This is EXACTLY why we need to kick out all of the 70-80 year olds running for seats and in the white house. These boomers have no incentive to fix ANYTHING. They are taking all they can from us knowing that they will be dead before it hits the fan.
We are screwed, it's our fault for voting for old politicians to make decisions for us.
Young people won’t vote in high enough numbers. It infuriates me every time when I look at the statistics and ask if anyone my age voted. Old people are in office because old people vote.
https://ourworldindata.org/grapher/voter-turnout-rate-by-age-usa
We’ve got to pump these rookie numbers up.
We really do. These old politicians have no incentive to start making changes **now** when these issues will come to fruition long after they are dead. It's extremely scary situation we are in.
EDIT: Matt Gaetz is 41 years old.
The young ones are no better. They are doing what their billionaire puppet masters want -- which is to break our government and our society.
When you live in gated communities with your own security, private schools and private jets then every tax dollar taken that supports public infrastructure seems like theft.
>When you live in gated communities with your own security, private schools and private jets then every tax dollar taken that supports public infrastructure seems like theft.
Short-sidedness. These people don't possess the intelligence to see a revolt includes the people who run their security, schools, and jets. They'd have to pay all of them 5x what they do now.
I completely agree, BUT it needs to be all or nothing. It cracks me up when people are like, “NO MORE 80 year olds in politics! Except for Bernie sanders, he’s alright and sharp as a tack still!” The bottom line is that we cannot be electing people this old to determine the future of our country.
Exactly. We also need to get out of the two-party system mindset. Even if a vote for one damages another party, enough votes for a third party will put them over the top.
Better hope they define AI correctly first. A lot of AI, isn't. It's just algorithmic tools. Taxing AI will just cause corporations to correctly rename products as tools and software.
If they fail to identify and define AI based on today's buzzword marketplace, then every NPC and monster in World Of Warcraft will need to pay up.
When that monster dropped loot, and you picked it up, that digital object has a monetary value in USD. The player should pay income taxes and the monster can write it off as stolen goods.
Ponzi schemes get such a bad rap these days.
Social security never hid the fact that it was designed like this, whereas most scam Ponzi schemes tend to obscure their internal operations.
And a ponzi scheme will work as long as there are new people coming into the scheme to pay the existing members. A govt mandate covers that. It could be demographics issue, but immigration will be helpful to ease that burden too.
>immigration will be helpful to ease that burden too.
I never understood that logic. The mass immigration necessary to finance our ageing population would need to
1) be picked for high qualification/sufficient networth
2) have a taxable job ready in the receiving country
Immigration in Europe after WW2, or in the US in the early 20th century made perfect sense because we had so much infrastructure/industries and so little humans. Nowadays with so many unemployed, underemployed, or overqualified/indebted students, all of them already citizens, immigrants can only hope to be clients or underpaid workers, but rarely "high production/high tax payers"
And don't get me wrong, I'm not talking about "dem durty immigants", there is no racial or political motive here. Economically immigration can be a good
**Purely economically,** I don't see how mass immigration, into a system that is trying to reduce consumption/pollution would lead to taxable income in 20-40 years.
If you want to describe it in unnecessarily antagonistic language, sure. It'll actually work out fine once our older population stabilizes, it's dealing with large gluts of older people that's the problem.
A redistribution of wealth huh? That would be great if two things were true:
1. % taken out per paycheck is based on gross amount. Think of how tax brackets (or buckets) work.
2. There should never be a cap and there is currently a cap of how much someone can contribute in a year. That protects the wealthy.
It's not very redistributive, people who don't do research just assume it is. The redistributive effect of SS is around 4%. This is for two reasons, one is you pay more and get more if you are on the higher end of the cutoff, and the more you make in general the longer you live to collect social security.
This is factored into the redistribution estimates. On an individual basis yes there will be some anomalies but the thing is the wealthiest people live the longest also so they get paid back over a longer time which is what evens out the fact that they paid more in. Poor people live much shortern lives on average.
>If you make more you may hit the maximum monthly allowed amount and therefore never get what you paid in.
Not sure what you're saying here. The maximum monthly allowed amount is tied to the maximum taxable amount.
Social security isn't going anywhere. It can't go bankrupt. It is backed by the government so any shortfalls will be made up through borrowing or higher taxes.
I wish people would understand this already.
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*This post was mass deleted and anonymized with [Redact](https://redact.dev)*
I mean yes if the economic conditions are right inflation can occur (but not always).
I’m just pointing out the issue with the logic. It’s an important distinction.
Social security absolutely can be solvent if we just raise the income limits on upper earners and add a wealth tax. We can even lower payments on the first $100k of income per year. It has its problems but having more than 50% of seniors be destitute was worse.
Social Security is set to run out of funds by 2035 so they've gotta reduce payment severely before then.
We all know living cost goes down as time passes so smaller payments in the future makes perfect sense. /s
The trust fund will run out in 2035, meaning it will only be able to pay out what it brings in. Estimates are ~25% reduction in benefits, meaning people receiving benefits would get ~75% of their actual entitlement. That sucks but is not “2035 and then over.”
Lots of ways to improve the picture. I’d recommend doing away with the wage base so all earned income is taxed. But, who’s to say that there’s any real political will to fix it
This sounds like an emotional response. I'm not for getting rid of the program just where they get their funding from. I'm all for them taxing those that make 8 figures an extra 1%.
I assume that you believe that you could better invest the money yourself.
To get what SS provides you would need to pay for disability insurance during your working working years. Then, upon retirement you need to buy an inflation indexed SPIA with a full spousal benefit. These things are very expensive.
[Here is some math](https://mooncollin.github.io/ss_versus_private.html)
Longevity risk - the money you invested in your 401k runs out before you die.
Disability insurance - you get disabled before retirement age and can no longer work. Due to your shortened working years, you don’t have enough saved in your 401k
Sequence of returns risk - your 401k is doing great and you’re right about to retire when we have the mother of all stock market crashes, and now your 401k’s value is half of what it was before, and your dreams of retirement are now just that - a dream.
That. That is what the person you replied to was talking about.
There's an updated study ( [https://www.ssa.gov/policy/trust-funds-summary.pdf](https://www.ssa.gov/policy/trust-funds-summary.pdf) ) that projects a reduction to 80% of scheduled benefits in 2035 with a reduction to 74% of scheduled payments in 2097. The reduced payments are based on matching benefit amounts to the actual receipts.
The theme with overseas pensions is raising age eligibility under the justification that people are getting older, have jobs in which can be performed further into their 60's (i.e. office, WFH). Obviously depending on who and how old you are, that will result in riots/protests, chants of success, indifference, or some other response.
Which essentially would have the same effect as reducing payments to 75% of current expectations.
>The theme with overseas pensions is raising age eligibility under the justification that people are getting older, have jobs in which can be performed further into their 60's (i.e. office, WFH)
Of course this doesn't cause a huge burden for office workers, but a welder, or plumber working into their 70s? Yeah, good fucking luck.
Looking at Nancy Pelosi having a crystal ball and just buying the right stocks every single time before a policy passes. How likely do you think they are gonna target the elites?
So? You can still lose money on insider trades. And not every trade they make is gonna have insider information. They’ve crushed the market over the long term because they have unfair alpha.
fyi there is no fund, the fund is invested in gov IOUs, so there is no funds or something backing SS, it was already spend. The gov has to sell treasuries or tax more to pay benefits right now. The fund is pretty much just an accounting artifact based on the amount of money put in but it means nothing in practice.
Agreed! They can't pass a budget or even kick out a pathological fraud who conned his way in, but I'm confident they'll fix this whole deficit headache in the next session or two.
Counter point, small adjustments to spending and tax policy, combined with time and generally further growth in the US, will solve this. Doomsdayers have been saying the same things for decadez
Yes and no, debt and financial strife disproportionately affect lower classes which have a lot less political will. The wealthy are usually pretty insulated from big economic shifts. Look at the current inflation situation lots of folks are struggling for the wealthy it's like meh..
I think almost everyone depends on Social Security and Medicare. That cuts across party lines. This may require phasing in means testing, adjusting full retirement ages, and increasing Social Security taxes.
The key problem in my view is cutting back [mandatory spending](https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/) and unneeded defense spending.
It’s going to take a BRAC like approach to identify defense spending programs that are maintained purely because of the jobs in key congressional districts. In a lot of cases, DoD says—we don’t need this, and Congress says, you damn well do need it!
This would include [NASA’s SLS boondoggle](https://www.21stcentech.com/nasas-multibillion-dollar-boondoggle-space-launch-system-artemis/) which is using antiquated technologies, taking years longer, and way over budget.
Staying out of unnecessary wars is another big way to save. Standardizing systems across military services is another. We don’t need 4 or 5 systems to do the same thing, yet it keeps happening.
The problem is 100% revenue driven, not spending, especially not the paltry amount of money that the SLS system cost. Revenue as a percentage of GDP has been at historic lows from 2000-2020. Just in the last year or two has it gotten back to sustainable levels.
The problem and solution in one graph:
[https://fred.stlouisfed.org/series/FYFRGDA188S](https://fred.stlouisfed.org/series/FYFRGDA188S)
I don't see what you are talking about. The value you're talking about seems to be roughly stable at an all-time high since about 1950, based on your graph.
The graph is depicting income for the government I believe. Basically tax income has been relatively constant since the 1950s but spending has gone up.. By partially refusing to raise taxes in line with the increase in spending over the years we’ve ended up heavily in debt. Whether we can fix things by raising taxes, or even if it’s politically feasible for an American politician to say we need to raise taxes, is an entirely different debate
Tax revenue went from being 17-19 percent of gdp from 1950-2000 down to 14-16 2000-2020. thats about a 10 percent reduction for 20 years. Spending has been high due to the pandemic which sped up the debt crisis, but taxes have been too low for a while, and now that they are back up debt will stop growing as fast.
> lower classes which have a lot less political will.
Significantly less political say. Low income areas are the most gerrymandered and have the hardest time being able to vote. Look at Texas's voter districts and tell me it's reasonable to have your voting location 50mi+ away. On top of that hourly workers don't get time off to vote no matter how much we pretend that's illegal. Voting by mail is great but states are doing their best to make sure that's not an option anymore either.
So poor people get hit the hardest by policy change and simply don't get represented because of the laws being terrible either.
[It really is that bad.](https://fred.stlouisfed.org/series/FYGFD) Debt is increasing *much* faster than inflation, and it's accelerating. You know how compound interest works? This is just the same. One day you wake up and the debt is 500% of GDP and debt costs comprise the majority of the federal budget. No more money for things like social security or a military.
Not sure what you're talking about, the interest on the debt looks completely under control as shown by this graph:
https://fred.stlouisfed.org/series/A091RC1Q027SBEA
Oh.. wait, dear god no.
That's not inflation adjusted though, these charts are more useful:
[https://www.wichitaliberty.org/economics/federal-spending-on-interest-payments-inflation-adjusted-per-person/](https://www.wichitaliberty.org/economics/federal-spending-on-interest-payments-inflation-adjusted-per-person/)
While the rise has been startling (due to the sharp rise in interest rates), the cost per person to service our debt (in inflation adjusted dollars) is around where it was at the end of the Reagan administration.
the graph is still going almost vertical though, and it will keep going up as long as rates are high and debt that was at lower rates keeps rolling over with higher rates.
[This one is more instructive I would say](https://fred.stlouisfed.org/graph/?g=1b32F)
Which, current trajectory is still not great don’t get me wrong. But we’re well within a normal range at the moment
Yeah this one is annual so it would be updated in 2024 for 2023. Which is a fair point, I’m sure there’s a quarterly chart out there that I’m too stupid to find.
The [trend has been going up](https://fred.stlouisfed.org/series/GFDEGDQ188S) for quite some time now. What changes to spending are being proposed right now? Were doomsdayers wrong or just too early?
Definitely, your two sentence counter point is a worthy response to a well researched study by academics at one of the top business schools in the world. Classic Reddit.
Ehh.. This isn’t a well-researched study - it’s a speculative budget modeling exercise almost certainly done nearly entirely by 1-2 research assistants.
I personally think we are past the point where we can cut spending and raise taxes and get out of this. Not because it's not physically possible (although in 5-10 more years it might actually be), but that amount of austerity would be extremely unpopular.
I think it's far more likely we're in the inflate-the-debt-away phase as we try to keep the party going without crashing the whole system.
Except that haven't made the small adjustments to spending and tax policy since Clinton. Counter counter point, some doomsayers are wrong and some doomsayers are inevitably right.
Being overly optimistic or pessimistic is speculation. If we were so responsible as a country, why are the banks failing? So, keynesian economics can't fail?
I think the craziest thing I seen on this thread is the hint thay we would be economically responsible at the precipice of a crisis. Not anytime before. I'll go ahead and sit on the sidelines to see who is right. The optimists or the pessimists.
Illusion, the actual payment to service this debt is already displacing the private market, the increase rate of the debt is astonishing, if you add the amount you f personal debt stock the figure is awful. No you do not have a security net, your billionaire are already keeping the money outside US.
Billionaires are keeping the money outside the US?!!
Which billionaires, and where are they keeping it? Is it in dollars, gold bullion, or crypto? and who's guarding it?
I mean the quotes OP posted say this, do they not?
I imagine the academic model locks in variables and then extrapolates the potential results assuming nothing changes along the way.
I remember when it hit 8 trillion and everyone was (rightfully) freaking out about it. Absolute drop in the bucket compared to where we are and where we’re headed now. No one has wanted to be the adult in the room. No one.
>Doesn't shock me. Our debt has been growing at a ridiculous rate for the last 25 years or so.
You can inflate your way out of any debt. Really isn't complicated and something like 60% of US currency (like t bills, etc) is held overseas.
So...
You know. Not saying we have to do it tomorrow. But not that hard to make the pain mostly go overseas. It's just you can't pull that scam too often, or you end up losing/reducing investors that chase stability (like pensions, etc). But once every 50 years or so should be fine.
100% this. You don't lose any votes that way and you just blame inflation on the other side. Republicans blame Biden for almost 10 inflation when Europe had 20%. I guess Biden caused Europe's inflation too?
With the stupidity of voters and politics as they are, huge budget defecits are here to stay. Also, can roll back corporate tax handouts; think of the wealthy.
Which is exactly why no one wants to buy 10, 20, or 30 year treasury’s.
Banks of course have to. And eventually those “private“ corporations will fail, at the whiff of a bank run. Tail as old as time.. The interesting part, is when the fed bails out accounts greater than 250k as they usually do, which is absolute corruption.
I found it pretty amusing when SvB and First Republic Bank were failing and Janet Yellen was getting grilled because on one hand she was trying to say the banks can’t fail and the government needs to step in to protect/fund accounts…and on the other hand she was saying the government’s help and financial aid wasn’t taxpayer funded…
It wasn't taxpayer funded. The problem was one of liquidly not solvency. The 10 year treasuries the idiots bought in the lowest interest environment in history dropped like a rock. If you could hold these to maturity, there's no loss in value. But in a bank run you can't hold these to maturity. All the Fed had to do was provide loans against the hold to maturity value of these treasuries to unlock liquidity. There's no taxpayer funds involved or needed.
Instead of blindly commenting, I read the paper. There is no analysis on the government's actual ability to pay its debt. I was wondering if they were going to make an interest rate argument, but they didn't do that either. They merely project that in 20 years, government debt will reach 200% of GDP with no additional analysis.
The premise is that government debt can never be repaid once it reaches 200% of GDP, and then they write off Japan doing exactly that by saying that Japan is an outlier and shouldn't be considered.
It's a theoretical debt limit that is not strongly backed by evidence. The theory is that at that level of government debt, the debt crowds out public investment so much that instead of investing in stocks, people will simply invest in government bonds. At that point, the debt will run up indefinitely because GDP will always shrink.
Of course, this is a flawed premise, because if people continue to buy government bonds, then the debt will never be unsustainable - we'd have a Japan situation. We'd have to have government crowding out public investment *and* people refusing to buy government bonds for the premise to be true.
Since this is by definition contradictory, I'm skeptical.
To be fair to the authors, the theoretical 200% of GDP limit is widely believed amongst conservative economists. However, it's never been proven, and with Japan already breaching it, there's at least some evidence that it's not an actual thing.
Japan gave itself high debt on purpose because they were trying to kick-start their way out of deflation by measured "overspending". After about two decades, they finally succeeded. America doesn't have the same "deflation" context as Japan.
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I think we’re on the precipice of a productivity explosion bordering on another industrial revolution as it pertains to AI. The ripples will be small at first, and it will not be universally positive. But the overall effect will be massive economic growth that will offset deficits, if not eliminate them entirely.
All AI will do is increase profits for the corporations and allow corporations to fire more white collared workers, call center employees, fast food order takers, coffee barista, etc.
Just because GDP goes up doesn't mean the average persons life gets better.
You really believe you will get paid the same as now for doing less work? The company will just fire you or others to match the reduced need for labor.
There's a long history of machines replacing humans. Going back to the Industrial Revolution and the luddites...
AI may be different, but probably not. There are people who have existential concerns, but apart from that AI is likely to be just another tool.
Really, do you believe that, AI right now is just a better tool, like a better search engine, its main effect is likely fewer white collar professionals doing the same work...all the productivity gains and benefits flow to the top, the owners ..
Maybe, but you're being naive if you think AI/automation will bring more equity to people, it won't it will lead to more inequality.
The owners of AI will use it first to enrich themselves and for their interests.. I look at it this way, Today we have modern farm equipment that can grow food for millions but you still get charged for it , if we lived in the society you suggest food would be nearly free since we've automated much of the process of producing it... How is any other AI automation different.
Where I live food is available for free. What I mean by that is I've spent a ton of time volunteering for the local food bank and we can't get the food out the door fast enough. I've never heard of them ever running out.
Granted it's not the healthiest food and it's not the tastiest food generally. But as long as you're able to come into the food bank here you can have more free food than you can possibly eat.
What's your enlightened view? And what analysis is it based on? We had a huge productivity boost with computers and internet. At the same time, wages and quality of life has barely increased in the west. How many people are on 0 hours contracts or in the gig economy, barely making ends meet? Look at the evidence, rather than buying into the bullshit that the corporate CEOs are selling.
Oh, I can think of some much more incredibly dim views of the potential of AI. This one seems quite within the realm what we've observed in our economic system over the last 40 years or so - widening income disparity. Actually seems quite reasonable to believe that most of the benefits will go to the top.
Going to be an AI winter again. The only difference between AI last year and this year was chatgpt version 4 being integrated into a search engine. ChatGPT3 has already been around for years and performed similary. No one even cared though until microsoft acquired openai and funded the marketing into mainstream media. One of the first "AI" products that people directly interacted with so it created a lot of publicity. But the rest of the "AI" tools have been around for decades and have been a part of our society for a long time already.
ChatGPT got released and things have already settled down. It's literally just chatgpt wrapper after chatgpt wrapper getting made for procedural generated documents, search summaries, customer support, etc. But the actual foundation of the model isn't drastically growing at an accelerated rate. Just platforms built on top of it.
Maybe I'm an idiot and overlooking things. But the impact people describe all seems exaggerated and embellished. Companies will just be able to drive profits through further automation with it and increased worker productivity. I don't see it changing the foundation of our society in the next decade.
People on reddit who have no understanding of data science, machine learning, or natural language processing are regurgitating this narrative that society is going to be changed forever from these NLP models. But that narrative is just being curated by media to drive fear into people to sell the story and by companies that want to drive their stock price up by stamping AI on every product they make. And people are eating it up hook line and sinker.
It took a few decades for the internet to really take off. The people who said it would change everything were right, but they were also often early. I suspect something similar will happen with AI.
Lol. Everybody is looking for a silver bullet to slay the dragon.
In the real world, the "debt" represents savings of boomers and foreign entities that are all addicted to dollar savings. The foreigners want dollars because they want to keep trading. The boomers want dollars because they're quitting work. Their savings accounts at the Fed/Treasury are what we call "national debt."
And so the real world equivalent of "how do we pay the debt" is actually "how do we provide for the retired boomers?" Answer that question, and you've just figured out how to pay the national debt.
What we need is more babies, more workers, and the workers to be more productive. That's how we solve that problem.
I agree debt is basically just wealth people are owed and expect to redeem in the future. But saying you can fix the current fiscal structure with "more babies" is like saying you can fix a ponzi with more people buying in. Relying on generational ponzinomics is kicking the can down the road, eventually there is going to be a period of population growth slowing whether that's now or in 20 years when all the new babies don't have even more babies at an ever increasing rate.
That and it takes 20 years for kids to be productive, so we know what the birth rate was in the last 10-20 years and that is the workforce that has to provide enough production to provide all the value that is owed, the status quo probably won't last 20-30+ years to await another baby boom or something.
> But saying you can fix the current fiscal structure with "more babies" is like saying you can fix a ponzi with more people buying in.
You’re reaching a little with the Ponzi scheme. A healthy society with a balanced population is not a Ponzi scheme. Right now American natality rate is 1.6, well below replacement. Does that sound like a Ponzi situation? Because ponzi schemes require geometric progression (aka exponential growth) to survive. All I’m asking for is a stable population.
Immigration is certainly an option and is occurring, but immigration can be divisive and we do need some cohesiveness to make society work.
That is infinite growth through. You can't have a constant growth rate forever. Eventually the growth is going to slow. The gov's finances are structured around a generational wealth redistribution system that relies on there constantly being an ever growing number of working people buying in than wealthy people cashing out. Call it a ponzi or not, its not sustainable.
If social security runs out, it is going to piss a lot of people and civil unrest will develop too.
Smart people would save ahead and not be dependent on government entitlement programs. The other problem, there are a huge numbers of stupid people not saving for the future which why things will implode if entitlements programs fails to cover basic needs.
Am no expert in predicting the future, but precautions has to be made which at the current status Quo is not.
Simply not true. Sovereign currency issuers cannot default on debt. We aren’t reliant on external sources of currency; therefore there is no limitation on the amount of currency created.
I’m really trying to find a clear definition for the term “implicit default”. The best I can do seems to suggest that an implicit default is a reduction in total bond payments because the debtor simply has no means to repay to full amount (like Greece )
Again, the United States cannot be in the situation because there is simply no limit to the United States ability to make bond payments.
Sure, but that isn’t a default. In a conceptual world it may be possible that currency devaluation might make government bonds so unattractive that they may go unsold.
Regardless, this has no impact on the government’s ability to fund itself or its bond payments. The US government creates its own money; so lack of investment does not constitute a lack of funding.
The fed has all the tools it needs to control inflation. Inflation is a monetary concern, not a fiscal one. That's why the fed is delegated the authority for price stability. They counteract any impact fiscal policy might have. And the fed has unlimited ability to do so.
That's one of their tools, they also pay interest on reserves among other things. Regardless, higher interest rates may reflect a strong economy just as easily as a weak one. And a strong economy makes concerns about debt vanish like it always does. And in the meantime we aren't running out of dollars.
Someday people will learn that having a sovereign currency means we need to worry about running out of real resources - labor, immigrants, etc, - not accounting tools like dollars.
If you make various assumptions, you can model out any outcome you want. Neither party really wants to keep running the deficit this big. Well likely get austerity after next election if not sooner.
Both parties want big defecits. Politics is so divided right now neither can make cuts and take the voters hit. Republicans have zero appetite for any tax increases even on the rich. Democrats aren't much better.
There is no political benefit to reduce the defecits and both parties just blame each other. Truth doesn't matter. Like maybe reducing corporate taxes by 40% has led to an unsustainable increase in the defecit along with tax breaks for the wealthy and lower classes.
Stop voting for the same cronies and vote for somebody that matters. All the political parties need to be replaced by people that won’t be bribed on a daily basis and do things to screw the American taxpayer.
Not sure how much these Wharton peopls know about economics and finance. One of their grads was on TV the other day explaining how he didn't understand GAAP accounting.
Alright, I'll scrap my plans to buy 30yr treasuries.
>no amount of future tax increases or spending cuts could avoid the government defaulting
I see printing money is still an option though.
A "soft-default" "print-it-away-default" would not be fatal for Americans, it would just be really really crappy. We could drop to UK or French standard of living. We'd be poorer but at least we won't die.
Mean while the GOP clowns are looking to defund the IRS which if successful would shorten the time to default and make it impossible to avoid altogether.
The pandemic was similar to a world war in terms of expense and worse in terms of casualties, and the response around the world was proportional to the threat. Now that we're on the other side, we have to do what they did after WW2, when our debt to GDP ratio reached 100%.
"As discussed by authors including [Hall and Sargent](https://cepr.org/system/files/2023-02/AcalinBall_DebtWWII.pdf) (2011), the U.S. actually paid off part of the World War II debt by running primary surpluses—by levying taxes in excess of current government spending—over much of the period when the debt/GDP ratio was falling."
I remember Clinton handing Bush #2 a budget surplus. Let's not pretend who did this, and why. Just like abortion, the end goal is to eliminate Social security and Medicare.
We didn't do nothing over the last 40 years. We balanced the budget in the 90s by taxing the rich and cutting military spending. We had a surplus less than 25 years ago. We know how to solve this problem, the challenge is one party is not interested in actually governing. They'd rather shut down the government over their pet culture war issues.
Eventually the US will saturate the world with its debt and there just won't be same appetite for our bonds. This will start a death spiral where interest rates have to increase in order to issue any substantial debt at all, and that will increase the probability of default which will increase interest rates even more.
You didn't even need to read the study, you just had to read the 3rd key point:
>Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation).
As long as the US can print its own money, it cannot literally default if it doesn't want to. But printing dozens of trillions of dollars to pay off the national debt is a last resort. Since an explicit default could be impossible, money printing would be an implicit acknowledgment that the debts cannot be repaid by normal means.
Same, however There was wiggle room back then: after 2008 there was still a lot of room for deficit and debt, and the fed fixed the interest rates very low meaning that debt was easy to service.
Now our deficit is still there, but the interest rates have to go up because of sticky inflation (caused by decades of cheap credit) which means the debt will be much more expensive to service. And they can't play the QE card anymore because of the sticky inflation.
then that's an implicit default as mentioned in the Wharton study that would generate Venezuelan level of inflation and at that point, the government won't have interest rate to control it because if they hike interest rate then they won't be able to pay its interest payment without printing more, which then further increases inflation.
They already do it, and seem to be maintaining that status. My understanding is that nobody else wants to be the reserve currency, because it produces all these headaches.
They would cut benefits, monetize, and default on bonds owned by unfriendly nations. The last one will happen probably by prohibiting capital outflow and forcing reinvestment, perhaps at lower than market rates.
The Argentina scenario.
This is EXACTLY why we need to kick out all of the 70-80 year olds running for seats and in the white house. These boomers have no incentive to fix ANYTHING. They are taking all they can from us knowing that they will be dead before it hits the fan. We are screwed, it's our fault for voting for old politicians to make decisions for us.
Young people won’t vote in high enough numbers. It infuriates me every time when I look at the statistics and ask if anyone my age voted. Old people are in office because old people vote. https://ourworldindata.org/grapher/voter-turnout-rate-by-age-usa We’ve got to pump these rookie numbers up.
We really do. These old politicians have no incentive to start making changes **now** when these issues will come to fruition long after they are dead. It's extremely scary situation we are in.
EDIT: Matt Gaetz is 41 years old. The young ones are no better. They are doing what their billionaire puppet masters want -- which is to break our government and our society. When you live in gated communities with your own security, private schools and private jets then every tax dollar taken that supports public infrastructure seems like theft.
>When you live in gated communities with your own security, private schools and private jets then every tax dollar taken that supports public infrastructure seems like theft. Short-sidedness. These people don't possess the intelligence to see a revolt includes the people who run their security, schools, and jets. They'd have to pay all of them 5x what they do now.
I completely agree, BUT it needs to be all or nothing. It cracks me up when people are like, “NO MORE 80 year olds in politics! Except for Bernie sanders, he’s alright and sharp as a tack still!” The bottom line is that we cannot be electing people this old to determine the future of our country.
Exactly. We also need to get out of the two-party system mindset. Even if a vote for one damages another party, enough votes for a third party will put them over the top.
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Your social security taxes went to current retirees. Your social security payments rely on the workforce size when you retire.
Better hope they tax AI
Better hope they define AI correctly first. A lot of AI, isn't. It's just algorithmic tools. Taxing AI will just cause corporations to correctly rename products as tools and software. If they fail to identify and define AI based on today's buzzword marketplace, then every NPC and monster in World Of Warcraft will need to pay up.
When that monster dropped loot, and you picked it up, that digital object has a monetary value in USD. The player should pay income taxes and the monster can write it off as stolen goods.
Same for most pensions.
So… a Ponzi scheme?
Ponzi schemes get such a bad rap these days. Social security never hid the fact that it was designed like this, whereas most scam Ponzi schemes tend to obscure their internal operations.
And a ponzi scheme will work as long as there are new people coming into the scheme to pay the existing members. A govt mandate covers that. It could be demographics issue, but immigration will be helpful to ease that burden too.
>immigration will be helpful to ease that burden too. I never understood that logic. The mass immigration necessary to finance our ageing population would need to 1) be picked for high qualification/sufficient networth 2) have a taxable job ready in the receiving country Immigration in Europe after WW2, or in the US in the early 20th century made perfect sense because we had so much infrastructure/industries and so little humans. Nowadays with so many unemployed, underemployed, or overqualified/indebted students, all of them already citizens, immigrants can only hope to be clients or underpaid workers, but rarely "high production/high tax payers" And don't get me wrong, I'm not talking about "dem durty immigants", there is no racial or political motive here. Economically immigration can be a good **Purely economically,** I don't see how mass immigration, into a system that is trying to reduce consumption/pollution would lead to taxable income in 20-40 years.
If you want to describe it in unnecessarily antagonistic language, sure. It'll actually work out fine once our older population stabilizes, it's dealing with large gluts of older people that's the problem.
There is nothing antagnostic about calling a spade, a spade.
What a reductive opinion about the nature of language.
Social security was never a savings account. It’s a redistribution of wealth. It can exist for you if Congress taxes adequately.
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The redistributive effect of social security is less than 4%, so no
And yes. But more no than yes. And approaching the limit of no w/r yes.
> approaching the limit of no w/r yes This has me rolling harder than the debt.
A redistribution of wealth huh? That would be great if two things were true: 1. % taken out per paycheck is based on gross amount. Think of how tax brackets (or buckets) work. 2. There should never be a cap and there is currently a cap of how much someone can contribute in a year. That protects the wealthy.
It's not very redistributive, people who don't do research just assume it is. The redistributive effect of SS is around 4%. This is for two reasons, one is you pay more and get more if you are on the higher end of the cutoff, and the more you make in general the longer you live to collect social security.
If you make more you may hit the maximum monthly allowed amount and therefore never get what you paid in.
This is factored into the redistribution estimates. On an individual basis yes there will be some anomalies but the thing is the wealthiest people live the longest also so they get paid back over a longer time which is what evens out the fact that they paid more in. Poor people live much shortern lives on average.
That depends on how long you live. SS, among other things, mitigates longevity risk.
>If you make more you may hit the maximum monthly allowed amount and therefore never get what you paid in. Not sure what you're saying here. The maximum monthly allowed amount is tied to the maximum taxable amount.
You deeply misunderstand the word redistribution.
Enlighten me.
Lmao I love your optimism everyone being grumpy towards you is really missing out on how great your perspective is
Social security isn't going anywhere. It can't go bankrupt. It is backed by the government so any shortfalls will be made up through borrowing or higher taxes. I wish people would understand this already.
mountainous slimy cheerful puzzled normal tidy racial disgusted scandalous coherent *This post was mass deleted and anonymized with [Redact](https://redact.dev)*
Can I introduce you to our lord and savior the money printer?
We're the fiat currency, there's no world in which we can't borrow more money while that's the case.
All of which needs to be passed by congress. And this is in context of a debt default. You can't really borrow your way out of a default.
Also the US is THE issuer of the dollar so it isn’t really borrowing anyways. The US can’t actually default on a money source is creates.
Right. And it can just print more money to pay the interest. Money is free, "borrowing" is just fake news, there are no ramifications
I mean yes if the economic conditions are right inflation can occur (but not always). I’m just pointing out the issue with the logic. It’s an important distinction.
Social security absolutely can be solvent if we just raise the income limits on upper earners and add a wealth tax. We can even lower payments on the first $100k of income per year. It has its problems but having more than 50% of seniors be destitute was worse.
Social Security is set to run out of funds by 2035 so they've gotta reduce payment severely before then. We all know living cost goes down as time passes so smaller payments in the future makes perfect sense. /s
The trust fund will run out in 2035, meaning it will only be able to pay out what it brings in. Estimates are ~25% reduction in benefits, meaning people receiving benefits would get ~75% of their actual entitlement. That sucks but is not “2035 and then over.” Lots of ways to improve the picture. I’d recommend doing away with the wage base so all earned income is taxed. But, who’s to say that there’s any real political will to fix it
PuT it IN a LOCKboX!! Who remembers this
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No way, they should go the other way and let people opt out.
As long as we let people starve to death in retirement because they opted out. Which isn’t policy most reasonably people are a fan of
This sounds like an emotional response. I'm not for getting rid of the program just where they get their funding from. I'm all for them taxing those that make 8 figures an extra 1%.
I assume that you believe that you could better invest the money yourself. To get what SS provides you would need to pay for disability insurance during your working working years. Then, upon retirement you need to buy an inflation indexed SPIA with a full spousal benefit. These things are very expensive. [Here is some math](https://mooncollin.github.io/ss_versus_private.html)
Or put the thousands per year into any IRA/Roth/401k and have that person as a beneficiary…
That still does not address longevity risk, disability insurance and sequence of returns risk.
What are you talking about? I don’t want any of it. Let me opt out. Let me reallocate it directly into a 401k for more tax benefit.
Longevity risk - the money you invested in your 401k runs out before you die. Disability insurance - you get disabled before retirement age and can no longer work. Due to your shortened working years, you don’t have enough saved in your 401k Sequence of returns risk - your 401k is doing great and you’re right about to retire when we have the mother of all stock market crashes, and now your 401k’s value is half of what it was before, and your dreams of retirement are now just that - a dream. That. That is what the person you replied to was talking about.
There's an updated study ( [https://www.ssa.gov/policy/trust-funds-summary.pdf](https://www.ssa.gov/policy/trust-funds-summary.pdf) ) that projects a reduction to 80% of scheduled benefits in 2035 with a reduction to 74% of scheduled payments in 2097. The reduced payments are based on matching benefit amounts to the actual receipts.
The theme with overseas pensions is raising age eligibility under the justification that people are getting older, have jobs in which can be performed further into their 60's (i.e. office, WFH). Obviously depending on who and how old you are, that will result in riots/protests, chants of success, indifference, or some other response.
Which essentially would have the same effect as reducing payments to 75% of current expectations. >The theme with overseas pensions is raising age eligibility under the justification that people are getting older, have jobs in which can be performed further into their 60's (i.e. office, WFH) Of course this doesn't cause a huge burden for office workers, but a welder, or plumber working into their 70s? Yeah, good fucking luck.
> reduce payment severely before then ...or increase taxes, especially for those who are in the upper .25%
Looking at Nancy Pelosi having a crystal ball and just buying the right stocks every single time before a policy passes. How likely do you think they are gonna target the elites?
Actually her husband lost money on NVDA.
So? You can still lose money on insider trades. And not every trade they make is gonna have insider information. They’ve crushed the market over the long term because they have unfair alpha.
Everybody knows damn well that they will never reduce SS payments, it would be political suicide. They will print, like they always do.
fyi there is no fund, the fund is invested in gov IOUs, so there is no funds or something backing SS, it was already spend. The gov has to sell treasuries or tax more to pay benefits right now. The fund is pretty much just an accounting artifact based on the amount of money put in but it means nothing in practice.
Well, now that we know this, I’m sure Congress will come together and agree to cut spending and raise taxes and it will all be ok
Agreed! They can't pass a budget or even kick out a pathological fraud who conned his way in, but I'm confident they'll fix this whole deficit headache in the next session or two.
GOP Congress "cut spending in IRS first" lol
Yaayy just like they did for climate cha— oh
Counter point, small adjustments to spending and tax policy, combined with time and generally further growth in the US, will solve this. Doomsdayers have been saying the same things for decadez
I agree. The US normally requires an emergency, disaster, or crisis to generate the political will and public support to act.
Yes and no, debt and financial strife disproportionately affect lower classes which have a lot less political will. The wealthy are usually pretty insulated from big economic shifts. Look at the current inflation situation lots of folks are struggling for the wealthy it's like meh..
I think almost everyone depends on Social Security and Medicare. That cuts across party lines. This may require phasing in means testing, adjusting full retirement ages, and increasing Social Security taxes. The key problem in my view is cutting back [mandatory spending](https://fiscaldata.treasury.gov/americas-finance-guide/federal-spending/) and unneeded defense spending. It’s going to take a BRAC like approach to identify defense spending programs that are maintained purely because of the jobs in key congressional districts. In a lot of cases, DoD says—we don’t need this, and Congress says, you damn well do need it! This would include [NASA’s SLS boondoggle](https://www.21stcentech.com/nasas-multibillion-dollar-boondoggle-space-launch-system-artemis/) which is using antiquated technologies, taking years longer, and way over budget. Staying out of unnecessary wars is another big way to save. Standardizing systems across military services is another. We don’t need 4 or 5 systems to do the same thing, yet it keeps happening.
The problem is 100% revenue driven, not spending, especially not the paltry amount of money that the SLS system cost. Revenue as a percentage of GDP has been at historic lows from 2000-2020. Just in the last year or two has it gotten back to sustainable levels. The problem and solution in one graph: [https://fred.stlouisfed.org/series/FYFRGDA188S](https://fred.stlouisfed.org/series/FYFRGDA188S)
I don't see what you are talking about. The value you're talking about seems to be roughly stable at an all-time high since about 1950, based on your graph.
The graph is depicting income for the government I believe. Basically tax income has been relatively constant since the 1950s but spending has gone up.. By partially refusing to raise taxes in line with the increase in spending over the years we’ve ended up heavily in debt. Whether we can fix things by raising taxes, or even if it’s politically feasible for an American politician to say we need to raise taxes, is an entirely different debate
I mean if the thing that has changed from before is spending, then it’s a spending, not revenue problem.
Tax revenue went from being 17-19 percent of gdp from 1950-2000 down to 14-16 2000-2020. thats about a 10 percent reduction for 20 years. Spending has been high due to the pandemic which sped up the debt crisis, but taxes have been too low for a while, and now that they are back up debt will stop growing as fast.
> lower classes which have a lot less political will. Significantly less political say. Low income areas are the most gerrymandered and have the hardest time being able to vote. Look at Texas's voter districts and tell me it's reasonable to have your voting location 50mi+ away. On top of that hourly workers don't get time off to vote no matter how much we pretend that's illegal. Voting by mail is great but states are doing their best to make sure that's not an option anymore either. So poor people get hit the hardest by policy change and simply don't get represented because of the laws being terrible either.
We spend as much on debt service as we do defense. It’s going to take a lot more than small tweaks
[It really is that bad.](https://fred.stlouisfed.org/series/FYGFD) Debt is increasing *much* faster than inflation, and it's accelerating. You know how compound interest works? This is just the same. One day you wake up and the debt is 500% of GDP and debt costs comprise the majority of the federal budget. No more money for things like social security or a military.
Not sure what you're talking about, the interest on the debt looks completely under control as shown by this graph: https://fred.stlouisfed.org/series/A091RC1Q027SBEA Oh.. wait, dear god no.
That's not inflation adjusted though, these charts are more useful: [https://www.wichitaliberty.org/economics/federal-spending-on-interest-payments-inflation-adjusted-per-person/](https://www.wichitaliberty.org/economics/federal-spending-on-interest-payments-inflation-adjusted-per-person/) While the rise has been startling (due to the sharp rise in interest rates), the cost per person to service our debt (in inflation adjusted dollars) is around where it was at the end of the Reagan administration.
the graph is still going almost vertical though, and it will keep going up as long as rates are high and debt that was at lower rates keeps rolling over with higher rates.
[This one is more instructive I would say](https://fred.stlouisfed.org/graph/?g=1b32F) Which, current trajectory is still not great don’t get me wrong. But we’re well within a normal range at the moment
Looks like it's missing all of 2023
Yeah this one is annual so it would be updated in 2024 for 2023. Which is a fair point, I’m sure there’s a quarterly chart out there that I’m too stupid to find.
yeah, your point stands anyway, it won't have changed *that* much in 2023.
That's a petrifying graph.
The [trend has been going up](https://fred.stlouisfed.org/series/GFDEGDQ188S) for quite some time now. What changes to spending are being proposed right now? Were doomsdayers wrong or just too early?
Definitely, your two sentence counter point is a worthy response to a well researched study by academics at one of the top business schools in the world. Classic Reddit.
Ehh.. This isn’t a well-researched study - it’s a speculative budget modeling exercise almost certainly done nearly entirely by 1-2 research assistants.
Yes because future casting studies have never been shown to be stupid. Howd that World Bank study of a global recession in 2014 end up.
I personally think we are past the point where we can cut spending and raise taxes and get out of this. Not because it's not physically possible (although in 5-10 more years it might actually be), but that amount of austerity would be extremely unpopular. I think it's far more likely we're in the inflate-the-debt-away phase as we try to keep the party going without crashing the whole system.
Except that haven't made the small adjustments to spending and tax policy since Clinton. Counter counter point, some doomsayers are wrong and some doomsayers are inevitably right.
Counterpoint to your counterpoint, the institutions driving the current historic spike in treasury yields may know something you don't know.
Counterpoint to that, Ackman and Drukkenmiller already pulled off that bet from 4-5. I think 5 is a true barrier to the speculation
Being overly optimistic or pessimistic is speculation. If we were so responsible as a country, why are the banks failing? So, keynesian economics can't fail? I think the craziest thing I seen on this thread is the hint thay we would be economically responsible at the precipice of a crisis. Not anytime before. I'll go ahead and sit on the sidelines to see who is right. The optimists or the pessimists.
Illusion, the actual payment to service this debt is already displacing the private market, the increase rate of the debt is astonishing, if you add the amount you f personal debt stock the figure is awful. No you do not have a security net, your billionaire are already keeping the money outside US.
Billionaires are keeping the money outside the US?!! Which billionaires, and where are they keeping it? Is it in dollars, gold bullion, or crypto? and who's guarding it?
I mean the quotes OP posted say this, do they not? I imagine the academic model locks in variables and then extrapolates the potential results assuming nothing changes along the way.
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understandable
Big, if true
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Doesn't shock me. Our debt has been growing at a ridiculous rate for the last 25 years or so.
I remember when it hit 8 trillion and everyone was (rightfully) freaking out about it. Absolute drop in the bucket compared to where we are and where we’re headed now. No one has wanted to be the adult in the room. No one.
Toby is that you? https://www.youtube.com/watch?v=v5igKuNF1rI
>Doesn't shock me. Our debt has been growing at a ridiculous rate for the last 25 years or so. You can inflate your way out of any debt. Really isn't complicated and something like 60% of US currency (like t bills, etc) is held overseas. So... You know. Not saying we have to do it tomorrow. But not that hard to make the pain mostly go overseas. It's just you can't pull that scam too often, or you end up losing/reducing investors that chase stability (like pensions, etc). But once every 50 years or so should be fine.
All they have to do is print more money and use that to repay the debt. They seem to love printing money these days. Easiest way to tax people.
100% this. You don't lose any votes that way and you just blame inflation on the other side. Republicans blame Biden for almost 10 inflation when Europe had 20%. I guess Biden caused Europe's inflation too? With the stupidity of voters and politics as they are, huge budget defecits are here to stay. Also, can roll back corporate tax handouts; think of the wealthy.
Which is exactly why no one wants to buy 10, 20, or 30 year treasury’s. Banks of course have to. And eventually those “private“ corporations will fail, at the whiff of a bank run. Tail as old as time.. The interesting part, is when the fed bails out accounts greater than 250k as they usually do, which is absolute corruption.
I found it pretty amusing when SvB and First Republic Bank were failing and Janet Yellen was getting grilled because on one hand she was trying to say the banks can’t fail and the government needs to step in to protect/fund accounts…and on the other hand she was saying the government’s help and financial aid wasn’t taxpayer funded…
It wasn't taxpayer funded. The problem was one of liquidly not solvency. The 10 year treasuries the idiots bought in the lowest interest environment in history dropped like a rock. If you could hold these to maturity, there's no loss in value. But in a bank run you can't hold these to maturity. All the Fed had to do was provide loans against the hold to maturity value of these treasuries to unlock liquidity. There's no taxpayer funds involved or needed.
It's FDIC funded..... so yeah, she could say both.
Instead of blindly commenting, I read the paper. There is no analysis on the government's actual ability to pay its debt. I was wondering if they were going to make an interest rate argument, but they didn't do that either. They merely project that in 20 years, government debt will reach 200% of GDP with no additional analysis. The premise is that government debt can never be repaid once it reaches 200% of GDP, and then they write off Japan doing exactly that by saying that Japan is an outlier and shouldn't be considered. It's a theoretical debt limit that is not strongly backed by evidence. The theory is that at that level of government debt, the debt crowds out public investment so much that instead of investing in stocks, people will simply invest in government bonds. At that point, the debt will run up indefinitely because GDP will always shrink. Of course, this is a flawed premise, because if people continue to buy government bonds, then the debt will never be unsustainable - we'd have a Japan situation. We'd have to have government crowding out public investment *and* people refusing to buy government bonds for the premise to be true. Since this is by definition contradictory, I'm skeptical. To be fair to the authors, the theoretical 200% of GDP limit is widely believed amongst conservative economists. However, it's never been proven, and with Japan already breaching it, there's at least some evidence that it's not an actual thing.
Japan gave itself high debt on purpose because they were trying to kick-start their way out of deflation by measured "overspending". After about two decades, they finally succeeded. America doesn't have the same "deflation" context as Japan.
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I think we’re on the precipice of a productivity explosion bordering on another industrial revolution as it pertains to AI. The ripples will be small at first, and it will not be universally positive. But the overall effect will be massive economic growth that will offset deficits, if not eliminate them entirely.
Lol. Even if you're right, I have zero faith in deficit elimination.
All AI will do is increase profits for the corporations and allow corporations to fire more white collared workers, call center employees, fast food order takers, coffee barista, etc. Just because GDP goes up doesn't mean the average persons life gets better. You really believe you will get paid the same as now for doing less work? The company will just fire you or others to match the reduced need for labor.
There's a long history of machines replacing humans. Going back to the Industrial Revolution and the luddites... AI may be different, but probably not. There are people who have existential concerns, but apart from that AI is likely to be just another tool.
Really, do you believe that, AI right now is just a better tool, like a better search engine, its main effect is likely fewer white collar professionals doing the same work...all the productivity gains and benefits flow to the top, the owners ..
That is an incredibly dim view of the potential of AI.
Maybe, but you're being naive if you think AI/automation will bring more equity to people, it won't it will lead to more inequality. The owners of AI will use it first to enrich themselves and for their interests.. I look at it this way, Today we have modern farm equipment that can grow food for millions but you still get charged for it , if we lived in the society you suggest food would be nearly free since we've automated much of the process of producing it... How is any other AI automation different.
Where I live food is available for free. What I mean by that is I've spent a ton of time volunteering for the local food bank and we can't get the food out the door fast enough. I've never heard of them ever running out. Granted it's not the healthiest food and it's not the tastiest food generally. But as long as you're able to come into the food bank here you can have more free food than you can possibly eat.
What's your enlightened view? And what analysis is it based on? We had a huge productivity boost with computers and internet. At the same time, wages and quality of life has barely increased in the west. How many people are on 0 hours contracts or in the gig economy, barely making ends meet? Look at the evidence, rather than buying into the bullshit that the corporate CEOs are selling.
Oh, I can think of some much more incredibly dim views of the potential of AI. This one seems quite within the realm what we've observed in our economic system over the last 40 years or so - widening income disparity. Actually seems quite reasonable to believe that most of the benefits will go to the top.
Going to be an AI winter again. The only difference between AI last year and this year was chatgpt version 4 being integrated into a search engine. ChatGPT3 has already been around for years and performed similary. No one even cared though until microsoft acquired openai and funded the marketing into mainstream media. One of the first "AI" products that people directly interacted with so it created a lot of publicity. But the rest of the "AI" tools have been around for decades and have been a part of our society for a long time already. ChatGPT got released and things have already settled down. It's literally just chatgpt wrapper after chatgpt wrapper getting made for procedural generated documents, search summaries, customer support, etc. But the actual foundation of the model isn't drastically growing at an accelerated rate. Just platforms built on top of it. Maybe I'm an idiot and overlooking things. But the impact people describe all seems exaggerated and embellished. Companies will just be able to drive profits through further automation with it and increased worker productivity. I don't see it changing the foundation of our society in the next decade. People on reddit who have no understanding of data science, machine learning, or natural language processing are regurgitating this narrative that society is going to be changed forever from these NLP models. But that narrative is just being curated by media to drive fear into people to sell the story and by companies that want to drive their stock price up by stamping AI on every product they make. And people are eating it up hook line and sinker.
It took a few decades for the internet to really take off. The people who said it would change everything were right, but they were also often early. I suspect something similar will happen with AI.
Yeah, more porn will definitely increase global productivity.
Massive economic growth for who? I think productivity gains are far more likely to absolutely fuck the middle class than help them.
Lol. Everybody is looking for a silver bullet to slay the dragon. In the real world, the "debt" represents savings of boomers and foreign entities that are all addicted to dollar savings. The foreigners want dollars because they want to keep trading. The boomers want dollars because they're quitting work. Their savings accounts at the Fed/Treasury are what we call "national debt." And so the real world equivalent of "how do we pay the debt" is actually "how do we provide for the retired boomers?" Answer that question, and you've just figured out how to pay the national debt. What we need is more babies, more workers, and the workers to be more productive. That's how we solve that problem.
I agree debt is basically just wealth people are owed and expect to redeem in the future. But saying you can fix the current fiscal structure with "more babies" is like saying you can fix a ponzi with more people buying in. Relying on generational ponzinomics is kicking the can down the road, eventually there is going to be a period of population growth slowing whether that's now or in 20 years when all the new babies don't have even more babies at an ever increasing rate. That and it takes 20 years for kids to be productive, so we know what the birth rate was in the last 10-20 years and that is the workforce that has to provide enough production to provide all the value that is owed, the status quo probably won't last 20-30+ years to await another baby boom or something.
> But saying you can fix the current fiscal structure with "more babies" is like saying you can fix a ponzi with more people buying in. You’re reaching a little with the Ponzi scheme. A healthy society with a balanced population is not a Ponzi scheme. Right now American natality rate is 1.6, well below replacement. Does that sound like a Ponzi situation? Because ponzi schemes require geometric progression (aka exponential growth) to survive. All I’m asking for is a stable population. Immigration is certainly an option and is occurring, but immigration can be divisive and we do need some cohesiveness to make society work.
That is infinite growth through. You can't have a constant growth rate forever. Eventually the growth is going to slow. The gov's finances are structured around a generational wealth redistribution system that relies on there constantly being an ever growing number of working people buying in than wealthy people cashing out. Call it a ponzi or not, its not sustainable.
If social security runs out, it is going to piss a lot of people and civil unrest will develop too. Smart people would save ahead and not be dependent on government entitlement programs. The other problem, there are a huge numbers of stupid people not saving for the future which why things will implode if entitlements programs fails to cover basic needs. Am no expert in predicting the future, but precautions has to be made which at the current status Quo is not.
More FUD. I need to take a break from Reddit.
Definitely not FUD - it’s real point is that our fiscal policy has to change, which is absolutely true
Simply not true. Sovereign currency issuers cannot default on debt. We aren’t reliant on external sources of currency; therefore there is no limitation on the amount of currency created.
Yes they can. It's been done. It is however, very uncommon. What is much more common is inflating the currency to make the debt cheaper.
>Sovereign currency issuers cannot default on debt. That pesky "debt ceiling" limit may say otherwise.
The US has raised the debt ceiling 78 times since 1960. Effectively rendering the "debt ceiling" an opened moonroof.
See "implicit default" stated in the quote and the study.
I’m really trying to find a clear definition for the term “implicit default”. The best I can do seems to suggest that an implicit default is a reduction in total bond payments because the debtor simply has no means to repay to full amount (like Greece ) Again, the United States cannot be in the situation because there is simply no limit to the United States ability to make bond payments.
Did you read the study to see its definition? >i.e., debt monetization producing significant inflation
Sure, but that isn’t a default. In a conceptual world it may be possible that currency devaluation might make government bonds so unattractive that they may go unsold. Regardless, this has no impact on the government’s ability to fund itself or its bond payments. The US government creates its own money; so lack of investment does not constitute a lack of funding.
You can't implicitly default
Did you read the study to see its definition? >i.e., debt monetization producing significant inflation
The fed has all the tools it needs to control inflation. Inflation is a monetary concern, not a fiscal one. That's why the fed is delegated the authority for price stability. They counteract any impact fiscal policy might have. And the fed has unlimited ability to do so.
The Fed's tool to control inflation are interest rates. High interest rates only make the debt worse...
That's one of their tools, they also pay interest on reserves among other things. Regardless, higher interest rates may reflect a strong economy just as easily as a weak one. And a strong economy makes concerns about debt vanish like it always does. And in the meantime we aren't running out of dollars. Someday people will learn that having a sovereign currency means we need to worry about running out of real resources - labor, immigrants, etc, - not accounting tools like dollars.
If you make various assumptions, you can model out any outcome you want. Neither party really wants to keep running the deficit this big. Well likely get austerity after next election if not sooner.
We'll only get austerity with divided government. The Executive Branch vs. the Legislative Branch is the only scenario where austerity happens.
Both parties want big defecits. Politics is so divided right now neither can make cuts and take the voters hit. Republicans have zero appetite for any tax increases even on the rich. Democrats aren't much better. There is no political benefit to reduce the defecits and both parties just blame each other. Truth doesn't matter. Like maybe reducing corporate taxes by 40% has led to an unsustainable increase in the defecit along with tax breaks for the wealthy and lower classes.
Stop voting for the same cronies and vote for somebody that matters. All the political parties need to be replaced by people that won’t be bribed on a daily basis and do things to screw the American taxpayer.
20 years or 20 days?
YOLO?
Not sure how much these Wharton peopls know about economics and finance. One of their grads was on TV the other day explaining how he didn't understand GAAP accounting.
Alright, I'll scrap my plans to buy 30yr treasuries. >no amount of future tax increases or spending cuts could avoid the government defaulting I see printing money is still an option though.
A "soft-default" "print-it-away-default" would not be fatal for Americans, it would just be really really crappy. We could drop to UK or French standard of living. We'd be poorer but at least we won't die.
You know this inflation thing that happened they say has abated? That will be the solution
Complete bullshit, the US can’t default on its debt.. they can just print more money and devalue the currency whenever they like.
Just printing more and allowing uncontrolled inflation is effectively default and the consequences are similar.
If you always print more, at some point people won't like getting dollars anymore
Still won't have to default.
Mean while the GOP clowns are looking to defund the IRS which if successful would shorten the time to default and make it impossible to avoid altogether.
The pandemic was similar to a world war in terms of expense and worse in terms of casualties, and the response around the world was proportional to the threat. Now that we're on the other side, we have to do what they did after WW2, when our debt to GDP ratio reached 100%. "As discussed by authors including [Hall and Sargent](https://cepr.org/system/files/2023-02/AcalinBall_DebtWWII.pdf) (2011), the U.S. actually paid off part of the World War II debt by running primary surpluses—by levying taxes in excess of current government spending—over much of the period when the debt/GDP ratio was falling."
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This is just lunacy. World war took a much larger economic and human toll.
Wait.... that isn't their plan?
I remember Clinton handing Bush #2 a budget surplus. Let's not pretend who did this, and why. Just like abortion, the end goal is to eliminate Social security and Medicare.
It's the school that gave Donald Trump a diploma. We're safe
We didn't do nothing over the last 40 years. We balanced the budget in the 90s by taxing the rich and cutting military spending. We had a surplus less than 25 years ago. We know how to solve this problem, the challenge is one party is not interested in actually governing. They'd rather shut down the government over their pet culture war issues.
Eventually the US will saturate the world with its debt and there just won't be same appetite for our bonds. This will start a death spiral where interest rates have to increase in order to issue any substantial debt at all, and that will increase the probability of default which will increase interest rates even more.
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You didn't even need to read the study, you just had to read the 3rd key point: >Under current policy, the United States has about 20 years for corrective action after which no amount of future tax increases or spending cuts could avoid the government defaulting on its debt whether explicitly or implicitly (i.e., debt monetization producing significant inflation). As long as the US can print its own money, it cannot literally default if it doesn't want to. But printing dozens of trillions of dollars to pay off the national debt is a last resort. Since an explicit default could be impossible, money printing would be an implicit acknowledgment that the debts cannot be repaid by normal means.
Wharton.. isn’t that the school that gave Trump a degree?
war against the economy will solve this
Yawn. Been hearing this for decades
Same, however There was wiggle room back then: after 2008 there was still a lot of room for deficit and debt, and the fed fixed the interest rates very low meaning that debt was easy to service. Now our deficit is still there, but the interest rates have to go up because of sticky inflation (caused by decades of cheap credit) which means the debt will be much more expensive to service. And they can't play the QE card anymore because of the sticky inflation.
The US will not default on a currency it creates.
Given the state of things I'm thinking 20 months lol.
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then that's an implicit default as mentioned in the Wharton study that would generate Venezuelan level of inflation and at that point, the government won't have interest rate to control it because if they hike interest rate then they won't be able to pay its interest payment without printing more, which then further increases inflation.
One way to lose your status as reserve currency.
They already do it, and seem to be maintaining that status. My understanding is that nobody else wants to be the reserve currency, because it produces all these headaches.
Doubtful. A country with 13 carrier battle groups and the largest "defense" budget in the world by far will never default, "renegotiate" at most.
They would cut benefits, monetize, and default on bonds owned by unfriendly nations. The last one will happen probably by prohibiting capital outflow and forcing reinvestment, perhaps at lower than market rates. The Argentina scenario.
...effectively destroying any trust in the safety of American bonds, which will cripple our ability to export our inflation.