What happens when the US debt payments get too high?

[Alan Bolte]

IIRC, about a fifth of US taxpayer monet goes to paying off the interest on our current debt. With deficits as they are, there's no reason to assume this fraction won't get bigger, unless somehow growth can keep up. I don't think it will, nor do I think Congress or the White House could be convinced to give a shit until it's too late, no matter who's in office. So, we are left with a question. How high is too late, and what happens then? Obviously, this will have to occur before all of our taxes go into paying debt. Unfortunately, I know nothing of economics, so I couldn't even guess what effect raising taxes would have this year (for an example). I would guess that America will be much less of a superpower at the time, though.

[Rogue 9]

You have no clue how the deficit works, do you? We're essentially borrowing from ourselves more than anything. I know it doesn't make sense in day to day economics, but governments get to operate differently up to a point. But no one's going to foreclose on us, primarily because most of the debt is owed to holders of government bonds, and those people are more interested in trading them on the market than demanding their money from the Treasury. (At least, that's what my memory of high school economics from a year ago is telling me. If I'm off somehow, someone say so.)

[Stormbringer]

What happens when the US debt payments get too high?

The whole system comes apart. The only question is just how it falls apart.


And of course there's the cheery news that it'll probably happen in our lifetimes.

[MKSheppard]

And of course there's the cheery news that it'll probably happen in our lifetimes.

Even more cheery is that it could result in a fascist amerika, conquering
Canada and Mexico for cheap labor and natural resources, and
declaring war on the EU

[Admiral Valdemar]

And of course there's the cheery news that it'll probably happen in our lifetimes.

Even more cheery is that it could result in a fascist amerika, conquering
Canada and Mexico for cheap labor and natural resources, and
declaring war on the EU

Careful, Shep, that's your fifth tube of lube this week!

[MKSheppard]

Careful, Shep, that's your fifth tube of lube this week!

I haven't gone on a wank so far this week?

[Admiral Valdemar]

Careful, Shep, that's your fifth tube of lube this week!

I haven't gone on a wank so far this week?

You've gone a week without thinking of guns, overthrowing "The Man" and global conquest?

I find that hard to believe.

[Master of Ossus]

The short answer is that no one really knows. There has never been a country that maintained a debt anywhere near the one that the US and many other Western nations currently have, so there is no historical data on it.

[The Last Rebel]

The government collapses, the leeches of society riot when they don`t get there `entitlements`, in which case the people who work for a living will have to put them down.

We have a second American revolution, and hopefully wind up with a constitutional government like before.
However if the UN tries intervening, well, we`ll have kick the damn furriners out.
This is OUR land. A revolution is probably good for a nation every now and then, as long as tyrants don`t win.

[Knife]

The government collapses, the leeches of society riot when they don`t get there `entitlements`, in which case the people who work for a living will have to put them down.

We have a second American revolution, and hopefully wind up with a constitutional government like before.
However if the UN tries intervening, well, we`ll have kick the damn furriners out.
This is OUR land. A revolution is probably good for a nation every now and then, as long as tyrants don`t win.

OK *says I as I take a sidestep away from The Last Rebel*

OT, there will come a point when we can no longer fund such things as the pyridmid scheme that is Social Security. When that dies, it'll free up 47% or so of our budget each year. Really when you see what get funded and we get to the point where we can't (or won't) fund such things is when things will change.

My generation will get saddled with a huge tax burden to suppost our parents and we know we will not get the same because the money won't be there for us. Eventually as my generation takes political power, you might (I hope, I hope) start to see change.

[Darth Wong]

The government collapses, the leeches of society riot when they don`t get there `entitlements`, in which case the people who work for a living will have to put them down.

We have a second American revolution, and hopefully wind up with a constitutional government like before.
However if the UN tries intervening, well, we`ll have kick the damn furriners out.
This is OUR land. A revolution is probably good for a nation every now and then, as long as tyrants don`t win.

You know, you can tell certain types of people fantasize about this kind of shit. It's really quite disturbing to see.

[MKSheppard]

You know, you can tell certain types of people fantasize about this kind of shit. It's really quite disturbing to see.

It'd be fun to say the least

[tharkûn]

First the American debt is not particularly huge. Yes it is 7 trillion odd dollars, but it is only about 40% of GDP. Japan has what triple that relative amount of debt? Canada, France, Germany, and the UK are all carrying quite similar levels of debt. The highest debt as a function of GDP occurred in 1993 (at least modern debt). Russia used to have a national debt in excess of 100% of its GDP and is currently down to a 60% debt or something so the US has quite a bit of ways to go before it hits the point of no return.

If the government ever goes tits up on debt there are a couple of options:
1. US government debt has payment specified in US dollars. Quite literally firing up the printing presses pays off the debt. The downside to this is hyperinflation, resulting recession, and the inability for the government to borrow money later.
2. The US government just declares the debt null and void, essentially default. Exactly what is anyone going to do if the US government refuses to pay? Sue? Try to repo a military base . Again the government will have a hard time borrowing money later and bad economic effects will lead to decades of hardship.
3. Confiscatory taxation. Currently I think the entire debt could be payed if a 25% tax on all assets of individuals worth over 10 million dollars. I doubt this measure would actually be used, but I could certainly see the government threatening something like this in order to get the wealthy to "forgive" the debt they hold outstanding. Couple some measures to get debt forgiven with tearing up the 3 trillion in intragovernmental debt goes a long ways.

Essentially the debt being unsustainable will lead to holders of bonds being screwed, everyone else enduring some type of recession - possibly a depression, and after a few decades people forget. This is not to say that the debt isn't a problem, just that a worst case scenario is hyperinflation, economic depression, and a lousy bond rating.

[Wicked Pilot]

I really don't see the debt every getting payed off because quite frankly no one in DC gives a shit. Who cares what happens after you leave office when you can spend spend spend your way to the voter's hearts for that next election?

[Joe]

Well, hopefully tax revenues from IRAs, 401ks, and other retirement accounts are enough to offset the various deficits.

More like said revenue will amount to more spending instead.

[Admiral Valdemar]

I really don't see the debt every getting payed off because quite frankly no one in DC gives a shit. Who cares what happens after you leave office when you can spend spend spend your way to the voter's hearts for that next election?

Precisely what I thought too.

[Rogue 9]

Yo, Last Rebel. That's the best in firepower you can come up with? Well I got news for you. Here's what the government would do to you if you ever tried.



Any questions?

[Andrew J.]

You know, you can tell certain types of people fantasize about this kind of shit. It's really quite disturbing to see.

It'd be fun to say the least

A revolution is just an excuse to go out and kill everyone you don't like. So, yeah, sounds like fun to me.

[TrailerParkJawa]

Well, hopefully tax revenues from IRAs, 401ks, and other retirement accounts are enough to offset the various deficits.

More like said revenue will amount to more spending instead.

Do you mean when the baby boomers start to retire? Since money taken out of retirment accounts is taxed as ordinary income, Im not sure it will be big increase in gov't revenue.

I would imagine well off retiree's will have annual incomes similar to when they were working so revenue should be flat. The only exception being retiree's probably have fewer deductions.

[Joe]

Not just Baby Boomers, some Gen Xers also near the end. A Stanford economist estimated some 12 trillion dollars in said tax revenue will be generated by 2040. This amount would be enough to offset at least one of the great federal cash blackholes at worst (Social Security or Medicare), and at best both of them.

[Alex Moon]

Not just Baby Boomers, some Gen Xers also near the end. A Stanford economist estimated some 12 trillion dollars in said tax revenue will be generated by 2040. This amount would be enough to offset at least one of the great federal cash blackholes at worst (Social Security or Medicare), and at best both of them.

Michael Boskin was his name I think. He's relooking at those numbers because there was some controversy over his projections. Needless to say, the jury is still out on whether or not the money is there.

[TrailerParkJawa]

Not just Baby Boomers, some Gen Xers also near the end. A Stanford economist estimated some 12 trillion dollars in said tax revenue will be generated by 2040. This amount would be enough to offset at least one of the great federal cash blackholes at worst (Social Security or Medicare), and at best both of them.

Michael Boskin was his name I think. He's relooking at those numbers because there was some controversy over his projections. Needless to say, the jury is still out on whether or not the money is there.

It will depend on what captial gains taxes are by then. Right now, if you are 5 years away from retirement and willing to risk the stock market it makes more sense to put your money into non-retirement accounts. Since you will pay less in taxes on a capital gain. Its all a balancing act and risky too. So who knows.

[Jalinth]

Well, hopefully tax revenues from IRAs, 401ks, and other retirement accounts are enough to offset the various deficits.

More like said revenue will amount to more spending instead.

Do you mean when the baby boomers start to retire? Since money taken out of retirment accounts is taxed as ordinary income, Im not sure it will be big increase in gov't revenue.

I would imagine well off retiree's will have annual incomes similar to when they were working so revenue should be flat. The only exception being retiree's probably have fewer deductions.

If anything, things are probably worse than flat. All of the retirees will no longer pay social security, and probably have lower average incomes (they can use their own capital and often will incur high medical bills), so the government revenues will plunge. With fewer working people (yours truly), the retirees simply can't be paid for by the working class.

In Canada, things are slightly better (only because the CPP is lower and they've already started soaking the working public instead of waiting for 10 years). But eventually, things will come to a head. Hopefully I'll be the Warren Buffet and can buy my own country

[Thinkmarble]

The IMF takes control of your countries finances.

[Rogue 9]

The IMF takes control of your countries finances.

We have bigger guns than the IMF. Good luck.