usually future generations. The value has to come from somewhere, and in this case its from the debasement of the dollar.
There are foreign policy implications (other countries waiting for us to pay them back is a good thing).
But also, just like corporate finance, if the government can get good rates on debt, it almost always makes sense to just take the money and make the payments.
So some small and sustainable amount of budget deficit is probably a good thing. But we are clearly on the wrong side of that equation.
So whilst it's obviously a policy choice whether that happens, it's definitely well within the possible.
But we're not, right? Not only are we not doing that, we're nowhere close to that? We're still on tracking to collect roughly the same in taxation (leaving loopholes open for corporations on purpose) and spending more than ever (growing every year).
The country is right on the edge of walking into one of the most expensive wars in its history as well as a few delayed economic disasters that would kick the money printer into much higher gear.
Trump adding $10T+ in a relatovely uneventful 4 years even before the massive inflation spike hit should give you an idea how quickly diminishing returns on QE can escalate spending.
Even the folks solidly on the left like Warren and AOC aren't talking about tax increases that would come close to closing that deficit. Their wealth and 70% top tax bracket proposals would raise less than $200 billion annually at the beginning. And of course, they want to combine that with $1 trillion+ in new spending.
The issue is that Reagan dramatically lowered taxes on the middle class and upper middle class in the 1980s, and there's literally nobody in Congress willing to roll those back.
The root reason is due to the US government's control over its own currency.
If you have your own currency, and if a lot of your debts are denominated in said currency, you can slowly make that debt less valuable over time with inflation. When debts almost always become less valuable relative to present value via inflation, there's less pressure to rein in on government spending than if your debts are denominated in another country's currency.
This will eventually always happen even if a country decides to stick to a 1% annual inflation target. Within 100 years, said debt will be close to 37% of its current value:
1/(1.01**100) = 0.369711212
Even a 4% annual inflation target can cut that debt's Net Present Value (NPV) by to about the same level within a quarter of a century:
1/(1.04**25) = 0.375116802
The methods by which you can achieve this 1% inflation can be done in any number of ways, from quantitative easing, to regular old money printing, to government bond interest rate adjustments. Regardless of the methods used, inflation inherently makes any government debts held less valuable over time, making it easier for the government to eventually pay it off.
Interest rate are still historically low, even after the inflationary bump. And there doesn't really seem to be crowding out; in fact, there's so much money floating around that it doesn't have enough places to go...which is presumably why the US debt is still finding buyers (the debt limit thing notwithstanding).
If the US was under IMF supervision it would have been in violation decades ago.
I don't follow this anymore, but does anyone know if there has been anything written about this bizarre financial era we live in, monetarily speaking?
IMF loans aren’t denominated in the recipients own currency, though.