Correct me if I'm wrong but isn't there an inherent vicious cycle in that if the price gets too high our ability to pay it off becomes uncertain, at which point the premium for the risk would shoot up dramatically (and so on)?
USA won't ever default so you will get money back at maturity date. But I will largely question the inflation at that point. If inflation goes significantly higher than the rate you are being paid it becomes self-destructive loop.
That's correct. The root cause is that the government is making promises it can't keep, which make those promises worthless. The correction is usually that that government falls, and a new government starts making smaller, more achievable promises that restores trust in it.
Nope. Government debt has existed for a long time in the US. There is no plan to pay it off ever. Headlines will scream that the debt is too high for a long time to come.
Government debt yields on the short end are set by the Fed. Long yields are "set by the market" based on inflation fears, and mostly guessing what the Fed will set rates to over the next 10+ years.
Japan had way higher Debt-to-GDP for decades, yet the long term yields were low. Why? The central bank said "we anticipate yields to be set low for a long time" and did so for a long time. Recently they said they are going to "respond to inflation" like all other central banks and suprise, surprise the long end is creeping up. "Bond vigilantes" came into existence as soon as the central bank changed their policy.
The inflation fears are part of the vicious cycle. The typical mechanism by which a government would get rid of inconvenient amounts of debt denominated in their own currency is to monetize it and inflate it away. Bond purchasers know about this, and build inflation expectations into the interest rates they are willing to accept. This increases the amount of interest the government has to pay, which makes its financial position even more precarious, which builds in future expectations of either a default or a soft-default through inflation, which pumps interest rates even more.
It is possible to break this cycle, but it requires getting spending under control. As long as you operate in deficit, it requires finding private capital to finance future operations of the government. That private capital will require interest commensurate with the expected future devaluation of its principal to lend; otherwise they are just suckers. If you can bring spending into balance then you can hike rates and bring inflation under control and you'll be somewhat insulated from what bond purchasers are willing to accept, but if you can't then increases in rates just increase government spending as well.
Japan operated at extremely high levels of debt-to-GDP because their deflationary trap turned all major Japanese corporations into large net savers. Why would you hold debt when you have to pay it back in more valuable yen in the future? That created a very large oversupply of private capital, which crowded into government bonds as the spender of last resort.
It is like watching on repeat the EU imploding from the debt crisis in 2009.
The only difference is that the US can inflate away their debts and the world will keep buying the usd.
The EU had to impose strict austerity, and essentially all the banks stopped providing any liquidity to businesses. Entrepreneurship and research just died overnight.
The EU didn't have to impose strict austerity. It was just the policy they went with and it ended up being worse than what the US did in the financial crisis.
Did anybody think Grumpism was going to go somewhere other than here? It's merely been the spite choice the whole time - a way for economic losers to stick their thumbs in the eyes of people who had been mildly successful. Pure crab bucket mentality, now with $40T more in the hole - and still no actual solutions to the problems we are facing. But that certainly doesn't stop those problems from being brought up to rally support for the next con job. And the people at the top certainly aren't suffering! We have basically squandered the advantages our grandparents sacrificed for, to satisfy some kind of collective ego based around American exceptionalism and ignorant fundamentalism.
(edit: I guess a lot of people still aren't ready to hear it)
Obama sped up the rate of growth of the debt around 2010 and the percentage growth annually has been consistent since then (i.e. linear on the log scale): https://usafacts.org/answers/how-much-debt-does-the-us-have/.... Not even counting the jumps in response to the 2008 recession and COVID.
Let's see, the biggest increases of debts under Democrats have been during the biggest financial crisis since the Great Depression And the biggest worldwide pandemic in a century.
On the other hand, the biggest debt increases under Republican presidents have been to A) Start and fight multi trillion dollar wars in Iraq and Afghanistan and B) To cut taxes for billionaires and corporations.
It's because the country went through the great recession and was attempting to pull out and avoid financial collapse.
Look at Revenue per year as a % of GDP and look at Expenses per year as a % of GDP. It's pretty clear.
Expenses went up avoiding a depression which was done successfully, and revenue dropped due to the falling economy. The president was handed a collapsing economy and saved it.
The issue is the other party that keeps getting handed great economies since the late 90s and fails to do anything but make the problem worse.
To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
If Democrats win they are going to be blamed for being the "bad guys" for increasing taxes, controlling inflation and trying to get the economy back to shape.
For Republicans to burn down the economy during their mandates has paid of as the next government needs to focus on firefighting instead of doing the good that it could have been done.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
The last small-government Republican was Herbert Hoover. Reagan paid lip service to the concept, but he maintained high spending levels to keep former FDR democrats in the fold.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
Why would you ever think they’d be interested in doing any of that? A non-insignificant fraction of the gop wants to collapse the US entirely.
Debt per GDP/size of US economy is more useful. Debt/GDP has the 2008 jump as the Obama Admin tried to (but not nearly enough) stimulate out of the housing crisis. Debt/GDP looks flat until 2020.
2008 and 2020 jumps make sense in the setting the 2008 crisis and COVID which was effectively a recession assuming you believe in Keynesian economics.
Paying for US debt if you are the US is cheap when interest rates low. Trump/Bessent/Elon have been doing everything they can to drive up inflation, so now interest rates are necessarily going higher...
So what should those in the US and overseas do? Buy things and hoard before they get expensive? Buy gold? Something else? Taking a loan might be bad.
Correct me if I'm wrong but isn't there an inherent vicious cycle in that if the price gets too high our ability to pay it off becomes uncertain, at which point the premium for the risk would shoot up dramatically (and so on)?
USA won't ever default so you will get money back at maturity date. But I will largely question the inflation at that point. If inflation goes significantly higher than the rate you are being paid it becomes self-destructive loop.
That's correct. The root cause is that the government is making promises it can't keep, which make those promises worthless. The correction is usually that that government falls, and a new government starts making smaller, more achievable promises that restores trust in it.
Unfortunately, divestment of the US dollar is like lighting a match in a house looking for the gas leak.
Nope. Government debt has existed for a long time in the US. There is no plan to pay it off ever. Headlines will scream that the debt is too high for a long time to come.
Government debt yields on the short end are set by the Fed. Long yields are "set by the market" based on inflation fears, and mostly guessing what the Fed will set rates to over the next 10+ years.
Japan had way higher Debt-to-GDP for decades, yet the long term yields were low. Why? The central bank said "we anticipate yields to be set low for a long time" and did so for a long time. Recently they said they are going to "respond to inflation" like all other central banks and suprise, surprise the long end is creeping up. "Bond vigilantes" came into existence as soon as the central bank changed their policy.
The inflation fears are part of the vicious cycle. The typical mechanism by which a government would get rid of inconvenient amounts of debt denominated in their own currency is to monetize it and inflate it away. Bond purchasers know about this, and build inflation expectations into the interest rates they are willing to accept. This increases the amount of interest the government has to pay, which makes its financial position even more precarious, which builds in future expectations of either a default or a soft-default through inflation, which pumps interest rates even more.
It is possible to break this cycle, but it requires getting spending under control. As long as you operate in deficit, it requires finding private capital to finance future operations of the government. That private capital will require interest commensurate with the expected future devaluation of its principal to lend; otherwise they are just suckers. If you can bring spending into balance then you can hike rates and bring inflation under control and you'll be somewhat insulated from what bond purchasers are willing to accept, but if you can't then increases in rates just increase government spending as well.
Japan operated at extremely high levels of debt-to-GDP because their deflationary trap turned all major Japanese corporations into large net savers. Why would you hold debt when you have to pay it back in more valuable yen in the future? That created a very large oversupply of private capital, which crowded into government bonds as the spender of last resort.
The US government only borrows in the us dollars. It's not possible that they won't be able to pay it off.
The yield increase is basically the market pricing in the interest rate increases since they're expected now.
It is like watching on repeat the EU imploding from the debt crisis in 2009.
The only difference is that the US can inflate away their debts and the world will keep buying the usd.
The EU had to impose strict austerity, and essentially all the banks stopped providing any liquidity to businesses. Entrepreneurship and research just died overnight.
The EU didn't have to impose strict austerity. It was just the policy they went with and it ended up being worse than what the US did in the financial crisis.
https://archive.today/xgNhC
Did anybody think Grumpism was going to go somewhere other than here? It's merely been the spite choice the whole time - a way for economic losers to stick their thumbs in the eyes of people who had been mildly successful. Pure crab bucket mentality, now with $40T more in the hole - and still no actual solutions to the problems we are facing. But that certainly doesn't stop those problems from being brought up to rally support for the next con job. And the people at the top certainly aren't suffering! We have basically squandered the advantages our grandparents sacrificed for, to satisfy some kind of collective ego based around American exceptionalism and ignorant fundamentalism.
(edit: I guess a lot of people still aren't ready to hear it)
Obama sped up the rate of growth of the debt around 2010 and the percentage growth annually has been consistent since then (i.e. linear on the log scale): https://usafacts.org/answers/how-much-debt-does-the-us-have/.... Not even counting the jumps in response to the 2008 recession and COVID.
Let's see, the biggest increases of debts under Democrats have been during the biggest financial crisis since the Great Depression And the biggest worldwide pandemic in a century.
On the other hand, the biggest debt increases under Republican presidents have been to A) Start and fight multi trillion dollar wars in Iraq and Afghanistan and B) To cut taxes for billionaires and corporations.
And probably C) start a multi trillion dollar war in Iran.
With a $1.5 trillion ~bribe~ rebate to keep them in power.
Is this serious?
It's because the country went through the great recession and was attempting to pull out and avoid financial collapse.
Look at Revenue per year as a % of GDP and look at Expenses per year as a % of GDP. It's pretty clear.
Expenses went up avoiding a depression which was done successfully, and revenue dropped due to the falling economy. The president was handed a collapsing economy and saved it.
The issue is the other party that keeps getting handed great economies since the late 90s and fails to do anything but make the problem worse.
To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
If Democrats win they are going to be blamed for being the "bad guys" for increasing taxes, controlling inflation and trying to get the economy back to shape.
For Republicans to burn down the economy during their mandates has paid of as the next government needs to focus on firefighting instead of doing the good that it could have been done.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
The last small-government Republican was Herbert Hoover. Reagan paid lip service to the concept, but he maintained high spending levels to keep former FDR democrats in the fold.
> To some extend I hope that the Republican party wins the next election. They should be the ones fixing the economy, raising taxes, and doing something responsible for once.
Why would you ever think they’d be interested in doing any of that? A non-insignificant fraction of the gop wants to collapse the US entirely.
They'll just say economy was doomed because of Biden anyway, and that it's not their fault.
Yes bailing out the banks was great for the common man. This is sarcasm
https://fred.stlouisfed.org/series/gfdegdq188s
Debt per GDP/size of US economy is more useful. Debt/GDP has the 2008 jump as the Obama Admin tried to (but not nearly enough) stimulate out of the housing crisis. Debt/GDP looks flat until 2020.
2008 and 2020 jumps make sense in the setting the 2008 crisis and COVID which was effectively a recession assuming you believe in Keynesian economics.
Paying for US debt if you are the US is cheap when interest rates low. Trump/Bessent/Elon have been doing everything they can to drive up inflation, so now interest rates are necessarily going higher...
> Debt/GDP has the 2008 jump as the Obama Admin tried to
Remember that 2008 was still Bush, Obama didn't become president until 2009.
ah true, bipartisan stimulus then!