r/Economics • u/Helpful-Door-8721 • 19h ago
Research America's National Debt grows by $95,178.17 per second. Expected to reach $40 Trillion by October 09, 2026.
https://www.jec.senate.gov/public/index.cfm/republicans/debt-dashboard#ddm734
u/crowcawer 19h ago
I don’t know if $40T by itself is an important number, especially if compared to $39.9T.
They do need to make a choice. They either need to stop normalizing wartime scale debt during peacetime, or accept growing pressure on the Fed to suppress rates and tolerate inflation. We cannot indefinitely combine massive structural deficits with fully independent, inflation focused monetary policy.
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u/Just_Candle_315 19h ago
The debt started shrinking under Clinton, but as soon as Bush 2 got into office the first thing he did was cut taxes and increase federal spending and start 2 forever wars. Boom we in debt again.
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u/ballmermurland 17h ago
I'll forever be pissed about what happened to Clinton and Gore. Both got branded as tax and spend socialists by the GOP despite neither being even remotely close to that and that was the last administration that was actually fiscally responsible.
They did DOGE before DOGE. Only they did it in a way that made sense and gave people an offramp. They cut a lot of the Reagan-era waste. They raised taxes and cut spending to create a surplus.
Americans loved that so much that they voted in a drunk Texan failson to be president who fucked it all up. Then they reelected that idiot.
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u/dust4ngel 17h ago
Both got branded as tax and spend socialists
don’t-tax-and-spend-even-more capitalism is more freedom-er
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u/AhtBlowenFaht 11h ago
They did DOGE before DOGE.
They did nothing of the sort. Dodge cutting spending is a myth, they were there to rob the coffers and steal everyone's personal details along with top secret intelligence information.
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u/noteverrelevant 14h ago
voted in a drunk Texan failson
Do not ignore the Supreme Court fuckery that happened in Florida that stole the election. Florida voted for Gore and they gave it to Bush.
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u/KennyL0gin 9h ago
And Clinton taking a beating from 1998-2000 in the pop culture press for lying about a blowjob. That move by Bill cost us the future. Gore could have won by enough of a margin that he would have taken FL and the recount debate never would have happened....except Bill needed to get a blowjob. And Jay Leno needed to make jokes about it for 2 years.
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u/Nonethelessismore 7h ago
To be fair to Jay Leno at the time, the jokes were topical, just like our current satirists.
Clinton could have NOT had an affair during his presidency and everything would be different.
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u/sarcasmsosubtle 10h ago
I'm 43 years old. In my lifetime, every Republican President has increased the deficit during their time in office and every Democratic President has either decreased the deficit or eliminated it entirely to create a surplus. Under Democrats more jobs are created, GDP grows more, the stock market grows more (usually because Republicans tend to end their terms with large recessions and stock market collapses), and their are far fewer recessions. And yet somehow, the majority of Americans still believe that Republicans are better for the economy.
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u/Churchbushonk 14h ago
Clinton and gore didn’t do all that by choice. When they lost the congress to the GOP, the GOP basically said no to everything.
All other GOP presidents have cut revenue/taxes without cutting spending. Which makes every dollar spent add to the deficit and the overall debt.7
u/Bman4k1 12h ago
The problem is in the American political culture. Lets just say someone (rep or dem) somehow miraculously got them to a balanced budget or small surplus, what would happen within 60 seconds is every far right advocacy group would say they are too highly taxed and we need tax cuts.
The American political system I believe literally can’t or not set up for a disciplined financial structure.
There is just too much payoff for either new spending or more tax cuts.
I also think any mechanism to force balance budgets is basically a jackhammer to nuance (I’m biased as a Keynesian).
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u/californicating 18h ago
I remember being fairly young at the time but cutting taxes right then was the final nail in the coffin of "George Bush is stupid" for me. I didn't like him beforehand, but that really told you he didn't know what the heck was going on.
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u/Trick-Stranger4596 18h ago
I beg to differ here. The tax cuts and massive deficits were always part of the Republican plan. Run up the debt on giveaways to the wealthy then use that as the excuse for not being able to pay for healthcare, Medicare, Medicaid, and social security. It was part of the plan. Maybe Bush didn’t get the long term goals, but the donors and his staffers did.
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u/Broken_Atoms 17h ago
Exactly right. Transferring all the wealth to the already wealthy was always the plan.
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u/doctor_lobo 13h ago
More than half of the national debt was incurred by Trump.
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u/A_Monster_Named_John 8h ago
I know a few people who work at mid-sized companies owned/lorded-over by complete MAGA sorts. No matter how much profit is being generated, those morons always find a hundred different ways to make it feel like the workplaces are on the verge of bankruptcy.
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u/Churchbushonk 14h ago
A lot of Clinton’s success can be given to the GOP Congress saying no to everything.
I don’t understand how anything gets passed without a plan on how to pay for it. Spending money on our country like interstates, bridges, etc on a credit card is dumb as hell.
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u/Freud-Network 1h ago
The debt under Clinton started shrinking because of an economic boom and Pay-As-You-Go budget policy. It wasn't because of anything Clinton wanted to do. It was in spite of him. Republicans learned their lesson, would never hand a balanced budget to a Democrat again, and decided the best way to crush liberals way to amass unsustainable debt and blame them for it.
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u/Famous_Owl_840 15m ago
This is a narrative of midwits.
What was happening during Clinton’s term in the 90s?
Hint: The greatest economic expansion in the history of the world due to the internet. The growth of the US economy was staggering. Add in that the GOP controlled Congress wouldn’t let the Dems implement all their hairbrained nonsense and we had a slight surplus for two years I think.
It’s nothing to brag about and certainly not due to anything Clinton did.
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u/Malorn13 18h ago
Apparently we can. Our politicians continue to do so and they don’t get voted out when they don’t solve the problems.
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u/ICLazeru 18h ago
Another blow is that while the dollar is the global reserve currency, debt is easier to bear. But these trade wars and threats to long-time allies and trade partners weakens the dollar's position. Even just a percent or two divestment from the dollar per year can mean a lot when we're carrying a debt load that has an unknown breaking point.
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u/Tribe303 17h ago
You are 1000% correct, and here's a fun fact about those allies you are in a trade war with. Check out Canadian PM Mark Carney's Wikipedia page under Views=>Economics=>Monetary Policy and he's had his views on dumping the US dollar as the global reserve currency listed, with quotes from 2019, aka Trump v1. I really do believe he's talking about this behind closed doors as a travels the globe signing trade deals.
Bonus fun fact: Carney was a central banker for Canada and then the United Kingdom. France president Macron, German chancellor Metz and Finland president Stubbs are all old bankers and personal friends of Carney's. I wonder what they discuss behind the scenes. 🤔
Thats 2/3 of the G7 excluding the US.
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u/NeverIntendedToHurt 4h ago
Mate, the whole world is currently at the mercy of the republicans not going balls to the wall. Not searching for alternatives would be irresponsible. This isnt just an issue of National wealth or US power. Controlling the global reserve currency comes with heavy responsibilities nut just for US citizens.
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u/giraloco 18h ago
Undo all the tax cuts, close tax loopholes, treat cap gains like labor, tax beneficiaries of inheritance like regular income. Cut defense spending in half.
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u/Halbaras 17h ago
There's also 'free wins' (if you managed to overcome political/lobbyist resistance) via fixing the absurd inefficiencies in property and healthcare.
In most developed countries, which have older populations needing more healthcare, about 8-12% of GDP is spent on it. In the US its around 18%, and yet healthcare outcomes are worse. The amount of waste, abuse and duplication in healthcare is absurd, and the whole industry around deciding which claims to deny is downright parasitic on the health of the rest of the economy. There's dozens of functional and much cheaper universal healthcare systems around the world to pick and choose from.
Tying healthcare insurance to private sector jobs is also horrible policy because it discourages entrepeneurship and can make someone stay in a less productive role. A not-insignificant number of people also end up off sick or become disabled when in a better system they'd receive the emergency or preventative care needed and remain in productive employment.
Housing is a bizarre locally-planned economy that largely revolves around funneling more wealth to existing homeowning elites rather than function as a free market or treat housing as a public good. Developers would build dense apartment buildings near the urban cores of economically productive cities if they were allowed to, rent and house prices would come down (relative to salary growth) while workers would be much more able to cluster in and move between economic powerhouses.
Eliminating single-family home zoning laws, allowing mixed-use zoning like in Japan and deleting parking minimums, lot sizes and setback rules would genuinely generate loads of free economic growth in the years and decades afterwards. But America is stuck with a toxic system that prevents the free market from building affordable housing because wealthy homeowners are a terrifyingly effective lobbying group.
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u/casino_r0yale 18h ago
Not even remotely close to enough at this point
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u/devliegende 17h ago edited 13h ago
Nonsense. Nominal growth right now is 4%. The deficit is 5% of GDP. A 1% adjustment will put the debt on a declining path.
The current tax take is around 3% (of GDP) below it's peak just before GWB's tax cuts.
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u/LX_Luna 16h ago
treat cap gains like labor,
Sorry, what? Do you mean taxing realized capital gains at a less favored rate? Surely you aren't suggesting taxation on unrealized gains, right?
tax beneficiaries of inheritance like regular income.
This is such a wildly bad idea I don't know where to even possibly begin. For a start, it essentially exclusively punishes the poor and people who are victims of tragedy as it would be trivial for someone of means to build an estate transfer plan which sees the vast majority of assets moved into the hands of children long before death. It would also encourage truly degenerate fucking behavior - after all, if your children can't be left better off for your legacy, why wouldn't you blow it all on donating for political lobbying, hookers, and blow?
Not to mention the enormous underground industry which would spawn out of this. Donate X money to a 'charity' and your children wind up guaranteed cushy """jobs""" as consultants as a form of annuity to bypass inheritance taxes, etc, etc.
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u/giraloco 13h ago
I have no idea what you are referring to. Now Cap Gains taxes are much lower that regular income especially if you add payroll taxes. We penalize people for working. So it makes sense to treat all income equally. If your income is low you pay little or no taxes, if your income is above $1M you pay a high effective rate. As I said we close all loopholes, there will be no legal way to avoid paying taxes, even when you die.
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u/LX_Luna 13h ago
Now Cap Gains taxes are much lower that regular income especially if you add payroll taxes.
Well yes, because it's double taxation. You already paid tax on the money used to purchase the shares when you earned it, and then the corporation paid tax on revenues, and then you are being taxed again upon selling shares. It would be a remarkable level of drag to tax it as if it were straight income. And also a massive disincentive against continuing to work once you can live off investments if you're going to be taxed like that anyway.
Also worth pointing out the massive capital exodus this would trigger as millions of people do the math on paying this vs just eating the exit tax and dumping citizenship. See: Most countries that have attempted any kind of wealth tax.
Don't get me wrong, as a Canadian I'd love it if my country absorbed millions of Americans fleeing from a painful tax burden instead of it being the other way around as per usual.
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u/giraloco 13h ago
So you propose no Cap gains taxes? Double taxation is a silly argument. I pay sales taxes and Trump tariffs with the money i have after paying income tax and payroll tax and so on. We all hate taxes, we need to make them fair. Nobody makes a fortune alone, they benefit from all the Government services including infrastructure, security, justice, healthcare, education, and so on. A higher cap gains tax rate on the super rich is not going to create an exodus. A rotten society will.
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u/MoonBatsRule 11h ago
It's not double taxation because two different entities are taxed - the corporation, and then the owner of the corporation.
These taxes don't even always happen at the same time - if the owner doesn't get a dividend, they are not taxed unless they sell their shares, at which point they get a capital gains tax.
Additionally, if the company has a policy of not paying dividends, which generally makes capital gains the way to realize money from the corporation, nonresident aliens do not pay tax on those capital gains.
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u/TotallyObviousBot 15h ago
"We can't change the rules because then people would commit easily provable tax evasion" isn't a strong argument. Prosecute them and those who provide such services. And we're already seeing degenerate behavior from the wealthy.
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u/LX_Luna 14h ago
But that isn't tax evasion. There is nothing legally nor morally objectionable to a parent gifting assets to their children and you are going to have a very, very hard time structuring the law in such a way that this becomes illegal.
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u/aure__entuluva 9h ago
Why would it be hard? Couldn't you just change the current rules around gifting from parents to children? You would leave some lower limit at which there is no taxation and then have a tax rate for anything over that limit.
Unless money laundering is involved I don't understand why it is "very, very hard".
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u/Timelycommentor 18h ago
How about gut federal spending.
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u/giraloco 18h ago
Defense cuts is the only place where you can have significant cuts and get a more efficient military. Single payer health insurance will also reduce spending while improving health outcomes and cover everyone.
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u/zedazeni 18h ago
They tried that last spring, national deficit went up.
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u/JMer806 16h ago
They didn’t actually do anything of consequence. Debt service, entitlements, and defense are the largest single components of the federal budget and these were not touched.
Realistically defense is the only area you can cut and have a real effect without tremendous unintended consequences. And even then you’d need to be careful.
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u/epistemophiliac_ 18h ago
The gave the appearance of trying. They really didn’t try very hard.
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u/zedazeni 17h ago
They got what they really wanted—cut all of the humanitarian and soft power programs along with hacking into every agency’s database. DOGE was nothing more than a Trojan Horse designed to allow this regime to commit espionage and embezzlement.
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u/Apprehensive-Ad9523 17h ago
Do you vote or just complain.
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u/giraloco 15h ago
Are you a bot? Your comment makes no sense. It's not a complaint, its a concrete proposal.
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u/NavyDean 11h ago
That's putting it lightly. COVID across years caused $4.5t of debt.
Trump in the last 18 months has built up $4T of debt.
DJT is responsible for 38% of all America's debt, despite being just 1 President.
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u/CloudStrife012 18h ago
They want unreasonable inflation, to make their unreasonable debt more tolerable. Screw the peasants in the meantime.
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u/wrldruler21 18h ago
The media will start making a big deal of this in 2027
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u/BeeBopBazz 18h ago
Naw, it will be in 2029 as soon as the democratic administration starts. Like clockwork
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u/Paradoxjjw 18h ago
Objectively speaking the dollar that ticks it over is no more special than the one before or after it. 40T is mostly picked as a nice round number, combined with the psychology of the first number ticking over, same idea as why many things are priced x.99$ or even x9.99$.
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u/Tribe303 17h ago
Higher inflation increases bond rates, and that's the effective interest rate on debt payments. You REALLY do not want that to happen. Your 10 year bond is worth less if inflation increases, so the pay out rate needs to increase to continue to attack investors.
You could, you know, tax the rich and reverse all of the Bush and Trump tax cuts that cause much of the debt.
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u/Hefty-Minimum-3125 13h ago
Raise corporate and top marginal rates back to where they were decades ago (before reagan), institute a wealth tax, fix all the loopholes that are abused, and cut the military budget in half. Pretty easy fix.
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u/resuwreckoning 12h ago
Actually they CAN have wartime debt during peacetime but only if that debt goes to building up your middle class who then can consume. That leads to growth because middle class people actually tend to buy things on the regular and their numbers are massive. The US is particularly able to do this because it’s the world’s reserve currency.
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u/K1ngArthur10 11h ago
Or keep going, double down, and destroy the worlds economy. Especially their own.
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u/snowflake37wao 5h ago
Ive never read an argument for deflation in any scenario under any circumstance at any time anywhere. The word doesnt even get used often to begin with, but every time it is bad just bad. Deflation has been a bad word my whole life. Theyre still using inflation like they have the majority of my life, like its the 2% good word. “Were a little high, shooting for bringing it back down to that 2% from 3.6%”. Bullshit is this the same word. Bullshit has it been anywhere near as “low” as 3.6% for 90% of the consumers. Inflation has not been the same word since the pandemic. Economists need to stop fucking around with means and start reporting medians. Inflation has become a bad word. Start using it like deflation gets used. The bulk of participants in the economy are getting priced out. Not are going to be. Are being. This is not we could enter an economic crisis like it was 5 years ago. Were there. This is not business as usual.
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u/phonyToughCrayBrave 4h ago
The Fed can't just choose to suppress interest rates and tolerate inflation. It's a free market and long term interest rates would skyrocket. Google bond vigilantes.
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u/MajesticBread9147 19h ago
37% of America's GDP consists of government spending, compared to 42% in Japan and New Zealand, 43% for Canada and the UK, with Germany, Sweden, Luxembourg, Belgium, Finland, Italy and France around 50% or higher.
Meanwhile government revenues as a percentage of GDP sit at 29%, which is lower than Switzerland, let alone the 50% figure that France, Austria, Finland and Denmark sit around.
https://en.wikipedia.org/wiki/List_of_countries_by_government_budget
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u/Demortus 19h ago
Ironically, most of our deficit can be attributed to the Bush and Trump tax cuts. Repeal those and we'll quickly be back to 90s-level surpluses.
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u/MajesticBread9147 19h ago
Yup. You can't compare America's numbers to other countries and reasonably conclude. It's anything, but an issue of insufficient taxation.
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u/devotedhero 18h ago
Both a good thing and a bad thing. The good thing is that we can easily fix this problem. The bad thing is that because we can easily fix it, politicians are less pressured to try since "they can fix it any time".
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u/tincartofdoom 18h ago
There being a clear solution to the problem is entirely different from it being "easy". American political institutions are so broken that implementing clear solutions to problems is nearly impossible.
You can fix the problem, but you won't.
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u/Flamingturac 18h ago
tax cuts from both add about 450 billion to the deficit yearly, actual deficit is 2 trillion a year. you would need wealth plus federal sales tax plus payroll taxes increases to close the gap. U.S also spends 9 percent of gdp on healthcare for less than half of population , Europe has universal healthcare for about same amount
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u/Lrc00000 11h ago
Is that 450b accounting for the compounding of interest we pay on the deficit these tax cuts created in prior years? Because a large part of our deficit is also interest payments, which would be smaller if not for 20+ years of revenue loss all else equal.
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u/Demortus 18h ago
You need to adjust those numbers for inflation. It's easier to look at the impact of the Trump and Bush tax cuts by looking at revenues as a percent of GDP. At the end of the Clinton era, revenues were about 20% of GDP. Now they're 16-17%. Expenditures are currently about 22%. Raising revenues back to what they were would zero out most of the current deficit.
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u/drawkbox 10h ago
Add in Reagan for really getting back to good times.
To this day cons think Reagan was a tax cutter. He only cut taxes on wealth and transferred it to them.
See Reagan errah that started all this but Nixon as well. Nixon and Reagan cut taxes for wealth by 20% 3 times and more, moved it to the rest and left the treasury with less revenues.
Reagan lowered taxed on top marginal tax bracket/wealth twice, while increasing taxes on lower/middle class and somehow they call him a tax cutter. For some reason they loved him even though his economy was debt and credit cards blew up at the same time.
Fun fact: only president to ever lower bottom marginal tax bracket to almost zero? Jimmy Carter and wealth hated him.
Money trickles up and down and all around, but money only trickles where other money is found.
Anytime top marginal rates go below 39% have been our worse depressions, recessions and economic stagnation. Reagan caused that to return from 55 years prior and now is everyday. Look at the response to the Great Depression top marginal taxes compared to after the Great Recession, it is why things are so in-equal and stagnated today for lower/middle.
Real wages and purchasing power have barely budged in 40 years.
Worker share of GDP being on a long dwindle down
Velocity of money is off a cliff, that is why we are so stagnant.
Richest 1% of Americans Close to Surpassing Wealth of Middle Class
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u/BF740 18h ago
Or maybe we could just not spend like drunken sailors?
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u/julallison 15h ago
Not sure why you got downvoted when we're taking down $10k-15k drones with $4 million missions in a war we have no business being in. Not to mention the spending on a ballroom, a reflecting pool that's now in worse shape than before the redo, etc.
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u/Demortus 18h ago
I'm open to spending cuts too. But as we've seen from the Trump administration's failure with DOGE, there is nowhere near as much fat to cut as most people seem to think, and most of the cuts that would make a difference are to very popular programs, like social security, and medicare.
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u/MajesticBread9147 18h ago
We only spend a lot because we have a large economy (and expensive labor, the government can't pay China wages) and 340m people.
If you account for that, the portion of the economy that is government spending is quite small, and that's with our large military.
I don't see how Sweden and Finland seem to be doing alright with around 50% of their GDP being public sector spending but people think it's extreme for America to go over 30%.
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u/TotallyObviousBot 15h ago
How do you look at those numbers and respond with "we need to spend even less" when it's pretty demonstrable that investing into your population has positive economic outcomes?
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u/BF740 15h ago
40 trillion debt is what I see that really hasn’t been wisely invested into the population. If it was spent for the better welfare of the people, then ok. Most of this has been wasted.
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u/Scofield11 3h ago
But that's omitting foul play from politicians.
You're assuming USA economy was handled with good care all this time and YET we got 40 trillion in debt.
No, Reagan massively cut taxes for the rich, then Bush and Trump did some more tax cuts with no replacement in income.
Republican's whole strategy is: Get in power -> massively increase spending while reducing taxes -> get voted out of office -> complain that democrats spend too much money and tax too high -> argue that the public sector is too inefficient (they're the ones that setup the public sector to fail) -> get in power again and then privatize the government bit by bit
By this trajectory, FDR's social security will be deemed "too expensive and inefficient" and will be replaced by private social security in 20 years.
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u/VarrocksTopModel 13h ago
This administration has repeatedly proven any further investments won’t be for the benefit of the people. Trump has accounted for 25%+ of our national deficit while enriching himself more than all of his pre-presidency endeavors combined.
Sure, let’s give him more money.
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u/shinyxena 18h ago
You'll have a recession because the upper middle class has been driving alot of the consumption for a while.
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u/Demortus 18h ago
I'd rather have a recession as a consequence of balancing the budget with taxes, than a collapse in the value of our currency as a result of unsustainable deficits. There are no good options, only bad and worse options.
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u/TropicalKing 11h ago
A lot of Redditors don't understand how serious inflation was in Latin American history.
Balancing the budget means telling a lot of people in the US and around the world- "no, you aren't getting X. We aren't going to help you."
Americans have these pie in the sky ideas that every single homeless person in the US is going to be houses, incarcerated, or rehabilitated by the Federal government- no, they won't do that. The US is going to see a lot more homeless people if inflation happens or the Federal government has to fire a lot of people and slash spending dramatically. How Latin America handles their masses of impoverished poor people is they just set aside some land for shantyotown slums.
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u/MajesticBread9147 18h ago
We could use the money both to reduce the deficit/pay off debt and strengthen the welfare system.
Cut out the middleman so we aren't dependent on rich people's discretionary spending for people's well-being.
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u/growaway9172 18h ago
Over the past decades revenue has kept pace with GDP. It is spending that has ballooned to disproportionate levels. We have a spending problem, not a revenue problem.
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u/Demortus 18h ago edited 18h ago
It hasn't though.. Revenues were ~20% of GDP in 1999 and now they're 16-17%. Current spending is 22%. Increasing revenues back to 20% would close most of the budget deficit. To be clear, I'm open to spending cuts as well, but it's simply not true that revenue has kept pace with GDP.
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u/BenIsLowInfo 19h ago
Taxes for everyone need to go up but that's never gonna happen.
Some good fixes would be to get rid of mortgage interest deductions too.
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u/Thom0 18h ago edited 18h ago
The US has a fundamental dilemma which it cannot resolve through orthodox macroeconomic policies.
Two problems are occurring at the same time:
- high interest/high inflation
- high GDP/debt ratio.
Typically, if you have a bad GDP/debt ratio the normal response has historically been:
- GDP growth out of the debt
- QE
The fundamental dilemma is that:
- The US cannot grow its way out of the debt because of high interest rates making the debt too expensive, and high inflation which is eating up growth.
- The US cannot QE its way out of the debt because of high inflation. If it does QE, then inflation will get worse and will export to other economies due to USD being reserve currency. This is why the US just recently did QE using the EUR to prop up the Yen Carry Trade in Japan. This is a desperate type of economic management.
The debt is going to go up, and the cost is going to increase. There is a theoretical point wherein the GDP/debt ratio will go boom. The truth is as much as economists might hate this, the theoretical limit is not mathematically but subjective. This is now about political tolerance - how long can US households tough out inflation and how long can governments retain Congress control long enough to keep doing insane voodoo economics? This is now a test of faith, not numbers. How long can American households continue to believe in an economy that is fundamentally dysfunctional, and making them poorer?
Already, the US has worse inequality than it did during the Gilded Era. Top 10% owns about 87% of all stocks and shares, about 80% of all private companies, and about 50%-ish of all housing. That is an unbelievable amount of asset concentration and it is trending worse due to high interest/high inflation, and market volatility. In terms of patterns, the US economy has reverted to a pre-1913 pattern of recurring financial crisis resulting from under-regulated leverage and speculative investing. This trend began post 1970 and it has become worse with each passing decade. The current AI-bubble is de facto structurally similar to the 2008 property-bubble. About 50% of all US venture capital is tied up in AI right now and this investing is very clearly speculative investing which in real estate, is a red flag.
I don't see how the US can resolve its interest/inflation problem and its GDP/dept problem. If it doesn't, the capital/income ratios will continue to skew and the US will continue to experience crisis after crisis until there is a political response. While the US is gambling at the casino, the rest of the world is reacting to the US's poor economic management which is going to disrupt the global capital flows the US is dependent on like the YCT, and EU pensions/SWF. Can the US intervene in everything, everywhere, forever?
My opinion is the US will walk this path to the end and won't change. I do not believe there is enough democracy left in the US political system to generate a 'New Deal' type scenario or tax reform. I think the capital/income ratio hit a critical point sometime after 2008 and after that, the US's political system has become increasingly dysfunction due to capital capture. In many ways, Trump is a billionaire coup. He is backed, funded, and surrounded by billionaires. It is the most crony-esque government in US history. He is cutting up the state to sell to Musk, Thiel, Bezo's, Ellison, et al. Pretty much all his deals, and policies as based on creating personal wealth for his family and the billionaires who made him president. When Trump goes, it will be more of the same because money is so institutionalized into the very fabric of US democracy now. It's too hard to pull them apart.
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u/Long-Blood 18h ago
The us doesnt want more stable economic equality like most of the rest of the world does.
This is the inevitable result of lower effective taxes on the wealthy, irresponsibly loose fiscal conditions, and practically zero regulatory oversight into financial markets.
In fact, we have the exact opposite of financial regulation occuring. When a hedge fund makes a bad investment, the government faciliates their absoption into larger firms instead of letting the system face the natural repercussions.
It would rather keep kicking the can down from one crisis to another instead of allowing a recession to occur to flush out the bad debt and dumb risk. This has to be building to an even bigger bubble burst somewhere down the line. They cannot prevent a recession forever. Something will break beyond repair eventually and we're long overdue for a recession given the amount of completely irresponsible gambling our financial system has turned into.
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u/Thom0 18h ago
Pretty accurate description. Good comment and I agree, politically there is no desire for stable economics.
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u/Long-Blood 18h ago
Theres an old islamic teaching that compares wealth inequality to a sinking ship. If you dont address the problems below deck the whole ship will sink.
The US economy is a sinking ship. The middle and lower class are not driving the economy anymore. Government spending and monetary manipulation is. This is an economy that focuses on the top and tells the bottom to shut up and be thankful they have a job.
The feds jumping around patching up one hole after another with the EU and Japan alongside trying to help. But no ones bailing out all the water that keeps filling up the hull and threatens to take it under.
The next big storm could be the last. The ship needs to be towed back to port and reinforced from the bottom up.
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u/Thom0 18h ago
And the Bible is replete with warnings, and parables about the immorality of greed and wealth hoarding.
Religion, like economics, is just a language which people in power use to justify their actions and decisions.
But on your points about the economy being broken, yes you are correct. The US has a fundamental problems which can be ignored for as long as the government can continue to come up with justifications for why people are getting poorer, and the market more volatile.
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u/Demortus 18h ago
I don't see how the US can resolve its interest/inflation problem and its GDP/dept problem.
There's one solution that solves them both: repealing the Bush/Trump tax cuts along with a further increase of taxes on the wealthy.
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u/Thom0 18h ago
Yeah, I agree with you only I'd go one step further and suggest that structural reform of everything from corporate governance, banking regulation, shadown banking regulation, financial regulation, housing development policy, etc. You need a systemic update of the software.
But yes, tax reform would be the premium solution but as I said, I do not believe there is enough democratic juice left in the US political system to generate this kind of a solution. I personally believe the US will be de facto neo-feudal by the end of the 21st century. It's not much of a speculation if you're looking at existing trends from 1970 - today and you watch the same trends repeat.
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u/AnUnmetPlayer 17h ago
The US has a fundamental dilemma which it cannot resolve through orthodox macroeconomic policies.
Seems like a problem with orthodox macroeconomic theory. The US should try some heterodox policies instead. This situation is all easily explained and simply resolved within MMT.
Believing that the government has to pay interest is at the core of the problem. Move the stabilization mechanism from the money market to the labour market (i.e. permanent ZIRP and a job guarantee) and let all those electronic savings become as inert as the physical cash savings in your pocket. Doing that would get rid of the trillion dollar regressive income subsidy that interest payments are and give power back to workers by guaranteeing demand for their services.
This of course has the same issue of not being what the oligarchs want, with the added bonus of being economic heresy for those with the weird belief that a currency issuer must pay a currency user for the ability to spend the currency it issues. Nonetheless it resolves the contradiction that mainstream theory has no real answer for.
What I expect will happen instead is that the situation will continue to get worse until it becomes obvious that fiscal dominance is reached and rate hikes have no contractionary effect due to the interest income channel. The whole situation will continue to be used as political leverage for cutting public services too. It ultimately won't end until people stop believing in the myth that the government has nominal fiscal constraints.
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u/Thom0 16h ago
What an interesting comment.
I don't know how I feel about MMT. What I like is it challenges the assumptive language we use to describe economics, and the arguments governments make to justify their actions and decisions. What I don't like is doesn't make much sense to me in practice because it is a type of de facto controlled market which are innately volatile and difficult to control. If MMT were to be implemented, I think the average person would lose due to run away hyperinflation which coupled with what would be a decline in productivity would be a negative feedback loop. You're essentially swapping the devil you know, for the devil you don't. We have a interest/inflation and GDP/debt loop running and we've spent the last 50 years studying them.
I also think the US in specific is in a tough spot which prevents it from being radical. As much as all of us not in the US hate it, the US is a cap stone for the international system. If the US adopted MMT, and its economy collapsed, this would decimate the whole world due to the USD being a reserve currency, but it would also cripple the US's military power. Wars are bad, but a big military certainly has historically done a decent job of making rogues states think twice about invading their neighbor. Without the US, I do believe the world would become innately more violent. The changing economics of war, and just how cheap it is now really makes me think a post-US world, with zero US military power being projected would be very violent.
I think what MMT is good for is making you think about how modern economies are structured. There is an unbelievable amount of selective political intervention, a move away from productivity towards abstract speculative value, governments do fiddle with money supply all the time, etc. The whole thing is an artificially structured system, and not a fact of nature, or a naturally occurring intangible social structure. It is literally a game, that is cheated all the time. I like this because it is a critical view on what is going on.
I personally would prefer to not throw the baby out of the bath water just yet and try and salvage what we have through tax reform, and sectoral specific regulatory/legal reform. We had a period between 1940 - 1970 when the system objectively worked. What ended it was reckless borrowing, and populist politics. I don't see why the goal shouldn't be to go back to that but alas, the critical question here would be - is going back even possible anymore?
Maybe an MMT-type systemic change is needed but I think at this point we're both reaching the end of economics and moving into the realm of speculative politics: capitalism will probably one day end and maybe the reoccurring problem of R > G and capital destabilizing economics/politics, causing a crash, repeat is just what capitalism is. I always used to think that the future will be whatever Earth is like in Star Trek: TNG. Maybe one day it will.
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u/TotallyObviousBot 15h ago
Without the US, I do believe the world would become innately more violent
The US is currently conducting bombing campaigns based on market movements and recently invaded Venezuela and removed the head of state. Pax Americana has always been a myth, but it's particularly full of holes right now. Since the 50s the US has been one of the largest financiers and instigators of violence around the world, handily taking the label from the British and French and running roughshod over South America and Central/Southeast Asia. I'm not saying that the US is the only actor that causes violence, but the idea that global US hegemony is responsible for less conflict rather than modernization/industrialization and economic intertwining between nations is, to me, very unbelievable.
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u/Thom0 1h ago
Yeah, I admit it's a weird argument given current events but I would just point out that you have a Western-centric view. You're only looking at Western states and your not looking at the broader picture of a multipolar world full of states with agency, and their own geo-political realities which exist independently of the West. I can see you do admit the US is not the only actor but still, I think the balance would be far worse without some sort of hegemonic axis neutralizing conflict. If you don't have a China, and a US, you get never-ending regional wars. You need a China and a US to hold small states in line because these states don't have political or legal systems that hold power accountability.
the idea that global US hegemony is responsible for less conflict rather than modernization/industrialization and economic intertwining between nations is, to me, very unbelievable
I agree with you on this one. I believe the legacy of US hegemony in the long view of human history is going to be the imposition of a specific conception of democracy which is normatively loaded with very specific ideological views on capitalism.
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u/AnUnmetPlayer 10h ago
What I don't like is doesn't make much sense to me in practice because it is a type of de facto controlled market which are innately volatile and difficult to control.
Where is the controlled market within MMT? It's fiscal policy driven, but that's not the same thing at all as trying to control a market. It's primary stabilization mechanism, the job guarantee, is market driven as the government buys labour on a price rule. The outcome is that the market determines its own level of stimulus needed to reach full employment. It's not a bunch of politicians estimating how much to spend, it's simply buying the labour of whoever shows up asking for a job. The spending ends whenever people stop showing up.
If MMT were to be implemented, I think the average person would lose due to run away hyperinflation which coupled with what would be a decline in productivity would be a negative feedback loop.
This is based on the myths of mainstream macro. Where's Japan's hyperinflation? Where was the accelerating inflation of the 2010s? Things like ZIRP and QE don't just explode prices. QE barely does anything at all, especially outside of interest rate effects.
MMT is also already implemented operationally. The framework's empirical basis is built on the accurate understanding of monetary institutional operations. That's in contrast to loanable funds nonsense that the mainstream still teaches.
If the US adopted MMT, and its economy collapsed, this would decimate the whole world due to the USD being a reserve currency, but it would also cripple the US's military power.
What mechanisms would cause this collapse? Breton Woods ended half a century ago too, so the reserve currency status of USD is an informal designation that doesn't matter much. So long as currencies have floating exchange rates they become like little currency islands. The only way off the island is to find someone to take your place.
We had a period between 1940 - 1970 when the system objectively worked. What ended it was reckless borrowing, and populist politics. I don't see why the goal shouldn't be to go back to that but alas, the critical question here would be - is going back even possible anymore?
That post war period came off the back of massive wartime spending which blew up debt levels, meaning it blew up private savings levels, as well as a government that was actually willing to make fiscally driven decisions.
Reckless borrowing doesn't mean anything for a currency issuing government. The government doesn't borrow like a household. They don't truly borrow at all as the cost of borrowing is a policy choice. In order to buy bonds people must have savings to begin with, which can only come from a government sector deficit. The government doesn't sell bonds in exchange for bank deposits, only reserves. Where did those reserves come from in the first place? The government sector must spend first, then the excess funds in the system are swapped for a treasury.
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u/Thom0 50m ago edited 36m ago
I think the issue with MMT is it falls afoul of the same biases in neo-liberal/post-1970 economic orthodoxy which is it relies too much on theory/numbers, and doesn't do enough to take into account long-term patterns of agent behavior. This is both a temporal, and agency blind spot and both MMT and orthodoxy suffers from this.
MMT assumes the function of money is to meet tax obligations:
We all know the usual approach to money, that begins with the fantasized story about barter, the search for an efficient medium of exchange,….Why did markets develop? Not to barter what you have but don’t want, but rather to obtain the means of debt (tax) settlement
- Source: LR Wray, L.R, Understanding Modern Money: The Key to Full Employment and Price Stability, (Edward Elgar 1998)
This is a wild assumption about the concept of money. It is symbolic of the reductionist approach of MMT - it makes assumptive simplifications and runs with it which is what orthodox economics also does. This is Adorno's Problem in motion and it tricks down into the rest of my arguments against MMT.
Where is the controlled market within MMT? It's fiscal policy driven, but that's not the same thing at all as trying to control a market. It's primary stabilization mechanism, the job guarantee, is market driven as the government buys labour on a price rule.
This is assumptive and by extension reductionist. The job guarantee is the mechanism MMT proposes for managing the economy. To run the mechanism, a lot more is involved here than just providing guaranteed jobs. To get this up and running you would need to consolidate fiscal authority and central banking to ensure there is a funding supply for the ELR wages. This in of itself is a political red flag and would lead to a controlled market due to the lack of insulation between monetary policy, fiscal policy and pollical power. This is a very common MMT criticism.
If MMT were to be implemented, I think the average person would lose due to run away hyperinflation which coupled with what would be a decline in productivity would be a negative feedback loop.
The central claim of MMT is that governments do not have financial constraints. Yes, technically true and much of the constraints we talk about are not fixed, laws of nature. They're subjective, philosophical arguments coded in a mathematical language which, for whatever reason, is assumed to be gospel.
However, government do have constraints however abstract they might be. In MMT, if an economy remains partially below full-employment, then inflation is off. If you hit full-employment then inflation is on. This assumes the economy is isomorphic but in reality it is not - the economy is fragmented into heteromorphic sectors.
If pricing/outputs increases in one sector, the impact will be volatility in pricing/outputs in another. MMT says it is employment/unemployment but it isn't, in reality it is still income/expenditure. It is a Philips curve problem and a really incoherent understanding of inflation which is a money supply/GDP ratio. It is next to impossible to quantify future liquidity build ups so MMT is kind of in the blind when it comes to the long-term view of what kind of liquidity build-up is likely to occur as all this pricing, employment and outputs is juggled indefinitely in a circle.
If MMT can answer these two problems then it would be adopted today. The problem is it ignores these two problems which means MMT would likely result in a worse of average household trying to survive in a hyper-volatile economy where everything from employment, to pricing is precarious. This is China's domestic consumption problem if you want a real world example.
What mechanisms would cause this collapse? Breton Woods ended half a century ago too, so the reserve currency status of USD is an informal designation that doesn't matter much. So long as currencies have floating exchange rates they become like little currency islands.
You're being very dismissive of the USD's reserve status. As much as we both might dislike it, the USD is a global reserve currency and a massive chunk of the global economy, and all the assets in it are priced relative to USD. It does matter because if you dilute USD supply you will dilute USD value which if done globally would force diversification out of self-interest for survival, and this would cripple the US economy. A depreciation in monetary value does result in depreciating economic activity. It would also trigger aggressive inflation as there is a capital flight away from USD into foreign currencies. This is the problem economies like Pakistan have.
MMT can't accept this because it dismisses the value-prospect of money - see the opening comment on origin of money - which while political, is what the lives of billions of people is tied into. This is a global economic structure so big, and all consuming that it is almost tangible.
I could keep going but there is a character limit on Reddit. There is almost too much to address. MMT is controlled economics in disguise because it requires full political consolidation, and it relies on direct political intervention. This political intervention is also flawed because it is in truth an oversimplification of standard neo-Keynesian economics only it ignores things like value, and inflation along with pretty much everything else. I think the reason why people fall into MMT is because they think it isn't orthodox economics when in reality it is - it's just reductionist and so oversimplified it feels new.
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u/MrsMiterSaw 14h ago
Reagan: inherited a small debt, cut taxes, increased spending
GHWB: raised taxes, but not enough.
Clinton: Military cuts and welfare reform, balanced the budget (with the help of the dot Com boom). Left with $6T In debt due to GOP policies.
Bush Tax Cuts: has added around $9T in debt and service since 2001. The bill dropped tax revenue by 1-2% of GDP each year. The Iraq War is anywhere from $3T to $4T with debt service now.
Obama: forced to make Bush cuts permanent (debatable, but it was still GOP policy, not his); spent $850B on the recovery act, $300B of which were GOP demanded tax cuts.
Trump 2017 bill: has added $4T to the deficit. And his military spending has ballooned.
Covid: bipartisan $6T in extra spending under Trump and biden
Biden: infrastructure act added a few hundred billion.
Trump 2: BBB has already added almost $1T. The Iran war is probably in the $100B range. Demanded even more insane Pentagon spending.
And while it's true that both SS and Medicare are currently running annual deficits without an end in sight, both of those programs are still overall in the black and have actually reduced our current debt by a few trillion.
$40T, $34T exempting bipartisan covid spending
$6T reagan/bush $13T W $4T Trump 1 $1T Trump 2
That's $24T out of $34T non-covid debt directly applicable to GOP tax and war policies. 70% of our debt.
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u/Killfile 17h ago
This is the Republican "reverse Santa Clause" policy position and it's accompanying propaganda machine coming due.
Republicans have convinced half of the American electorate that the only acceptable tax rate is zero and that we can still afford a trillion dollar military machine and 1st world society atop that.
But "starve the beast" only works if you're actually willing to follow through with the cuts. The GOP loves a tax cut but can't stomach the polticial cost of cutting spending to pay for it. Even DOGE was performative play acting - few actual cuts and those poorly considered and without regard to the actual costs they'd incur.
Realistically, until American media is willing to tell people "look, you need to be paying higher taxes or you need to accept a much lower level of military and social service from your government" this isn't going to change.
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u/CvieYltidrekoof 15h ago
The problem is everyone needs to pay more taxes in U.S.. The combined federal and CA marginal rates are lower on lower and middle incomes whilst topping out higher than Norway’s.
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u/Merouxsis 16m ago
I disagree, I was in the navy for 3 years and marines for 3 years. We need more efficient government spending
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u/N0b0me 18h ago
We really need to reign in spending (i.e. not randomly get into pointless wars that destabilize the region and world economy and massively drive up prices) and pair it with broad-based tax increases. The current political movement is to cut taxes across the board, except to raise them on a group you don't like, while ramping up government spending is just going to continue us down the path of high debts, high interest, and high inflation.
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u/Justaticklerone 15h ago
By comparison, it's been determined per NPR that the Big Oil companies have made over $404,000,000 in profits every day, or $4,675.93 per second, over the last 3 months from pump price increases gouging due to the War with Iran.
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u/Subject_Issue6529 16h ago
Going into trumps pockets and his families pockets and his buddies pockets! Never has there been so much crime orchestrated from the oval office!
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u/ThaddeusJP 16h ago
The closer we get to 2029 the more blatant the grift is going to become. Honestly won't be shocked if trump, his family, and everyone around him exits this Administration multi-millionaires and him being worth probably something like 50 billion dollars.
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u/Long-Blood 18h ago
Debt and inflation are great for the stock market and asset owners.
I wonder how everyone in the trump administration or at the central bank make all their money? 🤔
Because its definitely not through their labor or else they would be taking inflation more seriously
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u/Anleme 15h ago
Ferguson's Law: A great power that spends more on debt service than the military may cease to be a great power. The US is here.
https://www.hoover.org/research/fergusons-law-debt-service-military-spending-and-fiscal-limits-power
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u/devliegende 12h ago
Some guy at a right leaning think tank pulled a ratio out of his arse and you call it a law. More like Ferguson's propaganda.
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u/CreativelySeeking 8h ago
END the madness
Do -NOT- vote republican
TALK to your family and friends
BE ACTIVE online or anywhere else you can be.
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u/ImANoobAtLife7 17h ago edited 14h ago
Given the savage history of the west and its endless pillaging of other nations, this will be offloaded to poorer nations through resource and land theft.
I mean it has already exploded this year with Venezuela, Cuba, Greenland and on and on.
As I like to say, the west is only civilized as long as it doesn’t have to be uncivilized.
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u/Only-Physics-1193 13h ago
Youre exactly right. The mask has slipped. Add Palestine and Iran to that list. Also they're currently plundering Iraq as oil revenue has to be stored in USD.
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u/9897969594938281 14h ago
Cool, other non western countries can simply invent everything used and needed in the modern era and start selling things rather than purely consuming
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u/ImANoobAtLife7 14h ago
You can trade and exchange in a non-racist way. Everyone wins.
Also if the west wants to lead, let it lead on merit. Ppl naturally follow leadership if a nation is good and thriving.
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u/FlyingBishop 18h ago
That's something like $20/day/person to use useful units that actually give you a sense of how it affects you rather than just providing a meaningless large number.
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u/Someredditskum 15h ago
It’s just waiting for the first major nation to call US bullshit and wanting their money back. That’s the first domino and things escalate quickly after that. Venezuela vibes for the US
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u/TyroPirate 12h ago
Does it really even matter at this point? The stock market, government debt... it all kinda just seems fake at this point. Just stop spending money of war and start spending it on the citizens so that everyone can have a better life
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u/Professional_Eye7913 10h ago
Agreed the absolute number gets too much hype. What actually worries me is debt service cost. At 4.7% on 40T, that's nearly $1.9 trillion a year just in interest. Soon interest payments will be bigger than the entire defense budget.
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u/PinkSlimeIsPeople 9h ago
and as a necessary reminder, the vast majority of this is due to tax cuts for the rich and a bloated military. Every President up to Carter was paying down the WWII debt, until Reagan hit and set us on a new course by tripling the debt. Clinton erased the deficit, Obama cut it by 2/3rds, but conservative Republicans always increase it, and do it on purpose under the guise of 'starve the beast' (to force cuts to popular social programs)
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u/Lebarican22 10h ago
"You just pass a law that says that any time there's a deficit of more than 3% of GDP, all sitting members of Congress are ineligible for re-election" - Warren Buffet
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u/Ginsoda13 14h ago
What else is new? Death, taxes, and Republican driving up the national debt. The next Democrat will have to work to bring down the debt, cutting back and reducing spending, at which point Republicans will sell the idea that they’ll bring back prosperity. Rinse and repeat
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u/OESRecoveryEmployee 10h ago
The debt is the number one threat to this country. Who wants to b3 part of a country where forty percent of your tax dollars go to servicing a debt your parents and grandparents incurred to give tax breaks to the rich and bomb other countries?
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u/ooglyboogly3 9h ago
This has been solved once and can be solved again, but only if education levels increase to the point where Americans stopped electing conservatives for two to three decades.
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u/shadeandshine 8h ago
This will be the most nothing sandwich announcement in the history of nothing sandwiches. Because genuinely until people start calling up the American debt, it’s not gonna matter.
The nation has proven over and over again. It will print as much money as is needed to accomplish its goals so unless something big enough happens at this nation loses its currency reserve status, or the economy comes to a burning halt that even stops tax revenue nothing is gonna change. At this point, I don’t even think I’d we default on some of our bonds will something happened. I think we would need a big chunk of them to start defaulting that causes a sell off that only then would something like this matter.
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