[C8]

During this election year we have heard little about the US debt. Obama and Congress just agreed to raise the borrowing limit once again. There seems to be no end to this (although there must be).

In theory, I can see nothing wrong with it- after all, we could just vote for austerity and pay it down or off. But there is a part of me that, in my gut, feels this will never happen. Politically, this thing just seems like a one-way missile that has way to much velocity to change direction. The demand for more entitlements seems baked into democracy like a cancer engulfing cells. I can see no citizen based push to be responsible.

I have some questions that I am hoping folks here will help me with. I appreciate any responses.

1. If we continue at this course- how long before default?

2. Can the US even default or are we "too big to fail" (other nations pay the price)?

3. What would default look like, in terms of daily life?

4. Why isn't anybody (press included) talking about this issue much anymore?

5. Is there a more sinister plan to let this happen? If so, who profits? Or is this just a tragedy of the commons (and the weakness of democracy)?

Thanks

[GHung]

"...after all, we could just vote for austerity and pay it down or off..."

That's the nature of the debt trap. Austerity generally pushes those who need that spending the most out the back of the bus. It doesn't matter much if they deserve whatever spending is going their way. Their response will be largely the same. Once entitled; always entitled.

Either way, the disenfranchised middle class will get hammered. Collapse now and avoid the rush.

[ennui2]

I am still not satisfied with the explanation of who is owed this money to whom. If you follow the debt, it seems like it leads to an actor that itself is holding just as much debt, like China who (according to Monte) owes over 300% GDP. It seems to me that if everyone called in their debts simulataneously that you'd probably just cancel everything out without any clear winners or losers.

[Cog]

The interest on the national debt in 2015 was around $229 billion.

Revenue $2.05 Trillion
Trust Funds like Social Security $1.1 Trillion
Spending $3.8 Trillion
Borrowing $583 billion to meet budget shortfall

Link to site https://www.nationalpriorities.org/budg ... /spending/

Basically the US government will not be in a default situation as long as we can pay the interest on the debt.

[Plantagenet]

Basically the US government will not be in a default situation as long as we can pay the interest on the debt.

Or, more realistically, the US government will not be in default as long as we can borrow more money to pay the interest on the money we already owe.

[Cog]

Basically the US government will not be in a default situation as long as we can pay the interest on the debt.

Or, more realistically, the US government will not be in default as long as we can borrow more money to pay the interest on the money we already owe.

LOL True. Its pretty much a game of musical chairs that has worked for quite some time.

[ralfy]

One can probably also look at overall spending:

http://blogs.reuters.com/rolfe-winkler/ ... s-of-debt/

Also, in light of real wages leveling off as other countries started competing with the U.S. after the 1960s, etc.

Thus, it is highly unlikely that most will want austerity as the opposite was supported for many decades.

[Fishman]

History has always been very harsh to those countries that run up severe debts. As the petrodollar is dropped the ability to continue this ponzi plan eventually collapses

[BrianR]

My understanding is that any government, who has debt in its' own currency, cannot default, because of the ability of that government to issue currency. Where debt distress is occurring throughout the world, it is because debt is owed in a currency which cannot be issued by that particular government. As a side note, Martin Armstrong has stated several times that the 18 trillion of US debt is a drop in the bucket compared with world wide debt.

[Outcast_Searcher]

During this election year we have heard little about the US debt. Obama and Congress just agreed to raise the borrowing limit once again. There seems to be no end to this (although there must be).

In theory, I can see nothing wrong with it- after all, we could just vote for austerity and pay it down or off. But there is a part of me that, in my gut, feels this will never happen. Politically, this thing just seems like a one-way missile that has way to much velocity to change direction. The demand for more entitlements seems baked into democracy like a cancer engulfing cells. I can see no citizen based push to be responsible.

I have some questions that I am hoping folks here will help me with. I appreciate any responses.

1. If we continue at this course- how long before default?

....

Thanks

First you ask great questions.

I've thought about the first question a bit. Part of the problem in answering such a question, is there are lots of assumptions involved in the moving parts of any complex economy. AFAIK many of those assumptions are basically unknowable, given how inexact economics clearly is.

As far as what is an "unpayable" debt level, that amount has lots of contention. A common metric for individuals is 42%. (You can Google "debt to income ratio 42" and get a number of hits discussing this.

For one thing, when I try to look up "unpayable US debt" or "us debt is unpayable", I tend to get a lot of blog sites, high on hyperventilation and alarm and short on meaningful citations/links or math. So opinions by laymen. Not so great a source to rely on.

IMO, it's too difficult to try to predict specifics for this. We MIGHT learn something by looking at other cases, getting an approximation of the limits. (Might and approximation being very important limitations, here).

Some examples:

Puerto Rico recently had their debt situation become untenable, with a roughly $100 billion GDP, and total national debt of roughly $72 billion. The crisis hit when the Puerto Rican governor declared that the debt couldn't all be repaid.

Note that at that point the 70%ish debt to GDP ratio was much lower than much of the EU, the US, and especially Japan. Clearly a government's perceived credibility has a lot to do with how much debt it can extend before it provokes a crisis. Interest rates and the state of the economy (Puerto Rico's has been in an obvious decline, with many residents leaving the island, for years) -- making its situation worse than a more stable economy, such as that in the US) obviously are factors in that credibility.

Argentina, which is a serial defaulter may serve as an example:

https://en.wikipedia.org/wiki/1998%E2%8 ... depression

There is no unambiguous threshold at which public debt becomes unsustainable, and Argentina’s public debt/GDP ratio of 65% in 2001 was still lower than that observed in some European countries. However, given the history of defaults and macroeconomic instability in emerging markets like Argentina, their threshold sustainable public debt may be much lower than in advanced economies.

Meanwhile, looking at countries with lots of public debt compared to current GDP (as of June 2015), there are lots of countries above or near 100%, including supposedly credible countries such as the US.

https://en.wikipedia.org/wiki/List_of_c ... ublic_debt
Obviously, low interest rates in the US make its debt service relatively manageable in the short term.

In the past decade, US payments on its notes and bonds has hovered around $400 billion (real money to most of us ) even as its debt has continued to balloon, thanks to low interest rates.

https://www.treasurydirect.gov/govt/rep ... xpense.htm

How long that can continue is anyone's guess. However, with public debt outstanding more than doubling in the last ten years, and the CBO forecasting large deficits as far as the eye can see -- the signs aren't encouraging, IMO.

https://www.treasurydirect.gov/govt/rep ... histo5.htm

(If you could trust them, they show the deficits "only" averaging roughly $300 billion for a decade or so, for what that's worth). https://www.cbo.gov/publication/50724

Since it's all "projections", given the track record of economists in general (even before Capitol Hill passes new laws) -- frankly, it's all guesswork, IMO.


Wiki seems consistent with the CBO in talking about public debt and kindly also discusses "intragovernmental holdings" in the same place, to give a total recent debt figure:

On January 26, 2016, debt held by the public was $13.62 trillion or about 75% of the previous 12 months of GDP.[10][6][7][8] Intragovernmental holdings stood at $5.34 trillion, giving a combined total gross national debt of $18.96 trillion or about 104% of the previous 12 months of GDP.

https://en.wikipedia.org/wiki/National_ ... ted_States

Of course, further down the page, Wiki points out that lots of US debt is excluded from the national debt, such as Fannie Mae, Freddie Mac, Guaranteed obligations, and Unfunded debt. Not being an accountant, this stuff makes my head spin, but when the US can't or won't pay such debts, it can't be good for its credibility on the "official" and "must be paid" national debt.

So sorry not to just give an answer of "X" -- but like income taxes, this stuff is complex. And in the future, there are lots of unknowns. I hope this helps just a bit.

[yellowcanoe]

The book "Running on Empty" by Peter G. Peterson, published in 2004, outlined a bleak financial future for the US unless changes were made. There was plenty of trouble on the horizon even if the financial crisis of 2008 had not occurred. Politicians are completely focused on todays deficits so nothing is being done to deal with future liabilities.

[Outcast_Searcher]

The book "Running on Empty" by Peter G. Peterson, published in 2004, outlined a bleak financial future for the US unless changes were made. There was plenty of trouble on the horizon even if the financial crisis of 2008 had not occurred. Politicians are completely focused on todays deficits so nothing is being done to deal with future liabilities.

yellow, the problem I have with such books (short term financial doom due to too much debt, etc) is there are new ones out virtually all the time, and have been since I've been paying attention (a good 35 years). Thus far, they've basically all been wrong (a recession isn't financial doom, and if you say there will be a recession constantly, eventually you'll be right for the permabears).

So yeah, the US has had way too much debt and too little discipline for over 100 years. Got it. Since NO ONE can say specifically what the consequences of that are, much less when -- what good is writing or reading books about that, once you understand the concept?

[Outcast_Searcher]

The interest on the national debt in 2015 was around $229 billion.

Revenue $2.05 Trillion
Trust Funds like Social Security $1.1 Trillion
Spending $3.8 Trillion
Borrowing $583 billion to meet budget shortfall

Link to site https://www.nationalpriorities.org/budg ... /spending/

Basically the US government will not be in a default situation as long as we can pay the interest on the debt.

With respect, I don't much trust your source on interest on the debt. It shows no citation for where they got that figure that I see. My source, treasurydirect.gov is the federal government, not some political interest group seeking donations. And it shows the interest payments on the national debt being very consistently at roughly $400 billion for the past 10 years.

https://www.treasurydirect.gov/govt/rep ... xpense.htm

I have no special problem with political interest groups -- but if they cite statistics that look random AND don't cite their sources -- their credibility becomes roughly zero, IMO.

[Cog]

Your numbers for the interest payments are probably more correct Outcast. I just went to the first site that popped up.

[Simon_R]

In the EU we have a big government, so austerity really hits hard.

In the USA it would be interesting to see what the impact would actually be, What would it actually look like for the average middle class family.

[GHung]

Meanwhile: Stocks surge on Japan's negative rates surprise

http://money.cnn.com/2016/01/29/investi ... oplead-dom

Free money! I'm going to Japan.

[eugene]

People been talking about this for yrs as they were seeing runaway government spending and knew it can't go on forever. As to what will "specifically" happen, I sure don't know but I do know I don't want to go through it. Take a look at what other countries have experienced. At no time in history has an economy gotten away with rampant printing (counterfeit money in my mind) so there will be a day of reckoning. And how can we "know" anything when lying is the mode of the day. Hell, we watch candidates lie ever day but elect them anyway. And economists can't agree on anything. The "government", who we all elect (fantasy democracy) is corrupt to the core and always has been. Governments are always corrupt.

I am amused at the blaming of government. That government money flows through every crack and crevice of our economy. We all benefit in one way or another.

My suggestion is read a good bit and, over a cup of coffee, make up an unpleasant scenario. The lower on the social economic scale you are, the worse your prediction needs to be. Probably as accurate as anybody else's. Most of all learn to live with insecurity in your gut. Remember the drones will be over your head and that militarized police will be on your street.

[GHung]

"As to what will "specifically" happen, I sure don't know but I do know I don't want to go through it."

Again; "Collapse now and avoid the rush". Get disconnected from as many top-down fiat systems as you can.

"The lower on the social economic scale you are, the worse your prediction needs to be."

Create your own "economic scale". Expectations are key to how one defines "security". I know some people think they aren't in control. Once you realise that no one is in control (not really), it gets easier. Fly under the radar.

[C8]

Basically the US government will not be in a default situation as long as we can pay the interest on the debt.

Or, more realistically, the US government will not be in default as long as we can borrow more money to pay the interest on the money we already owe.

But, at some point, don't the lending nations realize that the amount of money they are loaning (the principle) is in danger of not being given back? At that point I would think they would be more concerned about the principle- this is a much larger sum of money than the interest. I would think they would either:

1. demand shorter term loans
2. scale back on principle loaned
3. demand the principle back

At some point- a lender becomes fearful of losing the principle and this fear overcomes the greed of making money on the interest- am I wrong? What happens then?

[MonteQuest]

During this election year we have heard little about the US debt. Obama and Congress just agreed to raise the borrowing limit once again. There seems to be no end to this (although there must be).

Raising the debt ceiling has absolutely nothing to do with increasing the debt or allowing for more spending. It allows for borrowing to pay the debt we have already run up. It allows us to borrow money to pay our credit card bill. Only Congress can increase spending through an appropriations bill.

US debt to GDP is 103%. Anything over 90% is considered to be a tipping point to restricting growth.

The largest owner of U.S. debt is Social Security. One third is held by foreign countries. Foreign governments and investors hold nearly half of the nation's public debt. One-fourth is held by other governmental entities, like the Federal Reserve, and state and local governments. Fifteen percent is held by mutual funds, private pension funds, savings bonds or individual Treasury notes. The rest is held by businesses, like banks and insurance companies, and a mish-mash of trusts, businesses and investors.

If we default, all those people holding our debt could lose their wealth or have it severely downgraded. This includes Americans that hold US govt bonds. They could become worthless. Remember, someone's debt is another's wealth if it is in a fiat dollar denominated asset.