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.
If the U.S. national debt was a mortgage, it would be a mortgage with a term that spans centuries with payments that don't even cover the interest.
"Getting a mortgage of 3 or 4 times one's yearly income..."
One of lessons of the last ten years is that people, businesses, and governments can very easily get loans they have no ability to repay. And too often, the borrowers have to default. This is bad for the borrower.
Government debt is different from personal debt. People don't work forever, or live forever. Buying a home on debt is a good choice for a person, since it lets them have a place to live after they stop working. And that debt is backed by the house: if the person dies before the house is paid off, they get the house rather than coming after the heirs for debts.
The government never retires, and never has to pay off its debts. That gives it a lot of leverage, but it also obligates new citizens to a share of the debt as soon as they're born. Your parents can't pass their mortgage debt to you, but they do pass on their share of money that the government has borrowed.
So the government can safely borrow money, but at some point it will accumulate so much debt that people begin to doubt its ability to pay it back. Whoever is left holding the bag at that point will be in very deep trouble.
I don't know what point that is. Interest rates are still low, so the answer appears to be "not today" (and "not imminently"). But the article points out that the low interest rates may be something of a false indicator.
So as you say, responsible debt is good. But decreasing revenue via tax cuts, and increasing debt accumulation, at a time when the economy appears to be booming doesn't appear to be responsible. It reduces the ability to borrow in the future, at precisely the time you could be increasing that ability by paying down old debts. Especially if you're then covering it up by borrowing in a way that's hard for people to see.
I don't think it's 'awful' for a person to live in debt. The richest Americans have loads of debt. A significant part of the American Dream is to own a house which is essentially debt. Perhaps the argument is more about whether the US government is drowning in debt more akin to CC debt (bad debt) or mortgage debt (good debt) but in the abstract, leverage is a perfectly fine thing for a government to use in order to fund its development.
It's not awful for a person to live in debt. Debt is a useful financial tool.
Unlike a person, a government has an unlimited lifespan and debt can persist forever. This only becomes a concern when total debt exceeds some multiple of GDP. The exact limit will vary based on many factors including interest rates, economic growth rate, demographics, and tax compliance. Once that limit is breached it tends to cause a fiscal and political crisis within a few years. Either default or hyperinflation in the short term, followed by a long period of austerity.
If your salary increases 3% a year every year in real terms, and it's cheap to borrow, then it's absolutely mathematically optimal to carry a level of debt that you never pay off. In fact, you'd be a sucker if you didn't.
The main difference between people and government is that people like to retire, while governments can live forever.
People ideally need to stop carrying debt at some point in their lives because they need to save for retirement. Governments don't need to do that.
It's kind of counterintuitive, but governments don't ever need to pay off all their debt. They just need to keep the overall debt level below a certain ratio to GDP. Debt can keep growing as GDP keeps growing.
Government debt is not like personal debt. Governments debt is structured and has fixed predictable rates (bonds etc). There's no incentive to pay down debt because the debt holders want long term structured repayment.
The only time government debt is bad is when the government can't make the payments.
That’s a fair response. You’re absolutely correct that the personal mortgage analogy is used to argue that governments can’t (or shouldn’t) take on certain debt loads.
On the flip side, I’d argue that mortgages and personal finance in general doesn’t tell us much about how governments should treat debt. The nature of government debt, how it’s financed, and what it’s used for is just so different from personal debt that any analogy between the two gives us very little information.
Yea but the US Government isn't a person. It's repayment timespan is, in theory, infinite. And inflation actually devalues any debt the government holds, making it easier to 'pay back.'
Unpopular opinion, and maybe I'm wrong here and I've just been lucky, but I've stopped seeing debt as a bad thing. You have to use it smartly of course, but I don't think there's a one-size-fits-all answer for what that means. Use it for daily living expenses? Sure, as long as you can pay it off every month. Never take out a loan and spend years saving for a car? Nah, or at least not when that interest rate was 2-3%. And I suppose that's where increasing interest rates come in: Get the 99% to stop buying.
Maybe in the short term, but long term it's best for a government to pay off its debts. Who would lend money to the government if it was well known that they will never pay back?
Overall it's not bad that national debt is there. Because usually a nation gets something for it. And national debt is paid back, all the time. Nations don't default on their debt that often, if they do it's really, really bad.
So overall, debt isn't paid back. The particular debt is paid back very much indeed. And whatever was paid for with that debt is ideally here to stay. National debt isn't anywhere close to private debt or a mortgage. Looking at it that way is just wrong.
By no account do I understand monetary theory or how national debt works in detail. I know enough to understand that it is a very complex topic, one that isn't easily understood. So I am cautious when it comes to easy explanations.
Pretty much. You get into such insane levels of debt by borrowing more and more every year, by leading a lifestyle that you can't afford.
"Lifestyle" in case of government spending being the levels of healthcare, education, social services, war, tax & tariff rates, capital controls, etc.
If you don't want to be crushed by interest payments, eventually you'll need to pay up, and that means inflation, possibly hyperinflation, and a crash of a lot of systems that we take for granted.
Can anyone explain to me why it is awful for a person to live in debt but it is okay for the federal government to do so? I've never understood this in the least, other than the "kick the can down the road, America superpower backed by military blah, blah, blah" very weak argument. History is full of the carnage of failed empires that had this same idea.
government debt is not in any way similar to individuals or families who have credit cards or college loans to pay off. for one thing, governments don't actually "die of old age":
> While a household has a finite lifespan, a government has an indefinite planning horizon. So, while a household must eventually retire its debt, a government can, in principle, refinance (or roll over) its debt indefinitely.
I have a feeling this thread is leading down a very nonproductive path, but I'd like to salvage something of value from it and discuss the consequences of the national debt.
I'd like to challenge the notion that the national debt is undisputedly a bad thing. The majority of the U.S.'s debt is in the form of treasury bonds - widely considered the most secure form of financial instrument. If the treasury bond can't be paid by the U.S., there are much bigger problems (such as the government of the largest national economy in the world collapsing). The treasury bond is utilized worldwide for its stability. It is used to moderate economic growth, and to stimulate it when it slows.
I'm not convinced government debt is entirely good, but I'm also not convinced that things would be better by paying it off.
A government that takes on debt in its own currency like the US isn’t going to default except perhaps as a political stunt. The likely outcome is that they let inflation eat away at the debt until the ratio of debt to GDP is back to a more normal level. This benefits anyone with debt including those with a fixed rate mortgage.
Where people could get into trouble is if they take out a variable rate mortgage because rates will probably rise as inflation heats up. The other risk is I f the economy hits a bump and you can’t get or keep a job that pays the mortgage payment. These can be mostly mitigated by not trying to over extend yourself financially.
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.
So by your analogy, is it actually bad for a normal person to be in debt? Normal people have mortgages.
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