Federal government’s interest payments at £1 trillion:
They can only pay this by increased borrowing. I didn’t realize how quickly things were going south!
I’m still buying gold, that’s something they cannot print!
2 Likes
Looking at your linked chart doesn’t tell you much.
If you have debt of $100,000 and pay $10,000 on an income of $20,000, that’s a hurt.
If your income is $1,000,000, it’s insignificant.
Here’s what debt looks like as a percent of GDP:
Note: from your same source: St. Louis Fed.
12 Likes
It’s not the size of the debt that matters too much.
As interest rates rise the amount of interest will go up even if the debt doesn’t. Look at the rate of increase in interest paid, it almost goes vertical!
The USA’s debt clock says that in 2027 US debt will be $44 trillion. At 5%/6% this will take about 50% of the current US government’s income. I see a problem as interest rates rise.
That’s because the scale of your graph is misleading. $500 billion in 2023 means a vastly different thing than $500 billion in 1953.
Just like stocks, the correct format is log scale. That’s the proper way to visualize growth over time. Not nearly as scary. But as goofy says, the real issue is the ability to pay that interest. That’s not a particularly large concern at this time.
4 Likes
Interest of $1 trillion and rising with income of about $4.8 trillion.
If over 20% of my income was going on paying interest and rising I’d be very concerned.
Not sure where you are getting that figure. Frist off, the Fed owns a little less than 1/5th of the US debt so we are paying interest to ourselves.
Second, net interest payments are expected to be roughly $400 billion this year; far less than the $1 trillion you quoted (Historical Tables | OMB | The White House) and less than the historical average % of outlays:
5 Likes
Hmmm. The old maxim is that you should spend about 30% of your income on your mortgage payment. (More recent advice has pushed that number a bit higher.)
When you take out the mortgage, and for many years thereafter, your “interest payment” is likely 70% or more of your owed amount. So yes, most people a’re quite used to paying 20% of their income in interest.
You’re welcome.
2 Likes
That sounds OK. You are avoiding paying rent and end up with an asset.
The USA, like the UK, is just borrowing more and more to pay the bills as they come in - that’s what the 20% is servicing.
Thinking of it as a interest on a (growing) credit card debt and not a mortgage (which will eventually get paid off) and leave you with an asset.
It’s an epidemic of debt that we in The West are suffering from:
The UK government spent a record £8.7bn in interest on repaying its debts last month, official figures show.
Meh. You should read your own link.
Quote:
However, analysts stressed that despite the record payment, debt servicing costs as a share of GDP remain low by historic standards.
Ruth Gregory, senior UK economist at Capital Economics, said: “While debt servicing costs will stay higher than the [Office for Budget Responsibility] expects over the next few years, the public finances should reap the benefits of a fuller recovery in GDP than the OBR expects, meaning that the deficit will still fall faster.”
More:
Given that the pandemic has put the economy on something like a war footing, it’s worth noting that after World War Two, it [debt as % of GDP] was 2.5 times the size. The reaction of the government then was not to cut spending, but to embark on the biggest expansion of state spending in history. Sixteen years later, in 1961, prosperity was secure, taxes rolled in and both borrowing and debt dropped rapidly.
3 Likes
We should have the fed buy ALL the existing debt and all future debt. That way we would pay ALL the interest “to ourselves”.
1 Like
Debt done properly is called investment as it leads to higher future revenues. The IRA appears to be such an example as it is so far generating substantial new economic activity. This contrasts with the corporate tax cuts of the previous administration that led to a lot of stock buybacks. That raised the national debt without compensating future increases in tax revenue.
Because the US population is aging, the national debt will continue to increase unless you want old people to starve. One way to compensate for this is through intelligent government spending that will create increases in future tax revenue larger than that spending.
To cut public investment today when one knows that a growing elderly population is going to require increased public expenditures tomorrow is short-sighted.
3 Likes
“Intelligent government spending” - oxymoron
Never mind, just keep running up the credit card, what could possibly go wrong:
1 Like
The Interstate Highway System provided the foundation for the astonishing rise in economic activity in the US from the 1960’s on. The Panama Canal, the Erie Canal, and almost every bridge across every river was “government spending”.
NASA developed rocketry to the point where private industry could build on its technologies to produce all sorts of societal benefits, and along the way provided military advantages as well. The Polio vaccine was partly developed on government grants, as were remedies for AIDS, measles, and other scourges as probably affected your ancestors.
MRIs, Doppler Radar, microchips, LED lights, even the civilian airline industry were all wholly or partially developed using government funding and subsidies. Touchscreens came from DARPA, which also hand a hand in developing the biggest communication breakthrough in human history, Arpanet, which became the Internet. TCP/IP to deal with lost packets? Yep. Government funding. Marc Andreesen was on the NSF staff when he came up with Mosaic, and it was government research that led to PageRank, the technology underlying Google. Bar codes to speed up and make sorting, selling, and production more efficient? That was government. DARPA also had a hand in developing the first self-driving car, offering a prize for proof of concept. Napoleon did the same thing for food transport, which brought tin cans into being.
You may have heard of the Human Genome Project? It allows the dissection of DNA to hunt for propensities for disease, as well as the founding of private companies like 23andMe, not to mention those cold cases now solved by DNA technologies and the companies which have sprung from them, like Parabon Labs. Both Apple and Intel benefited from early stage government programs to help emerging technology companies survive and thrive.
The image sensors in your smartphone? The GPS in your smartphone? The microprocessor in your smartphone? The aforementioned touchscreen in your smartphone? All developed in whole or in part by government. Are you saying you’d rather go back and not have that? Speaking of GPS, atomic clocks were invented by NIST scientists, and without them there is no GPS.
The DOE made hydraulic fracturing technologies possible, so you might thank them for your gas prices next time you fill up. Better weather forecasting and hybrid corn have led to a production increase that allows the feeding of the country and sometimes the world, you can thank the US government for those, too. Oh, and Tesla got started thanks to generous government grants, as did SpaceX, so cross those off the list too as “heroic companies started solely by bold capitalists”.
Jet engines, radar, supercomputing, speech recognition, reverse auctions, kidney matching and so much more have come from government funding and initiatives, and the list goes on.
You know sometimes I tire of writing this again and again, but then I remember there are truly ignorant people who think it funny to show how little they know about how the world works, and I am again energized. That they can criticize “government” is not particularly novel, especially given there is much to criticize. But to pretend that it is not a tremendous force for good, even with its many faults, is to show a lack of understanding of the world we live in - and how it got to be so. And for that I hope my efforts in correcting and amplifying the record do not fall into the category of “time wasted”, although for a few, the truly-incapable of admitting their bias might be wrong, it probably is. “Oxymoron” is too long a word, I would shorten it by three letters.
11 Likes
Look up cost/benefit analysis. Just about every USD of government spending gets run through a cost/benefit analysis.
You were proven wrong several times in this thread but refuse to understand what is said to you. We will see this same topic taken up a different way by you some hours from now.
Yep, rising debt and rising interest rates/payments are the road to disaster.
I ran a successful business for 35 years and know all about balancing the books and making money. You don’t do it by running a Ponzi scheme, which is what the US dollar, Sterling and the Euro are.
1 Like
That is your opinion. It is not factual.
There is a small and subtle difference between your business and the federal budget and US economy.
That suggests you don’t understand how GDP grows. Changes in capital and labor account for maybe 10% of GDP growth. The rest mostly comes from changes in technology. Big changes in technology mostly originates from government spending.
You see, when it comes to investment, businessmen tend to be timid. They need to see the pathway to profits before putting money into new ventures. Public spending puts a greater emphasis on potential. That’s why technological advances led by the private sector tend to be incremental, while the revolutionary advances generally develop from public
spending. There are numerous examples of this, including microchips, lasers, nanotechnology, quantum computing, and most pharmaceuticals.
Most people don’t appreciate that the federal government is the primary force driving American innovation during the early stages of technological development. Cut federal spending the wrong way and future GDP growth will be substantially reduced.
5 Likes
But running a business is nothing like running a government. Certainly not like running a national government.
—Peter
5 Likes
I am very aware of that but there are certain ‘basics’ when running anything.
The West is running on debt - it is just running up the credit card with the rest of the world. If you think that the rest of the world is just going to keep accepting treasuries, gilts and the like forever then fine. I hope that they do.
Alternatively you can believe that things will change and we in The West will become industrial/technological powerhouse and balance our books this way, then that’s fine as well.
I don’t see much evidence of either of the above happening.
The world is changing, slowly, but it is changing. I used to travel extensively (pre covid) and this doesn’t surprise me as it appears to surprise some people:
The sun is setting on the West’s time as the self-appointed democracy police of the world.
The case is generally well made that the West acts without thinking things through, and, now that the Rest have the capacity to push back this just won’t do.
As Dylan wrote ’ The Times They Are A-Changin’
2 Likes
Not quite. At least not for the US. The vast majority of US is debt is owed between US government agencies or owed to US entities, like individuals or mutual funds. The amount owned to foreign entities isn’t all that much, comparatively. China buys a lot of US debt, but they do that to keep the dollar high out of their own self-interest.
6 Likes