[mindvirus]

I've talked about this before, but the US debt feels to me mostly like an accounting mechanism.

What I mean is that the US government is mostly in debt to itself, in money it can print. For example, the Social Security Trust Fund buys US bonds to secure its cashflows.

Anyway, I really don't understand if and why the US National Debt matters that much (I'm not saying it doesn't, I just don't get it)

[raincole]

> why the US National Debt matters that much

You just answered your own question.

> in money it can print.

US National Debt is effectively a number indicating how much money the US (is going to) print.

Being the strongest country in the world doesn't mean you can print an arbitrary amount of money. Well you technically can, but everyone (US citizens included) pays the price. And other countries won't play along forever if it means they're going to pay more than what they got from a USD-centric international trading system.

[Ekaros]

And I believe this is part of the reason why "BRICS" is doing what they are doing. Eventually US Nation Debt is unsustainable and thus USD will be unsustainable. And they do not want to be ones holding the bag. So slow movement to alternative solutions to them.

[MuffinFlavored]

> BRICS

> BRICS is a grouping of Brazil, Russia, India, China, and South Africa formed by the 2010 addition of South Africa to the predecessor BRIC.

[adventured]

Because as it expands it becomes a heat sink that consumes an ever greater share of the US economy and will gradually drive economic dynamism rapidly toward zero.

It's the Japan scenario. Take a look at their budget and or spending, and the share going to interest (debt maintenance broadly), over the past 20 years.

The result? US GDP per capita: $80,000. Japan's GDP per capita: $35,000. In the year 2000 Japan's figure was higher than the US figure.

Now, the US will be able to kick the can for quite a while yet, especially if it retains the global reserve currency and can distribute economic damage (debasement) more globally.

The tape to watch is the average rate of interest on the debt and the share of spending going to maintain the debt. Imploding demographics and entitlement growth are gasoline on the fire. For a while you can just keep trying to push the average interest rate lower, so the interest costs don't get out of control as the total sum soars by the decade; that eventually begins to fail, as it did in Japan. You can only drive the interest rate on the debt pile so low and then your last game is to begin aggressively debasing the standard of living of the people, through currency debasement, to reduce the debt problem. And it's thus Japan's standard of living has been hammered over the past two decades. South Korea will shortly (within a few years) surpass Japan in GDP per capita.

Tens of trillions of dollars locked up yielding 0.5% or 1% or 2% per year (now or in the future), is the heat sink. That capital should otherwise be acting to spur economic growth, innovation, invention, economic well-being, social welfare, infrastructure, and so on. Instead it's being locked away yielding zip, in ever greater sums, at ever lower average interest rates. It's an economic heat death process and it will tend to keep going until it eats everything it can (because no political entities dare step in front of it on their watch).

[RC_ITR]

I mean that's one interpretation.

Japan's problem was that it's spending did very little to encourage consumption [1]. It was mostly dedicated to high-cost infrastructure projects and other boondoggles that simply did not lead to more economic activity. [2]

That intrinsic lack of demand led to insanely low inflation for a long time, so that Yen-denominated debt consistently grows as a share of their Yen-denominated GDP. [2][3]

In the US, we've grown debt a considerable amount, but the only time we really increase it as a % of GDP is during recession responses (since our 'normal time' debt usually goes to things like private contractors who grow like stock-market businesses and create durable GDP). [4]

Anyway, long story short, the US debt is it's own thing and it's very hard to compare to Japan, since Japan went about it in such a different way.

[1] hhttps://data.worldbank.org/indicator/NE.CON.PRVT.PP.CD?locat... [2] https://www.nytimes.com/2009/02/06/world/asia/06japan.html [3] https://fred.stlouisfed.org/series/FPCPITOTLZGJPN [4]https://fred.stlouisfed.org/graph/?g=18ZDt

[SubiculumCode]

But this only explains the current system. As a fiat currency, money could be created without the debt bond mechanism at all. In that simplifed scenario, its all about inflation.

[fuoqi]

>It's the Japan scenario

Arguably, it's not. As I mentioned in my other comment [1], Japan is a huge creditor nation, while the US is the largest debtor one.

[1]: https://news.ycombinator.com/item?id=37563335#37564051

[slantedview]

Per-capita GDP is a good measure of how much wealth a country is producing, but it says nothing about how that wealth is distributed. While Japan's per capita GDP is lower, it's a vastly more equal society than the US, where a large portion of that wealth is captured by a small % of people. The unsustainability of this, long term, is part of the overall debt story.

[Manuel_D]

Distribution of wealth has a lot to do with inequality and related social unrest, but not really that relevant to financial sustainability. If anything, the fact that so much wealth is concentrated at the top means the US could reduce the debt a lot by only taxing the richest 20-10% of the population, and not raising taxes at all on the rest of the populace.

[fuoqi]

It means that the US government pulls more and more of productive output of the economy and puts it into use under its direction. And governments are notoriously bad with effective allocation of resources.

The government (in a non-command economy) can increase its control over productive capability of the economy in 3 ways:

- Raise taxes (including profits from government-run enterprises). Explicit and honest solution. Understandably, disliked by many and hard to pass politically.

- Promise to give more some time in the future. It's fine when tax receipts grow with the same rate or higher as the debt, but usually the government spends irresponsibly, meaning that more and more of its budget goes into servicing its debt. In the end, you get into a debt spiral.

- Make money printer go brrr. It can take different forms, QE and yield curve control are examples of it. Eventually (there are ways to delay it, and they can work for decades), it causes runaway inflation, which seriously corrodes economic fabric.

[akira2501]

> I've talked about this before, but the US debt feels to me mostly like an accounting mechanism.

That's because that is precisely what it is. Here's the ledger[0].

> What I mean is that the US government is mostly in debt to itself, in money it can print.

The debt is already purchased. The government is in debt to securities holders. Several government agencies have purchased these instruments, but they only represent about 25% of the total holdings.

> Anyway, I really don't understand if and why the US National Debt matters that much (I'm not saying it doesn't, I just don't get it)

When there's a large differential, it means some part of your government accounting is not balanced. There can be good reasons for this, but given the size, continual growth, and no apparent strategy it remains concerning.

[0]: https://fiscaldata.treasury.gov/datasets/monthly-statement-p...

[Manuel_D]

> What I mean is that the US government is mostly in debt to itself, in money it can print.

Because if it did just print money to service the debt, the value of the dollar would drop due to more USD in circulation. Remember when a load of money was added to circulation during COVID, and then a year later inflation reached the highest levels in half a century [1], until the supply started to drop? That was $2.2 trillion USD. Imagine the inflation $33 trillion would bring.

1. https://tradingeconomics.com/united-states/money-supply-m2

https://i.imgur.com/Gpht5iv.png screen grab since there's no way to link to the 25-year duration.

[lr4444lr]

Because it can't borrow as easily of its credit rating is weakened by carrying a high debt load. You might as well ask why it issues debt at all if it can just print. Why bother having a central bank if we could just have a treasury?

[throw0101b]

> I've talked about this before, but the US debt feels to me mostly like an accounting mechanism.

It is and a lot of people forget that it's a ledger: every debit/liability that is part of the US debt is a credit on someone else's account. And about two-third of the US debt is held domestically:

* https://www.pgpf.org/blog/2023/05/the-federal-government-has...

[Rury]

It matters for the same reason money matters. It's a unit of measure of fairness, a promise to return a favor. Defaulting on a debt, is like eating at a restaurant and skipping out on paying the bill. Inflating away the debt, is like eating at a restaurant, and saying you'll pay for the bill (+interest) the next time you come in, and then doing it again every time you come in. Clearly in both cases, it is unfair for someone (ie the restaurant staff).

Anyhow, the same principle holds for the national debt, just that the repercussions are much more complicated. Certainly if the government defaults on its debts, investors in that debt would be at a loss. And certainly, if the government inflates its debts, creditors and the unwealthy (which, keep in mind, is also mostly comprised of the young) are at a loss due to a debased currency.

But, in either case, if inequality doesn't matter to you, then yes it doesn't matter all. I mean, on one hand, there's no reason we couldn't survive as a society with slavery, we did so in the past. But, also keep in mind, the scale of things. Trillions sounds like a lot, but there are also billions of people out there. It's also possible for the economy (ie productivity) to grow, negating any "printing away of debts".

[throw_nbvc1234]

Doesn't the government have to pay interest on the debt [1]? If it's "to itself" then that wouldn't be the case. So even if it can print the money to pay off the debt (or the interest) they could be forced to at an inopportune time. Such as when inflation is already elevated.

Increasing debt doesn't seem to be a guaranteed bad thing but seems to be a risk that's being taken. Other events such as defaults, wars, pandemics, etc... could push things over the edge.

[1] https://www.cnn.com/2022/11/01/economy/inflation-fed-debt-mi...

[avsteele]

Where are you getting these numbers?

Debt held by the US gov as a whole is only about a quarter of the total

https://www.marketwatch.com/story/heres-who-owns-a-record-21...

The amount of interest it must pay is proportional to the debt, but can also rise quickly with interest rates a a lot of the debt is rolled over on fairly short timescales (<1 yr IIRC) Debt service is going to start crowding out other spending in short order.

If the US gov monetizes the debt it will mean it has to pay more interest on what remains and what is issued in the future.

So this matters a lot. The situation is untenable.

[smithza]

  “With more than $10 trillion of interest costs over the next decade, this compounding fiscal cycle will only continue to do damage to our kids and grandkids.”

Quote from the article. Also from the article:

  But the debt is on track to top $50 trillion by the end of the decade...

The taxpayer's dollar is increasingly being spent on things that don't further any policies whether their desired or no. Simply paying off debt that will mount and mount with no end in sight.

[bryanlarsen]

Your graph shows 38% held by the US gov & fed.

And those are old pre-pandemic numbers. The amount the Fed holds has gone up a lot (aka quantitative easing). So the number is even closer to half now.

[metaphor]

> So the number is even closer to half now.

Nope[1]. Local maxima at 42.5% circa 21Q4, but currently 38.3% and trending down since.

[1] https://fred.stlouisfed.org/graph/?g=18ZDm

[avsteele]

Not at present (intergovernmental is 22% as of Jan 2023)

https://www.thebalancemoney.com/who-owns-the-u-s-national-de...

But even if you were right, it wouldn't matter.

Fed debt is effectively monetized or will be sold back to the public later. It doesn't change anything. At best you can make a hand waving claim about it meaning we can get away with a bit lower interest rates while monetizing.

The rest held by the gov is mostly social security. It represents an obligation to make payments to people outside the government (under current law). Not sure why anyone would think this doesn't matter.

We'll learn soon enough whether the US defaults, monetizes, or substantially reduces SS payments first. Suppose tax increases are theoretically possible, but they would need to be substantial to cover the deficits of 25% we run regularly now.

[Geee]

People should be asking where this money comes from, and if it's not ever paid back, who doesn't get paid back?

It's not a problem for you if you can take a loan and you don't need to pay it back. You should get as much debt as possible. It's a problem for the guy who never gets their money back.

In effect, the money is borrowed from those who have savings in cash, in the form of inflation. Deficit spending with created money i.e. inflation is a 'hidden tax' which mostly hurts poor people, who have most of their savings in cash.

[SubiculumCode]

Yes and no. The U.S. can and does make new money to pay debts...basically out of thin air. As a self imposed limit, they agree to pay interest on that debt. Again, yes they can create money to pay that interest, which because of the mechanism they set up, would cost further interest payments.

So what's the real limit?

Inflation.

If you have too many dollars in circulation chasing too few goods, you get inflation.

Therefore, the limit is the the extent to which interest payments on the national debt are sufficient to induce inflation beyong productivity growth.

At least, this is my understanding.

[RC_ITR]

Shhhhh.

We kind of need to keep that lie quiet so the Treasuries market stays liquid (I mean, kind of weird we all know the government openly manipulates the rate of return on the world's most common financial instrument, no?).

It's kind of why we can't min the $1tn coin to fix the debt ceiling. Everyone just agrees it's pretty convenient to ignore the market's weirdness and run with it (because the illusion of a risk free rate is a nice one).

[pclmulqdq]

The coin has other issues regarding the creditworthiness of the US and inflation risk.

Having some level of debt seems to be good, but at this point, servicing the debt is a significant fraction of the US federal budget, so it's getting a bit out of hand.

[RC_ITR]

Not if that debt created meaningful uplift in GDP (i.e. the theoretical pool of $ that the government can tax).

Sure, it's easy to say 2% of GDP is too much, but would we be better off if debt was 60% lower and GDP was 50% lower? Debt-service as a % of GDP would certainly be lower!

[pclmulqdq]

It's easy to say over 100% of GDP is too much when you compare to other nations and historical periods. The US debt is well over 100% of GDP. Below that, you can start to argue about the best level.

The US basically seems to be only getting away with the current huge debt load due to the petrodollar, and other countries are trying to break that hegemony.

[RC_ITR]

Why?

Is it also easy to say the stock market being over 100% of global GDP is too much? That’s only been true for the past few years too.

One is an absolute value thing and another is an annual thing.

There’s absolutely no logical reason for 100% of GDP to be compared to either thing.

[pclmulqdq]

The absolute value of the debt is related to an annual thing: the interest payments on that debt. Those interest payments account for almost 10% of the US federal budget now, and that number will only rise with interest rates.

[AnimalMuppet]

Because when I retire (and people of my age), we're going to want Social Security to pay us. That means that the government has to pay Social Security back, because there's too many of us.

[mempko]

It is accounting! It matters because if the US government decides to reduce that debt, we all get poorer! The government debt is an asset to the private sector.

[dkjaudyeqooe]

The government can't print money, the Federal Reserve can, but it's an independent institution that doesn't take orders from government.

Some people happily conflate the two, usually in service of some conspiracy theory or criticism of 'fiat' money.