Author Topic: $27,000,000,000,000 US debt  (Read 4026 times)

abwillingham

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$27,000,000,000,000 US debt
« on: September 06, 2020, 08:16:54 AM »
First time poster here.   
How will the historically high US debt effect the market?
How does an investor prepare for what is coming?

 https://fred.stlouisfed.org/series/GFDEGDQ188S#0


arcube

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Re: $27,000,000,000,000 US debt
« Reply #1 on: September 06, 2020, 11:05:56 AM »
It will start to matter only when Democrat is a president. ;)

First time poster here.   
How will the historically high US debt effect the market?
How does an investor prepare for what is coming?

 https://fred.stlouisfed.org/series/GFDEGDQ188S#0

scorpioncapital

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Re: $27,000,000,000,000 US debt
« Reply #2 on: September 06, 2020, 01:16:30 PM »
Throughout the history of nations it's been a combination of growth, default (inflation, financial repression, pension cuts), taxes and austerity (service cuts). I don't expect any difference going forward. A combination of all of the above.

LongHaul

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Re: $27,000,000,000,000 US debt
« Reply #3 on: September 06, 2020, 02:00:11 PM »
Could you elaborate on that Scorpion?  Interesting comment.

scorpioncapital

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Re: $27,000,000,000,000 US debt
« Reply #4 on: September 07, 2020, 01:34:27 AM »
I like these articles - https://scholar.harvard.edu/files/this_time_is_different_short.pdf ,
https://www.hks.harvard.edu/publications/sovereign-bonds-waterloo

Growth and innovation require investments (lately by governments because the state seems to have really taken over). Interest rates are low. These investments may reduce the need for full default.

I feel it's unlikely some default to creditors of money won't happen as the debt is growing faster than the growth and innovations.

Geography is often destiny. There are some real banana republics out there but they have great weather. They will always be desirable.

Politicians and powerful people often tax labour, sales taxes, service fees first and at high rates and reserve privileges for themselves on business, corporate, and investment taxation. This philosophy may be changing but...

In a global competitive world where capital is mobile and countries don't mind to perpetuate these anti-good for the human race economic structures (look at the regressive taxes and oligarchs in so many countries) what can one do? Capital controls, exit taxes, restrictions on travel or even living abroad (ahem, Covid )?

Has debt helped more citizens of a country than in countries that don't spend so much on their people? Are some social goals for the vast majority (even if it doesn't affect you but costs you higher taxes actually) worth accepting? What is the right balance? Lots of interesting questions. I find it strange thought that governments have taken such a big role for debt and investment. Why is it individuals and private business aren't taking on the debt themselves? Or if they have, why is so much more public debt needed?





LongHaul

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Re: $27,000,000,000,000 US debt
« Reply #5 on: September 07, 2020, 06:43:45 AM »
I like these articles - https://scholar.harvard.edu/files/this_time_is_different_short.pdf ,
https://www.hks.harvard.edu/publications/sovereign-bonds-waterloo

Growth and innovation require investments (lately by governments because the state seems to have really taken over). Interest rates are low. These investments may reduce the need for full default.

I feel it's unlikely some default to creditors of money won't happen as the debt is growing faster than the growth and innovations.

Geography is often destiny. There are some real banana republics out there but they have great weather. They will always be desirable.

Politicians and powerful people often tax labour, sales taxes, service fees first and at high rates and reserve privileges for themselves on business, corporate, and investment taxation. This philosophy may be changing but...

In a global competitive world where capital is mobile and countries don't mind to perpetuate these anti-good for the human race economic structures (look at the regressive taxes and oligarchs in so many countries) what can one do? Capital controls, exit taxes, restrictions on travel or even living abroad (ahem, Covid )?

Has debt helped more citizens of a country than in countries that don't spend so much on their people? Are some social goals for the vast majority (even if it doesn't affect you but costs you higher taxes actually) worth accepting? What is the right balance? Lots of interesting questions. I find it strange thought that governments have taken such a big role for debt and investment. Why is it individuals and private business aren't taking on the debt themselves? Or if they have, why is so much more public debt needed?

Excellent post Scorpion.  Will check out.   Munger mentioned that he thought the democracies will get in trouble with debt. 
There is this very stupid notion out there that deficits and debt don't matter for countries.  I guess reality doesn't matter either - until it does.  Humans seem to need a crisis to learn basic stuff at times (I have been guilty of this too at times).  I think we will see some defaults or high inflation.  Italy anyone?

Sorta of related but I was reading part of Cody Lundin's book "When All Hell Breaks Loose" (I bought for a self insurance policy).  Great book but he is a huge advocate for self reliance and I think it is really pathetic that we are all so reliant on the government for so many things - and the media perpetuates this weakness and blame mentality probably because of their political ideology and kissing their customers asses. 




« Last Edit: September 07, 2020, 10:50:32 AM by LongHaul »

Cigarbutt

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Re: $27,000,000,000,000 US debt
« Reply #6 on: September 07, 2020, 07:14:35 AM »
I like these articles - https://scholar.harvard.edu/files/this_time_is_different_short.pdf ,
https://www.hks.harvard.edu/publications/sovereign-bonds-waterloo
Growth and innovation require investments (lately by governments because the state seems to have really taken over)...

Has debt helped more citizens of a country than in countries that don't spend so much on their people? Are some social goals for the vast majority (even if it doesn't affect you but costs you higher taxes actually) worth accepting? What is the right balance? Lots of interesting questions. I find it strange thought that governments have taken such a big role for debt and investment. Why is it individuals and private business aren't taking on the debt themselves? Or if they have, why is so much more public debt needed?
Excellent post Scorpion.  Will check out.   Munger mentioned that he thought the democracies will get in trouble with debt. 
There is this very stupid notion out there that deficits and debt don't matter for countries.  I guess reality doesn't matter either - until it does.  Humans seem to need a crisis to learn basic stuff at times (I have been guilty of this too at times).  I think we will see some defaults of high inflation.  Italy anyone?
Sorta of related but I was reading part of Cody Lundin's book "When All Hell Breaks Loose" (I bought for a self insurance policy).  Great book but he is a huge advocate for self reliance and I think it is really pathetic that we are all so reliant on the government for so many things - and the media perpetuates this weakness and blame mentality probably because of their political ideology and kissing their customers asses.
For those entering this debt and savings "crisis" territory, non-linear changes can happen but timing may be elusive as acute phases have apparently been reached since at least the 80s.
An interesting complementary article (perhaps more user-friendly) is the following:
https://dash.harvard.edu/bitstream/handle/1/11129154/Reinhart_Rogoff_Growth_in_a_Time_of_Debt_2010.pdf?sequence=1&isAllowed=y
i continue to be haunted by the threshold concept and by figure 4.
At the anecdotal level, it always amazes me how people save little and how they've come to rely (consciously or not) on the generosity of strangers (healthcare, pensions, old-age support, generic hardship etc) who, lately in the last few years, have decided to extend and pretend. Even the Fed is into social policy now. An inter-temporal mismatch can last for a very long time but an understanding of potential energy could be useful.
https://fred.stlouisfed.org/series/W207RC1Q156SBEA
The net national saving includes households, corporations and public entities. For the longest time (see Feldstein and Horioka for example (1980), during an era when a tall banker was aiming to raise interest rates), it's been shown that, through some short term noise, savings and investments are joined at the hip.
Conclusion: democracies will run into trouble with debt.
When will it matter?

Xaston

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Re: $27,000,000,000,000 US debt
« Reply #7 on: September 07, 2020, 04:15:06 PM »
I think it is really pathetic that we are all so reliant on the government for so many things

Politicians want to get elected, and the message that we as the government will help you is a much easier message to sell to voters than the message that we as the government will not help you.

Packer16

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Re: $27,000,000,000,000 US debt
« Reply #8 on: September 07, 2020, 05:19:36 PM »
When you look at the US debt, the collateral for the US debt is the US economy not just the US government as the Federal gov't can tax to get revenue (so it has a first lien against all cash flows the US economy generates)  We have less debt than either Japan or Europe.  So they will be the test for high debt servicing.  IMO we will not have any problems unless govt's decide to not pay debts which would imply that their first lien is impaired in some way. 

Debt reduces growth due to the cost of servicing the debt/repayment versus consumption. Given the low cost of debt (& the continued expectations of this as long as people repay the debt), the servicing cost is low. We will continue to have deflation as long a debt repayment occurs.  Lacy Hunt/Irving Fisher have a good framework to examine debt crises historically.  The podcast below outlines this framework along with Fisher's paper:

https://ttmygh.podbean.com/e/teg_0006/
https://fraser.stlouisfed.org/files/docs/meltzer/fisdeb33.pdf

As to innovation, innovation is the result of R&D & investment in intangible vs. tangible assets.  This investment is a cost according to accounting versus an investment.  The US investment in tangible & intangibles asset has increased from the low 20% of GDP in the late 70s to the mid 20% now.  The mix has changed from 14% tangible/8% intangible to 10% tangible/16% intangible. So US investment is still robust.  A big use of tangible assets going forward will be the rollout of a renewable energy infrastructure so tangible asset investment should go up going forward.   


Packer
« Last Edit: September 07, 2020, 05:32:35 PM by Packer16 »

BPCAP

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Re: $27,000,000,000,000 US debt
« Reply #9 on: September 07, 2020, 05:58:13 PM »
There is no exit strategy for the debt. No plan or easy answers, especially in a democracy.

We will borrow and print money--until we can't.

At least we enjoy being in the brick house in the Pigs' neighborhood, with Europe and Japan (and many "emerging" countries) in the houses made of stick and straw. We'll see the Big Bad Wolf get others before us.

But...you know in the real story, the Big Bad Wolf really did get the Pigs eventually in the brick house. He smoked them out, or remembered wolves live in packs, called his friends over, and they eventually found a way to gut the Pigs.