An interesting article by Penn Wharton, University of Pennsylvania, says the limit of debt as a percentage of GDP is about 200 percent, When does that happen?
Penn Wharton Budget Model (PWBM)
Summary: PWBM estimates that—even under myopic expectations—financial markets cannot sustain more than the next 20 years of accumulated deficits projected under current U.S. fiscal policy. Forward-looking financial markets are, therefore, effectively betting that future fiscal policy will provide substantial corrective measures ahead of time. If financial markets started to believe otherwise, debt dynamics would “unravel” and become unsustainable much sooner.
Please consider When Does Federal Debt Reach Unsustainable Levels?
Key Points
- The U.S. “public debt outstanding” of $33.2 trillion often cited by media is largely misleading, as it includes $6.8 trillion that the federal government “owes itself” due to trust fund and other accounting. The economics profession has long focused on “debt held by the public”, currently equal to about 98 percent of GDP at $26.3 trillion, for assessing its effects on the economy.
- We estimate that the U.S. debt held by the public cannot exceed about 200 percent of GDP even under today’s generally favorable market conditions. Larger ratios in countries like Japan, for example, are not relevant for the United States, because Japan has a much larger household saving rate, which more-than absorbs the larger government debt.
- 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). Unlike technical defaults where payments are merely delayed, this default would be much larger and would reverberate across the U.S. and world economies.
- This time frame is the “best case” scenario for the United States, under markets conditions where participants believe that corrective fiscal actions will happen ahead of time. If, instead, they started to believe otherwise, debt dynamics would make the time window for corrective action even shorter.
Debt Clock
The Debt Clock and other sites exaggerate the problem.
If you have not seen the Debt Clos before, I suggest you click on the link. It is updated constantly and shows how fast things are getting out of hand.
Debt to the Penny
The US Treasury site Debt to the Penny separates out intragovernmental holdings without the constant update every second that makes the Debt Clock fascinating to watch.
The good news is that the debt clock exaggerates the problem. That is the extent of of the good news because the setup is still dire at current rates of debt growth. With that let’s return to the PWBM.
Importantly, in theory, the SSA interest rate projections are not intended to include the impact from historically unprecedented, mounting future government debt itself. Candidly, however, at this point, some arguments about debt and future rates become circular in modeling discussions. However, both authors are experts in SSA estimation methods—with one of the authors currently serving on the Social Security Advisory Board and the other author serving on its most recent technical panel. The larger SSA rate is mostly guided by historical averages rather than forward-looking estimates that incorporate future debt. Indeed, SSA generally does not attempt to incorporate federal debt into its own forecasts even though this debt can erode the size of the payroll tax base that supports benefits. We will return to this topic in another brief.
Table 1 then shows the impact on the debt-GDP ratio if financial markets start to demand a larger return before unraveling, equal to an additional 50 basis points (b.p.), 100 b.p, 150 b.p. and 200 b.p. Even the highest return at 200 b.p. is not far-fetched. However, additional rates closer to 50 to 100 b.p. are more reasonable in the short run, as some borrowing rates are already locked in at a weighted average duration of about 6 years.
Penn Wharton Projected Debt
The PWBM baseline suggests things will start to unravel around the year 2050.
But if interest rates are higher than projected by 100 basis points (one percentage point, e.g. 6 percent instead of 5 percent), things get out of control starting 2045.
Gold Has a Message
In case you missed it, please note that gold hit a new record high last week.
Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
In case you missed it, please see Debt to GDP Alarm Bells Ring, Neither Party Will Solve This
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
That’s also the message of the Treasury market and gold. Bitcoin advocates would say Bitcoin as well.
I would speculate interest rates will only increase as the government borrows more. The market controls the interest rate and the fed just follows. The market is a lot more tuned in and will demand a higher interest rate from a borrower that will keep needing more and is out of control. Plus nature and other disasters like COVID could even require more gov spending going forward. I don’t think Mr market anticipates inflation at this point it’s looking at default issues already with these higher interest rates.
Sadly, the US pissed away the money withheld for workers and matched by their companies a long time ago. The true debt would include the present value of social security, medicare, medicaid and obamacare if they ever accounted for it.
because we are paygo on all of it, the cash flow deficits well just keep increasing until we get austerity.
and remember, when the administration talks deficits, its well below the increase in debt, another shell game. Which is why auditors do balance sheet audits.
Of course the people and corporations who benefited from us going into debt will be right there to buy up all the assists( blm land etc) at bargain prices.
What i wonder is how much of the economy is supported by ss/ food stamps / medicare/ military spending/ Obama care / war on drigs. And so on
More government intervention= more problems
So a few questions
There are only three options. Pay off the debt, default on the debt or inflate it away. We all know what the choice will be. And it will come much sooner than the 200% of GDP.
Inflating away debt seems impossible.
If it could be done we would have done already.
It can’t be done unless government spending is also cut, What Jannet Yellen calls “policy reform”
What a bunch of cowards. Stop pretending we have many years before the crash comes or until we reach an arbitrary 200% limit. Years ago, the ECB set their loan limit to 100% of debt to GDP, unless you implemented tax increases and/or austerity measures. General Strikes, Black Markets and cowardly politicians crushed those plans. To fix the problem they just changed their assumptions and calculations and pretended that the problem wasn’t that bad and got appointed/reelected. Kind of like Penn Wharton and Mish have. Can you answer the question: If you smoke 2 packs of debt each day for 50 years, when will you die? My answer would be Sooner that you think and with little warning.
Where are the ideas of Mish followers to educate the public and address the issues rather than just moving to Montana and becoming a Prepper. If you reply with your plan, I’ll reply with mine. I’ll support the best idea this group comes up with.
Debt jubilee. That is what used to happen every fifty years in decent societies. See what famous works say about usury.
No more investing. See my comment below. Pay as you go with the money you earn by the sweat of your brow. You know, being back the old Protestant virtues.
No more “Haves and Have Yachts” [New Yorker]. No more $500,000 watches for someone to add to the collection [various]. No more art that sells for $150 million. Time to understand that “art is what you can get away with” [you know who].
Austerity, which will probably be forced upon us rather than self induced. Either way we get chaos beyond belief.
start with taking 4 trillion out of govt spending to balance cash flow.
what goes??????
The government has had its hands in too many pies for far too long. We need to go back to the original constitutional outline for the “federal government” and let the states, charities, and corporations take up their roles again
The side issue few want to discuss is that our overall population growth is slightly above zero. Ponzi schemes do not work so well in that situation. Nor does GDP growth.
them lets complicate it. The growth is coming from illegal immigration , mostly many single men without true skills, and thats HHS data. Thats while traditional family formation is down. So we have a problem now that worsens exponentially down the road, and that was not taken into account.
now, i like this next line, we have a clear and present danger. It can blow at any time.
Long term money related issues are so overrated! What matters is family, friends, real estate and other assets, health, stability… things like that.
All the money in the world, plus stock plus derivatives plus pension plans plus debt and what have you, it altogether just a bit of a future promise that John owes the rest of us and we all owe Mary something.
When things get tough, it’s just that many of these promises vaporize. Too bad for everyone putting long term faith in money, good lesson though. All things that matter, as mentioned above will stay – well stability may take a hit.
The actual point of change will occur when the debt markets say “enough”. It could happen soon, or 20 years. A gut level read says soon enough, within the next couple of years. What options are there? Keep spending is the only way to keep the game going, stop it and everyone then realizes what a charade it is. There are no good options, the inflection point arrives when the general market says enough, or really recognizes that swapping debt around can no longer continue. Math or guesstimates really only show a hard date. Human psychology can produce a hard date no one estimated, overnight. Yes, what I’ve said is obvious.
So, basically, we’re fucked.
Nothing would be better for North Koreasns than the North Korean government going out of business. And the US is not even the tiniest fraction of one iota different.
Beacause we let the FED in, in the first place
“Summary: PWBM estimates that—even under myopic expectations—financial markets cannot sustain more than the next 20 years of accumulated deficits projected under current U.S. fiscal policy.”
How long is a life cycle of current fiscal policy?
Not long, we hope.
So let’s see… 20 years, Baby Boomers Avg.? Age Is roughly 70, Umm…
Yep, that will wipe out the rest of the BB Population, and with it a lot of Values & Traditions that may not carry over with the upcoming Generations.
This may fall under the “Be careful what you wish for” category…
1st off STOP putting govt spending into GDP
when that happens watch the debt to GDP explode
it’s not like govt spending is getting taxed
You are correct…The “government” does not “produce” anything so adding their spending to GDP would not be logical at all
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
Human nature and the rise and fall of empires. Haven’t seen it, but there is a new movie of Napleon in theaters. The French had a revolution just after the American colonists and along comes this Napoleon in France, and he decides to invade Russia and have a Waterloo moment. It’s the same old playbook, down through history and humans haven’t learned to close it permanently, and do something else.
Project for a New American Century.
The United States is a dead man walking. It just doesn’t know it yet. It will fuss around asking for ‘stays of execution’ until it runs out of appeals.
Intragovernmental holdings is social security right? Sure government doesn’t have to pay it back and it wouldn’t be in default, but politically this is near impossible except in an emergency, so it is fair count it as the interest cost goes to the beneficiaries of SS not the federal budget.
At 1.32x debt to gdp, every 1% rise in interest requires 1.32% of nominal gdp growth to pay it. This doesn’t happen immediately obviously, but if rates stay at elevated levels and deficit spending continues at 7% of gdp levels then you will face a problem eventually, and maybe far sooner than 20 years
What measure of debt matters? From Mish’s article near the top, consider “The U.S. “public debt outstanding” of $33.2 trillion often cited by media is largely misleading, as it includes $6.8 trillion that the federal government “owes itself” due to trust fund and other accounting. The economics profession has long focused on “debt held by the public”,”
In my opinion we ought to consider unfunded liabilities. Those are promises the government has made, such as Social Security checks, but doesn’t have the money to pay. Politics and the economy will not look good when the due date for the promises comes and payments are not made.
As for the debt : GDP ratio, consider how much of the GDP can be diverted into government spending. Economist Art Laffer would remark “Not as much as politicians think!”
With the central banks in control of the world and they cannot stand deflation, they will continue to create more debt until they cannot.
…but they’re not in control, the shadowbanking system is…
money supply is shrinking. seems like we are in 1st innings of a debt spiral. we haven’t been here in forever………..
https://finance.yahoo.com/m/69c7afe0-fdfd-3766-8599-0641070d2d92/u.s.-money-supply-is.html?.tsrc=fin-srch&a20_comeback_from_auth=1
For an individual, the point of insolvency is when debt payments exceed Income – taxes – living expenses. A country is different, but debt payments have to exceed something else, such as the combination of the market price for natural resources, ability to tax individuals and corporations, any trade surplus, and the lender’s desire to let debt grow.
we can sell off tons of assets of federal land and resources like military bases around the world……………how other empires went bust………….and whithered to nothing…….
Sell to whom? The whole world is in a debt crisis, the USA, China, the world economy is a closed system and the USA is the largest consumer market. There is no other economy with domestic consumption big enough to buy it out. Only aliens could breathe growth back into the Earth economy.
plenty of r/e investors would buy the federal and state owned properties from ocean front hawaii, california, okinawa, germany, italia…………..many entities have dough re me . don’t be stupid.
The root of the problem is not money. Investment is the cause of it all. “Make your money work for you.” How about you work for your money? Are you just lazy, a taker of the worst kind, nothing but a parasite? Investment makes slaves of the majority and slave-masters of the minority. It takes a civil war to end slavery.
The government is the biggest “taker” of them all
Join assholes in discussion. Mish I have been with you more than anyone else all these years 25 maybe having supported you so you know on the weekends I get all inspired so as I thought we were friends as you at least used to delete my embarrassing comments???
At some point, the bond vigilantes will emerge and force interest rates significantly upwards, putting intense pressure on the entire deficit/debt model
Or maybe not. If we are in a depression, then there will continue to be an insatiable appetite for “risk free” safe and liquid assets. This can go on for a long, long, long time.
I think we’re in a depression. How can we not be? We’re in a trade war with the biggest manufacturer on the planet, China. We’re in a pseudo war with Russia. High tech has down sized a lot of jobs. Think gig economy. We’re stumbling out of a pandemic. But stores are still semi-operational. We’re all still eating in. And companies are downsizing staff. The government’s figures are all bogus. I don’t trust them.
The pandemic seems like a deliberately manufactured event to try and head off a global economic crisis that already started. All these models and projections are of limited use because they can’t include unexpected global shock events, unnoticed trends, or miscalculated risk.
As a “bond vigilante”I’ll be happy to force long-term bond rates to 10% (that is if inflation is zero).
What can’t be paid won’t be paid. The easiest way to default is by hyper inflation that debases the currency and allows the US Treasury to pay off the debt in worthless dollars. Jerome Powell and Janet Yellen have ~25% annual inflation underway.
Doesn’t have to be hyper.
2% inflation works just as well, it just takes longer.
Debt:GDP is the wrong metric, no matter how often economists cite it.
If your store has a turn over of $200K but earnings of $5K, are you servicing your $300K debt from the turn-over or from earnings? Obviously from earnings, since you have costs and need to buy more inventory.
The relevant metric is Debt:Tax-Revenue; that metric is much worse, in fact, the US has a comparatively (to other nations) poor fiscal foundation.
I AGREE 100%. Debt to GDP is just idiotic. It assumes there’s this huge piece of the pie that’s untapped. Well, we’ve proven that we’re not going to tax that big remaining piece of the pie to pay for all this debt we’re accumulating. As GDP grows, Congress continues to show they’d rather cut taxes.
The Q3 annualized interest expense is $981B and that will grow to at least $1.1-1.2T before the Fed starts to cut rates. If inflation doesn’t cooperate, we could be looking at nearly $1.5T in interest by the end of CY 2024.
The Q3 tax receipts were $2.792T, down significantly from the high of $3.131T of 12 months ago. Most of that is lost capital gains taxes which will drop further, if the stock market finally figures out reality.
exactly. mish obsession with gdp is too silly. almost like most amerikans who never understand basic accounting. as you simply explained. pax amerika is almost busted. raygun already showed that SS taxed but unlimited funds for MIC is the way we have been going for 40 years and will ride this nag into the ground. the middlebrows will pay. MIC and bankers will ride until they are busted after the peasants………..40 years now. same going forward. trumpy or biden. makes no matter.
Also related to trade balance. Massive trade deficit for many many years , US will hit the brick wall soon.
That’s the price of being the global reserve currency.
Q. How is hitting the Debt Wall like Nuclear Fusion?
A. It’s always 20 years away.
Been listening to both stories for 50 years now.
Neither story has stopped me from working hard, saving and investing for a brighter future. Which to me, is a far bettter use of my time than focusing on things I have no control over and may never happen in my lifetime.
Good for you, PapaDave! Glad to see you continue to take personal accountability for your bottom line & financial future. But that doesn’t mean America’s debt trap moment will always be 20 years out.
Just go ask MSFT who’s signed an agreement to purchase fusion-based power from Helion energy as early as 2028.
It took me awhile to figure that out. In 2008 I paid off debt and put much of my liquid savings into gold, expecting a system reset and a major revaluation. For the next five years all of my savings went into gold. By 2012, it was pretty clear that no system reset was imminent. So from 2012 I went back to living my life — meaning no new gold purchases, no expectations that the world would come to an end. Fast forward to 2020. This may be the moment, I thought, so I started allocating some savings to digital gold (BTC). These days I sleep like a baby: eight uninterrupted hours per night. I think the major system reset might be next week. Or 20 years from now. Or 50 years from now. I really do not care when it happens.
I am not a fan of gold or bitcoin. But that’s just me. Not worried about market crashes, system resets, global depression, etc. even though they are possible.
I find that there is no point worrying about things I can’t control. Just be as prepared as I can be by continually working on my health and wealth.
Not worried about global warming, even though I understand it is going to get worse. Its a slow moving problem that won’t affect me too much in my remaining life.
Best to focus on what we CAN control.
You sound like a government shill.
This is a stupid post Mish.
The people taking out this debt have zero intention of repaying – for them there is no unsustainable level. The people who will someday be asked by foreign creditors have little or no say in the debt issuance or how that debt gets used.
Pelosi, McConnell, Biden, Trump, Schumer — A bunch of octogenarians racking up debt they will never repay even under the most optimistic scenarios. Of course they want to issue more debt in other people’s name. What a stupid question, even a dementia patient can figure that out.
The avocado toast generation that will get the bill never even got the education they were promised. Instead, they got a bunch of marxist political indoctrination.
To add further insult, Mish presents the opinions of academics — people who pay no taxes. UPenn pays no income tax, no property tax, no sales tax. They issue more debt at tax exempt rates, they don’t even pay that. And they underwrite student debt, again at tax advantaged rates, to finance UPenn’s second rate product. Alum who think today’s UPenn is producing the same quality product as years ago are not worth listening to; today’s education “product” is low quality, high priced trash.
Do the scam artists with PhDs think someone else should carry extra burdens so the scam PhDs can continue living beyond their means? Shocker. They think more sacrifice is needed, as long as it comes from someone else.
Mish ignored the BIG PARTY in Doha this weekend, COP28. Hundreds of worthless parasites flew in on fossil fuel powered private jets, hopped in spacious fossil fuel powered limosines trailed by “support vehicles” full of the parasites luggage and ego entourages to converge on a giant auditorium with fossil fuel powered central A/C. These pompous windbags sat around eating fois gras and talking about the sacrifices they won’t make themselves but other people should. Fuck them all.
king (lowercase) Charles, who commandeered additional RAF jets to bring his armored limos (plural), did not bring his stables (plural) full of farting horses and cattle. But he gave a speech in which he declared the emergency need for others to make sacrifices he himself is unwilling to make. If any of the crap spewing from his mouth was important, why doesn’t he lead by example? or at least show up in one private jet instead of four. What a worthless little man. Yeah, I know his ancestors built an empire, but he didn’t.
Does Mish really expect to win readership quoting a bunch of tax exempt academics how much debt in someone else’s name is too much?
PS — the “chief” dutch idiot / general claiming to run NATO admitted that things in Ukraine are even worse than reported. NATO is fracturing, member states have run out of military hardware and ammo that they didn’t actually pay for (or buy), and Biden’s war itself is going very poorly.
Germany’s military dude (since he doesn’t command an actual army, he isn’t really a general) stated that Germany’s military could not sustain operations for more than two days if Germany was attacked.
Biden’s war in Ukraine revealed that NATO is a paper tiger. It could not project power into Iraq or Afghanistan or Syria or Libya … but those are far away from Europe, where NATO expected to fight. Turns out NATO is useless in Europe as well.
Biden’s regime started with humiliation in Kabul, and it will end with another humiliation in Kiev. No wonder he wants to run on his failed economic policies
I consider Bobba’s analysis to be optimistic. Really.
I think letting our ‘government’ print and spend US dollars without end is like allowing my drunken brother-in-law to use my credit card with out any restriction.
They don’t print dollars, commercial banks extend credit to create them as loans; most dollars are created completely outside America by shadow banks passing through the UK & Switzerland, to facilitate global trade. USD inside the USA are a fraction of the USD in the world.
They are all going to come flooding back, and a tsunami of inflation will be the result
Taking the card away (that was given out with the promise of the government solving all our problems was a big mistake) is the only solution, something our founders knew a long time ago.
i thought the same thing reading that malarkey. waste of 10 minutes i won’t get back. mish is confused as all heck.
“Pelosi, McConnell, Biden, Trump, Schumer — A bunch of octogenarians racking up debt they will never repay even under the most optimistic scenarios.”
It isn’t just a a bunch of octogenarians, there are 531 members of congress, which join in with them, depending on their over spending priorities. The Green New Deal isn’t just for octogenarians.
And those 531 members of Congress weren’t educated on basic economics (either)
I stopped reading the Penn Wharton article after their 1st bullet point that assumes intragovernmental debt doesn’t matter.
Well, guess what? It does matter. As it matures, it’s ALWAYS rolled over to public debt, so YES, it matters. The only sticking point is that this debt is mostly 10Y+ in maturity, so it does take time to hit public debt books so to speak. It’s growing as well and represents a KNOWN public liability.
SSFT (OASDI) “officially” goes broke in 2033 and that date will push forward to 2030 in the next 4-5 years. Medicare Hospital Insurance TF, Part A, goes broke in 2028. Part B is funded out of general revenues and the costs are expected to rise from $1T in 2023 to $1.8T in 2030. National defense expenditures continue to go up, and we’re getting a lot less for more money spent these days. What is the Green New Deal going to cost? When does real college loan relief hit? How much more are we going to spend on Ukraine only to see them enter a ceasefire with Russia. Within a year, we’re going to be spending at least $300B annually on illegals.
Who in their right mind thinks it’s going to take 25 more years for us to reach “the tipping point”?
And none of this takes into account all of the growing social unrest or the geopolitical landscape that continues to deteriorate. It seems like the only thing holding everything together nowadays is the buoyancy of the stock market. What happens to that when China blockades Taiwan as a prelude to a real invasion?
Intra-governmental debt does not matter for fiscal sustainability. Try to think about it this way: assume the government consists only of the federal government and the SS system. The federal government issues debt of 100 to cover its accumulated deficits of 100, and the SS buys 20 of that debt using its accumulated surpluses of 20. The government as a whole has a consolidated debt of 80 because its consolidated deficit is 80. If the SS system would have put the 20 into Canadian instead of US bonds, the net debt of the government would still be 80 (=100-20).
I KNOW EXACTLY HOW IGD WORKS, ALBERT!
It’s a long-term public debt liability, because as the bonds mature, we pay off the bonds with public debt. Therefore, it’s a known long-term public liability. What part of that do you not get? To act like it doesn’t matter is exactly the kind of thinking that got us into this HOT MESS. Granted, its effect on the public debt is spread out over many years, but IT STILL MATTERS!
You act like it’s QE money that the Fed eventually destroys after the Treasury repays the QE bonds during times of QT like we’re in now. It’s not like that. These are real IOU liabilities. In fact, it highlights how fiat-based our currency has become. We keep loaning ourselves more and more money only because we can’t go bankrupt. Well, the last two years of 40-year high inflation has brought that misconception into laser focus.
Also, it matters because it represents 20% of the Ponzi scheme debt that we’ve created. We’re playing accounting gimmicks to rob Peter to pay Paul. That’s nothing to sneeze at, Albert!
Sorry, this is an accounting issue; there is no ideology involved here. We would need to sit down for a coffee with a pencil and a piece of paper. I guarantee you that it doesn’t take more than 4 hours to convince you.
Bank reserves aren’t money; QE isn’t “moneyprinting”, it’s a meaningless, useless asset swap with no real effects.
“it’s a meaningless, useless asset swap with no real effects.”
Without QE, effectively no US bank would still be in business. And hence, neither would any US business dependent on a steady flow of credit. Is that your idea of “no real effect?”
EACTLY! Thanks, Stuki!
And both are wrong with my point about intragovernmental debt being paid off by public debt.
Again for the millionth time, it matters because it represents a REAL public debt liability that slowly becomes part our outstanding PUBLIC DEBT that we MUST pay interest on or we go into default.
It’s idiotic for anyone to take the position that QE is meaningless. QE had enormous, bad consequences for the housing market. It was thing that allowed the Fed to buy MBS and to suppress mortgage rates for more than 2 years. The whole housing mess in terms of prices being so egregiously out of whack is directly attributable to QE.
Like you correctly point out, without QE in 2020 would have been the 2nd great depression. No QE would have forced the government NOT to have taken such an EXPENSIVE path in SO MANY WAYS in addition to COST in terms of COVID. We wouldn’t have been able to shut down the economy and pay people $50K+ a year not to work.
It’s just stunning what these yahoos can come up with.
The reliance on the “steady flow of credit” (at interest) is how we arrived here in the first place
Governments do not have debts or assets. The Funds (like General Fund, Highway Fund, etc) have assets and liabilities. Funds are legal entities and governments do not consolidate their statements like corporations do.
”Governments do not have debts or assets.” OK, from this it follows they don’t have debts. Is that what you are saying?
”Funds are legal entities and governments do not consolidate their statements like corporations do.” OK, but every national statistical office does exactly that to get to the general government balance sheet.
Obviously not for ideological reasons – it’s just accounting, isn’t it? This is not a sentence, it’s just a series of words…
The individual Federal agencies issue financial statements that are then consolidated into financial statements for the totality of the U.S Government.
https://www.fiscal.treasury.gov/reports-statements/financial-report/financial-statements.html
They are not GAAP. This is not a GAAP consolidation.
Not even close Albert. What they call the SS Reserves is just the debt that is called the InteraGovernment debt. The Treasury Dept. Issues T-bills and pays the $ to the SS Trust Fund, AKA thier reserves. Then the SS pays out benefits to Boomers. No debt it paid it is just Refinanced. The total National Debt stays the same. There is a never a surplus.
There are no reserves. They have all been spent.
It is impossible to have “reserves” and be $34 billion in the debt
We have 20 years assuming the GDP does not collapse. But without exponential spending to keep up with CPIflation, the GDP WILL collapse. But wait, the fed is aggressively handing the CPIflation issue, right???
And that is where the big lie comes in because in order to handle CPIflation, rates have to stay high. And that means US debt rolls over at double or triple the rate from before so that service on the debt eats us alive.
Finally, and here is what very few understand, the fiat currency is fake money with zero intrinsic value, propped up only be confidence in the issuing authority. We are now at the point where only a fool would have confidence in the US being able to keep the Global Debt Ponzi (GDP) going for more than another 1-2 years. Massive inflation will set in even without new debt or new money printing simply because people are waking up to the fact that we accepted fake money as if it were real and now we as a nation are waking up.
Just wondering. How do you go from 20 years to 1-2 years?
I certainly don’t disagree with the overall points made.
The fate of US debt will be decided outside the US as obviously the system constitutionally cannot deal with it internally, which is a scary prospect.
Did Rome bring back her soldiers from Britain as it was collapsing, or left them to their devices?
The Fed might raid bank accounts to control the long duration rates. The lowest rate might shift to the left. The spread between the 3M the middle and the long duration will grow. No money for shingle mums, restaurants, ppp loans for small businesses.
The QT will flip to QE, to support the gov, nothing else.
I am surprised by the lack of post about the COP28 get-together of the world top polluters, their forum for chastising the yokels, and feigning surprise that the world doesn’t see the climate emergency they so clearly see.
Then hop back onto their private jets.
Okay. I will post something.
In the 13 years between COP15 and COP28, worldwide demand for energy has increased by 1.5% per year. 80% of that increased demand has been met by fossil fuels (1.2% per year). There is nothing to indicate that this scenario will change anytime in the near future.
Demand for oil in 2023 has increased by 2.4 mbpd to 102 mbpd.
Got oil?
Oil is linked to global trade, until other energy sources supplant it, oil will rise and fall with trade, demographics, war, etc.
Partly. Oil is more directly linked to population growth and economic growth.
SPAM?
In 2008 gov debt was 10T. Today 34T. What matters is debt maturity. In the next
year and a half 3T of corp debt, mostly junk, and 7T of gov debt will be re-financed.
That is a total of 10T less liquidity available to the market. Less for mortgages, less
for businesses and less for stocks. The liquidity tsunami will be drained.
It’s not $10T in less liquidity, since that is all debt that is getting rolled over. Closer to $400B less liquidity.
I just don’t see that ANY % of debt makes any difference. They can change laws and “print” whatever they want indefinitely. After that, all that matters is the rate of inflation. So far, regardless of how dysfunctional the US has become, inflation is still low.
We’re constantly warned of disaster but it never comes, so something is wrong understanding the subject. Japan has been getting away with monetary silliness for a very long time.
My guess is 10-15 years from now. Social security and Medicare will be cut. National sales tax (VAT) will be put in place. Federal lands, bridges, airports, highways, etc. will be sold and privatized. A CBDC will be quite effective in confiscating wealth to pay off the debt.
I think China will have purchased a lot of federal lands and other assets as well.
They must like natural resources, like rivers and such because I’ve heard talk of them buying the executive branch, or some such nonsense.
China is broke, haven’t you been watching?
Depends on how bad the “recession” is.
It might be sooner than anyone thinks if 1/3 of the 2017 tax code is overturned
https://www.wsj.com/us-news/law/one-supreme-court-case-could-mess-up-chunks-of-the-tax-code-680a9ba6
As a kid I was given baseball cards, Star Wars, hot wheels, and my parents paid tax on those. If I put those objects on eBay NOT as a business but if someone just selling their stuff at a garage sale, I have to pay tax on those sales. That’s not income. I get a 1099Q from PayPal and my accountant thankfully zeros out these things.
In addition, I now pay tax on my income. I purchased golden silver bullion from various businesses, paying a tax. Overtime my taste changes and I decide to sell some of these things and yet again, I have to pay a tax. That’s not income. I hope the Supreme Court blows the tax code out of the water.
GDP includes all war related expenses too, doesn’ t it ? Jolly good job ! Nothing can go wrong !
When people start losing faith in the government. Still good for now but keep printing and mismanaging things in general and that faith can erode swiftly.
After a portion of my 401K was seized for being in Mediterranean assets (Russian oil & gas) that was a wrap for me. I lost faith. I am now in real estate and other investments the government can’t put their boot on. I’m actually happy about it. Forced me to do things I was scared to do. Not anymore. Feels great. No more screwing around with my money.
Government imposed real estate taxes can be quite a boot to lift
Just sayin…
Real estate taxes can be rough but there are many ways to shield yourself from the full sting. There is no way to shield against the government erasing 20% of my 401K for being in Russian assets which I had no way of knowing.
Would be interesting to see your / this groups commentary on the MMT theory. I’m too dumb and old to figure it out, but in my 65 years I’ve constantly heard “we can’t sustain” “the end is near” etc etc and it’s never happened. And the rich just keep getting richer. Maybe this economist is onto something? https://findingmoneyfilm.com/
The Cantillonn Effect.
Answer: 20 years ago.
After 40 years of labelling tax breaks for wealthy campaign donors as “job creating” and the bulk of those jobs being created outside America, there’s no possible way anyone under the top 1% could, or should, foot the bill created as a result of accrued interest, and I include wars started to the benefit of contractors, like Haliburton.
That said, where bribery is now “free speech”, almost any elected official that endorses a tax hike on the donor class is a soon to be ex-politician.
Even right wing economics bloggers are now entertaining the notion of a tax jubilee.
Then, even if we did come up with a way to resolve it, without re-illegalizing bribery, the problem will keep coming back.
A tax jubilee would likely cause treasury bond yields to spike, totally undoing any “benefit”
It would be a lot more than a spike, the unforeseen/unintended consequences would be massive.
I only mentioned it because it’s been getting mention recently, and by right wing bloggers, not liberals.
The US political system is unfortunately paralyzed, focused on the soliloquies and fates of two ancient guys. Nobody with real power will deal with the fiscal mess for the next few years. Nobody wants to touch the present entitlements of senior voters, nobody wants to touch the future entitlements of middle-aged voters, the military is always a sacred cow, and doing away with tax expenditures could piss off voters across all ages. Other countries have gone through phases of fiscal denial, but they usually got their act together before things fell apart (or they had to call the IMF).
What is not mentioned is that if rates go back to zero, then the timeline extends
And all of this timing depends entirely on politics.
While I generally agree neither party will do anything about the problem and we WILL hit a bang point (which will then probably result in the Dictatorship I think is coming)
The timing depends what happens next year.
Were the Dark Powers (Intel/Security State Blob that runs things) to place Democrats fully in control of both the Executive and the Legislative Branches, we would wind up with a full fledged Davos written Build Back Better type bill in 2025 that would hasten the bang point.
They would also pursue the anti-civilization and anti-human energy policy (NetZero, which essentially is indistinguishable from a planned genocide) that would seriously accelerate the Bang Point.
The Depopulationistas would be just A-OK with this and with the outbreaks of global wars that are also likely coming if the fing insane evil monsters now running US foreign policy have their way
Down let yourself become sad. It won’t be long before economics dies with everything else on the planet due to climate change! Capitalism will die! It is so sad that the US has insufficient intelligence to understand what is happening. How much debt there is totally irrelevant.
That’s a good point: if real rates go back to zero or negative (where they were over the last 15 years), the debt time bomb is (largely) defused. I don’t think this is going to happen. But this point also shows that we were able to ignore an already pretty precarious fiscal situation over the last 15 years because real rates were zero or negative.
If in a hurry just zip through and stop to look at the charts. What Ross Perot said, now 30 years later –
https://goldsilver.com/blog/my-emergency-thanksgiving-market-update-the-convergence-of-crises/?utm_medium=email&_hsmi=283704461&utm_content=283704461&utm_source=hs_email
Academic economists often focus on debt/GDP because GDP is viewed as a good measure of incomes which can be taxed more heavily, if need be, to pay the debt. It is not.
As the government has grown in size and power relative to the private sector, increasing amounts of GDP represent government spending itself, either directly or as it spreads through the economy. The government can’t pay bills by taxing itself, it can only tax the private sector. If there were a debt crisis and the government had to slash its spending, a lot of the incomes it would hope to tax would disappear.
Also, increasing amounts of private sector activity consists of people working on projects that would not exist without government spending, mandates, and rules. That would include real estate activity to protect against inflation, purchases of “green” products due to subsidies, etc. A debt crisis that slashed the subsidies would also slash the incomes.
If you subtract all of that from GDP, and constructed a ratio of government debt to incomes in the private sector that come from genuine consumer demand and capital spending to serve it, we are probably a lot closer than 20 years to major trouble.
It is true that there is intergovernmental debt to be subtracted from total debt. But it is also true that there is enormous (and hard to quantify precisely) unfunded liabilities. Future social security and Medicare spending is not technically debt, but watch what happens if the government tried to pay debts but not spending on those.
GDP has many other serious flaws, and should never have been made into the prime scorecard of how the economy is doing. For more on this, please check out my recently published book, entitled “Economics Reimagined: Nature, Progress, and Living Standards”, which is available at the usual places.
FYI. Interesting discussion by a evangelical pastor doing missionary work over in the Middle East. Well worth a listen.
https://www.bitchute.com/video/knNhygsFfZm7/
Do you have an insight into the Gaza real-estate market? I know a lot of Gulf Arab investors waiting to swoop in and buy at the lows. Since you know all about the Middle East your insight would be very worthwhile.
Just trying to learn about events and share them with those interested. But your callous disregard for the suffering of others speaks volumes.
Now you play the suffering card? You choose the aggressor as the one suffering and the victim of the aggressor as not so spare me your fake concern.
One need only look at the same chart included in this post (at the end of 2023) to dispel any notion that gold is somehow a hedge against US inflation or default. Gold, like Bitcoin, largely is and will always be a Ponzi scheme.
Not really sure how you reach that conclusion, but I’m sure that you’re mistaken.
I thought it was obvious, but if you need a more definitive example, just take a look at the price gold during the 80s.
Hint: both periods something in common.
While 1970s played a big role in giving gold its reputation as an inflation hedge, its performance since as been lackluster. From 1980 to 1984, annual inflation averaged 6.5%, but gold prices fell 10% on average each year. Returns not only fell short of the inflation rate, but they also under performed real estate, commodities and the S&P 500.
In 2021 and 2022, CPI gained over 4% yoy ending Apr 2021, while gold eked out a measly 1%. Gold was trading sideways and down around this period of decades-high inflation.
Central banks worldwide have been on a gold buying binge the last few years. That should tell you something.
False
It is the US Dollar that is the Ponzi scheme!
I think you need to refine your understanding of what a Ponzi scheme is
Gold doesn’t change, it’s exactly the same, that’s one of its unique qualities.
The dollar however, and all other fiat, buy less and less over time, sometimes more so, sometimes less.
Oh gold changes alright, and often not in inverse proportion to inflation (however you measure that)
How, it weighs the same, looks the same, doesn’t corrode?
One of the 3 best conductors of electricity also. That is why I wired my house with it, the same thing that NASA does with anything critical in its spacecrafts.
How? People’s expectation of inflation, one’s interpretation of Powell’s words, ridiculous rumors of the Yuan replacing USD as the reserve currency, and many more. Notice that all above are about expectations and not necessarily tied to the value of the USD at the time.
If gold were a reliable hedge against inflation (what I assume you are implying) its value would remain relatively constant with CPI. It is not. See early 80s and just a couple of years ago.
So, can you explain exactly how something which can not be inflated can; even theoretically; NOT be a hedgfe against inflation? Ditto something which can not be affected by any form of “default?”
You mean like tulips?
gold is a vote on the abilities and stability of the banking systems.
more confident, lower price
Only over the very long term (decades). It’s been inconsistent otherwise. See comments above.
I would argue that the US has already reached an unsustainable debt level. Don’t believe me, take away the printing press and see what happens. Without the prospects of yield curve control the debt would spin out of control. Also, political dysfunction offers no prospect for getting spending under control.
The problem with all these projections is the underlying assumptions and the faulty metrics. What does the GDP signify? It makes a big difference if you’re an industrial powerhouse or a service economy dependent on government largesse. Clearly having the reserve currency helps us out but I suspect at some point this benefit will turn into a curse as foreigners dump the dollar.
Under the hood, maybe in tunnel-land, foreigners are already starting to abandon the US dollar as world reserve currency… Saudi Arabia is already selling oil to China in renmimbi, Brazil has joined OPEC now, and Japan is getting ready to dump its more than $1T in US currency reserves. THE USA has already passed the point of no return but nobody has noticed yet. They still continue to levy sanctions against foreign nations, they still have not noticed that every new sanction puts another bullet in their own feet………….
https://www.businessinsider.com/china-russia-alternative-swift-payment-cips-spfs-yuan-ruble-dollar-2022-4?op=1
But it doesn’t matter, the world will not be able to trade or do business in the near future due to climate change! It is going to happen no matter how much people try to ignore it. And it won’t be fixable!
People still traded and did business a few months ago. Despite it then being even warmer, in most of the northern hemisphere, than what even the most starry eyed and gullible Pippi groupie believes December will be, even 200 years from now.
The dollar was destroyed the day that Biden seized Russia’s dollars at the NY Fed that were there to settle trade balances. Biggest policy error of the paper money regime.
Agreed. I’ve always felt like making comparisons to GDP doesn’t make sense. What matters is how quickly the budget is growing relative to revenue. At the end of Q3 2023, annualized interest expense is $981B. And at least for the next 2-3 quarters, this will rise above $1T, possibly approaching $1.1T. And there’s a good chance tax receipts will continue to fall.
F-ing gold bugs pollute all forums. Go get a real job.
What I’m most interested in at the moment is what role CBDC’s and SDR’s will play in this debt-based system having reached the limit.
For argument’s sake, what if there’s a coordinated effort into freezing everything and hitting a reset-button when there’s no physical cash anymore and everything is digital.
What if everything is controlled and every purchase is monitored and measured.
Humour me, because I can’t escape the feeling that this is the endgame.
And I’d love to be proven wrong and believe this won’t possibly ever happen.
Climate change is the end game! It will extinguish all economic activity around the globe.
Not at all.
It will be the Giant Meteor.
“Neither party will fix the deficits. Neither party will do anything about mounting debt. No one will do anything about anything because the political system is totally broken.” Mish
Jean-Claude Juncker – Former prime minister of Luxembourg and president of the European Commission – ‘We all know what to do, but we don’t know how to get re-elected once we have done it.’
Right on Bogtrotter. That’s why we have to find a fix that doesn’t need to be implemented via a pollitical process. See request above asking how we (Mish followers) would fix a problem 95% of Americans don’t even know about. I’ll show you mine if you show me yours.