DEBT SPIRAL: Interest costs on U.S. debt to exceed economic growth by 2045💸💸💸 (1 Viewer)

[Deuce]

The US federal government doesn't have a revenue problem, it has a very bad spending problem, this certainly the case with what has been publicized in the last few months.

Even if you'd 'tax the rich' at 100% of net worth, you'd only be buying a few months of the federal budget.
Further, studies have shown that 'the rich' are already paying more than their 'fair share', i.e. more than any other economic tier.

So bad that your side can identify... like 0.3% of it as wasteful!

 

[Deuce]

I assume you support moving to crypto, since central banking suffers from many of the same problems as central planning. Central planners set production targets and determine how resources are (mis)allocated, while central bankers set interest rates and control the money supply. In both cases, a tiny group of “experts” attempt to outguess millions of market participants, which is something any honest economist knows they can’t do.

lol.

Random guy buying groceries is not making a macroeconomic decision.

 

[eohrnberger]

Tax rates on corporations and high incomes have gone down and deficits have gone up.

It is a fact that if the government confiscated all the %1s wealth and possessions, it wouldn't fund the government for very long at all.

Besides, the reality is that:

The U.S. Already Soaks the Rich​

In 2021 the richest 1% paid 45.8% of income taxes, up from 33.2% in 2001.​

https://www.wsj.com/articles/u-s-income-taxes-top-1-percent-irs-tax-foundation-joe-biden-fair-share-3394355b

Yet, here you are, purporting

high confiscatory taxes.

So who's not being rational here?
Who's asserting outside of reality here?

 

[jaypatriot]

Interest costs on U.S. debt to exceed economic growth by 2045, increasing risk of fiscal crisis

"Interest costs will reach a record 3.2 percent of GDP this year – exceeding the cost of defense and Medicare," said a budget watchdog group. That may signal a debt spiral.

justthenews.com

Many like myself would argue we are already in that debt spiral and that the 2045 figure is only possibly by keeping on the rose colored glasses and presuming that at some point on the path between now and then, people will actually embrace some pain points rather than jumping off a cliff and continuing down the same path. As an example the 2045 figure probably presumes that when Social Security goes "banktupt" in 2035 the pain is just allowed to happen and the shortfall in benefits won't be borrowed and thrown on to the rising debt.

Yeah that won't happen so in reality we are probably in that spiral now and have been for a while.



The thing that makes me far more pessimistic than most is that the projections pretty much assume things will continue as they when life is seldom that way. Many people earn a good living until suddenly they can't as an example. Many people are in great health until they aren't. That is the great argument about where you draw the lines in a planning discussion. "Just save $500 a month for the next 20 years" presumes you never have bumps in the road. My style of planning presumes the bumps and thus is far more conservative.

So what is a debt spiral and why is it so bad? You can't grow your way out of the debt at the point. Worse still (and this is why I say we are there now) the pain on the return is so large that the shock can't be fully absorbed and even if successful, there are a lot of secondary factors that just show you managed to mitigate the worst outcome while still having serious secondary outcomes be major problems.

So you can't grow your way out of the debt when the amount of debt you need is more than the economy can likely grow. If you need to add 8% of debt a year and an economy as large as the United States can grow reasonably 3-5% a year (which is great grown BTW) then the debt will just keep growing.

We understand this in smaller matters quite easily. You can't earn your way out of a spending problem. You can't exercise your way out of an eating problem.

The secondary matter is that big spending cuts likely SLOW the rate of economic growth. I'd say that is 100% true but you can't just keep adding debt either. It's a tightrope walk for the most part. Right now the Trump administration is talking about trying to get out spending down to ONLY borrowing a trillion dollars a year.

That will indeed bring pain but seriously, the pain is coming in one form or another. You can't go from borrowing $2 trillion a year to a dollar less than that without someone having some pain involved.

There's a lot more pain coming too. The best one could hope for is promoting the most growth possible while trying to absorb just enough pain to try to correct the path going forward. There is no path with zero pain. It doesn't exist.

The future pain points are coming and the less pain we are willing to confront today, the more we will confront in the future.

Good conclusion at the end.
You wrote: "There is no path with zero pain. It doesn't exist.
The future pain points are coming and the less pain we are willing to confront today, the more we will confront in the future."
Whose ox should we gore next?
Medicare? Social Security? Medicaid?
What politician is willing to step on a third rail to tell the public we need to do more to reduce fraud and waste in those huge entitlement programs? Bush Jr. tried it (with SS) and failed. Can Trump succeed where Bush failed?

 

[MTAtech]

Good conclusion at the end.
You wrote: "There is no path with zero pain. It doesn't exist.
The future pain points are coming and the less pain we are willing to confront today, the more we will confront in the future."
Whose ox should we gore next?
Medicare? Social Security? Medicaid?
What politician is willing to step on a third rail to tell the public we need to do more to reduce fraud and waste in those huge entitlement programs? Bush Jr. tried it (with SS) and failed. Can Trump succeed where Bush failed?

The amount of fraud, waste etc. in these programs, while not zero, is insignificant.

If you think you can solve the debt problem on the back of these programs, you're talking about cutting benefits.

It should be noted that we really don't have to pay off the debt, just drop the deficit to lower than economic growth, as a p% of GDP. Do that and the debt becomes insignificant over time.

 

[dockside]

Those who advocate for unrealized capital gains taxes need to have their home's annual market value increase taxed every year. That sh*t would end in a hurry.

It already is. When the value of my house goes up, so does my property tax. I have lived in my present home 25 years, the value of my home has doubled and so have my property taxes.

 

[Uncensored2008]

And Trump is going to add TRILLIONS to the debt with tax cuts for the rich and corporations.


So much winning

It was never a problem when Obama was in office, because Uber Alles democrat.

 

[BirdinHand]

It was never a problem when Obama was in office, because Uber Alles democrat.

Obama decreased the deficit.

I’m sorry you didn’t know that before posting ridiculous whataboutism bullshit.

 

[Ganondagan]

It already is. When the value of my house goes up, so does my property tax. I have lived in my present home 25 years, the value of my home has doubled and so have my property taxes.

This thread is about the national debt. Property is taxed at the state or local level.

 

[Uncensored2008]

Obama decreased the deficit.

Obama SUBSTANTIALLY increased the national debt. Particularly during his third term.

I’m sorry you didn’t know that before posting ridiculous whataboutism bullshit.

I'm sorry to disturb your dishonesty.

{During President Obama's two terms in office, the national debt increased by approximately $9.3 trillion, rising from about $10.6 trillion when he took office to around $19.9 trillion when he left. This increase was influenced by various factors, including economic conditions and government spending decisions.}

FACT CHECK: Did The National Debt Double Under Obama?

The national debt now tops $22 trillion

checkyourfact.com

During Obama's third term in office, we saw the greatest rise in the debt.

{During President Biden's term from January 2021 to January 2025, the national debt increased by over $8.4 trillion. This rise reflects various spending measures and economic policies implemented during his presidency.}

 

[BirdinHand]

Obama SUBSTANTIALLY increased the national debt.

Decreased the deficit.

 

[jaypatriot]

The amount of fraud, waste etc. in these programs, while not zero, is insignificant.

If you think you can solve the debt problem on the back of these programs, you're talking about cutting benefits.

It should be noted that we really don't have to pay off the debt, just drop the deficit to lower than economic growth, as a p% of GDP. Do that and the debt becomes insignificant over time.

You wrote: "drop the deficit to lower than economic growth, as a p% of GDP. Do that and the debt becomes insignificant over time."
There is some logical to that intriguing thought.
How long would it take ? Forever?
If he did that it would improve his popularity going into next November.

 

[MTAtech]

You wrote: "drop the deficit to lower than economic growth, as a p% of GDP. Do that and the debt becomes insignificant over time."
There is some logical to that intriguing thought.
How long would it take ? Forever?
If he did that it would improve his popularity going into next November.

How long, depends on the numbers.

Incidentally, this is how we made the WWII debt insignificant. In 1948, the debt was 120% of GDP or ~$200 billion. As time went on, GDP growth was far more than the deficit and over the decades, that $200 billion was small compared to the trillions in GDP.

 

[MTAtech]

View attachment 67567356

Decreased the deficit.

 

[jaypatriot]

How long, depends on the numbers.

Incidentally, this is how we made the WWII debt insignificant. In 1948, the debt was 120% of GDP or ~$200 billion. As time went on, GDP growth was far more than the deficit and over the decades, that $200 billion was small compared to the trillions in GDP.

Fiscal sleight of hand. Bessent would be proud of you.

 

[Econ4every1]

Fair enough, so how much evidence is there that politicians as group are honest and trustworthy?

You took my comment out of context, I was comparing politicians who are voted on by the public to unelected and completely unaccountable owners and members of the C class and board members of mega corporations.

I have more faith in politicians that people in private industry.

Obama campaigned hard against money in politics, especially against super pacs. You probably voted for him. After he got elected, for some reason he changed his mind a little bit on the issue:

So?

Limiting government power limits the number of political favors that are for sale to the highest bidder.

Instead we get private collusion from a group of people that have zero ethical, moral of fiduciary responsibility to the people. The problem doesn't go away when you limit government, it is hidden and harder to find.

Now before you ask, no I don't think today's politicians are as accountable to the people as they should be.

Then why don't you just have the state produce goods and services, then these wise and benevolent politicians you worship will have all the power they need to do their good deeds.

1. Don't worship politicians, I just trust the alternative even less.

2. Because incentives are wrong.

See, I'm not a socialist. Nor am I an unfettered capitalist. More of a good thing is usually bad (got a head ache, take 15-20 of those pills and see what happens). Which is why I believe in a balance between the state and private entities. Leveraging each where the incentives service the public interest.

Should water resources be private? Hell no. Should private companies run prisons, probably not.

Should the state make cars? Again, probably not. Should the state set technology standards? Again, probably not.,

Finding the balance between the state and the private sector (which by the way is harder than just committing to one or the other) is the best way to ensure a strong nation IMO.

 

[Econ4every1]

Incidentally, this is how we made the WWII debt insignificant. In 1948, the debt was 120% of GDP or ~$200 billion. As time went on, GDP growth was far more than the deficit and over the decades, that $200 billion was small compared to the trillions in GDP.

Sadly, most people don't realize that the debt at that time was the result of a public campaign to "fund" the war though the purchase of savings bonds. It's in the name., they were just savings accounts. And everyone pitched in. Sure the government told people they needed to help "fund" the war, it felt more patriotic and understandable than telling people they needed to buy savings accounts to reduce the affects of spending on inflation.

It wasn't the dollars that people gave to the government that helped pay for the war, people have it backwards. When people committed to saving, those dollars were affectively no longer creating demand and as a result, they couldn't be used to make purchases of scarce resources, which means that the government could create money and buy those resources without having to compete with the private sector. Buying savings bonds didn't give the government money it didn't have (the government can create money), what it is was reduce inflation pressure, allowing the government to spend more on the war without driving out of control inflation (and remember, inflation was historically high at the time) which would have reduced or outright destroyed the nations economy.

When the bonds came due (in the 50;s and 60's) and people cashed them in, the government deposited dollars (with some extra) back in their bank accounts. The only reason that it worked so well to reduce debt was two fold, companies had expanded during the war, but now needed to sell cars and toasters and washing machines, not tanks and guns and behold, The American public flush with dollars to spend, which kept factories running and people employed. The second thing is that much of that savings was owned by the middle class. Debt was "repaid", which was really just giving dollars back to the US public which used those dollars to consume goods and because the US government was no longer competing for those resources at the same level, things worked out.

Look at the war between Russia and Ukraine. Russia cannot afford to win or lose. Why? Because it's economy is entirely driven by it's military, but unlike the US during WWII, the average person working in factories aren't saving huge amounts of money. When the war ends, Russia economy is going to collapse because they don't have a strong middle class to shift their wartime production to.

In the US we have the same problem, we have trillions in debt, but most of those savings accounts aren't owned by the middle class. And if the debt was "repaid" all that happens is savings accounts (bonds and other treasuries) in the private sector (with the exception of the roughly $8 trillion the government owes itself) are just converted to cash in the private sector risking inflation.

 

[aociswundumho]

1. Don't worship politicians, I just trust the alternative even less.

2. Because incentives are wrong.

Yes, the incentives are all wrong, and they stay wrong even when the state attempts to run public schools or a universal healthcare system. You don't trust the state to build cars, yet the same backwards-incentive-facing state should provide healthcare and education? How does that make sense.

 

[JohnfrmClevelan]

There's a lot more pain coming too. The best one could hope for is promoting the most growth possible while trying to absorb just enough pain to try to correct the path going forward. There is no path with zero pain. It doesn't exist.

The future pain points are coming and the less pain we are willing to confront today, the more we will confront in the future.

This is a long thread and I got here late. Has anybody tried to explain why there has to be future pain, or why the path we are on is unsustainable yet? Because I'd be interested in hearing how anyone thinks that this great decline will play out in reality.

 

[MTAtech]

This is a long thread and I got here late. Has anybody tried to explain why there has to be future pain, or why the path we are on is unsustainable yet? Because I'd be interested in hearing how anyone thinks that this great decline will play out in reality.

It is possible to grow out of debt. Just keep annual deficits under economic growth as a p% of GDP. However, nobody on the GOP side is talking about lowering deficits. They're talking about increasing deficits while savaging Medicaid, food assistance and Public Broadcasting (Big Bird, you're fired) among other programs. This will indeed cause pain for the most vulnerable while doing nothing to pay the debt.

 

[JohnfrmClevelan]

It is possible to grow out of debt. Just keep annual deficits under economic growth as a p% of GDP. However, nobody on the GOP side is talking about lowering deficits. They're talking about increasing deficits while savaging Medicaid, food assistance and Public Broadcasting (Big Bird, you're fired) among other programs. This will indeed cause pain for the most vulnerable while doing nothing to pay the debt.

Is "growing out of debt" even necessary, though?

I agree with you somewhat, in that keeping the growth of our pile of bonds somewhat smaller than economic growth feels like a good thing, but I'm having a hard time imagining a scenario where that pile of bonds really becomes a problem, as long as it just sits there doing nothing.

 

[MTAtech]

Is "growing out of debt" even necessary, though?

I agree with you somewhat, in that keeping the growth of our pile of bonds somewhat smaller than economic growth feels like a good thing, but I'm having a hard time imagining a scenario where that pile of bonds really becomes a problem, as long as it just sits there doing nothing.

When the amount of debt becomes so enormous it will have an effect on confidence in the full faith and credit of the U.S. Mind you, growing out of the debt by keeping deficits below growth doesn't mean no deficits. It does mean that the debt becomes less of a number over time. But this is academic, the GOP has no willingness to shrink debt.

 

[jaypatriot]

It is possible to grow out of debt. Just keep annual deficits under economic growth as a p% of GDP. However, nobody on the GOP side is talking about lowering deficits. They're talking about increasing deficits while savaging Medicaid, food assistance and Public Broadcasting (Big Bird, you're fired) among other programs. This will indeed cause pain for the most vulnerable while doing nothing to pay the debt.

Where is the evidence Medicaid is being "savaged"?
The Administration wants to cut back on the rate of growth of Medicaid costs and enrollments. That is not reducing Medicaid.

 

[JohnfrmClevelan]

When the amount of debt becomes so enormous it will have an effect on confidence in the full faith and credit of the U.S.

Does confidence matter, though?

The "full faith and credit" part is covered - a country with its own currency can ALWAYS meet its obligations; there is no risk of default. The only risk for investors is if inflation outpaces your return on the bond. And even then, what else can you do with your dollars? You can buy a riskier investment, but you are still fighting inflation - and somebody still ends up holding those dollars. There is nowhere else to go except treasuries.

This all assumes that the U.S. economy is still producing stuff that people want to buy, of course. As long as we have stuff that people want to buy, they will accept our dollars in payment, and they will buy treasuries, because they are better than just holding the cash.

This has been my thinking for years now; as long as an economy keeps on producing stuff that people want to buy, things should be great. But until very recently, I had never imagined a self-inflicted global trade war that threatens to curtail trade on a Depression-era level.

 

[Econ4every1]

It was never a problem when Obama was in office, because Uber Alles democrat.

I think what you mean, to be fair is that the debt significantly increased under Obama, the deficit decreased.

However, this is a superficial understanding of what really happened. It's kind of like showing up at the scene of an accident and drawing conclusions based on what you see, without understanding the events that lead up to it.

Let me show you.


Now, as you look at that, understand what you are looking at.

This is the period of deficit reduction during the 1990's. Let's see what the consequences were.

Here is a laypersons explanation of what each line represents:

• Black Line (Balance on Current Account):This is basically the USA's balance sheet with the rest of the world.
  • If the line is above zero, it means the U.S. is bringing in more money from other countries (through exports, investments, etc.) than it's sending out (through imports, etc.). Think of it like the country, overall, is "lending" to the world or selling more than it buys.
  • If the line is below zero, it means the U.S. is sending more money out than it's bringing in. Think of it like the country is "borrowing" from the world or buying more than it sells.
• Red Line (Government Net Lending/Borrowing):This line shows whether the government (federal, state, and local combined) is spending more than it takes in (taxes) or vice versa.
  • If the line is below zero, the government is spending more than it takes in taxes, so it has to borrow money. This is called a budget deficit.
  • If the line is above zero, the government is taking in more money than it spends. This is called a budget surplus.
• Green Line (Private Net Lending/Borrowing): This focuses on everyone exceptthe government – that means households (like you and me) and businesses.
  • If the line is above zero, it means that overall, households and businesses are saving more money than they are borrowing or investing. They are net lenders.
  • If the line is below zero, it means households and businesses are borrowing or investing more money than they are saving. They are net borrowers.
• Blue Line (Combination): This line is calculated by adding two other lines together: the Black Line (the country's balance with the world) and the Green Line (the private sector's saving/borrowing). It shows the combined result of the country's international transactions and the private sector's financial position relative to the size of the economy. It reflects underlying economic relationships but doesn't represent a single simple concept like the government budget or trade balance on its own.

What can we conclude?

The red line is the deficit. The net between money added to the economy from government spending and taxes. When the red line is at zero, the government's spending and taxation for that period are equal.

Now, take notice of the green line, relative to the red line. Notice how around 2000 it hits zero or slight above. What happens to the green line? The green line reacts to the movement of the red line. If it falls below, that's bad, really bad. It means that the private sector is net dis-saving. The closer to zero the red line the less money the private sector has. Under Obama we see emergency legislation put into place. What's really happening is the government is shifting private sector debt out of the private sector and onto the government. The blue arrow shows where TARP is signed into law, and the yellow arrow shows the effect on the private sector.

The point is, you cannot save your paw to prosperity. Every dollar the government saves is a dollar dis-saved from the rest of the world (mostly here in the US). The US government basically has to dump the money back into the US economy it removed in the 1990's, the problem, and now this is my opinion, is that most of the money "put back" is used to bail out banks and other private institutions. So the average person lost money in the 1990's and then again, in over-leveraging of the mid 2000's and the government bailed out the investor class in the 2010s and beyond.

By 2009, under Obama defects are cut year after year and private sector savings, predictably declines.