Re: The Debt Trap
Noah Sombrero <[email protected]>
| Newsgroups | alt.buddha.short.fat.guy |
|---|---|
| Organization | Noah's Kitchen |
| Message-ID | <[email protected]> |
On Wed, 19 Aug 2026 09:57:22 +0100, Julian <[email protected]> wrote: >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 PresleyÂs rendition of Suspicious Minds topped the record charts >>>>>>> in 1969. The lyrics portray a romance that couldnÂt work, but was also >>>>>>> impossible to escape. ThatÂs also a good way to describe our >>>>>>> relationship with government debt. We know it canÂt last, but we canÂt >>>>>>> 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 canÂt >>>>>>> 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 IÂve called The >>>>>>> Great Reset. When I first started talking about The Great Reset, we >>>>>>> werenÂt in the debt trap. We were Âmerely in a situation with only bad >>>>>>> choices. I didnÂt 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 wonÂt 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. >>>>>>> >>>>>>> LetÂs unpack this. Debt, even government debt, isnÂt 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 doesnÂt 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 Âinfrastructure >>>>>>> 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. ThatÂs 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? HereÂs 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. >>>>>>> >>>>>>> ThatÂs 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 >>>>>>> Âmandatory 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 Âdiscretionary 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 itÂs headed the >>>>>>> wrong way again. The CBOÂs 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 thatÂs 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 wonÂt 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 doesnÂt matter because we >>>>>>> can always just keep pushing the due date further out. I disagree, and >>>>>>> Lacy HuntÂs research explains why. >>>>>>> >>>>>>> While debt can be a problem, private debt is also critical to economic >>>>>>> growth. It finances innovation and adds to the economyÂs 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 >>>>>>> itÂs 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 Âgrow our way out of it. The problem is we have passed the point >>>>>>> of no return. >>>>>>> >>>>>>> We canÂt 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. ThatÂs 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 doesnÂt solve the rest of the deficit problem. Somewhere around >>>>>>> that time the bond markets will finally say, ÂEnough, 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 weÂll >>>>>>> have to collect it differently and not destroy incentives as Europe and >>>>>>> Japan have done. Sadly, I donÂt 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 canÂt go on together. >>>>>>> WeÂre caught in a trap. We canÂt 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. Onerous. Is melania the story teller in that family? -- Noah Sombrero mustachioed villain Don't get political with me young man or I'll tie you to a railroad track and <<<talk>>> to <<<YOOooooo>>> Who dares to talk to El Sombrero? dares: Ned does not dare: Julian shrinks in horror and warns others away