T Nation

Non-Partisan National Debt Thread


#1

As promised. I wanted a thread devoid of partisan bickering. Both parties spent to get us here, and all taxpayers are on the hook to pay for it. Interested in potential solutions and implications (national security, dollar as the world reserve currency, trade and growth, fiscal policy). We owe roughly $5T to ourselves. I was surprised China only holds $1.2T.

How much does the US owe?
http://www.usdebtclock.org

Who do we owe it to?


#2

Here for the partisan bickering. Over/under is 100 posts - any takers?


#3

It’s all the Republican’s fault!

(I’ll take the under.)


#4

RIGGED!! I didn’t know you were Russian


#5

Yep. With the help of my Russian troll farms, bot army, Wikileaks, and Don Jr, I have managed to take control of your competition. Das vedanya! Babushka! Nyet! Tolstoy and Dostoevsky! Shostakovitch! Doctor Zhivago! War and Peace! Vodka! (That’s the extent of my Russian-language knowledge.)


#6

Did you just call me a Haitian?

The national debt is one of those abstract concepts that I’ve never been able to actually wrap my head around, other than to see bureaucrats bicker and threaten each other with. Like when they have to vote to increase the debt ceiling or shut down the gov. to essential personnel only, at which point I usually think “Good, you wasteful fuckers. If you worked in private industry you’d be so fucking fired they wouldn’t show you the door, they’d kick you from the balcony! Why would you have anything other than essential personnel in the first place?”.


#7

You forgot Borscht.


#8

Can you really have any debt when you are a superpower? Who is going to break our legs if we don’t pay?


#9

If the US defaults they won’t be able to borrow anymore. That means hard choices about spending. Also the interest payments go up as the debt becomes a higher %/GDP. That’s present and future taxes that we can’t use.


#10

Why “borrow” anyway? Murica can just take what Murica wants.
#honeybadger


#11

What we can do and what we’re willing to do are different things. We had nuclear weapons when nobody else did at a time when the rest of the world was in ruin and in no position to defend itself. If ever there was a pristine oppertunity for world domination, that was it. I know your post is meant in jest.


#12

I certainly view it as an issue but don’t think anyone we vote for really does. It is pure lip service to the party that is out of power and immediately ignored once that party gets in power.

Not saying it isn’t worthy of debate, I have brought it up numerous times. But we are the only ones actually talking about it. 99% of the people in DC don’t give one fuck about it. We had back to back Presidents that exploded it even more. The current President essentially said no big deal if we default on it. His party is pushing a massive tax cut with no real significant debate on the effects of it on national debt.

A true debate worthy of having and not just on a t-nation thread. However we have discussed it on here in the past far more seriously than anyone in DC during the last 16 years imo


#13

#14

The national debt is just another form of taxation, somewhat less progressive than other forms of taxation.

Think about it for a moment: the government “borrows” money in the form of T-bills – the overwhelming majority holder of which is – the federal government, in the form of the federal reserve. (Not that it matters who holds it, but that’s for another day.)

In short, it’s an intra-company transfer. Government borrows money from itself who then prints money. If the government was a private company, the auditors would pretty much just wipe it off the books.

Now, what happens when a government prints money? Inflation, of course.

So things costs more.

So people who depend on a flow of money (be it income or social security or some kind of stipend or entitlement, public or private) have less buying power with their stipend. An incremental portion of that buying power is used up by the government for it to buy things.

(This is also why the bond market has been relatively crappy.)

In other words, it’s a tax. You get less of what you earn, because the government takes some of it.

And it’s an interesting tax.

For example, the government can decrease the burden of entitlements on the budget by (variously) keeping/choosing/calculating the index of of those entitlements slightly lower than the actual rate of inflation. You shrink entitlement payments by no keeping up with the printing.

Same with employers, although they have a harder time sticking it to their employees, as they can quit. Much harder to quit being a citizen.

Also, interestingly, the tax, while it hits incomes (or any flow of money) the same, does not hit people who own stuff the same. If you own land, or oil, or even most stocks, the value of the stuff (assuming you bought reasonably) goes up with inflation (more or less) along with whatever growth you have going on in that item. So it spares the really, really rich (who own stuff) and hurts high income people who aren’t savers (in stuff, and not cash). And (depending on the honesty of the government index) can really screw people living on entitlements.

In fact, governments could (theoretically) simply have no taxation and simply print money, the rate of printing being you effective tax rate. (There are a lot of problems with this approach beyond the scope of an Internet post, but a number of governments have come close to this over time.)

The US government (and,actually, most governments) has gotten away with it: (1) because this is complicated as Hell so people don’t understand it and (2) technological and economic innovations have been so deflationary that most people don’t notice it too much.

So, for good or bad, the deficit is just a tax in another form. It’s relatively flat. And can be used to lessen the real burden of entitlements, without politicians paying the price (which, of course, they love).

So it can be reasonably conservative, to the extent any tax is conservative. Probably a fairer statement is it’s less progressive than the graduated income tax and about the same as a sales tax.

The scare stuff of “your selling your children’s future to China” is rather overblown (especially since the fed hold 3/4 of the debt). No, what they’re doing is making the debt (denominated in dollars) by the Chinese worth less. So the Chinese should be (and are) pissed. Heck we could just print more and give it to the ChiComs as payment. It’s not like it’s backed by gold or something. So even the interest is no problem. But, it makes a good scare story for the left and right.


#15

I think I learned something in a PWI thread…!

Out of the box thinking (or is it?), not just partisan gibberish.


#16

I don’t know how “out of the box” it is. It just is. About Econ 202 or so.

Both parties use the complexity of this issue to lie to us and try to scare us. I suppose it depends on who is spending money or raising or lowering taxes.

It’s very close to a national sales tax, although it hits savers (in cash) and people who want to be savers (by buying stocks or whatever), as well.

And it’s a tax on people who hold our debt (e.g., China) the same way as it hits someone on a fixed income, which is highly ironic. So a fair amount of the pain is exported.

I’m leaning towards it being the least politically costly way out of the the entitlements mess (which is something like 75% of the budget). You can play with the index and shave a point here or there and bring it under control within a decade or so. AND you get to screw China.


#17

HAHAHAH!!! Your answer is so…I don’t know what…

I’ll explain -I graduated from Princeton as an Econ major, but 35 yrs ago, so that’s my excuse there. Also, I’m Chinese (Hong Kong born), but I totally think we are in general a greedy, self-centered race, so your last sentence really cracked me up. So bam!, your post nailed me dead center but makes me laugh rather than get offended.

I’ve always intuitively “known” that when something is plastered on up to the second billboards (Times Square?, Union Square?) for all to see, how scary can it really be? But I was just too intellectually lazy/inadequate to put a solid framework of analysis on it.

random fact: a friend of mine was with Tim Geithner’s group when Geithner spent a semester of study abroad in China, and he’s convinced that’s one of the reasons Geithner got the Treasury Secretary job -to help sell more debt to the Chinese LOL


#18

The problem though:

When people buy our debt (other than the federal reserve) they are betting on the ability of the US government to tax the largest economy on earth in order to repay those debts (“full faith and credit”). Fairly low risk (hence the low interest rate).

Similarly Fiat currencies have value only because sovereign nations say they do. The stronger the economic outlook of a nation, The stronger its fiat currency.

Right now the USD is the world’s reserve currency. US Treasury notes are seen as so secure that they consider them the “risk free rate” in financial markets.

We can’t foresee the future. It is looking like manufacturing has left the US for the most part. We were at least the center of the internet/information age revolution. But what if the next big thing isn’t US centric?

We have $109 Trillion in unfunded liabilities (roughly) with a GDP of $18.57 trillion. That’s fine as long as we can print our Fiat currency to both simultaneously pay debts and devalue them like you describe. What happens when inflation goes back to say 10%? What happens if we aren’t the world’s reserve currency? What if this cryptocurrency thing is for real and sovereign fiat currency goes away?

These were the kind of things I wanted to flesh out with smart people here.

http://www.usdebtclock.org


#19

Thanks for playing, guys. Please keep talking.


#20

If the government goes on an inflation binge to cycle through paying the debt, lenders will obviously start demanding higher interest rates to ensure the dollars they get back aren’t making them poorer as a result of the inflation - and market interest rates will be higher as a result.

Slow growth? Inflation? I, for one, am not interested in luring stagflation into our economy.