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Comment by kube-system | Hacker News Reader

At first I was hopeful about the "just facts" content, but once he started making comparisons between government budgets and household budgets, I had to roll my eyes. This is a very misleading way to represent the US government's financial standing. The US government doesn't have to save for retirement, it doesn't doesn't have a lifespan, and it is in a unique position to manipulate economic markets (and ultimately even the use of force) regarding its own debt. The insinuation that government deficit spending is analogous to household deficit spending is misleading. A typical response it elicits is "well how are we ever going to pay that off?!" because people compare it to their own debt. But we're not talking about credit card debt or a car note here, we're talking about issuing treasury bonds.

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In addition, no households issue their own sovereign currency, let alone one used as a reserve currency by a majority of the world.

There's also the situation that if a household's finances are tight, they can often rectify the situation by not spending money on things that aren't essential.

If a government imposes austerity measures during a recession, it can make the recession a lot worse, because that government spending was used directly or indirectly on goods and services, creating economic activity.

If the US federal debt doesn't matter, why do we have taxes?

Surely, the government should just debt-finance everything and then we would all be happier.

As I mentioned in other comments, debt-to-GDP does matter in as much as it loosely reflects the ability of the US to pay those obligations. So taxes+debt will always be able to fund the governments ability to do more than either of those individually.

What is an acceptable debt-to-GDP ratio? Is over 100% acceptable in terms of ability to pay?

I would have assumed that if that was your only metric, that the US at 122% would be far past your acceptable line.

There's some concern that the US is playing with fire at the current ratio.

However, Japan is now over 200% has been over 100% for 23 years. Despite their debt, investors aren't too worried about not getting paid.

There's not really a hard and fast rule at which it becomes a problem, it is up to investors to decide. The total economic situation, monetary policy, and geopolitical situation will matter more than just the debt-to-GDP ratio. That ratio is mostly useful for comparing a country to itself over time.

I would not suggest using the Japanese bond market as an example: Japanese bonds are pretty much exclusively owned by the BoJ and private Japanese banks, and they generally do this for mechanistic reasons. Basically everyone who can choose not to buy Japanese bonds is not buying Japanese bonds.

US bonds are not currently in the same place because it's hard to figure out who is in a much better position. The US has the guns and the petrodollar (although that is ending), and many other countries are in a more precarious economic and political position (thanks to Russia). However, there is no question that position would be better if the US had half its national debt.

Debt and GDP are measured in different units (dollars, and dollars per year) so talking about a "debt-to-GDP ratio of 100%" is misleading because it sounds like there's some kind of threshold there.

In fact a debt-to-GDP of 12 months or 14 months has no more special significance than the debt reaching 50 trillion dollars or your car reaching 100,000 miles.

Do you see the $35 trillion in debt as a problem? How do you think it's going to be resolved?

When I see folks habitually complaining about how much the US spend on their military, and then I look at the actual budget and see that they are actually spending more to service their debt than they do on the military, I wonder what the end game is.

> resolved

My entire comment above was to argue that "resolving" the debt is nonsensical. The answer to when the debt needs to be paid off is: never. The government can issue more debt indefinitely. In fact, "paying off the debt" implies the government would stop selling treasuries, which is entirely more scary than the debt.

> I wonder what the end game is.

There is no end game, ideally, the US wants the US to continue to exist, and continue to fund the things that improve conditions for their citizens.

Believe it or not, the single largest holder of US government debt is... the US government itself. And 77.1% of the entire debt is owed to domestic US entities. The US debt is mostly Americans voluntarily financing their own government. This situation isn't something to "resolve", it is entirely okay.

Debt to GDP does need to be within some reasonable bounds, but as long as our economy can support the debt, there's no reason to get rid of it, and many reasons not to.

> My entire comment above was to argue that "resolving" the debt is nonsensical. The answer to when the debt needs to be paid off is: never. The government can issue more debt indefinitely.

Then why do governments place a large importance on minimizing deficit?

This isn't a rhetorical question, I'm ignorant about economics and government mechanisms.

> Debt to GDP does need to be within some reasonable bounds, but as long as our economy can support the debt, there's no reason to get rid of it, and many reasons not to.

What is reasonable and why? What does it mean to support a debt, and why wouldn't that burden be a reason to get rid of it?

If your country's debt-to-GDP gets too out of control, markets might doubt that you'll be able to pay on your obligations, and then you've got problems. The debt is made up of many tiny obligations (treasury bills, bonds, and notes) that get paid on a regular basis every day, and the US government has always paid every one of them. When these individual obligations are due, they need to be paid, and investors need to be very confident they will be. The point at which this becomes a problem is not a hard and fast rule, but it depends on a lot of situational factors that go even beyond the realm of math and into geopolitics.

I don't think you really answered my questions, or at least I'm not smart enough to understand.

What would out of control mean, and why? What are these problems? I struggle to understand what exactly it is that is entirely not a problem until this difficult to define point where it can become a problem, and what that problem is.

The US is only able to borrow tens of trillions of dollars for very low interest rates is because investors, big and small, both in the US and around the world, see the US as essentially a risk-free way to store value. People (or investment organizations, or businesses, etc) with many millions or billions of dollars have to put it somewhere. Using vaults to store that much money is expensive to maintain and causes them to lose value to inflation and the cost it entails to run that operation. Basically, the default way to store a lot of money in an extremely safe way (in terms of it being there when you want it, and not losing tons of value) is to buy US treasuries. Financial markets consider them to be zero-risk -- the benchmark by which all other investments are compared.

Now, if this were to change, and financial markets thought that buying US treasuries might not be a guarantee that they can get that money back later, a lot of things would be disrupted. In the immediate term, interest rates would likely increase significantly for everything, as many interest models base their rates on treasury interest rates, and treasury interest rates would skyrocket due to the now non-zero risk. That would in turn mean that the US's interest on their outstanding debt would skyrocket, further compounding the issue. Also, because so much of the world economy is based on the assumption that US treasuries are zero risk, this would upend investor confidence in many other financial markets globally that rely on those instruments for their function. Those who were forking over trillions to the US for safekeeping may look for other places to keep their money instead. This would be bad for the US governments ability to raise money to do the things it needs to do, in likely a significant way. And if a default does happen, creditors could seize assets, and depending on who is stuck holding the bag, war has happened in these situations before, although the UN currently disallows it.

But at a minimum, the global economy would be hit very hard.

Then paying down debt reduces the risk of exposure to interest rates and this lack of confidence situation, and also reduces interest repayments. I would think these are reasons to reduce debt you would weigh along the reasons to keep or increase debt, but apparently not?

You are entirely right. If the same number was called "private credit" I believe no one would bat an eyelid about it. Of all the non-issues to spend time on - this is the least worth anyone's time.

“We just owe it to ourselves” is a propaganda line. There must be more productive uses for those funds than paying interest. Being on the creditor side of compound interest is far better than the alternative.

> “We just owe it to ourselves” is a propaganda line. There must be more productive uses for those funds than paying interest.

There are! One of the most productive uses of buying your own treasuries is the ability to manipulate the entire economy as a whole.

https://en.wikipedia.org/wiki/Quantitative_easing

The literal truth can hardly be a "propaganda line". More constructive criticisms are 1) private sector could have done better with the same finance (ultimately - resources); and 2) interest on that is paying basic income to people that already have money. I am sympathetic to both. So - the debt itself is a signal, a symptom. The solution is not to treat the symptom, but the causes. On 1) - you can say the state needs to do less. Just go down the list of things the state does, and propose those be reduced. From that PoV, the federal gov being "insurance company with and army" is basically correct. So to reduce gov spending, need to look at those two top of the list items. On 2) - that's easier imo. The IR rate is a decision, a vote, by a monopolist, controlled ultimately by the legislature. Just reduce the IR if that's an issue. Then fight inflation (if needed) with other means. People have forgotten that - but can relearn quickly.

If the $35t were a problem US treasury bills would have to have high interest rates. As it is, investors around the world are happy to hold them.

Personally I think we should raise taxes, particularly close a lot of loopholes and raise corporate taxes as a first thing to do.

Treasury bills do have high interest rates compared to their recent historical average. That rate is about 5%.

You might then say that this is due to inflation, but that inflation almost certainly has something to do with lack of confidence in the dollar.

If a household can keep on borrowing money basically indefinitely to pay for expenditures that exceed revenue, that's basically what the US's (and many others' like Japan's) national budget is.

To put it another way: America can afford to spend more than its revenue because people (Americans and otherwise, see the bond market) and countries (see prior) are (still) willing to lend more and more money. So what happens when that gravy train finally stops?

Note that it is easy to default on our debts, most prominently by just not passing a budget to pay our debts. How we are going to pay all this debt off is a very real question that needs an answer eventually. Brushing it off as "we aren't a household budget" is peak denialism.

> If a household can keep on borrowing money basically indefinitely to pay for expenditures that exceed revenue

If a household had an undefined credit limit and could take out debt to pay for any other debt, arbitrarily, and indefinitely, they'd be dumb to ever work a day in their life. But consumer creditors understand that their customers have essentially zero global power and will die someday, so the world of consumer debt doesn't work that way.

> So what happens when that gravy train finally stops?

You tell me, when is everyone in the world going to stop buying treasuries? I don't think there is a date. As long as the US has a stable and powerful economy, people with money will want somewhere to put it.

> How we are going to pay all this debt off is a very real question that needs an answer eventually.

The literal answer is that it all gets paid off all the time, according to the payment schedule of each individual security, but we continually reissue debt because there is literally zero reason not to.

> so the world of consumer debt doesn't work that way.

Yes, but I laid out how national budgets and household budgets are fundamentally the same thing: The flow of cash coming in must meet or exceed the flow of cashing going out. I'm surprised this detail is completely lost on you.

>I don't think there is a date. As long as the US has a stable and powerful economy, people with money will want somewhere to put it.

That's the thing, isn't it? It's not an absolute guarantee that the US will continue to have a stable and powerful economy ("past performance is not a guarantee of future results", as any good investor will tell you). Lest we forget, US credit ratings were lowered following one of the many recent shutdowns we had, and the world at-large is slowly but certainly shifting from Pax Americana to Pax Sino.

So again, what happens when the gravy train stops? We don't know when that is, we don't know if the train will stop in the first place, but we have to have a plan in hand because debts must be paid.

>The literal answer is that it all gets paid off all the time, according to the payment schedule of each individual security, but we continually reissue debt because there is literally zero reason not to.

Yes, the issue is where do we draw the line between reasonable amounts of debt incurred and unreasonable? Spending more money than we make is fiscal irresponsibility, borrowing money to make up for the shortfall is merely a workaround and borrowing money to pay back borrowed money is disturbing.

Where do we consider we are borrowing too much? This line can and should be constantly reevaluated as necessary and appropriate, but first of all do we even have such a line? I don't think we do, which is why the national deficit is such a hot topic.

> I laid out how national budgets and household budgets are fundamentally the same thing: The flow of cash coming in must meet or exceed the flow of cashing going out. I'm surprised this detail is completely lost on you.

That's absolutely not true. Governments can manipulate the supply of money they have available to themselves in numerous ways. The most obvious counter-example is that governments can simply print physical cash. It is rarely a good idea, but it absolutely a thing that can and has been done.

> the world at-large is slowly but certainly shifting from Pax Americana to Pax Sino.

> So again, what happens when the gravy train stops? We don't know when that is, we don't know if the train will stop in the first place, but we have to have a plan in hand because debts must be paid.

If it goes at the pace it has been going, it'll be a continuous squeeze instead of "stopping". What would happen in that squeeze? Interest rates and taxes will slowly go up and the economy will stagnate.

> Where do we consider we are borrowing too much? This line can and should be constantly reevaluated as necessary and appropriate, but first of all do we even have such a line?

Not really, because lender confidence is more complicated than a number as simple as debt-to-GDP, but it's a good benchmark value. I think the obvious answer is that lenders will indicate with their buying habits when they disapprove of the debt, and that's really the indicator that ultimately matters. But it's a complicated question that economists don't even agree on.

>governments can simply print physical cash.

That's still addressing the question of cash flow: Making the cash coming in meet or exceed the cash going out by printing more cash to go out.

The various means to effect cash flow might be different, but national and household budgets are fundamentally the same.

>What would happen in that squeeze? Interest rates and taxes will slowly go up and the economy will stagnate.

Yes, are we prepared? I don't think so. Also, we can probably do something about that to reverse course or at the very least dampen the grief. Are we doing something, though? Again, I don't think so.

>I think the obvious answer is that lenders will indicate with their buying habits when they disapprove of the debt,

In the interests of pre-emptive preventative measures, because those are always cheaper and easier than cleaning the room after the shit has hit the fan, are we doing something better than doing nothing?

Jesus Christ, he does that? One would think someone of his stature had a better intelligence about that sorta thing, but I guess he just wants to do more propaganda for tax cuts. The second I hear someone make that comparison, I tap out... Well I give em a few to explain why it's not accurate. Then I tap out if the explanation of why it's a bad comparison isn't forthcoming. Shame.

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