Wow, debt of 50+% assets is 'fine'?! Grab the nearest person who lived in the 50s, and ask them what they think of it. That we've grown accustomed to this sort of debt is the cause of all this mess.
The level of debt we have is fine, and we could have a lot more and still be fine. The idea that the debt is a number worth minimizing is just bad economics.
I don’t understand how it’s possible to generationally take “...massive debt to pay for entitlements that will eventually have to be paid for by their grandchildren”
The debt is there but really it’s a wealth redistribution/accounting problem. Someone owns the other side of the debt, and considers it an asset so in aggregate it’s a net zero.
The problem really is that debt that can’t be paid won’t so are we really just looking at some sort of large scale accounting trick where someone is more wealthy than they actually are.
Thanks for pointing out the big elefant in the room.
It looks like this is the ‘new normal’ though. Pushing people to take on debt as it’s almost interest-free and you might even get help from the government paying it back, all to double up on past mistakes and sustain the current asset valuations.
It’s frowned upon to talk about this as a generational thing, but it very much is. Debt is the instrument to have now and pay later, and the debt burden is rampant everywhere. Modern economics has essentially disregarded the role of debt in the economy.[1] All our government institutions seem hell bent on maintaining asset prices at any cost.[2] There’s no sensible plan to even remotely reign in government debt. The world’s stuck at zero percent interest rates, handing out money to the politically connected, and growth is still anemic. Even at low rates people can hardly afford to buy anything since asset prices are so inflated.
I would like to believe we can deal with this in a reasonable fashion, but am skeptical. As can already be seen by the U.S. elections and elsewhere, populism is rearing it’s head on both the left and the right. It feels like a storm is on the horizon and I only hope it doesn’t devolve into war.
Here's the thing... It is very hard to tell now if we've gotten our money's worth for the debt. Many things are much better today than 50 or 100 years ago. Longer lifespans, better health care, less pollution.... Was it worth the debt? Hard to say.
Also - debt is just one person owing money to another. Yes someone today funded their consumption at someone else's expense. But guess what - someone tomorrow will get the dollar back to consume it. We can argue that as a country we will be paying for the consumption of others in the future, but is that so awful for the world's richest place?
(And please note - this rant comes from someone who believes we should live within our means and balance the budget)
IMO, the biggest problem with so much debt is the amount of interest embedded in the agreement of it all. Let's say that the average interest rate is 4% and that none of the debt is double counted, e.g. one debt leading back to another debt at a different interest rate. The total interest revenue on the debt is $161 billion dollars. Where does that money come from?! It needs to pop up out of thin air, like someone needs to print it.
If there is a question of why, I will explain. It is the same explanation I give to a banking specialist for my refusal to accept a savings account. Take a village of 100 people; the entire village has no money whatsoever, so they cannot trade or buy food or sell goods and services. A rich man lives on the top of a mountain and decides to lend a $100 to the entire village, which is $1/person, at an interest rate of 5%, and the entire debt is to be paid back in exactly 1 year.
For the duration of that year, villagers are beginning to buy and sell, the economy is created and is moving healthily, villagers are working, products and services are being created, sold, and consumed. At the end of the year, $105 need to be paid back, but the entire amount of money in the entire village adds up to just a $100. Where does that $5 come from?
Some villagers will have accumulated more than $1 and they will be able to pay back their debts and have some left over. But then also some villagers will have nothing. What do they lose? How do they fulfill their debts?
The entire system relies on the introduction of additional money from somewhere. If so, then that entity loses money. This system is deeply toxic and works contrary to the one who borrows. And once all is added up, the net result is all money is removed from the system. Losers lose big. Winners hit net zero eventually.
They wouldn't and maybe it's a bad idea to enter debt that last more than 50 years. It pretty much means to borrow money that the next generation has to pay off.
Debt is not “accumulating” in the way you imagine it is. Debt load remains fairly stable, and old debt is paid off as new debt is taken on in roughly equal rates as a percentage of GDP.
If the world would give you trillions of dollars at 2% and your return in that money exceeds 2% it would be pretty stupid to pass it up.
The viewpoint of bemoaning debt because just think of what we could have paid for with that interest is wrong because it completely discounts the immediate and long-term value of the things which the debt financed to begin with.
Bemoan whatever you perceive as wasteful government spending, but just like companies won’t achieve the highest returns by being debt free, neither do households and especially not governments.
This kind of talk is irresponsible. Debt isn't free, you pay interest on it, you children might have to pay interest on it. Debt introduces systemic fragility. If the only way to grow your economy is rising public debt, something is fishy.
A shockingly large number of Americans don't understand how debt works. I suppose this must apply to people in other countries as well, but I haven't noticed as much fiscal ignorance coming from non-Americans. Among the crazy comments I've heard recently from outraged Americans:
"You can't take away my house just because I stopped making mortgage payments! I live here!"
"I missed three credit card payments, and now the credit card company has raised the interest rate from 16% up to 28%! That should be illegal!"
Maybe people are just taking cues from the US government -- after all, if the government is going into debt by over a thousand dollars per year per person, why shouldn't individual Americans?
Someone owns that debt. Most of it is government debt. The problem with government debt is people without any creativity can just buy government debt and earn interest on trillions just betting on the government's ability to tax and get into more debt.
I think this attitude is largely to blame for the current financial crisis in the US. People have come to see it as their inalienable right to have access to large amounts of debt, without much thought as to when and how it should be paid back.
This is a dangerous situation, as we are beginning to see now.
The US has been taking on new debt faster than inflation has chipped it away for around 40 years at this point. There is no evidence it is going to stop. If anyone who cared was anywhere near the levers of power it wouldn't have crossed 100% debt:GDP.
Sure it isn't a crisis right now. But the debt will continue to grow and at some point there will be a crisis because either rates will spike, or government manipulation of rates will turn out to have killed off real investment and critical parts of the economy will give out. And in neither of those scenarios are the people lending the US money going to see all of it come back.
Hopefully it is all lent by foreigners and not pension funds, that is all I can say.
So I don’t know if what the government is doing is the best long term decision. But the US’s national debt could be compared to a mortgage. And the government’s income is massive so they can be in trillions of debt without it exceeding what they can reasonably pay off (never paying it all off, but paying off individual loans).
So by your analogy, is it actually bad for a normal person to be in debt? Normal people have mortgages.
reply