I emphasise from time to time how the large amount of debt the US has is unlikely to lead to default. Most recently, I have discussed that thanks to the privilege of issuing the world’s reserve currency, the US can borrow much more than other countries without risking higher interest rates
'both parties are guilty as charged'. Yes. And i am no lover of dems since they seem so happy competing with reps on 'who has the most wackos?' (For generations, western European media followed a very simple scheme: America is bad when ruled by a rep, and good when ruled by a dem. I.e. 'people who sort of resemble us are okay'. It seems that qualifier is now applied not just to politics but to basically every subject).
But when it comes to deficits there is a difference (until Biden of course):
Reagan start $78.9 B def / End $152.6 B Increased def
Bush 41 start $152.6 B def / End $255 B Increased def
Clinton start $255 B def / End $128.2 B + Surplus
Bush 43 start $128.2 B + / End $1.41 T Increased def
Obama start $1.41 T def / End $584.6 B Decreased def
Trump start $584.6 B def / End (19’ pre covid): $1.1 T Increased def
Biden - never mind…
PS Are you enjoying US/European media's 'surprise' about Biden's debating 'skills' as much as i do? It seems that after lying to the public for years they have now turned on themselves: 'how were Biden's confidants able to mislead us?'
...but there are only limited short-run repercussions for excess government borrowning which are further reduced by being the source of the reserve currency.
I somehow don't think that I could have a career as an author of catch aphorisms :(
Although this research sounds qualitatively correct and empirically important, the arithmetic apparently is nonlinear. If every increase in the debt:GDP ratio by 1 percentage point led to a 30 bp increase in 10-year Treasury yields, then the increase in debt from around 50% of GDP to 100% of GDP would have led to a 10-year Treasury yield of 15.0%. But we are at only 5% yields - so far - thanks to the Fed's buying trillions of dollars' worth of Treasuries. It remains to be seen what will happen once the Fed finishes with QT.
Absolutely, this is not a linear relationship and that is important to keep in mind. Trump is expected to increase the federal deficit by some 15% to 25% of GDP in the next ten years (depending on which estimates you believe). Of course the 10-year Treasury yield is not going to rise by 20 x 30 bps = 600bps. But I am pretty sure it is going to rise by more than the c.20bps it has increased since the election. the truth is somewhere in between the two extremes and we are going to find out.
Hanno Lustig is an excellent economic researcher, doing interesting work in international finance (some of which is above my comprehension level, I will admit). BTW he was born in Ghent, Belgium another highly indebted country. It's great that he is in the US now.
This article supports the argument in JK’s later article on 13/11/24. In short, JK argues that the USA can keep spending and finance it by issuing Treasuries.
That may be so - JK is persuasive. BUT as he says, markets for Treasuries are likely to require a ‘highish’ interest rate. In consequence the USD$ amount of interest payable will rise. Already a significant amount of USA expenditure goes on paying interest. Thre must come a time when USA cannot afford this.
The markets can be as powerful as the US Treasury, Fed, et al.
'both parties are guilty as charged'. Yes. And i am no lover of dems since they seem so happy competing with reps on 'who has the most wackos?' (For generations, western European media followed a very simple scheme: America is bad when ruled by a rep, and good when ruled by a dem. I.e. 'people who sort of resemble us are okay'. It seems that qualifier is now applied not just to politics but to basically every subject).
But when it comes to deficits there is a difference (until Biden of course):
Reagan start $78.9 B def / End $152.6 B Increased def
Bush 41 start $152.6 B def / End $255 B Increased def
Clinton start $255 B def / End $128.2 B + Surplus
Bush 43 start $128.2 B + / End $1.41 T Increased def
Obama start $1.41 T def / End $584.6 B Decreased def
Trump start $584.6 B def / End (19’ pre covid): $1.1 T Increased def
Biden - never mind…
PS Are you enjoying US/European media's 'surprise' about Biden's debating 'skills' as much as i do? It seems that after lying to the public for years they have now turned on themselves: 'how were Biden's confidants able to mislead us?'
Guess how...
There are no free lunches
...but there are only limited short-run repercussions for excess government borrowning which are further reduced by being the source of the reserve currency.
I somehow don't think that I could have a career as an author of catch aphorisms :(
Well, it's like the Democrats in the US. All of their bumper sticker slogans end with the words: To be continued on the next bumper sticker...
Although this research sounds qualitatively correct and empirically important, the arithmetic apparently is nonlinear. If every increase in the debt:GDP ratio by 1 percentage point led to a 30 bp increase in 10-year Treasury yields, then the increase in debt from around 50% of GDP to 100% of GDP would have led to a 10-year Treasury yield of 15.0%. But we are at only 5% yields - so far - thanks to the Fed's buying trillions of dollars' worth of Treasuries. It remains to be seen what will happen once the Fed finishes with QT.
Absolutely, this is not a linear relationship and that is important to keep in mind. Trump is expected to increase the federal deficit by some 15% to 25% of GDP in the next ten years (depending on which estimates you believe). Of course the 10-year Treasury yield is not going to rise by 20 x 30 bps = 600bps. But I am pretty sure it is going to rise by more than the c.20bps it has increased since the election. the truth is somewhere in between the two extremes and we are going to find out.
Hanno Lustig is an excellent economic researcher, doing interesting work in international finance (some of which is above my comprehension level, I will admit). BTW he was born in Ghent, Belgium another highly indebted country. It's great that he is in the US now.
This article supports the argument in JK’s later article on 13/11/24. In short, JK argues that the USA can keep spending and finance it by issuing Treasuries.
That may be so - JK is persuasive. BUT as he says, markets for Treasuries are likely to require a ‘highish’ interest rate. In consequence the USD$ amount of interest payable will rise. Already a significant amount of USA expenditure goes on paying interest. Thre must come a time when USA cannot afford this.
The markets can be as powerful as the US Treasury, Fed, et al.