[vkou]

The US government as a whole, if you combine Local, State, and Federal spending, is not running a huge deficit. It is, in fact, paying its debts down.

You can quip about how sustainable this state of affairs is, but of the three, only federal debt is growing... And, if you look at inflation-adjusted metrics, that growth is very minor.

[hn_throwaway_99]

> And, if you look at inflation-adjusted metrics, that growth is very minor.

Baloney. Take a look at a graph of US federal deficit as a percentage of GDP. In 2018 the deficit was 3.8% of GDP, in 2019 it's expected to be 5.1%. If those were the values during a recession, that would be understandable, but during what is supposed to be a "great, amazing" economy, those structurally high values is what scares people.

[vkou]

I'm not disagreeing that the US is going into too much debt in the current economic climate. The current administration is starving future ones of the tools that can be used to deal with a recession.

However, you'll notice that the debt/gdp ratio has been stable for the past 5 years, or so.

[PKop]

With near record low interest rates, after a decade long economic growth cycle, we are back to running $ trillion and growing deficits each year, at the peak of the cycle. In a few years, assuming current rates and no recession, interest on the debt will exceed military spending [0]. Imagine what happens when we do have a recession and much bigger deficits.

Mandatory spending items will at some point soon crowd out all other spending. This comes at a time when, over the last 4 or 5 years, foreign creditors have stopped financing our deficit by buying ever growing quantities of US treasuries. So, for the first time in decades, US domestic private sector will be tasked with financing their own spending.

It is about to matter very soon, as baby boomers retire en masse. The endless talk of government spending leading to inflation didn't manifest (except in asset prices) because foreigners recycled their surpluses into treasuries. That this has mostly stopped will change the dynamic. The Fed will need to monetize the debt (resume QE) because there is simply too much treasury issuance, and growing, to be funded by US domestic sector alone, either in taxes or buying bonds.

If you look up last couple years US debt issuance has been bought up mostly by private sector, while central banks are buying gold. Recipe for it being the bond bull market peak and that debt being paid back in nominal but lower real terms = inflation. The only way to retire the massive and growing federal debt. Call it MMT or whatever you want, but it's coming. The loser will be the $.

[0] https://nationalinterest.org/blog/buzz/2025-us-interest-paym...

[ianai]

MMT disagrees with the entire premise of your comment. The “why is this happening” podcast has an excellent explanation.

[AnimalMuppet]

Perhaps it does. But since the majority of us here consider MMT to be insanity, your comment carries very little weight. (And some random podcast isn't very persuasive, either.)

To supply some evidence for the other side: Even Krugman considers MMT to be insane, and he's the economist who should be most favorable to it (since he's the most borrow-and-spend, deficits-don't-matter of any economist I am familiar with).

[PKop]

I know they do. The IMF does not. Read the playbook that the Fed / Treasury are likely running [0]

Consists of:

1: Regulate the bond market to be very illiquid

2: Touch off deflation scare to herd the masses into USTs & sovereigns while CBs buy gold

3: Implement aggressive version of MMT

4: Watch bond bulls burn in real terms after you've lit their "Hotel California" on fire (MMT, monetize debt, devalue $)

MMT depends on recognizing when inflation runs hot and adjusting their methods. I doubt this will be as easy as they seem to assume. And moreover, they underestimate the effect on the currency. They do reference the carrying capacity of debt within the economy, but once that cat is out of the bag, faith in the $ will decline, and the political will to adjust spending and debt will not be there. But on balance, some form of this is probably inevitable. I just think $ and US Treasury holders won't be happy with the outcome.

These aren't my own ideas, I'll give a reference to financial analyst Luke Gromen (one of many) articulating this thesis [1] that I've come to agree with.

I think the only question is what is an actionable investment thesis. I say $ down, gold, Bitcoin up in 2, 5, 10 years. The rise in MMT as serious policy proposal is not an accident. It will give legitimacy to what would have been necessary anyways, and which was likely impossible politically to avoid given sluggish labor and wage growth after decades of equity bull run and growing inequality. Dollar is too strong, preventing domestic manufacturing from being viable and boosting capital surplus / trade deficit. Politically I think this has to change.

[0] https://www.imf.org/external/pubs/ft/wp/2015/wp1507.pdf

[1] https://twitter.com/LukeGromen

[zopa]

> This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy.

From the first page of the paper you cite.

[cat199]

> It will give legitimacy to what would have been necessary anyways, and which was likely impossible politically to avoid given sluggish labor and wage growth after decades of equity bull run and growing inequality.

what would have been necessary anyway? I'm reading currency devaluation?

[PKop]

Yes.

[threeseed]

When people refer to US government they mean Federal.

And the concern is that the Federal government has structurally degraded its budget such that it is running larger and larger deficits.

And unfortunately when you give away money as tax cuts it's often politically impossible to reverse it.

[18pfsmt]

If one looks up the etymology of the word appropriate:

https://en.wiktionary.org/wiki/appropriate

"From Middle English appropriaten, borrowed from Latin appropriatus, past participle of approprio (“to make one's own”), from ad (“to”) + proprio (“to make one's own”), from proprius (“one's own, private”)."

So when you write, "when you give away money as tax cuts" it gives the impression that allowing people to keep more of their earnings is giving them things, it comes across as Orwellian. Legislation was passed, and signed into law. In the U.S., following the law is not giving people things, but income taxes are giving the federal government things (sometimes states too).

[pessimizer]

It's the balance of payments that's the problem, not government deficits. All lowering the deficit does when there's a negative balance of payments is increase private debt.

And if there are recession fears, the last thing you want to do is raise taxes. The problem is where the tax cuts are, not that they are tax cuts; you want to cut taxes on people who spend a high proportion of their income on consumption, not wealthy people who will sit on it.

As for the political impossibility of reversing tax cuts, in the case of cuts for the rich, this is not at all due to public pressure, but private pressure, and in that the impossibility of reversing tax cuts is no different from the impossibility of not enacting them. When politicians are more obligated to voters than donors, taxes on wealthy people will rise. There is zero pressure from voters to maintain tax cuts on wealthy people, other than general support for an entire package of tax cuts if very visible middle class subsidy is mixed in with them.

[18pfsmt]

In the U.S., the bottom 47% pays zero income taxes. The tax rates on the middle class are far lower than in Europe. Look at the actual tax brackets (i.e. the data).

As for the idea that the latest tax reform only helped the wealthy:

"The analysis Doggett referenced indeed indicates benefits will accrue to the very wealthy over time. Yet in the first year of changes, the top 1 percent are projected to draw a little over half the tax savings. The threshold of 80 percent going to the top 1 percent is projected for the tenth year. Also, Doggett’s stated figure for incomes is too low; it ties to the first year of implementation."

https://www.politifact.com/texas/statements/2017/oct/20/lloy...

[ianai]

And unfortunately anytime politicians run on raising taxes it’s spun as a tax on the majority of people, whether true or not. But I disagree with using taxes to fund government. Money comes from the government as does the ownership of all property. Taxes should instead be used to disincentive bad behavior.

[whatshisface]

That's interesting, where can I see a chart of that?

[acomjean]

Local and State in the US can't run deficits. They can put out bonds to fund projects but thats it. Its only the US federal government that can run deficits.

[interlocutor]

>> They can put out bonds

Isn't that what the federal govt does too? The US sells treasury bonds and China buys them.

https://www.investopedia.com/articles/investing/040115/reaso...

[empath75]

Yeah the fundamental difference is that states can't print money to pay them the way the federal government can.

[adestefan]

The majority of US debt is special bonds owned by the Social Security Trust Fund. Only about 30% of bonds are owned by foreign entities. And the top foreign holder fluctuates between China and Japan.