Burden of the national debt: The portion of tax receipts swallowed by interest payments.
By Wolf Richter for WOLF STREET.
The long-term fiscal mess the US has been wallowing in for many years – the mindboggling deficits even during a strong economy that turned into the incredibly ballooning debt, encouraged and enabled by 14 years of the Fed’s free-money policies – is a long-term problem. It’s not a problem this year or next year, and that’s a contributor to the problem because that’s as far as politicians want to think, and beyond that, it’s after me, the deluge. And so we’re here, a step further down the road.
Tax receipts by the federal government in Q2 jumped by $69 billion, or by 10.2%, year-over-year to $751 billion, according to a measure released today by the Bureau of Economic Analysis as part of its Q2 GDP revision. Quarter-to-quarter, the seasonal dip in Q2, at -2.5%, was smaller than the average in past years: -4.7% in 2023, -2.0% in 2022, -2.9% in 2019, -4.4% in 2018, and -4.5% in 2017 (red in the chart below).
Interest payments by the government on its gigantic and ballooning pile of debt surged by $45 billion, or by 20%, year-over-year in Q2 to $272 billion (blue).
Tax receipts increase through inflation, growing employment, wage growth, a growing economy with higher profits from businesses, and bubbly financial markets. Inflation helps increase tax receipts by inflating taxable wages and taxable profits; and growing employment does so by more workers earning higher taxable wages.
Last year in Q1 and Q2, tax receipts had plunged on a year-over-year basis because capital gains tax receipts had plunged because 2022 had been crappy for investors, with big losses across many asset classes. This changed in 2023, with a huge rally in stocks, bonds, cryptos etc. So by tax day this year, those capital gains taxes were due.
This measure of tax receipts, released today by the BEA, tracks what’s available to pay for regular government expenditures, such as interest payments. Excluded from these receipts are contributions to Social Security and other social insurance that are paid specifically by contributors into those programs and are not available to pay for general expenditures.
Interest payments as % of tax receipts.
What matters the most in terms of how long this fiscal mess can be pushed further is the relationship of interest payments to tax receipts.
The ratio of interest payments as a percentage of tax receipts in Q2 rose to 36.3%, a notch higher than in Q3 2023, and the highest since 1997. This ratio shows to what extent interest payments are eating up the national income.
In the 15 years between 1982 and 1997, the ratio was higher than today; and in the 10 years between 1983 and 1993, it ranged from 45% to 52%, and the US was fishtailing toward a crisis. Eventually, Congress, which decides fiscal policy, trimmed the deficit, supported by inflation that was declining but continued to be fairly high and inflated taxable incomes and profits, then further helped along by the Dotcom Bubble, which generated massive capital gains taxes along with boosting employment and wage growth.
Maybe the US was lucky that time, but it worked, though it took 20 years from when this became a huge issue in 1981 to when it receded as an issue at around the turn of the millennium.
Interest payments have surged for three reasons:
The debt has ballooned at a mindboggling pace in recent years, and at the end of Q2 had reached $34.8 trillion. Since then, it has further ballooned to $35.3 trillion. This is what the government has to pay interest on.
The higher interest rates are filtering into the debt as old lower-interest-rate Treasury notes and bonds mature and are replaced with new Treasury securities that carry a higher interest rate.
Short-term Treasury bills have ballooned from $4 trillion a year ago to $6 trillion now, as the government has shifted issuance from longer-term notes and bonds to T-bills. Now, about 22% of the $27.8 trillion in marketable Treasury securities are T-bills, up from 16% a year ago.
T-bill yields have been over 5% since early 2023. This is the most expensive debt that the government currently has, and the government has increased this debt by 50% over the past year – one prong of its two-pronged strategy to push long-term interest rates down to stimulate the economy, in direct conflict with the Fed’s monetary policies.
In July, the average interest rate that the Treasury department paid on its total debt was 3.33%, the highest since January 2010, though that’s still fairly low by historical averages:
Other measures of the burden of the debt.
Interest payments as % of GDP. Interest payments dipped a hair to 3.8% of GDP in Q2, the second worst since 1998, just behind Q1 (figured as quarterly interest expense not adjusted for inflation, not seasonally adjusted; divided by quarterly GDP of $7.2 trillion in current dollars, not adjusted for inflation, not seasonally adjusted annual rate).
This does not look good:
Total debt as % of GDP dipped a hair to 121.6% in Q2 (figured as total debt at quarter end divided by quarterly GDP in current dollars seasonally adjusted annual rate).
The spike in Q2 2020 occurred because GDP crashed during the lockdown while the national debt spiked to pay for the stimulus programs. From Q3 2020 through Q1 2023, GDP recovered faster than the debt rose, and the ratio declined. But in Q2 2023, the trend reversed with GDP growing more slowly than the debt, and the ratio headed higher again.
In the free-money era from 2008 through 2012, which included the Great Recession, over those five years, the ratio shot from 63% to 100%. By the end of 2019, it was at 106%. Now it’s at 121.6%.
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Coñoo…
If you vote this November, you’ll be voting for more of the same.
More inflation, lower dollar value, more repression a worse economy, and so on.
Creeping socialism: scary! A Republican friend said, “Do you want this to continue and ruin the life of your grandchildren and great grandchildren?” And, by the way, he thinks that global warming is a hoax and won’t affect his next of kin.
The reality is that wealth and income are moving further away from the middle class and concentrating in the hands of fewer people at the top of the economic pyramid.
The real scare will be when the majority of Americans have no assets and, in effect, have nothing to lose.
Yes the climate is warming, the government spending money on green new deal type stuff does exactly nothing about this, and the effects of a warming climate on the actual lives of people are extremely debatable and vastly exaggerated by media scaremongers.
But the cost of our debt and in particular, the cost of the Fed trying to inflate it away is incalculable and is here upon us now. Young adults can’t afford starter homes in large swaths of country. Retirement plans destroyed by 20 years of interest rate suppression.
And ironically, the income inequality you describe is driven by Fed interest rate suppression, which inflates assets and benefits private equity and large scale landlords at the expense of the working poor and small scale saving retirees. This will result in civil war long before climate change does anything meaningful to the way any of us live. If the Federal government can’t start to control spending and if the Fed will not support actual sound money, we are in the last decade of the current union.
Well written.
I think the Fed was somewhat surprised by the reaction to rate repression. A logical reaction is not to chase yield, as that increases risk and decreases total expected return. The wealth concentration we have today would evaporate if the Fed simply accepted recession as a mechanism to reduce the unhealthy speculation, which otherwise continues to be subsidized.
“The wealth concentration we have today would evaporate if the Fed simply accepted recession”
As would the gov’ts tax receipts – which is the real reason the Fed is considering cutting.
Happy – core reliable freshwater reserves/commercial agriculture soils function for long-term affordable productivity/availability (reckon you aren’t actively involved in land resource management/food production) severely subject to climate variation and this doesn’t affect ‘actual lives of ordinary people’? Farms will keep on adequately producing and supermarkets will continue to be stocked without significant interruption in the event of a ‘civil war’? My apologies, but I’m a bit dubious…(…we actually aren’t that far apart, if you consider our general profligate irresponsibility in managing the natural resources that allow our species to exist on this space rock just another facet of our collective irresponsible management of human governance…FOMO/YOLO/YMMV, TANSTAAFL…).
may we all find a better day.
“This will result in civil war long before climate change does anything meaningful to the way any of us live.” This effects tons of people already, farmers in drought areas, increased wildfire activity destroying homes and lives, drying up of lakes and rivers that millions of people rely on. With climate change significantly contributing to these issues, today and for many years already. Researching and moving towards renewable energy will absolutely make a difference, the government absolutely won’t do it efficiently, but are you suggesting ignoring it is a better option? The statement quoted above is speculation and could be completely ass backward unless you’re a time traveler or a really great fortune teller (which is more likely than you being a scientist who studies the climate/ecology).
“Creeping socialism: scary! A Republican friend said”
Correction: We’ve moved past socialism. We are now on the front end of communism. Just ask Steve Bannon, Peter Navaro, etc. Look at England today. You say the wrong thing and you”ve got the law enforcement knocking on your door with a SWAT team and put in the slammer for 6 months. And all people are concerned with is how much money they are making on their over valued stock portfolio.
“Correction: We’ve moved past socialism. We are now on the front end of communism”
LoL, this gives off so much FB vibe…another reminder of why FB is losing younger and new users
I am equally or more worried by the thought of a “loyal” contingent running the show, dictating the rules, suppressing democracy, and strengthening our current corptocracy, as wildlife, clean air, and nature are washed from the Earth for profit.
The system isn’t providing us good choices, just paths to ruin.
“Communism is when the government does stuff”
Unfortunately, whoever is elected dollar will continue to loose its value against assets. I have never heard any proposals from either candidate to reduce the budget deficit. It is quite the opposite indeed.
This is not a big surprise, as most of the funders hold assets (stocks, shares, bonds, RE) and as well as majority of the voters (RE). They all benefit from valuation of their assets which means dollar loosing its value against assets.
This is partly true, both parties will have deficit spending.
But one party is proposing vastly increased spending on every possible aspect of life including both social and industrial and green new deal type stuff, everything but defense and border security. The resulting deficit will not be fixable by any means that does not result in vastly higher taxes on middle income earnings, it is mathematically impossible. And yet we are focused on personalities and memes and “vibes”.
They don’t need to increase taxes directly. They continue to depend on ever increasing debt (there were even talks about 50-year bonds). This fuels asset prices (or in other words devaluates dollar against assets), which is a kind of indirect tax that is collected from savers and transferred to debt holders (mostly govt). It is also an indirect subsidy to asset holders (most party funders and majority of the voters).
Higher taxes? Nope unless we count higher inflation as a tax that everyone pays, but hits lower and middle income folks the hardest. Milton Friedman warned about this hidden tax years ago
Agree. Neither presidential candidate has a plan to lower the national debt.
They don’t even need to “lower” the debt. They just need to reduce its growth to something like 1% or 2% a year. Then, with 4.0%-plus current-dollar GDP growth (current-dollar = not adjusted for inflation, same as the debt), the burden of the debt will drop over time. 4% current-dollar GDP growth is about average over the past 10 years.
That doesn’t sound like it’s hard to do, but it is hard to even imagine for those in Congress now, and for the Presidential candidates.
dishonest, “If you vote this November, you’ll be voting for more of the same.”
Exactly, both parties are spending like drunken sailors so no matter who wins, it means more spending – unless we have another crisis, like Wolf mentioned. There’s no fiscal responsibility in DC anymore, just attempted vote buying
CCCB – …old business-sales department motto button: “Nothing happens until somebody sells something”. (Suggested new button motto for the general voting citizenry, as well as every one of us, here: “What’s YOUR price???”).
may we all find a better day.
Oh well it could be worse: al least it’s not the future yet…
I have always liked to look at government tax revenue compared to interest payments and sometimes it is easier to understand if you drop a couple zeros (actually seven zeros) and look at the US as a guy that makes about $76K a year who pays $28K a year ($2,333/month) in interest on his home, car and credit cards. Not great but the guy (and the government) is not in horrible shape (but things can get ugly after a decade of interest expense increasing with tax revenue going down just like the guy will get in trouble if he keeps borrowing more when his income is going down)…
But you left out the other stuff. It’s like the guy that makes $76K a year, spends $80k on his living expenses, including bar, booze, and blow, then spends $28k on interest, and now he’s $32k in the hole every year, and he just borrows it, year-after-year, and so his interest payments keep going up as his debt balloons, and he could give up on bar, booze, and blow but doesn’t want to and doesn’t need to because lenders keep lending him the money…
In reality, what makes government different than this guy is that government (through the Fed) can print its own money to pay for bar, booze, and blow, but this guy can’t.
Yes, admitting the aptness of the “drunken homeowner” metaphor, yet I think a better analogy is, the guy is (admittedly over-)spending this money on things like his health care, driveway repaving, internet service, insurance and home defense. He is probably supporting a lot of relatives in the house as well. And yes, a serious financial reckoning is still strongly suggested.
Sorry I forgot to mention the guy borrowing so much on his credit card every year. When @T.X.Kutter wrote:
“Would anyone here be satisfied to return to Bush-era tax rates if they were used to reduce the deficit?”
I was thinking that is it like asking someone:
“Would anyone here be satisfied to give a friend who spends more than $32K more than he makes every year on booze and blow an extra couple grand if they they “reduced the deficit and only spent $30K a year more than they made on booze and blow?”
Fascinating to watch the US government become more and more like that guy while the typical US consumer becomes less and less like that guy.
“In reality, what makes government different than this guy is that government (through the Fed) can print its own money to pay for bar, booze, and blow, but this guy can’t.”
It’s even worse than that. The private sector not only swaps their currency hoards with the Fed Gov to hoard treasuries they even swap currency hoards for treasuries to finance the maturing interest on top. So it’s all rolled in when the debt is rolled over.
And this will keep working as long as the entities swapping currency hoards for treasuries have enough currency. Hey look at that, when the Fed Gov spends the money back into circulation, it ends up in the currency hoards of those same players again. Guess what they’re going to do with all their currency. Looks like a virtuous cycle to me.
Band: “Ten Years After,” song “I’d Love to Change the World,” Released 1971. Lyrics: “Tax the rich, feed the poor ‘Til there are no rich no more.”
Amen.
Well, since 1971, the rich have gotten richer, so not a great lyric.
I’m hungry!
I don’t believe the lyricist claimed to be clairvoyant; it was an expression of a preference rather than a prediction of future events. Surely you understand the difference?
…don’t neglect its following line: “…but I don’t know what to do, so I’ll leave that up to you…”.
may we all find a better day.
Just another way to say “Socialism works great, until you run out of other people’s money.”
This site has many comments with income/wealth envy. It seems to be a running theme.
Yes, indeed. Some of the comments are good but many are just the same whining over and over again.
And some smugness, “I got mine, sucks for you!” :-)
I don’t want to be “smug” since I was the one whining when the BMW driving Boomers 15 years older than me (who had free college in CA and were making $8K/year when nice homes on the SF Peninsula were $20K) were asking me in my 20’s “why don’t you own a house yet” (when I had to pay for college and was making $35K and nice homes on the SF peninsula were $350K. It was hard for me to save and invest and buy my first home but it is even harder for the kids today with student loan debt and decent homes on the SF Peninsula costing ~$1.5mm (you need to pay over $2mm today to get the “nice” (West of El Camino) homes that were $15-$25K in the mid to late 1960’s)…
On the one hand, younger generations are certainly getting a worse deal in terms of e.g. housing affordability.
On the other hand, many of this generation also spend extravagantly instead of living a frugal lifestyle, and then complain about not being able to afford things.
I own my house while many of my co-workers will probably be forever renters; I try to spend <$10/day on food while many of them get $20+ takeout delivered.
Don't hate the player, hate the game.
As (almost) always, it’s not where we are now but the direction were going. While payments were higher in the 80s and 90s as a percent of the whole, the demographics were different and we now have automatic drivers of the deficit that can’t/won’t be stopped. There’s a reason gold has been on par with stock returns for the past 50+years and is again doing well this year. Same for bitcoin. The only way out is to print, print, print. Or maybe I should write credit credit, credit.
The way out is inflation. Inflation (which destroys the purchasing power of the debt and increases tax receipts because it inflates taxable incomes and capital gains) has always been and still is the way out of over-indebtedness. The more you own, the more you lose in purchasing power from your assets. Inflation is a tax on everyone, including asset holders, or particularly asset holders. The goal will be to keep inflation moderate and manageable for the economy.
Inflation is no way out. It is just a “mirage” of a way out. No country has ever survived prolonged inflation without a revolt and a colapse.
The erosion of purchasing power has devastating effects on trust. In the case of the US this is masked by the world reserve currency, but to think that inflation solves anything in the long term is wrong.
In the USA, income growth for the vast majority equals or exceeds inflation annually. Which does a fine job of masking inflation.
@Kent,
This is demonstrably false. Young adults cannot afford a home. The Federal government purposely understate home inflation by not measuring it directly. And retirees of modest means had 20 years of interest rate suppression. Real inflation vastly exceeds headline numbers because fake hedonic adjustments and substitution BS that is used for inflation calculations by the government. If you can’t see this it is because your eyes are closed.
“The erosion of purchasing power has devastating effects on trust.” I do not expect the beneficiaries/payees of all this, rich or poor, to ever acknowledge their role in its creation or progression. They will grow mad as hornets and revolt without ever seeing themselves in that mirror of responsibility. That is the deepest instinct I see: a survival instinct warped into self-righteousness and endless excuses. This will still be true, especially so, should they (we) take to the streets.
Drought Inflation:
This drought and summer heat wave here on the East Coast cost me about 2K in excessive water bills and electric bills and landscaping costs. This is affecting the cost of living for everyone. There is little we can do to change that. The only thing we can do is start planting a lot more trees, especially in urban areas. They are on the beginning of starting water use rationing here.
Was it your choice to spend more on water bills watering your lawn and increasing costs on landscaping? For appearance sake?
Did you have to spend more as an essential need? Or a nice to have green grass and prettier landscaping?
Just like the government..they are choosing to spend more.
Danno
“Was it your choice to spend more on water bills watering your lawn and increasing costs on landscaping? For appearance sake? ”
Losing your lawn because of a drought is not a very good option. Having to start from scratch will cost a lot more than the high water bill for a couple of months. Losing half of it will cost a lot also to remove the weeds that replace a healthy lawn. A healthy lawn is not only for appearance. Saves money on maintenance.
Swamp Creature,
‘
Outside of the scenario where a HOA might ding you with fees – why does it matter if you ‘lose your lawn’ as you say?
I’ve owned my house for >4 years – it came with a built-in underground irrigation system and other than playing with it once, I’ve literally never watered my lawn.
Who cares if you have crab grass instead of regular grass? Is crab grass bad for the house? I’m honestly confused.
Inflation is not caused by the actions of private citizens, but by the government: by an artificial expansion of the money supply required to support deficit spending. No private embezzlers or bank robbers in history have ever plundered people’s savings on a scale comparable to the plunder perpetrated by the fiscal policies of statist governments.
~ Ayn Rand
Rand was wrong. But she wrote well, and I loved her books.
Yeesh — a writer more totally bereft of humor has never existed.
Gary Cooper was good in The Fountainhead, though.
Why is inflation more burdensome on asset holders?
And by extension, what would assets would be less burdensome in an inflationary environment? Is it bonds?
Trying to understand the thought process behind the comment.
ALL asset prices lose purchasing power with inflation, from gold to real estate and stocks. Your only hope is that asset prices inflate faster than the rate of inflation, or that yield is higher than the rate of inflation. But that’s a hope, not a God-given right. And even if they beat inflation, part of the gains are lost to inflation. If you hold $10 billion in assets, and prices fall 10% over x period, while inflation is 10% over the same period, you’re down about $2 billion in purchasing power.
If asset prices rise 10% and inflation is 10%, then you come out about even in purchasing power.
@Wolf
Ok, I see. You mentioned “particularly asset holders.” So, what I was wondering if that was specific to non-cash assets. But what your point is inflation will hurt regardless of asset class, it only the degree of pain that will vary.
Kevin Drum shared a chart recently (apparently I’ve got a thing for bloggers who chart) showing that about a third of the debt can be attributed to tax cuts which were instigated by two recent, former Presidents of the same party.
This blog focuses quite a bit on deficit spending, but I’ve seen less of a discussion of the decrease in revenue due to tax cuts.
Would anyone here be satisfied to return to Bush-era tax rates if they were used to reduce the deficit?
If 1/3 of the Federal deficit is related to tax cuts (dubious but taken at face value), then 2/3 is attributable to spending increases. In other words, we have a spending problem.
I would be very happy to see spending cut 2$ for every 1$ increase in Federal taxes. I would do that all day long.
Two such attempt at compromise in the last 2 decades has been blocked by 2 Presidents of the same party who refused to cut even a fraction of a percent of actual spending, and who even have the audacity to claim increases in spending less than previous budgets counts as less spending.
“In other words, we have a spending problem. ”
Yep, and the conservative Speaker approved 60 billion supplimental to fund the forever war in Ukraine and not cutting a dime in Federal spending anywhere else. The Uniparty is alive and well and will bankrupt the nation. This you can put this in the bank.
“We have a spending problem”–not discernable at face value. It depends on what we spend on. Infrastructure, CHIPS Act, primary education, workforce training and education–all of these produce future dividends. Go back to the Great Recession and consider various bailouts. As galling as some were to some people, the auto bailouts paid dividends to the US taxpayer, directly and through tax receipts (instead of unemployed payouts). Wolf has shared eye-popping charts on factory construction which has exploded. When government deficits leverage private economic activity it can be quite beneficial to the government budget and people’s lives. Also back to the Great Recession, is clear the stimulus was vastly too small, large portion wasted on tax cuts that did nothing to help grow the economy. Has Manchin not killed the infrastructure act, done if those projects would likely be coming online around now and nobody would be talking about a possible recession (or crumbling bridges). We need to invest in infrastructure and that’s not free. The problem with the bill Manchin sank was that it didn’t have taxes pay for it, but it was probably better than nothing.
CH – “It depends on what we spend on.”
No, a government spending problem is when they spend more than they can service without damaging the economy and their taxpayers’ livelihoods and savings.
inflation cures every headache of the government except revolution.
Comparing all the charts and and past time frames, I sense there is a future with higher rates, possibly a cut and then a hike or even no cut this September. I’m staying with the Feds fund rate. T bills and chill. I also believe Wolf, you see more than I, in these charts. I love history, all kinds!
1) The regional banks, mortgage applications, and transaction plunged in 2009, 2020 recession years and in Mar 2023. Active listing is normal. 2020, 2021, 2022 and 2023 were abnormal. When mortgage rate drop to 4.5%/6% and highly skilled workers wages will rise people will buy houses.
2) Gen alpha are 30/40 millions short of the boomers. Gen beta 2025/2040 might be even smaller in the US, but globally — alpha and beta — canreach 3/5 billions. Where will the go : Germany and the US. What will they do : work in the black market to feed themselves and their families in Egypt, Venezuela and Nigeria. Thus, the actual GDP = $29T nominal + the black market. The ratio Debt/GDP is smaller.
3) If the Fed cut rates and worker earn higher wages the gov will fill its coffer and be able to cut debt ==> until the sticky inflation takes over.
Very scary. I never thought I would say this, but in 10 years if the debt percentage continues going up; I plan on moving to another country and probably converting dollars to a more stable currency backed by a country with less debt.
Canada to Russia?
They would love to have you and the direction Canada is moving, it won’t be much of a change of life.
I was thinking Cuba. If you can discreetly spend your money without drawing attention, you will live like a king. I know an American who lives very well on under $200 usd a month..be ready for power outages and live close to an airport when you ever get sick or SHTF. Nothing or nowhere is perfect.
You’ve obviously never been to Cuba or probably any of the other third world countries. It’s not worth the $ savings.
Why would you trade down from one of the best countries in the world to one of the worst?
I’ve been going to Cuba for 25 years. I visited many east bloc countries.
I agree it is trading down in some ways but if hardly any crime, no advertising blaring all day, nice weather, beautiful women, $5000 bedroom apartments or houses and as you have cash, anything and everything you could ever imagine in available.
A 77 yr old American friend living there loves it. Has full access to the web, news channels and lives like a King under $200 a month. If he needs a break, he heads back to the USA or to another island until he tires of the rat race and returns to peace and quiet..
Sounds horrible doesn’t it?
…makes me think of a thrift-store analogy-many here extol the availability therein of higher-quality goods from earlier times, but my personal observation has seen that overall supply of ‘always there’s quality steadily-diminish in the last 20 years, the companies and market philosophies that produced those goods vanished into time along with their factories and workforces. So, when getting out of Dodge, who will you (or will you) and your U$/other currency be relying on to be your currency law enforcement, geopolitically, and why? (…again, FOMO, YOLO, YMMV, TANSTAAFL…).
may we all find a better day.
America becomes Brazil in the end, or Argentina.
This is in no way a criticism of the US, its just inevitable, its the way we all go. UK, Portuguese, Spanish, Dutch, Roman all go out the same way. The sun will still rise in the morning. Food will taste the same.
However, as chicken lickens economists, the real question of interest is whether things turn bad quickly, or just a somewhat boring continuous decline.
Not next year imo.
Well said…
I travel to Cuba regularly and see in my country the slow burn happening here like I have in Cuba over the past 25 years. As a result, I can handle the slow fall by lowering my expectations and living life appropriately.
However the media in Developed countries will continuously PUSH that we all must be wealthy, perfectly fit, own grand houses to the masses only further brainwashing people to want more than most can realistically achieve. Very few are realistically capable of being in the top 10% though media pushes we ALL can and you are a loser if you are not.
As a result, there will be more strife in the country between the have and have not’s. Interestingly even though Cuba is Communist, they too are very similar to North America as divided by those that have – connected to government, receiving money from abroad and the have not’s – those not connected to the government and no access for funds from family abroad.
The have’s eat well, wear the latest fashions, brands we have here as they are influenced by media smuggled in from abroad, while the have not’s live day to day and struggle to even eat as their social net is now near existant.
It’s only the strong security of the government keeping a lid on things there now. The young, productive people have mostly left and the older, weak are left. Watch out if Developed countries start allowing people to leave to lesser cost countries in mass to reduce the burden they have to pay. We are already seeing it slowly develop through migration of online workers abroad.
Live within your means, enjoy each day as always.
“Watch out if Developed countries start allowing people to leave to lesser cost countries”
So true. The advice I have given to all young people as an old man who has been there and done that – Go East young man. The glorious West of old from the Greeks through the renaissance to quantum theory has been corrupted.
Does anyone listen? Nah, too busy on Main Stream Media. Indoctrination mind meld sugar high beats hard work education and experience. Modern psychological studies on leveraging more primitive brain functions demonstrates that early survival traits are counterproductive in the currently marketed virtual world. And easily exploited.
Sucks to be young and ignorant without a trust fund.
Danno – again, the tragedy of the medians…
may we all find a better day.
Almost certainly true, but the real questions are:
Over what time frame does that happen?
Which country will become the next US?
I was wondering if anyone could explain logically why the government didn’t take the opportunity to finance our debt with longer term bonds/long term notes when rates were next to nothing?
Why would you be financing TRILLIONS on short term notes/bills where theres such variance?
TIA
Monetary and fiscal authorities don’t think long term. Selling long term debt would have increased long term interest rates and crashed the economy, so they couldn’t do it.
Decades of short term thinking have reduced all flexibility. Our economy now sits on a tight rope. A modest wind can cause catastrophe.
If Trump is re-elected you are right
“Interest payments dipped a hair to 3.8% of GDP in Q2”
“Total debt as % of GDP dipped a hair to 121.6% in Q2”
Seeing as government non-productive spending is around 40% of GDP, these percentages are about 40% low if a real commercial/industrial non-socialist economy is used as the measure.
Wolf, I wish you would be tougher on the political comments. There are a few above that crossed the line completely and it’s obvious which ones. I think policy suggestions are fine but endorsing political hacks by name is not.
Yes, I admit being too lackadaisical in enforcing the no-politics guidelines. But lots of people already hate me for enforcing them as little as do, LOL
These articles by Wolf always seem like “feel good” articles and somehow end up conveying the idea that everything is wonderful and completely sustainable. But it only seems that way.
I guess it’s a real tightrope to walk between the “sky is falling” click bait “analysis” that is abundant on the internet and an effort to provide some useful balance as he does.
Whatever the ratio is between tax receipts and interest payments, something is very wrong. Inflation will only rescue us from the debt that will soon be growing at 10% per year, by destroying the currency in which the debt is denominated.
Currency depends on what you can buy with it. To buy stuff you have to make stuff. It’s hard to get a real handle on what stuff is made in the US and what stuff is entirely made in the US. The numbers will probably never give us an accurate picture but the accounting pressure is for more of that production to flow offshore.
Fiscal deficits of 2 or 3% of GDP used to be “normal”. Now it’s 6% and probably on it’s way to 7% or 8%. No matter how you spin it, thats not good news ad not sustainable.
When if fails is unknown and perhaps unknowable because, increasingly the decision moves into the hands of other actors. But for now “lets keep dancing and break out the booze”.
Each of us will try to hedge themselves as best they can. If those hedges succeed or fail will mostly be a matter of luck and not brilliance. Just like war, the guy next to you is shot in the head, and you come out untouched…or you are that guy (which is impossible for us to imagine).
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Does this mean that the economy never recovered from the 2008 crisis, and we are just buying ourselves time by spending ludacris amounts of money? (see last graph) ///
Wolf – thanks for the explanation on why the yield curve has been so inverted. I had a hard time believing that the 10/20/etc. could remain inverted for as long as they have. So if a recession really does come along, would we see the 10/20 year rise as the Federal government runs out of long term long term notes and bonds to refi? Would the Fed have to lower short term rates more aggressively than they otherwise would to make up for the refi shortfall (to push down those long term rates)? Or is there so much long term dabt that the Federal government could run this playbook for years and years?
Debt at 120% of GDP makes us Italy, but a lot bigger.
Since 1970, the US dollar has lost 80% of its value versus the Swiss franc. Why?
Switzerland balances it’s government budget, and Switzerland has no government debt
The US is the complete opposite.
Will it ever change? Never.
What will the US Federal government do when tax receipts drop significantly due to an economic decline while public assistance including unemployment insurance payments skyrocket? Throw in massive Federal bailouts and what will the Feds ever do?
The only option will be to sell ever more Treasury debt to finance all that deficit spending.
But what will happen if investors don’t buy all that new debt?
Don’t worry, the Federal Reserve will surely step in to buy whatever is left unsold, printing more money as they go.
At that point, the US house of cards will finally come crashing down.
What a mess, all self inflicted.
It might be interesting to see a chart showing the percentage of tax revenues obtained from capital gains taxes over time. If government is becoming more reliant on capital gains taxes for survival, funding becomes less stable.
Government lives and dies by the stock market so better pump it up until TSHTF. What not to love!
With 7% GDP FED deficit to pump up 3% GDP growth and 15-25% market gain to fuel up the Ponzi, y’all better be ready.