Re: The Debt Trap

On 19/08/2026 01:55, marika wrote:
> Julian <[email protected]> wrote:
>> On 15/08/2026 21:06, Tara wrote:
>>> On Aug 15, 2026 at 3:36:22 PM EDT, "Tara" <[email protected]> wrote:
>>>
>>>> On Aug 15, 2026 at 2:44:21 PM EDT, "Julian" <[email protected]> wrote:
>>>>
>>>>> On 15/08/2026 18:34, 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 aThe
>>>>>> 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
>>>>> https://www.youtube.com/watch?v=yh18YXKM
>>>>
>>>> if nothing else, I now understand how poop gets stuck in the K-bend.
>>>> (Commercial :)
>>>
>>> The video is good. Not that I understand a lot of it, but there
>>> is something about how a brit tells it that makes it entertaining.
>>
>> Patrick is Irish. :) He's a great story teller.
>>
> 
> Is he better than Melania Trump

Comparisons are odorous.