United States debt

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Lonestar
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United States debt

Post by Lonestar » Fri Mar 01, 2019 1:15 pm

The U.S. debt just passed 22 trillion. This is equivalent to $67K per person or $170K per tax payer. At what point will this affect the economy and investors? How far can this can be kicked down the road?
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Re: United States debt

Post by dualstow » Fri Mar 01, 2019 1:41 pm

I remember reading in 2016 or '17 that relative to GDP, we're not that high on the debtor nation list. Not time to worry yet.
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Re: United States debt

Post by jacksonM » Fri Mar 01, 2019 1:54 pm

Lonestar wrote:
Fri Mar 01, 2019 1:15 pm
The U.S. debt just passed 22 trillion. This is equivalent to $67K per person or $170K per tax payer. At what point will this affect the economy and investors? How far can this can be kicked down the road?
Since I own about $600k of government debt right now I guess that puts me about $533k on the positive side of the ledger as a person. Less, of course, as a taxpayer.

As for the long term effect, the only thing Keynes ever said that made sense to me as an absolute truism was that in the long term we are all dead.
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Re: United States debt

Post by Lonestar » Fri Mar 01, 2019 3:46 pm

dualstow wrote:
Fri Mar 01, 2019 1:41 pm
I remember reading in 2016 or '17 that relative to GDP, we're not that high on the debtor nation list. Not time to worry yet.
You are correct. We are at about a 105% debt to GDP ratio now. Highest was in 1945 at 118%. Current consumer debt may be a bigger issue.
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Re: United States debt

Post by boglerdude » Mon Mar 04, 2019 2:51 am

Japan's fine.
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Re: United States debt

Post by jhogue » Mon Mar 04, 2019 7:48 am

OP, see this enlightening post by Cullen Roche of Pragmatic Capitalist. It doesn't directly answer your question, but it does address your underlying concern (which I share.)

https://www.pragcap.com/why-im-not-worr ... hold-debt/
“Groucho Marx wrote:
A stock trader asked him, "Groucho, where do you put all your money?" Groucho was said to have replied, "In Treasury bonds", and the trader said, "You can't make much money on those." Groucho said, "You can if you have enough of them!"
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Re: United States debt

Post by Libertarian666 » Mon Mar 04, 2019 3:06 pm

Everything will be fine.

Until it isn't.

At that point, if you don't have enough gold you will be out of luck.
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Re: United States debt

Post by Maddy » Mon Mar 04, 2019 3:22 pm

jhogue wrote:
Mon Mar 04, 2019 7:48 am
OP, see this enlightening post by Cullen Roche of Pragmatic Capitalist. It doesn't directly answer your question, but it does address your underlying concern (which I share.)

https://www.pragcap.com/why-im-not-worr ... hold-debt/
I'm the biggest idiot in the world when it comes to economics, but this one left me scratching my head more than most. For purposes of assessing whether the skyrocketing level of household debt is a problem, does it make any sense to assume the continuation of the status quo when many of the best and brightest are describing our economy as a precarious constellation of bubbles? Does it make sense to assume that retirement accounts chock full of wildly inflated assets will retain their present value? Or that the frightening march toward automation will somehow spare jobs? How much of the average family's net worth is tied up in a home whose value may also be at an all-time high and which, in any event, may not be readily liquidated?
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Re: United States debt

Post by Libertarian666 » Mon Mar 04, 2019 5:31 pm

Maddy wrote:
Mon Mar 04, 2019 3:22 pm
jhogue wrote:
Mon Mar 04, 2019 7:48 am
OP, see this enlightening post by Cullen Roche of Pragmatic Capitalist. It doesn't directly answer your question, but it does address your underlying concern (which I share.)

https://www.pragcap.com/why-im-not-worr ... hold-debt/
I'm the biggest idiot in the world when it comes to economics, but this one left me scratching my head more than most. For purposes of assessing whether the skyrocketing level of household debt is a problem, does it make any sense to assume the continuation of the status quo when many of the best and brightest are describing our economy as a precarious constellation of bubbles? Does it make sense to assume that retirement accounts chock full of wildly inflated assets will retain their present value? Or that the frightening march toward automation will somehow spare jobs? How much of the average family's net worth is tied up in a home whose value may also be at an all-time high and which, in any event, may not be readily liquidated?
I believe most of the net worth of retirees is accounted for by "home equity":

"According to the U.S. Census Bureau's data, the typical American's net worth at age 65 is $194,226. However, removing the benefit from home equity results in that figure plummeting to just $43,921."

see https://www.fool.com/investing/general/ ... quity.aspx.

Of course this poses a terrible risk to their financial security, but it is great for the real estate industrial complex!
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Re: United States debt

Post by Kriegsspiel » Mon Mar 04, 2019 6:16 pm

Maddy wrote:
Mon Mar 04, 2019 3:22 pm
For purposes of assessing whether the skyrocketing level of household debt is a problem, does it make any sense to assume the continuation of the status quo when many of the best and brightest are describing our economy as a precarious constellation of bubbles?
What do you mean by continuing the status quo?
Does it make sense to assume that retirement accounts chock full of wildly inflated assets will retain their present value? Or that the frightening march toward automation will somehow spare jobs?
Heh
How much of the average family's net worth is tied up in a home whose value may also be at an all-time high and which, in any event, may not be readily liquidated?
Image

This isn't exactly what you meant, Maddy, but it's an overall picture. I guess you could say that in the event of a real estate downturn, at least the people who own their own house can still live in it; they don't have "less housing."
You there, Ephialtes. May you live forever.
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Re: United States debt

Post by Smith1776 » Mon Mar 04, 2019 6:32 pm

I just recently finished reading Ray Dalio's book Principles for Navigating Big Debt Crises.

For those of you who haven't touched upon it yet, it's an incredible read. Also, it will definitely reinforce the notion that gold is part of any good balanced breakfast portfolio.
I still find the James Rickards portfolio fascinating.
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Re: United States debt

Post by boglerdude » Tue Mar 05, 2019 1:01 am

Does Dalio explain why the short debt cycles are X years long, and the long debt cycles are Y years long
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Re: United States debt

Post by pmward » Tue Mar 05, 2019 8:44 pm

boglerdude wrote:
Tue Mar 05, 2019 1:01 am
Does Dalio explain why the short debt cycles are X years long, and the long debt cycles are Y years long
If I recall correctly off hand I believe he just attributed it to natural human behavior. That we will borrow and spend as much as we can until we run off the cliff. And short credit cycles tend to usually be somewhere in the 5-10 year range before some small bumps on the road are hit, and typically once every 50-75 years (basically once an adult lifetime) we really overdo it and smash our face into a wall because we are bad at learning from the mistakes of past generations. It also varies on where you start. For instance, we had a pretty large deleveraging after 08/09 so our short term credit cycle is a bit longer than typical this round simply because we started from much lower than the typical short term cycle starts. He did say that the first short term cycle after the long term cycle ends can be particularly dangerous because interest rates are not high enough to be able to fight any major issues that could come up. The fed has very limited firepower as there's not much in the way of interest rates to cut, and since we have already done 3 rounds of QE we are already at the point of severely diminishing returns from additional QE. If in the next recession we hit 0% rates again and it's not enough to fully re-stimulate the economy then it could be a long, slow, hard grind back out as opposed to the quick recovery we had earlier in the decade when the fed had enough firepower and responded quickly and aggressively enough to pull us out of the deflation very quickly. His main worry is that we wind up back in a late 30's type environment. As an anecdotal side note, I think this is part of why the fed was so adamant about increasing rates last year, even though inflation was tame; they wanted more firepower just in case.

+1 that it's a great book, especially so since you can download the pdf free from the Bridgewater site.
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Re: United States debt

Post by pmward » Wed Mar 06, 2019 8:31 am

Interestingly enough, Dalio just posted an article this morning discussing some of the things I mentioned. He seems to be quite a bit less worried now about recession in the U.S. since the Fed increased their firepower by raising rates last year, and has now turned dovish. He now thinks that any slowdown we may get should be "manageable". He does have a lot more concern globally, especially in the EU: https://seekingalpha.com/article/424657 ... ging?ifp=0
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Re: United States debt

Post by Smith1776 » Wed Mar 06, 2019 2:18 pm

Just an add-on. From what I understand, part of the big difference between the long-term and short-term debt cycles (in addition to what has been mentioned), is that at the end of the long-term debt cycle interest rates can't be lowered any further because they're already pretty much at zero percent.

It seems that the long-term debt cycle is also characterized by massive debt to income ratios. More so than at the end of each short-term debt cycle.

What's really interesting to me is in the case studies Dalio does, how consistently well gold does relative to the local currency.
I still find the James Rickards portfolio fascinating.
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