Interest payments on the debt are now so large that the spending is higher than the outlays for the Departments of Defense, Commerce, Homeland Security, Education, the Environmental Protection Agency, the Small Business Administration, and the U.S. Coronavirus Refundable Credits scheme—combined.
  • deadbeef79000@lemmy.nz
    2·
    1 day ago

    Can an economist chime in here and explain how this works?

    Debt of the issuer of a national currency (among other things) doesn’t quite work the same way as it does for ordinary participants of the economy… but I can’t quite figure out what that actually means.

    • theneverfox@pawb.socialEnglish
      3·
      1 day ago

      Not an economist, but theoretically tax income and bond sales (and those are not exactly selling right now) go into a big pot of money that funds the budget. The debt payments being one part of the budget

      In practice, money appears in bank accounts linked to budget provisions for various agencies and purposes. The unexpectedly high costs and debt payments (from the Iranian war largely) just drain the relevant accounts faster, meaning they’ll run out at some point later in the year if they don’t get more funding… Theoretically the government agencies wouldn’t overextend themselves like that, but we live in interesting times

      But the United States pays it’s debts

      Fourteenth Amendment, Section 4: The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.

      What if it can’t, or doesn’t? No one knows, it’s uncharted territory in the current era for the US, which is currently the backbone of global trade

      There are special types of debt of a county can sell:

      The national debt is the amount of money the federal government has borrowed to cover the outstanding balance of expenses incurred over time. In a given fiscal year (FY), when spending (ex. money for roadways) exceeds revenue (ex. money from federal income tax), a budget deficit results. To pay for this deficit, the federal government borrows money by selling marketable securities such as Treasury bonds, bills, notes, floating rate notes, and Treasury inflation-protected securities (TIPS). The national debt is the accumulation of this borrowing along with associated interest owed to the investors who purchased these securities. As the federal government experiences reoccurring deficits, which is common, the national debt grows.

      So what if no one is buying these offered bonds and notes? They sell them for cheaper. If they can’t sell enough to cover the debt payments even then? Uncharted territory

      It’s definitely different from household debt, since a government can choose to print money or just not pay (although that’s currently considered unconstitutional)

      If the US government decided to print the money to pay the debts, their rock solid reputation for paying out on bonds will be damaged and inflation might skyrocket. If they fail to pay on time, the reputation will be destroyed

      And that comes down to the investor response. If investors decide to keep buying, everything continues as normal. If they stop buying, the government could decide to print money (which will probably destroy the USD as a currency for global trade)

      TLDR: the debt is very different, since the government sets the terms of the repayment and the money supply. They hold all the power, but their reputation is what allows them to raise more money going forward, so reneging on a country’s debt is not done lightly

      In the case of the US, anyone who tells you what happens if the debts aren’t honored is completely speculating. No one knows what that means for the global economy