Re: Our national debt just exceeded 22 trillion - effect of rising interest rate

[Liberty]

The government's main asset, against which it holds the debt, is the country's economy and population, on which is basically has a royalty through taxation. On top of all the land and mineral wealth and such (cue Rk's rant about how this is theft and shouldn't be like that, etc. Meanwhile, that's how things are).

 

I'm not saying the debt isn't too big, just that it has to be kept in context, otherwise it's just throwing around big numbers that don't mean anything.

 

If Mr. Bob owes 1 million dollars, that doesn't tell you much about whether he's in trouble or not. You have to know his income, how fast that grows, what assets he has, what he's paying in interest, etc.

 

I agree in principal with the proposal that debt needs to be looked at in relation to assets.  I also agree debt needs to be looked at "in context." I just wish you would provided a context.

 

No thanks, I don't care enough about this field to do research. Someone else who likes macro can, if they want, it should all be public info in FRED or whatever. I just thought someone should point out that only giving one side of the "assets & liabilities" columns wasn't very productive.

[Guest MarkS]

The government's main asset, against which it holds the debt, is the country's economy and population, on which is basically has a royalty through taxation. On top of all the land and mineral wealth and such (cue Rk's rant about how this is theft and shouldn't be like that, etc. Meanwhile, that's how things are).

 

I'm not saying the debt isn't too big, just that it has to be kept in context, otherwise it's just throwing around big numbers that don't mean anything.

 

If Mr. Bob owes 1 million dollars, that doesn't tell you much about whether he's in trouble or not. You have to know his income, how fast that grows, what assets he has, what he's paying in interest, etc.

 

I agree in principal with the proposal that debt needs to be looked at in relation to assets.  I also agree debt needs to be looked at "in context." I just wish you would provided a context.

 

No thanks, I don't care enough about this field to do research. Someone else who likes macro can, if they want, it should all be public info in FRED or whatever. I just thought someone should point out that only giving one side of the "assets & liabilities" columns wasn't very productive.

 

No problem.  But I will give you my context - gratis.  First the likelihood of the U.S. selling assets is somewhere between slim and none.  As to the "royalty through taxation," based on the ever growing pile of debt the U.S. - I'm thinking that's not working out too well.

[Liberty]

No problem.  But I will give you my context - gratis.  First the likelihood of the U.S. selling assets is somewhere between slim and none.  As to the "royalty through taxation," based on the ever growing pile of debt the U.S. - I'm thinking that's not working out too well.

 

My point was that the population is growing over time, and the economy is growing too. And thanks to globalization, US businesses now make a lot more money internationally than before. Interest rates are also much lower than before. This is all context.

 

You might interpret this as being a defense of the current fiscal situation or of the level of debt or whatever, but that's not what this is. I don't know enough about the situation to have an opinion on it, because it's not a field I particularly am interested in.

[Cigarbutt]

No problem.  But I will give you my context - gratis.  First the likelihood of the U.S. selling assets is somewhere between slim and none.  As to the "royalty through taxation," based on the ever growing pile of debt the U.S. - I'm thinking that's not working out too well.

 

My point was that the population is growing over time, and the economy is growing too. And thanks to globalization, US businesses now make a lot more money internationally than before. Interest rates are also much lower than before. This is all context.

 

You might interpret this as being a defense of the current fiscal situation or of the level of debt or whatever, but that's not what this is. I don't know enough about the situation to have an opinion on it, because it's not a field I particularly am interested in.

I guess it has to do with sharing interests about sustainability.

 

Think about environmental sustainability. Why do people (even smart people) ignore the issue?

-other things to worry about

-tendency to focus on immediate concerns

-interest or knowledge deficit

-individual sense of "why bother?"

-it's a hoax...

 

Opinion: the fiscal gap trajectory is unsustainable, will have a material impact (eventually) and I will continue to look for disconfirming evidence, here or elsewhere.

[Liberty]

I guess it has to do with sharing interests about sustainability.

 

Think about environmental sustainability. Why do people (even smart people) ignore the issue?

-other things to worry about

-tendency to focus on immediate concerns

-interest or knowledge deficit

-individual sense of "why bother?"

-it's a hoax...

 

Opinion: the fiscal gap trajectory is unsustainable, will have a material impact (eventually) and I will continue to look for disconfirming evidence, here or elsewhere.

 

No. You missed my point, which I explicitly appended to my post.

 

1) Periodically saying "oh, the debt it 10 trillion" "Now it's 15 trillion" "oh, not it's 20 trillion" is lacking context and is meaningless.

 

2) It's a complex issue with lots of variables. Reducing it to the usual slogans isn't helping the situation, it's muddying it up with lots of noise. I'd rather people talked less about it but in a more informed manner. My trying to better frame the discussion (pointing out that if you're talking about liabilities, you should probably also look at assets) was the opposite of not caring about it, but it also doesn't mean that I'll spend my life doing macroeconomic study and debate.

 

3) Me saying that I don't know enough about it is just being honest. The rest who spout their strongly held opinions also probably don't know enough about it, they just don't admit it to themselves. There's is a parallel to climate change: Because people can see the weather, they think they can just intuitively understand complex climate systems without studying any of the data or understanding the best working theories and models. It's dunning-kruger. Macroeconomics is very complex and you can't think about it like you think about the finances of a convenience store. People have been predicting doom and gloom about budgets and the debt since probably 1776, and here we are, a little richer than they were.

 

I also personally wish the debt was much lower and people were more responsible and the government wasn't such a shitshow, but that doesn't mean that I can come up with an easy model for how to understand all the ramifications and be sure about where the thresholds are for "too much". So basically, I don't know how bad things are, and the talkings heads on TV and fearmongers selling gold bullion newsletters don't either.

 

But it happens every time I make a nuanced argument. People skim it, and go "oh, so if you're not categorically, knee-jerk against that thing, so you're for it, right?". Blue team, red team... yawn.

[Cigarbutt]

^I submit that you're missing my point also: I'm trying to build a bridge and you're not helping.

[Liberty]

^I submit that you're missing my point also: I'm trying to build a bridge and you're not helping.

 

You were implying that me saying I didn't have enough specific interest in the topic to provide what the other poster demanded was akin to not caring about environmental sustainability and giving up on the future, did you not? It didn't feel like much of a bridge to me.

 

I'm saying that pointing out a common flaw in these debt discussions is the opposite of not caring, it's caring about having a more rational discussion about the issue, but that it also doesn't make me an expert and I won't pretend to be one. It also doesn't mean that I'm in favor of a big debt or that I like the current debt, as I keep repeating.  Being against something doesn't mean you should turn a blind eye to bad arguments against it.

[Guest MarkS]

I guess it has to do with sharing interests about sustainability.

 

Think about environmental sustainability. Why do people (even smart people) ignore the issue?

-other things to worry about

-tendency to focus on immediate concerns

-interest or knowledge deficit

-individual sense of "why bother?"

-it's a hoax...

 

Opinion: the fiscal gap trajectory is unsustainable, will have a material impact (eventually) and I will continue to look for disconfirming evidence, here or elsewhere.

 

No. You missed my point, which I explicitly appended to my post.

 

1) Periodically saying "oh, the debt it 10 trillion" "Now it's 15 trillion" "oh, not it's 20 trillion" is lacking context and is meaningless.

 

2) It's a complex issue with lots of variables. Reducing it to the usual slogans isn't helping the situation, it's muddying it up with lots of noise. I'd rather people talked less about it but in a more informed manner. My trying to better frame the discussion (pointing out that if you're talking about liabilities, you should probably also look at assets) was the opposite of not caring about it, but it also doesn't mean that I'll spend my life doing macroeconomic study and debate.

 

3) Me saying that I don't know enough about it is just being honest. The rest who spout their strongly held opinions also probably don't know enough about it, they just don't admit it to themselves. There's is a parallel to climate change: Because people can see the weather, they think they can just intuitively understand complex climate systems without studying any of the data or understanding the best working theories and models. It's dunning-kruger. Macroeconomics is very complex and you can't think about it like you think about the finances of a convenience store. People have been predicting doom and gloom about budgets and the debt since probably 1776, and here we are, a little richer than they were.

 

I also personally wish the debt was much lower and people were more responsible and the government wasn't such a shitshow, but that doesn't mean that I can come up with an easy model for how to understand all the ramifications and be sure about where the thresholds are for "too much". So basically, I don't know how bad things are, and the talkings heads on TV and fearmongers selling gold bullion newsletters don't either.

 

But it happens every time I make a nuanced argument. People skim it, and go "oh, so if you're not categorically, knee-jerk against that thing, so you're for it, right?". Blue team, red team... yawn.

 

I actually understood your points - including that we don't know what we're talking.  But, like Tucker Carlson, you said it with genuine sincerity.  https://thehill.com/homenews/media/430956-tucker-carlson-telling-dutch-historian-to-go-f-yourself-was-heartfelt

Seriously perhaps we're all reading the worst into other's motives.

[Liberty]

I actually understood your points - including that we don't know what we're talking.  But, like Tucker Carlson, you said it with genuine sincerity.  https://thehill.com/homenews/media/430956-tucker-carlson-telling-dutch-historian-to-go-f-yourself-was-heartfelt

Seriously perhaps we're all reading the worst into other's motives.

 

I'm sorry you saw it like that. I know people don't like to be disagreed with, so they usually read those responses in a much worse tone than was intended, but my reply to you was truly just to point out that when I mentioned the assets, I didn't mean selling them off (as you mentioned), but rather that as the debt was growing, the value of the assets (fixed and cashflowing) was growing also.

[Guest MarkS]

I actually understood your points - including that we don't know what we're talking.  But, like Tucker Carlson, you said it with genuine sincerity.  https://thehill.com/homenews/media/430956-tucker-carlson-telling-dutch-historian-to-go-f-yourself-was-heartfelt

Seriously perhaps we're all reading the worst into other's motives.

 

I'm sorry you saw it like that. I know people don't like to be disagreed with, so they usually read those responses in a much worse tone than was intended, but my reply to you was truly just to point out that when I mentioned the assets, I didn't mean selling them off (as you mentioned), but rather that as the debt was growing, the value of the assets (fixed and cashflowing) was growing also.

 

I did your response that way, but I wasn't offended.  I do appreciate your explanation though. 

 

I pissed off Schwab the other day - so if your reading Schwab please accept my apologies.

[Cigarbutt]

^I submit that you're missing my point also: I'm trying to build a bridge and you're not helping.

 

You were implying that me saying I didn't have enough specific interest in the topic to provide what the other poster demanded was akin to not caring about environmental sustainability and giving up on the future, did you not? It didn't feel like much of a bridge to me.

 

I'm saying that pointing out a common flaw in these debt discussions is the opposite of not caring, it's caring about having a more rational discussion about the issue, but that it also doesn't make me an expert and I won't pretend to be one. It also doesn't mean that I'm in favor of a big debt or that I like the current debt, as I keep repeating.  Being against something doesn't mean you should turn a blind eye to bad arguments against it.

In general, I've found it difficult to build constructive discussions with you and I take responsibility for it.

[TwoCitiesCapital]

The government's main asset, against which it holds the debt, is the country's economy and population, on which is basically has a royalty through taxation. On top of all the land and mineral wealth and such (cue Rk's rant about how this is theft and shouldn't be like that, etc. Meanwhile, that's how things are).

 

I'm not saying the debt isn't too big, just that it has to be kept in context, otherwise it's just throwing around big numbers that don't mean anything.

 

If Mr. Bob owes 1 million dollars, that doesn't tell you much about whether he's in trouble or not. You have to know his income, how fast that grows, what assets he has, what he's paying in interest, etc.

 

I agree in principal with the proposal that debt needs to be looked at in relation to assets.  I also agree debt needs to be looked at "in context." I just wish you would provided a context.

 

No thanks, I don't care enough about this field to do research. Someone else who likes macro can, if they want, it should all be public info in FRED or whatever. I just thought someone should point out that only giving one side of the "assets & liabilities" columns wasn't very productive.

 

No problem.  But I will give you my context - gratis.  First the likelihood of the U.S. selling assets is somewhere between slim and none.  As to the "royalty through taxation," based on the ever growing pile of debt the U.S. - I'm thinking that's not working out too well.

 

+1 I've heard the asset/liability argument before. Using assets to pay off debt, as opposed to income, is typically a move of desperation and not the best financial decision.

 

Ask someone who defaulted on their mortgage and were foreclosed upon. Do they feel good that their house (asset) offset their liability (mortgage)? Is that still considered a positive scenario just because they remained solvent through the transaction?

 

Secondly, the U S has vast geographical assets that CANT be monetized by selling or leasing to someone else. We don't really want a third border and we benefit greatly by having an oceans between us and most other countries.

 

We could probably sell Hawaii to someone, but Alaska is too important for oil and we'd never sell land in the contiguous U.S. unless it was a state bordering Mexico/Canada and the buyer were Mexico/Canada.

 

Is the U.S. likely to go bankrupt? No, but it's not because of our assets that can't/won't be monetized. It's because we'll print money to take care of it and slowly erode the standard of living for our citizens to cash those checks.

 

In most cases, debt is only responsible if it can be serviced conservatively from current income.

 

[DooDiligence]

Just for fun,

 

http://weeklyworldnews.com/headlines/53230/china-buys-grand-canyon/

 

;D

[Liberty]

+1 I've heard the asset/liability argument before. Using assets to pay off debt, as opposed to income, is typically a move of desperation and not the best financial decision.

 

BTW, selling assets isn't what I was suggesting, but others have. I was just saying that mentioning one number alone without the other doesn't provide enough context to know much.

 

ie. Mr Henry has 2.5 million dollars of debt. Is he in trouble?

 

¯\_(ツ)_/¯

 

Depends if he's a founder-CEO with $125m in t-bills and an annual income of $10m or if he's a Vancouver janitor.

[TwoCitiesCapital]

+1 I've heard the asset/liability argument before. Using assets to pay off debt, as opposed to income, is typically a move of desperation and not the best financial decision.

 

BTW, selling assets isn't what I was suggesting, but others have. I was just saying that mentioning one number alone without the other doesn't provide enough context to know much.

 

ie. Mr Henry has 2.5 million dollars of debt. Is he in trouble?

 

¯\_(ツ)_/¯

 

Depends if he's a founder-CEO with $125m in t-bills and an annual income of $10m or if he's a Vancouver janitor.

 

I get it. Wasn't picking on you specifically, just saying even considering the "assets" is pointless if you can't/won't sell them to service the debt.

 

Current/future income is what should be considered for debt service at the national level and nothing else IMO.

[Liberty]

+1 I've heard the asset/liability argument before. Using assets to pay off debt, as opposed to income, is typically a move of desperation and not the best financial decision.

 

BTW, selling assets isn't what I was suggesting, but others have. I was just saying that mentioning one number alone without the other doesn't provide enough context to know much.

 

ie. Mr Henry has 2.5 million dollars of debt. Is he in trouble?

 

¯\_(ツ)_/¯

 

Depends if he's a founder-CEO with $125m in t-bills and an annual income of $10m or if he's a Vancouver janitor.

 

I get it. Wasn't picking on you specifically, just saying even considering the "assets" is pointless if you can't/won't sell them to service the debt.

 

Current/future income is what should be considered for debt service at the national level and nothing else IMO.

 

Fair. btw, I meant the more general term "assets" to mean everything opposed to liabilities (the income streams too), not just inert hard assets. I think interest rates should also be taken into account. Not the same to borrow a trillion at 6% than at 2%, especially if GDP growth is ˜3%.

[Liberty]

Buffett on the debt and deficit and gold in the latest letter:

 

Those who regularly preach doom because of government budget deficits (as I regularly did myself for many years) might note that our country’s national debt has increased roughly 400-fold during the last of my 77-year periods. That’s 40,000%! Suppose you had foreseen this increase and panicked at the prospect of runaway deficits and a worthless currency. To “protect” yourself, you might have eschewed stocks and opted instead to buy 3 1⁄4 ounces of gold with your $114.75.

 

And what would that supposed protection have delivered? You would now have an asset worth about $4,200, less than 1% of what would have been realized from a simple unmanaged investment in American business. The magical metal was no match for the American mettle.... Today, the Federal Reserve estimates our household wealth at $108 trillion, an amount almost impossible to comprehend.

[Cigarbutt]

Long-term wise, the US potential for growth (and related government revenue) will very likely result in far better returns on stocks than holding gold.

 

For perspective:

https://www.thestreet.com/story/10582079/1/warren-buffett-delivers-warning-on-us-debt.html

 

It’s hard to see how this will play out (and Japan and others seem to be able to play with the odds, Italy's 10-yr gov. bond yield=2.84%, Japan=-.05%) but it seems to me that a reasonable way to follow the sustainability issue is to look at the evolution of the debt (public and total) to GDP or how the growth of debt has been outstripping GDP growth (in the US, the developed world and, more recently, China).

 

While it is true that servicing of the debt (despite a growing debt-asset mismatch) has actually gone lower (because of low interest rates), we see the same phenomenon (diverging curves) with Canadian real estate and one has to wonder about potential outcomes.

 

Another way to look at the debt issue is to look at the long-term trend of the marginal impact of debt and GDP (ie how marginal increase in GDP has been “matched” by marginal increase in debt, yoy). Going back over the last 70 years, the curve is noisy but there is a clear downward and convincing trend heading from above one to zero. Why?

 

Admitting that I have a general anti-debt bias and realizing that I may spend way too much time in distressed securities, it seems that, as a general rule, firms that grow a certain level of debt tend to be tempered by increasing yields by the market (although that has not been so preeminent lately given the general easing conditions) and firms that make it through typically have a liquidity problem and not a solvency issue. An interesting aspect with government debt in developed and democratic states is that it tends (under any circumstances) to be very hard to raise taxes and reduce services and the essential liquidity-driven moves made by the central banks during the GFC have been maintained and the persistent easing has resulted in the liquidity issue slowly morphing into a solvency issue for government-issued debt.

 

We’ll all be fine but it may not be a straight line. The best way to escape quicksand is to avoid it.

 

“Remember, earlier in this letter, how I described retained earnings as having been the key to Berkshire’s

prosperity? So it has been with America. In the nation’s accounting, the comparable item is labeled “savings.” And

save we have. If our forefathers had instead consumed all they produced, there would have been no investment, no

productivity gains and no leap in living standards.” (my bold)

 

Mr. Buffett appears to be in a saving mode and he reported 111.87B in cash, equivalents and short-term liquid investments at the end of Q4.