the US government has to start paying for things again
The U.S. national debt is nearing 100% of GDP, driven by rising Social Security and healthcare costs, with projections indicating significant increases, impacting economic growth and investment.
Read original articleThe U.S. national debt has reached alarming levels, nearing 100% of GDP, with projections indicating it could rise significantly in the coming decades. The Congressional Budget Office (CBO) forecasts that debt held by private investors, net of government assets, will increase from 75.7% of GDP in 2024 to 93.7% by 2034. This trend is primarily driven by rising expenditures on Social Security, Medicare, and Medicaid, largely due to an aging population and escalating healthcare costs. While tax revenues are expected to rise, they may not keep pace with spending, leading to a growing budget deficit. The debate over whether low taxes or high spending is to blame for the debt problem continues, but the consensus is that both factors contribute. The chronic costs of high debt include increased interest rates, which can stifle economic growth by making loans more expensive for businesses and individuals. The CBO estimates that each dollar of deficit spending results in a 33-cent reduction in private-sector investment. Therefore, addressing the debt issue is crucial to ensure that the government can effectively tackle other pressing problems, such as poverty and climate change, without compromising economic stability.
- U.S. national debt is approaching 100% of GDP, raising concerns about economic stability.
- Major drivers of debt growth include increased spending on Social Security and healthcare programs.
- Tax revenues are projected to rise, but may not sufficiently cover rising expenditures.
- High debt levels can lead to increased interest rates, negatively impacting economic growth.
- Addressing the debt issue is essential for tackling other societal challenges effectively.
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Generally, looking at the last 30 years or so, it is evident that voters do not care about this issue very much.
1. the government repudiates the debt and the bonds become worthless (FDR did that partially with repudiating the gold bonds by forcibly replacing them with dollar bonds, and pocketing the difference in value).
2. simply print money to pay them off (aka Yellen's trillion dollar coin)
Of course, there would be major consequences from these banana republic measures.
I don't invest in T-bills because of these risks.
When the US loses its AAA borrowing status and countless funds are required to sell all US Bonds, you will see that statement is incorrect.
The US refuses to do many things that would save it money in the long run. Complete universal healthcare would save money and would enable more entrepreneurs as the US claims to love small business. Mitt Romney knows this and that is why Massachusetts has the best Medicaid coverage and why he wanted to take his Massachusetts plan to the federal level.
That said, Medicare and other entitlements is where my mind went too as I was reading. Negotiating drug prices is a good step in this direction by the current administration.
https://www.usatoday.com/story/news/local/2024/08/16/10-pres...
>> Thus, it’s money that the federal government owes to itself. That makes it fairly unimportant, economically; it doesn’t actually limit the resources available to the government.
These are very common misunderstandings. The money borrowed from the trust funds are real debt that needs to be repaid. In particular when the boomers retire and the net flow of money is OUT of the funds rather than IN. Up until now, congress has happily spent that net inflow and now they owe it back which makes them hate social security. One politician was claiming its not "real" debt in some way and was corrected by someone at the Federal Reserve who insisted it's as real as any debt purchased by anyone else. Which brings us to the Fed - that's not the government borrowing from itself as the author says. The Fed might be OK with lending at lower rates than the treasury can get otherwise, but they aren't offering an infinite trough for congress to spend - only an emergency bandage.
A government without debt would be like a business without debt: obviously wasting good opportunities, instead of pursuing them aggressively.
But even that analogy is wrong, since a business has to make money to pay its debts, so a business does face some ultimate limit on how much debt it can take on. By contrast, the USA faces no such limit. We can always print as much money as we need to pay any debt. So long as we're willing to deal with the inflation, we can print as much money as we need.
But realistically, with birth rates falling, the government will have to engage in more and more stimulus spending as time goes by. We used to be able to rely on population growth to be the real engine of the economy, but we no longer have that. So to keep the economy going in the future, we will have to rely on immigration and deficit spending. And there, too, the EU offers an important counter-point: the USA has had a much easier time integrating immigrants, in part because of our deficit spending. By contrast, the EU is seeing how difficult it is to integrate immigrants in a climate of austerity. The EU is close to stalling, in that it needs immigrants to prop up economic growth but it is not printing enough money to put the immigrants to work -- a stall which could lead to a vicious downward cycle. Meanwhile the USA has pulled in millions of immigrants and also printed enough money to put them to work, resulting in strong economic growth.
* https://content.time.com/time/covers/0,16641,19720313,00.htm...
* https://time.com/archive/6639432/money-empty-pockets-on-a-tr...
When the govt spends $7 trillion it basically goes to various Americans for various work. It's a $7 trillion injection to the economy. There are also various leeches or other businesses/work that aren't culled naturally via competition. This all worries me.
Government debt is a red herring that many fiscal conservatives wave to say we're spending too much. Unfortunately those same conservatives don't actually want "fiscal responsibility", they want to cut programs they don't agree with and continue handing out lucrative military contracts that we arguably don't need.
Government debt has always been about borrowing today to fund growth for tomorrow. However, that's not what we're actually doing at all. Much of our current debt is due to COVID stimulous, which was an incredibly exceptional event. Of course that was more to "keeping things going" than fund growth initiatives. That's not to say that debt was "bad" or that we shouldn't have done it, but that much of the debt we're taking on is not going to fund infrastructure, education, or health which are all things that have significant long term benefits to society.
Lastly, debt only matters in comparison to rates. If you're borrowing lower than growth of GDP, then that borrowing is generally considered a net positive. Artificially deflating rates in the late 2010s and the rapid increase in rates post-COVID is not going to do well for government debt because we can't shift our budgets quickly enough to adjust. Of course that also assumes a functioning congress, which we certainly don't have.
Since it is a political issue, it will be a football and a dog whistle. Cut programs for minorities from the right, and raise taxes on the rich from the left. While one party is likely to be more irresponsible with this than the other, it's still not going to go away because it's never supposed to. Government debt is all about the cost to borrow compared to growth. The challenge we're at is that the cost is no longer cheap and we haven't been truly focusing on growth as much as we should. Instead we've just had political distractions.
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