Re: The Debt Trap

dart200 <[email protected]> wrote:
> On 8/15/26 1:53 PM, Dude wrote:
>> 
>> dart200 <[email protected]> posted:
>> 
>>> On 8/15/26 10:34 AM, Wilson wrote:
>>>> We're caught in a trap
>>>> I can't walk out
>>>> Because I love you too much, baby
>>>> Why can't you see
>>>> What you're doing to me
>>>> When you don't believe a word I say?
>>>> -Suspicious Minds, Elvis Presley, 1969
>>>> 
>>>> Elvis Presley’s rendition of Suspicious Minds topped the record charts
>>>> in 1969. The lyrics portray a romance that couldn’t work, but was also
>>>> impossible to escape. That’s also a good way to describe our
>>>> relationship with government debt. We know it can’t last, but we can’t
>>>> walk out. We love government spending and its benefits (like Medicare,
>>>> Social Security, and unemployment insurance) too much.
>>>> 
>>>> In other words, we are in a debt trap. Our political process can’t
>>>> reduce spending and/or raise taxes enough to balance the budget, so the
>>>> debt grows and grows. As it does, paying the interest plus the
>>>> accumulated debt load pulls more capital away from more productive uses.
>>>> This depresses economic growth, thereby generating even more spending
>>>> and debt.
>>>> 
>>>> This has to end, and I think it will do so in the event I’ve called The
>>>> Great Reset. When I first started talking about The Great Reset, we
>>>> weren’t in the debt trap. We were “merely” in a situation with only bad
>>>> choices. I didn’t think we would make them. Thus the underlying
>>>> presumption was that we would end up in a debt trap.
>>>> 
>>>> The Great Reset will be our escape from the debt trap. It won’t be fun
>>>> for anyone, as taxes will go up and government spending of all types cut.
>>>> 
>>>> Diverted Capital
>>>> 
>>>> Each additional dollar of debt in 1980 generated a rise in GDP of 60
>>>> cents, up from 54 cents in 1940. The 1980s was the last decade for the
>>>> productivity of debt to rise. Since then, this ratio has dropped
>>>> sharply, from 42 cents in 1989 to 27 cents in 2019.
>>>> 
>>>> Let’s unpack this. Debt, even government debt, isn’t necessarily bad. It
>>>> can actually be positive depending on how it is used. Borrowing to build
>>>> a productive asset can make sense, if its output is sufficient to repay
>>>> the debt and then produce even more.
>>>> 
>>>> Like many temptations, debt can be good in moderation but destructive if
>>>> abused. Some infrastructure spending doesn’t have a direct payoff, but
>>>> clearly helps the overall economy, like the US interstate highway system.
>>>> 
>>>> Let me offer a few illustrations. It seems that every congressional
>>>> representative gives lip service to the concept of “infrastructure
>>>> spending.” And they never really get around to doing it in any
>>>> sufficient quantity. Airports are necessary infrastructure and are
>>>> typically paid for by landing fees. That’s productive debt.
>>>> 
>>>> I have read that much of the US loses up to 20% of the water our water
>>>> systems produce due to leaky pipes. To rebuild the national water system
>>>> would take hundreds of billions if not over $1 trillion. Congress can
>>>> easily allow the formation of a public-private partnership and guarantee
>>>> the bonds so the Federal Reserve could buy them. Cities could access
>>>> those bonds and raise the cost of water by 1% or so to pay for the
>>>> bonds. Consumer water bills should still drop since we would be saving
>>>> the lost water.
>>>> 
>>>> Everyone knows this. Congress does nothing. The same could be done with
>>>> electric power. A smart grid could pay for itself even with debt costs.
>>>> And consumer power prices would likely go down. I could go on and on.
>>>> 
>>>> But the debt we are accumulating today is not productive in that way. We
>>>> use it to finance current expenditures like Medicare and Social
>>>> Security. Necessary? Absolutely. But not the economic definition of
>>>> productive debt.
>>>> 
>>>> Problems arise when debt becomes excessive, relative to the output it
>>>> will produce. The cost of repaying it diverts capital from other uses,
>>>> leaving less capital available for productive investment. You start
>>>> needing more debt to generate the same amount of production. Or, said
>>>> another way, each additional dollar of debt produces less benefit.
>>>> 
>>>> Debt service comes from taxation and even more borrowing (which is the
>>>> definition of a Ponzi scheme), which leaves businesses and families with
>>>> less money to spend on other things. This results in lower economic
>>>> growth, more inflation, and higher interest rates.
>>>> 
>>>> Why is it a trap? Here’s where I have to get political.
>>>> 
>>>> Fiscal Futility
>>>> 
>>>> To those on the conservative side, the problem is simple. We have
>>>> excessively high taxes and debt because the government spends too much.
>>>> 
>>>> That’s easy to say but gets a lot more difficult when you talk specifics
>>>> — particularly if you are a member of Congress who must answer to
>>>> voters. Exactly which government spending would you like to cut? What
>>>> programs, departments, and agencies would you eliminate? Every dollar
>>>> the government spends has a constituency — people who benefit from it
>>>> and will fight to preserve it.
>>>> 
>>>> Large amounts of spending are essentially on autopilot: Social Security,
>>>> Medicare, assorted social programs, interest on the debt. These
>>>> “mandatory” expenditures happen automatically, no matter the amounts,
>>>> without Congress acting at all. The simple fact is that this mandatory
>>>> spending plus defense spending is now consuming all tax revenue before
>>>> any other government services are paid for on the federal level.
>>>> 
>>>> The so-called “discretionary” budget that Congress votes on (defense and
>>>> all the assorted departments and agencies) is relatively minor. You
>>>> could cut it all in half and we would still have a serious problem.
>>>> 
>>>> When Trump first entered office the US deficit as percentage of GDP was
>>>> less than 5%. That pandemic-year deficit peaked at 16% of GDP, or $3.1
>>>> trillion. Fast-forward to today: the FY2025 deficit came in at $1.8
>>>> trillion — 5.9% of GDP, well below the pandemic peak but still about 55%
>>>> above the 50-year historical average of 3.8% of GDP. And it’s headed the
>>>> wrong way again. The CBO’s latest FY2026 estimate is $2.1 trillion, up
>>>> from $1.9 trillion projected back in February, after the Supreme Court
>>>> struck down the IEEPA tariffs in February 2026 and blew a roughly $200
>>>> billion hole in expected tariff revenue. Whoever is in the White House,
>>>> the deficit keeps landing in roughly the same trap.
>>>> 
>>>> Sad to say, government spending just keeps growing no matter which party
>>>> is in power. We have crossed a form of political Rubicon where past
>>>> performance is not indicative of future results. The few serious fiscal
>>>> conservatives are now gone after finding the Republican Party under
>>>> Trump spends differently than Democrats would, but has no desire to
>>>> spend less.
>>>> 
>>>> And that’s the real problem: Voters like all this spending. They differ
>>>> on priorities, but no one really wants to balance the budget. There is
>>>> no desire to make the sacrifices and endure the pain it would take to
>>>> change the course we are on. So, it won’t change, and debt will keep
>>>> piling up.
>>>> 
>>>> Jaws of the Trap
>>>> 
>>>> Debt, as I have said many times, is future consumption pulled forward in
>>>> time. It lets us consume more today by consuming less in the future.
>>>> There is a school of thought which says this doesn’t matter because we
>>>> can always just keep pushing the due date further out. I disagree, and
>>>> Lacy Hunt’s research explains why.
>>>> 
>>>> While debt can be a problem, private debt is also critical to economic
>>>> growth. It finances innovation and adds to the economy’s productive
>>>> capacity. Excessive government debt diverts resources away from
>>>> investment, without which growth slows to a crawl. Lacy proves this
>>>> mathematically but really, all you have to do is look at GDP growth
>>>> around the world since 2008. Europe, Japan, and the US have all
>>>> struggled to maintain positive growth. It was only a matter of time
>>>> until something pushed us all underwater. The pandemic did it. By 2026
>>>> it’s a different pressure doing the pushing — elevated-for-longer
>>>> interest costs and a wall of AI-driven capital spending are testing the
>>>> same limit from the other direction.
>>>> 
>>>> All that being said, this can continue far longer than most people
>>>> think. Japan is now at 248.7% (2025) of debt to GDP. Eurozone debt is
>>>> about 87.8% (2025), but that understates the true situation in most
>>>> countries. The US, on the same gross-debt basis, was at 122.6% in early
>>>> 2026. Europe and Japan both have low or nonexistent GDP growth. The
>>>> explosion of US debt means the US will soon join them. The answer from
>>>> almost every economist of any stripe about how to fix the debt problem
>>>> is to “grow our way out of it.” The problem is we have passed the point
>>>> of no return.
>>>> 
>>>> We can’t stop growing debt. That would bring down the system in a true
>>>> greater-than-the-Great Depression crash. What do you cut? Social
>>>> Security? Medicare? Military pensions? Education? Interest payments on
>>>> the debt? The State Department? The only way to maintain that spending
>>>> is to keep adding debt, which sends us further into the debt trap.
>>>> 
>>>> Anomalies in Paradise
>>>> 
>>>> At some point, this will simply stop working. That moment is when the
>>>> world will face what I first called The Great Reset over a decade ago. I
>>>> am often asked exactly when it will happen. I typically demur as taking
>>>> a date is tricky. But I think we can narrow it down.
>>>> 
>>>> Right now, the Social Security Administration says that Social Security
>>>> will have to be cut by roughly 22% at some point in 2033. 10 years ago
>>>> they said 2034. Without some major changes in the economy, that will
>>>> probably slip to 2032. It will be an election year and that will become
>>>> the major topic.
>>>> 
>>>> We are now at $39.9 trillion of US [federal] debt. Interest on the debt
>>>> is $1.1 trillion, at an interest rate of a little under 3%. That rate is
>>>> obviously rising. Deficits are climbing over $2 trillion per year. By
>>>> 2031, the debt will be over $50 trillion. Interest costs will run
>>>> anywhere from an optimistically estimated low of $1.5 trillion to over
>>>> $2 trillion. That’s assuming no recession.
>>>> 
>>>> We are not going to cut Social Security for the vast majority of
>>>> recipients. The compromise will likely be some combination of raising
>>>> the age of benefits, means testing and increasing Social Security taxes.
>>>> But that doesn’t solve the rest of the deficit problem. Somewhere around
>>>> that time the bond markets will finally say, “Enough, already!” Congress
>>>> will be forced by markets to act.
>>>> 
>>>> Spoiler alert: We will need to completely revamp our tax code, with a
>>>> greater percentage of GDP going to taxes than any of us want. But we’ll
>>>> have to collect it differently and not destroy incentives as Europe and
>>>> Japan have done. Sadly, I don’t expect a willingness to do that, at
>>>> least political willingness, until we are already in the middle of a
>>>> deep crisis. The bad news is we will get one and maybe change some things.
>>>> 
>>>> We built our dreams on excessive debt. Now we can’t go on together.
>>>> We’re caught in a trap. We can’t walk out.
>>>> 
>>>> https://www.mauldineconomics.com/frontlinethoughts/caught-in-a-debt-trap
>>> 
>>> rich people could just forgive it if they wanted ...
>>> 
>> Rich people are not in debt - why would they want to pay off your debt?
> 
> those in debt do not forgive the debt moron...
> 
> and it's the rich people who hold the debt, so ofc they can forgive it
> 
> not that u know what forgiveness is dud
> 
>>> 
>>> and all that would change is the perception of wealth,
>>> 
>> You are projecting - you're the rich kid in debt.
>>> 
>>>> not actual wealth
>>> 
>> "Your health is your greatest wealth." - Adelle Davis
>>> 
>>>> #god
>>> 
>> The obvious solution to the debt crises is to accelerate economic growth.
>> We studied this in school - 5th grade.
> 
> unfortunately deciding to "just accelerate growth" is far easier said 
> than done
> 
> and we if we grow in an unsustainable manner (which we've been doing) it 
> will obviously not be sustainable, leading to many cans getting kicked 
> down the road - something duds like u are fantastic at doing if i don't 
> say ...
> 

Dog food cans

You just put the maloiks on us.