Thread: What is going to happen when the US Treasury's debt burden becomes unsustainable?

Originally Posted by Iriemon

A 3% rate of inflation effectively devalues the amount of debt by half in 24.5 years.

Higher inflation will make investors demand higher interest rates to continue financing the debt. Higher interest rates will probably force the Treasury to issue even more bonds to pay the interest. If too many bonds are issued, and not enough investors are willing to buy all these bonds, the Treasury will have to offer even higher interest rates.

The disturbing thing is that, despite interest rates being very low at this time, a whole 10% of the government revenue is going to paying off interest. 20-year yields on Treasury bonds are only 2.5% right now, but it has usually been 4% or higher. It is only low now because so many investors have fled the stockmarket in uncertain times, and Treasury bonds are have traditionally been considered "safe". When interest rates go back to their normal levels, the share of government revenue that goes to pay of the interest rate will increase.

Even if the interest only went up to 20% of the government revenue, which is very plausible within the next decade, this could be a great burden on both the government budget and the economy as a whole. If 40% of government taxation went to paying off debt, there would no doubt be big problems, severe cuts would have to be made to social programs and defence, and taxes would have to be increased. This could indirectly cause more unemployment.

All this borrowing naturally effects interest rates in the rest of the economy.
http://www.tandfonline.com/doi/abs/1...530655#preview

There are going to be big problems. The US national debt is going to be the next shoe to drop, and it will hurt more than the mortgage bubble.

If the Federal Reserve is going to try to use inflation to get rid of all the Treasury debt, they are going to have to do it suddenly, all at once. Because as soon as there is high inflation, the interest rates on the bonds will shoot up in reaction. Gradual inflation would just force the Treasury to take on more debt in proportion to the level of inflation.

It is true that much of the national is debt is held by other arms of the government. But this debt is the retirement pensions of government workers. As soon as those Treasury bonds lose their value, government workers are going to find themselves cheated out of their retirement. Not that the promised retirement benefits are sustainable now.

Originally Posted by Drago

Don't let Rev see this, he will say printing money forever is needed in order to fulfill his equations.

He is enough detached from reality to think he is in heaven already .
But in alternative Universes there will be ( presumably ) alternative Heavens . With luck his will be not quite what he fondly imagines .

Originally Posted by Not Amused

2.5% growth is required to doluble the GDP in 30 years.

6% growth doubles it in 12 years.

A 2.3% deficit is $56B, about 5% of what our deficit is today.

Check your math.

Do you see any way we balance the budget in 30 years without singificant cuts in spending?

Raise taxes.

Like taxing the rich, or corporations? A 100% tax on them won't balance the budget of today.

You've been mislead by conservative propaganda. A 100% tax on the rich would not only balance the budget, but create a huge surplus that would substantially pay down the debt.

And, the deficit will get larger as more of the baby boomers leave the workplace (less tax income) and drawing benefits (more expenditures). The only option is cutting spending.

No, another option is increasing taxes.

We can avoid cuts, and fall off the cliff like Greece is primed to do.

Greece didn't collect taxes to pay for its programs.

Today, SSI, Medicare, Medicaid, interest on the debt and Military spending make up a little less than what is taken in. Cut everything else. Put every extra dollar into paying off the debt.

Thanks but I think we need a court system, the FBI, airports, freeways, education, safety needs, research, business regulation, safety regulation, food and drug regulation, jails, medicaid and welfare.

What is holding back the economy today are three things, uncertainty what the gooberment will do, the critical mass of regulation, and how Europe (the canary in the same coal mine the US is in).

Conservative nonsense.

Europe is a factor, but lack of demand and a housing market destroyed by lack of regulation is what is holding us back.

Originally Posted by Anders Hoveland

Higher inflation will make investors demand higher interest rates to continue financing the debt. Higher interest rates will probably force the Treasury to issue even more bonds to pay the interest. If too many bonds are issued, and not enough investors are willing to buy all these bonds, the Treasury will have to offer even higher interest rates.

The disturbing thing is that, despite interest rates being very low at this time, a whole 10% of the government revenue is going to paying off interest. 20-year yields on Treasury bonds are only 2.5% right now, but it has usually been 4% or higher. It is only low now because so many investors have fled the stockmarket in uncertain times, and Treasury bonds are have traditionally been considered "safe". When interest rates go back to their normal levels, the share of government revenue that goes to pay of the interest rate will increase.

Even if the interest only went up to 20% of the government revenue, which is very plausible within the next decade, this could be a great burden on both the government budget and the economy as a whole. If 40% of government taxation went to paying off debt, there would no doubt be big problems, severe cuts would have to be made to social programs and defence, and taxes would have to be increased. This could indirectly cause more unemployment.

All this borrowing naturally effects interest rates in the rest of the economy.
http://www.tandfonline.com/doi/abs/1...530655#preview

It is very disturbing.

It was disturbing in 1981 and 1986 when Reagan sharply cut revenues and the same time he spent on a military buildup, and the deficits soared and the debt quadrupled to $4 trillion by 1992.

It was disturbing in 2001 when Bush sharply cut revenues at the same time he spent on wars, and a golden opportunity of a surplus was squandered and the deficits soared and the debt doubled to almost $11 trillion by 1992.

And it was disturbing in 2008-09 when Bush and Obama sharply cut revenues because of the recession at the same time they spent money to prevent a recession, and the debt has grown by $5 trillion.

I agree, it is disturbing. So it is time to stop this childish, selfish "me generation" attitude that we can have low taxes and big spending on the military at the same time.

So let's man up, raise taxes, decrease military spending and trim other spending, and be responsible for a change.

It worked in 1993 and it will work today.

Originally Posted by Iriemon

It is very disturbing.

It was disturbing in 1981 and 1986 when Reagan sharply cut revenues and the same time he spent on a military buildup, and the deficits soared and the debt quadrupled to $4 trillion by 1992.

It was disturbing in 2001 when Bush sharply cut revenues at the same time he spent on wars, and a golden opportunity of a surplus was squandered and the deficits soared and the debt doubled to almost $11 trillion by 1992.

And it was disturbing in 2008-09 when Bush and Obama sharply cut revenues because of the recession at the same time they spent money to prevent a recession, and the debt has grown by $5 trillion.

I agree, it is disturbing. So it is time to stop this childish, selfish "me generation" attitude that we can have low taxes and big spending on the military at the same time.

So let's man up, raise taxes, decrease military spending and trim other spending, and be responsible for a change.

It worked in 1993 and it will work today.

Yes....I see the politicians gutting the defense budget, bringing all our troops home, cutting spending and raising taxes. /sarcasm

We all know what needs to happen. The problem is the politicians in DC are gutless. They are told over and over by the so called "experts" the only way to fix the economy/debt is to print and spend. It is time to put the shovel down. It is time to take our medicine. Sure...it will he hard on many people for maybe a decade or more but it is the only way we can rebuild.

Actually....I would go a lot further but I think a nice compromise is cutting the defense budget by 80%(we would still have the largest defense budget even with that large a cut), cut spending, balance the budget, etc...would be a good start anyways.

Originally Posted by headhawg7

Yes....I see the politicians gutting the defense budget, bringing all our troops home, cutting spending and raising taxes. /sarcasm

We all know what needs to happen. The problem is the politicians in DC are gutless. They are told over and over by the so called "experts" the only way to fix the economy/debt is to print and spend. It is time to put the shovel down. It is time to take our medicine. Sure...it will he hard on many people for maybe a decade or more but it is the only way we can rebuild.

Actually....I would go a lot further but I think a nice compromise is cutting the defense budget by 80%(we would still have the largest defense budget even with that large a cut), cut spending, balance the budget, etc...would be a good start anyways.

People who claim large cuts to the DoD budget with simplistic arguments like "it'll still be larger than the rest of the world" are completely and totally ignorant of how our military works as an institution.

These are the people who want to see US Aircraft carriers cease to ply the world's oceans and enforce international laws. To see our airforce wither away into a few paltry fighter squadrons of advanced jets, and reduce our active ground forces reduced to a tiny little militia army the size of the average European country.

We did this between the world wars, and the consequences were disastrous! When the time came that an army was needed, our men were throwing sacks of flour as hand grenade training!

the USA cannot afford to do that becuase whether Libertarians and Anti-Ameircans like it or not, the globalized economy would become completely unstable and would collapse as 3rd world dictators begin to act out on their nationalistic dreams against each other destroying the infrastructure and access to the raw natural resources that the industrialized world needs to place products on store shelves!

That is not "fear" that is not "paranoia" that is not "warmongering" it is the studied and educated opinion of most experts in the world.

Originally Posted by SiliconMagician

People who claim large cuts to the DoD budget with simplistic arguments like "it'll still be larger than the rest of the world" are completely and totally ignorant of how our military works as an institution.

These are the people who want to see US Aircraft carriers cease to ply the world's oceans and enforce international laws. To see our airforce wither away into a few paltry fighter squadrons of advanced jets, and reduce our active ground forces reduced to a tiny little militia army the size of the average European country.

We did this between the world wars, and the consequences were disastrous! When the time came that an army was needed, our men were throwing sacks of flour as hand grenade training!

the USA cannot afford to do that becuase whether Libertarians and Anti-Ameircans like it or not, the globalized economy would become completely unstable and would collapse as 3rd world dictators begin to act out on their nationalistic dreams against each other destroying the infrastructure and access to the raw natural resources that the industrialized world needs to place products on store shelves!

That is not "fear" that is not "paranoia" that is not "warmongering" it is the studied and educated opinion of most experts in the world.

Another big spending conservative.

If you want to have an expensive military then tell your Tea Party reps to compromise on a tax increase to raise taxes from the 60 year low levels to pay for it.

Originally Posted by SiliconMagician

People who claim large cuts to the DoD budget with simplistic arguments like "it'll still be larger than the rest of the world" are completely and totally ignorant of how our military works as an institution.

These are the people who want to see US Aircraft carriers cease to ply the world's oceans and enforce international laws. To see our airforce wither away into a few paltry fighter squadrons of advanced jets, and reduce our active ground forces reduced to a tiny little militia army the size of the average European country.

We did this between the world wars, and the consequences were disastrous! When the time came that an army was needed, our men were throwing sacks of flour as hand grenade training!

the USA cannot afford to do that becuase whether Libertarians and Anti-Ameircans like it or not, the globalized economy would become completely unstable and would collapse as 3rd world dictators begin to act out on their nationalistic dreams against each other destroying the infrastructure and access to the raw natural resources that the industrialized world needs to place products on store shelves!

That is not "fear" that is not "paranoia" that is not "warmongering" it is the studied and educated opinion of most experts in the world.

Another big spending conservative.

If you want to have an expensive military then tell your Tea Party reps to compromise on a tax increase to raise taxes from the 60 year low levels to pay for it.

Originally Posted by Iriemon

6% growth doubles it in 12 years.

Your point?

Originally Posted by Iriemon

Check your math.

My math is good - check yours.

Originally Posted by Iriemon

You've been mislead by conservative propaganda. A 100% tax on the rich would not only balance the budget, but create a huge surplus that would substantially pay down the debt.

Run the numbers for us.

Then, show us why the rich would bother to earn enough money to pay 100% in taxes, or even 70%.

Originally Posted by Iriemon

Greece didn't collect taxes to pay for its programs.

Neither are we. Why didn't the Democrats fix that when they had total control - answer, because taxing our children and grandchildren is too easy.

Originally Posted by Iriemon

Thanks but I think we need a court system, the FBI, airports, freeways, education, safety needs, research, business regulation, safety regulation, food and drug regulation, jails, medicaid and welfare.

So you would rather the government stay the course until they default, then they can't pay any of these, or SSI, Medicare, etc.?

Originally Posted by Iriemon

Europe is a factor, but lack of demand and a housing market destroyed by lack of regulation is what is holding us back.

The housing market concern is pretty much over, and won't cause further collapse. Not so Europe.