Why is National Debt Bad?

[AndreusMaximus]

So, I do sort of have my own thoughts on the answer to this question, but I've kind of just realized that when pressed, I can't really give a solid answer and "show my work" as @JettaKnight put it.

So the question is, given that the USA has already borrowed ridiculous amounts that we'll never pay back in a single lifetime, and everybody keeps lending to us with no apparent expectation of getting their money back, why not just keep borrowing forever? Does it actually hurt us at all?

The below came up in another thread, and not wanting to thread jack that particular one any more than it already has been, I thought I'd start a new thread in hopes of getting more insight from others.

Genuine question here, "how did that $2-3T hurt us?" Please show your work.

We haven't had to pay it back, we still borrow money with seemingly reckless abandonment, so did it hurt? And what did we gain economically by crushing the USSR? I think one could argue that a big upfront expenditure potentially saved a portion of that in the long run.

You know, I honestly don't know the answers to any of that.

I seems to me that it's always been a conservative value to balance the budget and reduce national debt. But have we actually been wrong in that all along? Can we really just keep borrowing endlessly with no repercussions? So far the answer seems to have been yes, I have to admit.

Who did we actually borrow the money from under Reagan? I don't know if that specific $2-3T we borrowed under Reagan hurt us so much per se as the precedent of racking up ungodly amounts of debt that we'd never be able to pay off in a single generation. That's led us to the current situation, where we owe primarily to one of our biggest rivals; China. If China, tomorrow, said "okay, no more borrowing, and pay back what you owe us," would the USA just say "lol, no" and business would continue as usual with no consequences? I have to imagine not. If our creditors aren't gaining some kind of power over us by loaning us money, than why are they lending to us? Does the USA really just project that much economic power that other countries are willing to make free donations to us in the form of "debt" that everyone knows they'll never get back, all for the sake of hoping to benefit by playing nice with us? Or is it just a delicate game of balance, where we don't think China would actually stop lending because they don't want to lose us as the primary customer for all their manufactured stuff?

I genuinely don't know. Maybe we should start another thread about this; I'd love to hear more answers.

 

[cg21]

So, I do sort of have my own thoughts on the answer to this question, but I've kind of just realized that when pressed, I can't really give a solid answer and "show my work" as @JettaKnight put it.

So the question is, given that the USA has already borrowed ridiculous amounts that we'll never pay back in a single lifetime, and everybody keeps lending to us with no apparent expectation of getting their money back, why not just keep borrowing forever? Does it actually hurt us at all?

The below came up in another thread, and not wanting to thread jack that particular one any more than it already has been, I thought I'd start a new thread in hopes of getting more insight from others.


You know, I honestly don't know the answers to any of that.

I seems to me that it's always been a conservative value to balance the budget and reduce national debt. But have we actually been wrong in that all along? Can we really just keep borrowing endlessly with no repercussions? So far the answer seems to have been yes, I have to admit.

Who did we actually borrow the money from under Reagan? I don't know if that specific $2-3T we borrowed under Reagan hurt us so much per se as the precedent of racking up ungodly amounts of debt that we'd never be able to pay off in a single generation. That's led us to the current situation, where we owe primarily to one of our biggest rivals; China. If China, tomorrow, said "okay, no more borrowing, and pay back what you owe us," would the USA just say "lol, no" and business would continue as usual with no consequences? I have to imagine not. If our creditors aren't gaining some kind of power over us by loaning us money, than why are they lending to us? Does the USA really just project that much economic power that other countries are willing to make free donations to us in the form of "debt" that everyone knows they'll never get back, all for the sake of hoping to benefit by playing nice with us? Or is it just a delicate game of balance, where we don't think China would actually stop lending because they don't want to lose us as the primary customer for all their manufactured stuff?

I genuinely don't know. Maybe we should start another thread about this; I'd love to hear more answers.

We have came a long way since throwing tea into the harbor….. they will continue the frivolous spending under the guise of progress and protection. (Do we really need a billion dollar study on how pigeons feel after snorting c*caine?) they hide their slush funds in these HUGE mislabeled bills and pass the spending onto us.

Eventually the chickens will come home to roost in regards to our debt, and they won’t be able to tax their way out of it. And one of the next generations will be stuck with the bill.

 

[AndreusMaximus]

We have came a long way since throwing tea into the harbor….. they will continue the frivolous spending under the guise of progress and protection. (Do we really need a billion dollar study on how pigeons feel after snorting c*caine?) they hide their slush funds in these HUGE mislabeled bills and pass the spending onto us.

Eventually the chickens will come home to roost in regards to our debt, and they won’t be able to tax their way out of it. And one of the next generations will be stuck with the bill.

I understand the general concept; I'm more curious about the specifics. What happens when China decides they're done with this silly game? Do they have any way of applying pressure to pay them back other than going to war with us? What do we have to pay them back in? Can the fed just say, "Okay, here's a 20 trillion dollar bill we printed specially for you; now we're debt free, lol."?

 

[spencer rifle]

More likely is a complete lack of faith in the US dollar. It is fiat currency after all, and only has value if everyone believes it does. Once that faith is gone, there goes the petrodollar (successor to the gold-based dollar of before 1971). The world has been given many reasons to lose faith, including insurmountable debt. At the current rate, there is simply no way to ever pay the debt off, and no intention either, apparently. Being on the downhill side of the slide is fun as long as it lasts - inflating or debasing currency always works for a while - but hitting the bottom is somewhat less fun. Just ask Weimar Germany, Argentina, Venezuela, etc.

"Full faith and credit of the US Government" just doesn't mean what it used to.

The Chinese might do what creditors have done throughout time - claim physical assets to salvage their investment. To think they will care how many of their own people have to die to make it happen is a serious error.

 

[JettaKnight]

I love this! I'm stuck at work, but looking forward to reading this later.

 

[manifest destiny]

Wait until the USD isn't the world's reserve currency. Then we can talk about why national debt matters. It's the only reason we've been able to "print" money. I suspect that many politicians, countries and other debt holders have continued the game of over-spend, borrow, over-spend because they collectively could. It's like musical chairs, lotsa fun until the music stops and suddenly the game changes. The collapse of the USD was my first bogyman that turned me towards the idea of preparing. The best I can tell, the collapse is happening now. Maybe, maybe, the U.S. finds reprieve when the world transitions to CBDC. The snakes that have controlled currency, thus controlling world trade, will be poised to capitalize on all the chaos and uncertainty that will be associated with the conversion from paper-fiat to digital-fiat. 'Hey, look, we split one dollar into 10,000cbdc's." Of course a loaf of bread will then cost 25,000cbdc's... It's likely the U.S. will still have a place at the world economic table after the dollar collapses, but that table will have been manufactured in another country and our chair will not be located at the head of the table. National debt is bad because eventually the note will be called. And the lender will extract what they can. We can debate the when, how and what way, but ain't nothin' free.

 

[defaultdotxbe]

National debt, in and of itself, is not bad. The same way debt in your personal finances isn't necessarily bad.

What's bad is when your debt grows faster than your income, that's unsustainable because eventually your required payments will exceed your ability to pay them.

Debt that grows at the same rate (or slower) than income (or tax revenue in the case of national debt) is sustainable and would not be a problem, but that is not what we are seeing today.

 

[jamil]

 

[Ingomike]

Warning! This usually means a 1700 word dissertation is on its way…

 

[asevans]

It makes all of us debt slaves. The government wants your money the pay off the debt it owes.
Or it can print more money out of nothing and devalue your money to pay off the debt it owes. Hidden tax.

 

[jwamplerusa]

At work, so you get something that should take a semester dissertation in more like10 minutes.

As has been said above the underpinning risks will not be fully realized until the US dollar is no longer the world's reserve currency. And more importantly is no longer the currency in which large amounts of international goods, especially petroleum, are priced.

As with large corporate bankruptcies it is truly amazing how long the plates can be kept spinning as various entities attempt to not be the one left standing When the music stops.

To understand the basic monetary concepts I suggest reading The Case for Gold. It is a hard read, and you have to focus on the non-political elements regarding historical monetary practices, and modern monetary theory and manipulation. The book however holds a great deal of value to understand and explain our current risk levels.

My fear has been living long enough for the US to enter a hyperinflationary period. The growth in the M1 money supply over the last couple of decades has increased my concern. If it were not for the US dollar remaining both the world reserve currency and underpinning petroleum trading I believe we would already be there. Break either one of those and especially both and you probably will not want to continue living. If you doubt this read a little bit about the Weimar Republic or other develop societies that enter extended hyperinflationary periods.

The current risk level continues to rise not just due to the added debt. The real danger is the attacks upon the Petro dollar dominance and the associated weakening of the US dollar as the reserve currency of record. A good way to destroy this country is to eliminate one or both of those unique elements to our currency and position in the world.

I and everyone else really want to know what will be the straw that breaks the camel's back, and causes the "debt" to become unsustainable and unmanageable.

The sad and terrifying reality is I don't know, and neither does anyone else. It will happen but it is unlikely anyone will actually predict it. There will be many who benefit but vanishingly few who will be lucky enough to call the default.

Largely it will come down to trust and confidence in the US dollar and US government. As we can all see today there is a decreasing trust and confidence in both. We do not however live in a vacuum, both the trust and confidence in our nation and currency is relative to all other nations and economies in the world. The collapse well likely occur when another region or Nation begin a sustained rise in the trust and confidence of their currency as ours continues to decline.

 

[GodFearinGunTotin]

 

[breakingcontact]

It is only bad when taken into context against other metrics.

Where we are at now is untenable.

 

[rhamersley]

Warning! This usually means a 1700 word dissertation is on its way…

I'll put in my dibs on TL;DR right now...

 

[jamil]

Warning! This usually means a 1700 word dissertation is on its way…

Funny story. It wasn't 1700 words. Maybe three sizeable paragraphs. But I posted in the wrong thread. It's over in the studen loan thread. Meant to post it here. Too many tabs open.

 

[defaultdotxbe]

Fiscal responsibility doesn't mean zero debt. Especially if the debt is transitory. Having a fiscal policy that does not treat debt as transitory is a problem. Having deficit spending just keeps accruing more debt. And the ********ers that keep saying that debt doesn't matter, and deficits don't matter, are full of ****. They used to say back in the Reagan years and beyond, hey, it's not a big deal if the debt is x% of GDP.

And that's nonsense because permanent deficit spending means the debt keeps increasing. The debt-is-good ********ers don't even bother excusing it with GDP anymore, because the debt is now higher than GDP by a good bit. GDP, ~$23T. Debt, $31T. Now, rather than burying concern with economic jargon, they just say you're a bigot for mentioning it.

Continued deficit spending is not sustainable. But if you have manageable transitory debt there's not much impact other than the interest payments, and maybe some inflation. And that was the impact with Reagan. Less tangible impact was Reagan's spending, and especially his justification of it, was that his administration was the first to project a "meh" attitude openly. It marked the start of a sharp increase in deficit spending and the debt has risen steadily.

ETA: I really meant to post this in the debt thread. But I guess it applies here too.

 

[jamil]

Thanks.

 

[Leadeye]

A long time ago I asked my grandfather about this and he told me that if I wrote out an IOU to myself for $100K and added it to my financial statement, then presented that to a bank to get a loan, they would laugh me out of the bank. In this instance he said the government is the bank, but in theory, it's the federal reserve.

Deficit spending on behalf of leadership has been around a long time. Coins were reduced in size or had less expensive metal added, currencies were called in and then replaced, lots of various tricks through history. At the end of the day though what went broke was the money, often resulting in empires, kingdoms, and regimes collapsing into revolutions of one sort or another.

Inflation always gets people spending now, because people see that buying today means less money than buying tomorrow. This is what makes it popular with leadership looking for a quick way to gin up the economy. Production increases because of generated shortages from demand.

Leadership can create more money, or borrow it or both, either way you get more money chasing the same amount of goods/property which makes things more expensive. When inflation gets high, lenders stop lending when they think you can't repay. This happened to NYC in the 70s when no one would buy any more of their bonds regardless of the interest rate offered. They went to the federal government for a "backstop" but who "backstops" the US federal government? The federal reserve can just create more, but that only makes the inflation worse. Again, bad ending.

I've seen a number of opinions on this board about the debt, but they all have one thing in common, the faith, or lack of it, in the dollar is the deciding factor.

 

[Twangbanger]

It's the Goldman Sachs philosophy of life:

Human lifespans are short.

Consequences are long in coming.

You can be retired in Barbados before it happens.

Ergo, effit.

 

[manifest destiny]

Behold! The Trillion Dollar Coin !
(cue glitter rainbows and non-binary unicorns)
On a serious note, we're broke. Fifth graders from 20yrs ago can look at our balance sheet and see we're tapped out. Money nada, none. Our debt is so obscenely greater than our GDP, it stands to reason we are, in old-fashioned mathematical terms, broke. The world knows it. The real question is how does it all go down? If we default, most creditors also default, thus the industrial world is bankrupt. Maybe it's that knowledge that allows people to continue to make believe everything is A-OK. Isn't much we can do individually. There not a chance in hell the elected pols will make a move towards correction. What's that leave, war?