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> In itself the ratio is not a problem, In OECD countries high numbers can work for long while, Japan holds 250% + of debt to GDP ratio famously

One of my missions-for-fun on HN is to figure out why anyone cares about Japan's debt:GDP ratio. The country is a net creditor [0]. The US is the worlds largest debtor by an order of magnitude in absolute terms, and up there with just outside the beyond-hopeless tier of debtors. Superficially the two countries seem to be incomparable. Japan's credit position is almost an anti-US on net, relative to GDP. Why would we look at a creditor to figure out how a debtor's default would work?

[0] https://en.wikipedia.org/wiki/Net_international_investment_p...

When you print the world's reserve currency, and currency can only be issued as debt, if the world economy grows faster than currency expansion, you'll have real goods/services deflation. It's a weird catch 22, the only way for the $ to remain the reserve currency is for it to continue being issued at a global growth rate, faster than a mature economy like the US can grow. International debts in $ can only be paid back in the same and that's part of the reason for rehypothecation, central bank swaps, and all sorts of other shenanigans. In turn that keeps US long rates artificially low.

The old adage holds true though, it's your problem when you owe the bank a little money. It's the banks problem, if you owe a lot of money. The same is true of inward investment into the US (or Russia or China). Who will end up owning that investment, if relations go south? The country where it exists not the investor, but debt is a negative investment. The Treasury can start issuing unsterilized currency (the trillion $ coin) and debase the currency any time there's a big enough issue, or simply not repay certain bonds. By the time that happens though, the international economy will already be a shambles. Markets end run this sort of stuff.

Milkshake theory is one way it plays out. https://liquidity-provider.com/articles/the-dollar-milkshake...

If it really happens quickly, owning lead (or uranium) will be more important than owning gold. Hopefully, it's gradual and we eek through another few decades of global growth before it does.

It was a footnote, to illustrate that even countries like Japan which are on the other end of spectrum are not immune to ratio affecting them , not a direct comparison

Perhaps I should have elaborated, this was not a technical presentation of the argument, just a picture everyone can understand.

> they aren’t buying a lot of new American bonds

Because they’re deficit spending.

This is irrelevant for this. They are deficit spending in their local currency. Their US dollars are going to a massive frenzy of commodities import. They are just diversifying their reserves, less US bonds, more physical goods like copper, coal, gold, etc.

> is irrelevant for this. They are deficit spending in their local currency

It's incredibly relevant for balance of payments [1]! This is international banking 101.

If they want a stable currency while deficit spending and maintaining monetary sovereignty, they need to sell assets and/or clamp down on capital flows [2].

If selling, it will mostly be dollars, because that's what folks want and what they have. That's what they're doing.

> They are just diversifying their reserves

No, their reserves are going down. They are also diversifying. But anything other than them net selling dollar assets would be incrediby weird.

[1] https://en.wikipedia.org/wiki/Balance_of_payments

[2] https://en.wikipedia.org/wiki/Impossible_trinity

Of course they're net reducing the dollar assets they hold. But you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them. That way there's no big selloff to spook the market.

> you don't have to sell your bonds to do that. You can just let your current bonds mature and not roll them

They're selling like $18bn a month [1]. That is 2% of the daily trading volume [2]. Until recently, the Fed was running off 4x as much [3]. (It's still, at $40bn per month, $25bn of which are Treasuries, running off more than China is selling.)

China is diversifying. But they're doing so about as cautiously as one could.

[1] https://www.bloomberg.com/news/articles/2024-05-16/china-sel...

[2] https://www.sifma.org/resources/research/us-treasury-securit...

[3] https://www.reuters.com/markets/us/fed-announces-reduction-b...

If they would at least use most of the deficit spending for things with positive ROI that would be reasonably ok..

Another doomerism that will fail to materialize, I suspect. Sometimes too many people are almost eager for the other shoe to drop. But if America is too big and powerful to bail out, then maybe they won't need to get bailed out on...wait for it...debt denominated in their own currency. Fiat is powerful that way.

No, I think the way to continued prosperity are the old principles: Free Markets, Liberal governance, Property Rights, Fighting corruption, and Ensuring robust multilevel competition in the marketplace.

> I think the way to continued prosperity are the old principles: Free Markets, Liberal governance, Property Rights, Fighting corruption, and Ensuring robust multilevel competition in the marketplace.

Don't forget accepting immigrants and makin babies.

> makin babies

"take care of the pennies and the pounds will take care of themselves"

> But if America is too big and powerful to bail out,

That's what electing the 270 this November is going to decide

In terms of economic policy not much , increased deficit spending is the platform for both parties , whether by tax cuts or welfare is just about who gets the benefits of the spending.

Spending itself is not going to change between both parties

The world won’t fail , but the impacts are real when economic systems change .

We are already facing that , asset inflation is already run away , generational wealth is only way millennials can buy a house , the economic prosperity of boomers is long gone .

The cost of having children has gone up , that is changing demographics today.

It is not black and white between economic collapse and we go to trading cigarettes or everything is awesome , it is spectrum and we already feeling the real economic pain and nothing is indicating it will get better just worse

> generational wealth is only way millennials can buy a house

Millenial. Own a house. No generational wealth helped with that, just being incredibly fucking lucky in Silicon Valley. Roll again.

> it is spectrum and we already feeling the real economic pain and nothing is indicating it will get better just worse

Practically none of this has to do with the U.S. dollar as a reserve currency (minus deïndustrialisation, which we're starting to reverse).

Of course it has. The slow but certain financialization of the economy since the 70’s has lead to all of this, including the deindustrialization you mention.

> Millenial. Own a house. No generational wealth helped with that, just being incredibly fucking lucky in Silicon Valley. Roll again.

A handful of people win the lottery. That's not proof of anything and doesn't change the overall trend.

60% of Millenials are homeowners, only a few percent lower than boomers at that stage.

https://www.redfin.com/news/gen-z-millennial-homeownership-r...

Maybe, but starting at a later age I bet.

Sidebar and perhaps slightly off topic. One of the trigger moments in the Nazi's rise to power was the USA's stockmarket crash, and how the side effects of that ripped a nasty hole in the German economy.

In watching the Netflix doc on the eise of the Nazis, it enlightening how many actions (and inactions) of the USA contributed to the rise of the Nazis. No doubt Hilter & Co were an evil bunch but in terms of popular support and rising to power, they did not do it alone. They had plenty of help.