I am probably over-simplifying a lot of things, if not outright wrong about some of this, so please let me know where I'm off:
Obviously the US government spends a lot more than it takes in. To make up for this deficit it has to sell an ever-increasing number of bonds with higher interest. Even though the interest on the debt is massive right now, as of 2026 it's still feasible for the government to finance this off with more bonds and more future interest. However, at some point this has to become unfeasible- it's mathematically impossible for this to continue forever.
When it can no longer finance its debt, I see three options that it has:
- (The most unlikely) The government somehow fixes its budget and starts operating as a surplus.
- The federal reserve starts printing money to cover some of this debt.
- The government stops paying off all of the bonds.
No matter which happens, don't they all result in a huge decrease in the purchasing power of the dollar? Faith in the government erodes no matter what.
Isn't this a massive issue that is going to start happening relatively soon? Or am I missing something here? I can also see how maybe this event is already priced into the dollar.
Future of US National Debt Question
byu/Octember31rd ininvesting
Posted by Octember31rd
11 Comments
The US government does not “sell an ever increasing number of bonds with higher interest”. Yes they sell an increasing amount of bonds, but the interest is up or down depending on rates at the time. In 2020 they were under 3% for instance and in 1981 they were near 14% (10 year).
The government doesn’t care about debt if it essentially controls the printer.
What if GDP increases faster than debt?
Think of it like a really big credit card. The country keeps paying it and refinancing it while also making more money over time. It doesn’t disappear, but it doesn’t blow up overnight either.
The real issue is the interest slowly getting bigger and taking up more of the budget.
Sovereign debt can basically be rolled forward indefinitely as long as interest payments don’t start crowding out the budget.
1. Inflation perpetually reduces the real value of debt
2. The tax base is guaranteed to grow as long as you continue to have economic growth and population growth
3. Govts issue debt certificates on their own terms at very favorable rates
4. The US in particular has the huge advantage of controlling the currency that it trades in and its debt is issued in
5. Govts, unlike people, never get sick, retire, or die
I think we’ll see some combination of belt-tightening, tax increases, and devaluation over the next 20 years. The debt isn’t that serious of a problem if the Trump deficits can be brought under control.
I suspect that the current government will force overseas bond holders to take a haircut at the next crisis, i.e. stock market crash, and then print money. This is why gold is up 100% in the last year or so.
China has seen the future but US allies with large amounts of bonds like Europe and Japan will get screwed again.
After the forced haircut, USD tanks, US government can’t issue any debt anymore and Canada invades (just kidding about that last part, its more likely that economically stable states like California and New York just chose to leave).
I have been concerned about the National Debt for over 10 years. When fuel prices dropped during COVID, I was hoping the Federal Government would put a temporary tax on gas that would be directed to paying down the debt. I saw someone propose that for every bill passed by the government would also have the funding attached to it without raising the National Debt. I have sincere hopes with the gift that Iran has given us, foreign countries are sending tankers to the United States and this will cause a windfall of money coming into our country and maybe Balancing our trade. With all of that foreign currency coming into we might be able to lower our debt.
1 Is unlikely to happen, and not even really necessary. If GDP grows faster than the new debt, the same thing will happen over time.
2 Has not and almost certainly will not happen anytime soon. That’s not how the Fed works.
3 Would be a nightmare situation. Let’s hope it doesn’t happen.
As long as the debt can be serviced reasonably, it’s not an issue. It’s at the point now where things are a little uncomfortable, but some changes could affect the trajectory. Ideally this would happen over a long period of time to avoid any shocks.
The correct answer is the government prints money. It’s called hyper inflation and its already been happening since the wuhan virus. Do you really believe the lie that inflation has been at 2 or 3 percent a year? Open your fucking eyes. Prices are DOUBLE or TRIPLE what they were 10 years ago.
The US National Debt has been “a massive issue that will be a problem relatively soon” since the 1970’s. No one knows exactly when, though.
Monetarism is dead. You guys need to get up on the latest orthodox macro, at least. New Neoclassical Synthesis.
Let the Friedman infantile reading of domestic debt rest