Topic: US Debt Rate rose to $30 Trillion (Read 143 times)

This is a huge number and it's interesting to see how this number has gone sharply up after COVID, as correctly mentioned by Theymos, Deficit is what matters the most what we call the Federal Deficit. The problem is overcommitment of Politicians, corruption to some extent and not to forget reckless spending in unuseful sectors like Defense etc. Talking from the point of view of the US, the last time the US had a federal surplus was way back in the 2000s after that the deficit has only increased and as mentioned by Theymos has gone up to 3 Trillion this time. Not to mention even the Revenues of the US government are just around $3.8 trillion, which means around 40% of our outlays of $6.8 trillion are financed by nothing but debt. In future eventually when interest repayments come due, money printing will happen recklessly, god forbids if we see another black swan event, we are going in a big problem for sure.

Thank you @Theymos for this in-depth and informative insight on the US deficit and economic analysis both short-term and long-term effects, the mopping out of money from the open market without creating an extra burden on the already increasing inflation rate in the current open market. Am open to more discussion on this topic.

What matters economically is the deficit; the total level of debt doesn't matter much except insofar as the interest payments on the debt affect the deficit.

The main issue with the deficit is that it can cause inflation and/or slow growth (but doesn't always). The huge amount of spending and Fed QE in 2020 and 2021 is one of the main causes of the current high level of inflation, but over the next several years, I don't think that the debt/deficit will be a big issue unless we get more 2020-style spending+QE (which I don't expect soon, at least).

The biggest driver of inflation is when the Treasury runs a deficit and the Fed buys its bonds. From October 2019 to September 2021, the Treasury had a total deficit of $5.9 trillion, and the Fed bought about $3.3 trillion in bonds, so that's $3.3 trillion of pure money-printing. That's extremely inflationary.

From October 2021 to December 2021, the Treasury had a total deficit of $380 billion, and the Fed bought about $221 trillion in bonds. If you multiply by 8 to straightforwardly compare it to the $5.9/$3.3 trillion numbers in the above paragraph, you get a $3.0 trillion deficit funded by $1.8 trillion in money-printing, which is already a reduction. But in reality this is still far too high because spending will go down due to the expiration of certain pandemic-era programs, and the Fed is widely expected to stop buying any more Treasuries staring in mid-March.

Before 2020, the Fed was drawing down its balance sheet, which was actually "destroying" dollars. Soon, maybe as soon as March, the Fed is expected to start doing this again. We'll go from $3.3 trillion in money printed over 2 years to money being destroyed rather than printed. We're moving into an environment somewhat similar to 2019, not a continuation of 2020/2021.

There are other sources of monetary inflation, but they are much smaller in effect than the above-discussed monetization of government debt. For example, in the same October 2019 to September 2021 period as above, lending by private banks created $535 billion. The Fed's open market operations which it uses to set short-term rates, such as reverse repos, can also create money, but I believe that the effect of this on monetary inflation is minor.

There is also not a one-to-one link between monetary inflation and price inflation. For example, it is much more inflationary for the government to send checks to people who will immediately spend it on things than for the Fed's open market operations to enable money market funds to pay rich people more interest on their deposits. And idiosyncratic supply or demand issues can also have effects. But I believe that monetary inflation is the biggest factor in price inflation, especially when you look at longer periods of time.

QE without government spending or increased bank lending does not actually inject money into the economy in any effective way, which is why the QE after 2008 didn't cause inflation. Government deficits without Fed monetization is likely to actually be deflationary, since more and more private money will be sucked up into bonds and used on worthless government waste instead of being used by people to buy things. (Certain types of government spending could be inflationary without Fed monetization. Increasing the debt to send people checks would probably be inflationary, since this would be a transfer of dollars from people who just have their money sitting around to people who are going to use the dollars to buy things. But I think that most government spending will not be efficient enough to have this effect.)

Over the next several years, I expect us to go from an extraordinarily easy-money environment where $3+ trillion was printed, to a tight-money environment where the Fed is on net destroying money. The government deficit will probably go down from 2020/2021 levels toward levels more similar to 2019 because Congress won't be able to pass much, and even if it continues at elevated levels, this will probably make money even more tight. It will take a while for that $3+ trillion of money-printing to completely work its way through the system, but at some point over the next year or two I expect to see <2% in the CPI if things continue on the current track. The shift from extremely-easy money to somewhat-tight money has been and will continue to be very jarring to asset prices; if the Fed gets spooked by crashing asset prices and starts buying treasuries again, then that could change things, though it depends on the details.

Longer term, it's politically impossible for the debt situation to be resolved in any way but money-printing. There's a huge gap between spending and tax revenue, this gap is only getting wider, and literally nobody in Congress is serious about fixing this. Anyone who seriously tried to fix it would be voted out of office immediately. At some point, the debt/deficit will get large enough to create an obvious death spiral of increasing interest payments, the market will want to bring interest rates up to a level that would accelerate this even more, and at this point the Fed will be forced to artificially keep rates low and/or buy bonds. This will cause 4+% inflation for many years, until the inflation fixes the deficit situation. It could also cause the end of the dollar as the world reserve currency. But I don't think that the deficit is large enough to cause this soon. My guess is that the deficit would have to be in the 130-150% of GDP range (around the same as 2020/2021) and continue increasing for several years. The current inflation was caused by a one-time huge increase in both government spending and money-printing, but this is in the rear-view mirror, and the big deficit cliff is quite a bit further ahead.

Debt isn't actually a bad thing, it's only a bad thing when economic growth isn't enough to pay back the debt.

When you're a business and you take a loan out, you start at less than zero with the debt of the loan amount. Of course, not every business is under water. The geniuses at the federal reserve can't seem to adjust their quantitative easing strategy well enough to prevent inflation, and the U.S. politicians are having a tough time growing the economy to handle all the debt. So their answer is to raise taxes, (and probably target crypto at some point for every extra ounce of revenue they can squeeze). What they won't actually stop is their spending. Like an unhealthy relationship with a credit card.

Is the income keeping up with the debt and who owns most of these debts? Do the US gov't prefer to borrow from domestic private entities? Prior to the outbreak the rising debt has always been in the news so I think we can that the pandemic could have only dramatically increased the rate of borrowing.

and the printer goes brrrr... The FED has turned the USD into a joke. No wonder why inflation is so high because there is just so much money in the markets. And btw the FED won't overregulate and remove the masses from crypto like China and others have done because they are running out of places to put all this soon to be worthless money. So my advise hodl your crypto and only sell what you think you need but the FED Stamps will be worth less and less like always but now at a faster rate. Thanks, Trump and Biden!

As the debt increased, one solution that they see is to increase the interest rates which will definitely make a domino impact on every American. But, it's not just the US that will do this but many other countries like Tunisia and UK.

About the percentage that the whole crypto market can pay for that debt of US. It's just a projection of how huge the debt is. On the other hand, people who are seeing this doesn't look good will start to hedge against it and will find their ways being affected by it.

Even though the US debt is very large and has even increased in recent times, the US government has several ways to reduce their debt, such as increasing taxes, reducing the military budget, to creating new money to pay their debts https://www.investopedia.com/updates/usa-national-debt/. And it also seems that the U.S. government has no plans to reduce their debt and even increase their debt in the near future https://carnegieendowment.org/chinafinancialmarkets/78304

The US debt has risen sharply (7 Trillion from January, 2020) during the covid  pandemic when huge amount of money was printed to keep the economy running but this is not good for health of economy in the long run. The FED has already signaled that it will start increasing interest rates ( which is currently near zero ) from march, 2022 to curb the rising inflation which is very negative for Sock and Bitcoin market.


https://www.wsj.com/articles/u-s-national-debt-exceeds-30-trillion-for-first-time-11643766231

Reading over coin telegraph news of the latest statistics of the current US debt profile which have risen over 4,000% bigger than Bitcoin total market cap, which mean the dollar will continue to fall behind other currency on the stock exchange market such as Bitcoins but the present state the total Bitcoin capitalization can only pay for 2.45% of US debt this is to show how deep inflation have eatendeep into the global economy.
The graph below show the chart movement of US debts profile
 
Source: https://cointelegraph.com/news/all-the-world-s-bitcoin-can-only-pay-2-43-of-30t-us-national-debt