The reality is that the current trajectory is not exactly sustainable. So, for once, Moody seems to be doing its job. As to where they were for the past decade or so ( lets charitably say they were still trying to figure out where things land post 9/11 ), when all those issues were allowed to fester, is not exactly a big secret.
The simple reality is that US will need to go through a period of pain to correct some of those excesses. It will not be fun for anyone, which is why there is so much effort put forth to kick can down the road.
And the part that really gets me is that congress is discussing cutting taxes, fed is being pressured to lower rates.. as if all those things were not at least a factor in the mess we are in now.
The reality is taxes must go up, and the bond market will force it to happen. You can’t keep issuing debt forever to steal from the future for today when all of the evidence points to lower future growth.
Voters might be unsophisticated, but the bond market is not.
> Bond vigilantes, who can bring fiscally irresponsible politicians to heel by unloading a country’s debt, may rear their head if Congress doesn’t show any appetite to bring the federal deficit under control.
<< Bond vigilantes, who can bring fiscally irresponsible politicians to heel
I don't want to give people ideas, but at the same time this is not exactly new to anyone following that set of news. During last EU fiscal crisis, EU came up with a novel approach to handling bond issues. Haircut[1].
Treasuries only receive the favorable yields they do because they were considered the safest asset in the world. Any indicator of potential haircut is going to cause a rapid (further) loss in confidence and a spike in yields, leading to a debt spiral. This is why there was a fear of the implications of DOGE controlling the Treasury payment system (BFS), potentially leading to non payment and default. The capital markets are built on a foundation of trust. If you want continued access to capital (and with debt at ~123% GDP, it should be obvious that the US has no choice but to have continued access to the bond market), you must respect the trust relationship.
I will admit that, at the time, I did not see EU debt holders accept it, but accept they did. I know that cultural differences in US may require a different approach that go beyond PR spin ala 'temporary refund adjustment' since there is money on the line, but I can't help but wonder if it is not coming anyway.
Taxes must go up, on our shrinking young population (right as we deport more and more immigrants and dissuade new ones from coming here). Great, Japan here we come
“For reference, the total net worth of all U.S. households is close to $160 trillion. The rich half (top 50%) own about $156 trillion (or about 98% of it). The poorer half only own about $4 trillion. Breaking down that top half even further, the top 1% (1.3 million families) owns about $49 trillion (or about one-third of the total share) by themselves. And going even further, about half of that $49 trillion is owned by the top 0.1%. That’s only around 136,000 households and includes all of America’s wealthiest people.”
Tax wealth, not work, roughly speaking. With that said, stagnation is inevitable due to demographic dynamics. Historical economic prosperity was because of a demographic dividend that won’t be repeated in our lifetimes.
The logistics can be argued elsewhere, I’m simply saying that is where you can tax; there is nowhere else of material value to. The majority of US households can’t even afford to survive, let alone face a tax burden.
> For the bottom 60% of U.S. households, a "minimal quality of life" is out of reach, according to the group, a research organization focused on improving lower earners' economic well-being.
Some countries have a net-worth tax. Here are Switzerland's rules and tax rates.[1] There are few exemptions. The canton of Geneva charges about 0.9% of net worth per year.
We have the worst possible people in government for the financial environment the US is in.
Not only are we already in a bad place with government spending/debt given the new world of high interest rates. We’re just going to blow many trillions of dollars worth of new holes in the budget.
Then throw in the endless tariff stupidity and it’s all just bad, bad, bad.
Why is the phrase "reduce spending" never anywhere to be seen with these awful takes?
The only solution is for the Gov to stop spending money it doesn't have. I don't know how you can insinuate that de-industrialization and taxes are a viable strategy without addressing the root of the problem. It would be like telling someone with a gambling problem that spending more time at the casino and less time at work would improve their finances.
Everyone has their pet projects is a part of it. I tried saying that we will need to raise taxes AND reduce spending and lemme tell you, it did not go over very well. Hell, in my home state of Illinois, in the face of federal cuts, our brave leaders tell us we should brace for increases to offset those 'losses'.
Both need to happen, and people hate both.
The data makes it clear though, taxes are low, spending is high both in comparison to GDP.
Any argument you can do one and not the other is insane.
> Any argument you can do one and not the other is insane.
Challenge accepted :).
The argument for lowering spending and lowering taxes is that the size of the economy and the tax base are inherently tied to tax rates and economic growth. Historically, federal tax receipts have hovered around 17 to 18% of GDP since the end of WWII, regardless of the tax rate[1]. Deep spending cuts paired with high taxes might increase the percentage, but it would be of a smaller economy, shrinking the overall tax base and making the debt ratio worse.
I don't know if that's true and I don't think we'll find out because the Republicans in Congress appear to be going for option C, lower taxes and larger deficits. The Democrats are in disarray and reflexively taking a contrary position, but even if they were in power I don't think this would be much of a priority. I think we get to see how far we can go. Maybe we'll beat Japan's debt to GDP ratio or maybe a failed auction or some debasement. The future has a lot of exciting possibilities.
Because the major categories are very hard to cut:
Social Security: 22%
Interest on the Debt: 14%
Medicaid: 14%
Medicare: 14%
National Defense: 13%
That's 77% of the budget in those categories.
Everything else is 23%. The Federal deficit is ~25% of receipts.
You could cut each and every function of the government other than the above and still be left with a deficit. And there isn't a lot of room to cut everything else, as they've already been squeezed for decades.
No one is insulated. If it isn’t taken from people directly, then people feel the spending in price inflation. Every time the government spends, they issue a treasury. That treasury is then used as the backing for loans from the FedRes to members banks. Those banks then lend a multiple of that.
The real issue with spending cuts is that the public will not accept any reductions to entitlements, the poor won’t accept cuts to welfare programs, and the donor class won’t accept cuts to military spending. This means there’s zero political will to fix the situation.
Most people are quite isolated because things like inflation are indirect. Seeing the link between inflation and spending is hard when it's easier for the average person to just see covid or greed or trade wars or simply fed policy and assign blame there.
The direct link between spending and taxes is far easier for people to understand.
So instead, raise taxes by 20+%. Setup automatic tax adjustments to cover spending changes to ensure the debt shrinks every decade.
The effects of inflation are felt. For example, the deterioration in product quality, packaging, and even product size are attempts of companies to prevent raising product prices. Where people absolutely see it are in those things usually funded by debt: houses, cars, university education. There are myriad reasons for rising product prices and decreasing product quality, but one of those reasons is monetary inflation.
As noted, however, these is zero political will to reduce spending, and I therefore believe the USA will suffer a monetary crisis in the mid-2030s. I hope to be incorrect, but I just don't see it happening. Raise taxes? Lose votes. Reduce spending? Lose votes.
Edit: Ah wait, rereading you're 100% correct. It's more difficult to see all of the cases I mentioned as being due to monetary inflation. So, while felt, people don't immediately attribute it as such.
I think you have it backwards. An average taxpayer has no reason to not be in favor in spending cuts as increases in that category translate to higher taxes. In other words, they don't need convincing. Your premise seems flawed.
because "reduce spending" sounds nice in a vacuum (sure, there are a lot of things our government spends money on that i don't agree with) but in reality it usually plays out as a cynical ideologically-driven misdirection with little basis in the needs of the country and the people inside it.
spending is a good thing. roads, schools, healthcare, research funding - we need these things in order for america and its people to thrive.
our representation just has this awful aversion to increasing taxes on those who can actually afford to bear the increases.
Research, roads, and schools do not make up a meaningful percentage of the federal budget at all. Healthcare makes a decent chuck with Medicare and Medicaid, and those badly need reform as many people receive aid who are fully capable of paying costs themselves. Social Security, defense spending, and debt service are the other big ones.
Ultimately, no idea what will happen when debt services consumes all tax revenues. This will come in the mid-2030s at the current rate. I figure that the Fed will just suspend the requirement of Treasuries and debt payments, print like crazy, and the USA will look like Zimbabwe.
The actual problem with healthcare is not that the wrong people receive it for free, but that it costs about 20 times as much as it should. Fix that, and they can easily afford to give it to everyone for free.
My wife and I were perfectly capable of paying for her transplant operation after some fund raising, and both the hospital and the insurance company knew this as for her to qualify for transplant they examined our finances. We also make more than enough to pay for the anti-rejection medication. We had zero need for Medicare. This didn't matter. As soon as she entered renal failure, she was forced onto Medicare. There are absolutely people receiving assistance who do not need it and in some cases do not want it.
Republicans (and probably most Democrats) will never allow the Pentagon's budget to be cut. Much of what's left are various social programs. Average Americans are already barely hanging on, if you cut the social programs then people will get (even more) desperate which tends not to lead to positive outcomes.
If the government stops spending money on programs, it looks bad.
If the government raises taxes, it looks bad.
Essentially people don't understand this, which is why grifters like Trump got elected who promise the impossible, make the economy seem good for 4 years then once shit starts going down the Dems win and have to deal with the outcome, which then they get shit for not being able to fix.
I take this as a signal they think there’s no way the other two are going to raise theirs again, and are maybe worried one of those will downgrade another step in the near future while Moody’s rating is still high, which might look bad for them.
The simple reality is that US will need to go through a period of pain to correct some of those excesses. It will not be fun for anyone, which is why there is so much effort put forth to kick can down the road.
And the part that really gets me is that congress is discussing cutting taxes, fed is being pressured to lower rates.. as if all those things were not at least a factor in the mess we are in now.