I'm not super knowledgeable in this, but I've been thinking about it a lot recently. When I look up how countries get out of debt they can't pay back, it's usually either a hard default, growing more than you spend, spending less than you make, or inflation.
None of these really seem like they would work though. I'll use numbers that I remember off the top of my head, which might not be 100% accurate, but: ~$1T in interest payments, ~$800B in primary deficit, for a bit more than $5T of federal revenue. The US is spending more in primary deficit alone than they grow. I'm not sure if it is technically accurate, but that seems like negative growth to me, new debt aside. So, according to that:
Growing out of it is a fantasy.
Cutting spending would mean removing at least the $800B of primary deficit, plus some more, seems about impossible.
Inflation would cause interest rates to rise by that much plus a risk premium, and a huge portion of the debt is short-term, which has to be rolled over at new rates. The mandatory spending on pensions and Medicare is pinned to inflation (as far as I know, but correct me if that's wrong), so it just doesn't seem feasible.
A hard default would halt all new borrowing, which is what those $800B a year are. So you'd need to cut $800B somehow, and that's not even counting all the issues that come with a hard default.
Financial repression on top of inflation is one I don't fully understand, to be honest. But as I understand it, it relies on accepting long-term stagnation, domestic savings, and aggressive governmental measures. It does not seem like a culture and economy based on 80 years of growth can deal with that, especially with people living paycheck to paycheck and $8,000 of median savings.
So my question, unless I messed up somewhere above, is: what's next? What happens when a service-based economy loses its currency, at the same time as getting savings effectively wiped out?
Just how much trouble is the population in? Would it be a messy but recoverable economic crisis, the end of the USA as we know it, or somewhere in between?
What about the rest of the world ? Can the US continue to project power in the Middle East and Southeast Asia?
how will the American debt crisis end ?
byu/Chewwwwwwwwwwwwwwwww ineconomy
Posted by Chewwwwwwwwwwwwwwwww