Gyroscopic Investing

In another thread, my assessment that the U.S. economy was "in shambles" was challenged, but without elaboration or argument. I'd like to explore this issue a little further, and in particular to understand whatever counterargument there may be to my view that our economy is not only in dire trouble, but is nearing the breaking point.

Further to my observations regarding skyrocketing inflation, supply chain disruptions, depression-level unemployment coupled with government-incentivized labor shortages, negative attitudes toward work, fragility of highly interdependent financial institutions, and unprecedented levels of debt (personal, institutional, and governmental), I find this morning a commentary concerning the 2023 budget proposal sent to Congress by Joe Biden:

At the end of fiscal 2021, it indicates, the total federal debt was $28.386 trillion. At the end of fiscal 2032, it predicts, the total federal debt will be $44.797 trillion. . . . That is an average increase of $1.49 trillion per year.

* * *
Treasury Secretary Janet Yellen sent a letter to House Speaker Kevin McCarthy last week asking him to immediately increase the statutory limit on the federal debt, which, she noted, is currently "approximately $31.381 trillion."

"I am writing to inform you that beginning on Thursday, January 19, 2023, the outstanding debt of the United States is projected to reach the statutory limit," said Yellen. "Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations. . . It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit," she said.
* * *
If Congress were to establish a new debt limit that covered all of the borrowing Biden's budget proposal envisions the government will undertake in the coming decade, it would need to increase that limit by $13.433 trillion.

That is more debt than the federal government accumulated in the 233 years from 1776 through 2009.

https://www.cnsnews.com/commentary/tere ... e-debt-578


This is a staggering admission. If the government needs to take on $1.5 trillion per year in debt to maintain its bearings, and requires an immediate $13.4 trillion increase in the debt limit just to avoid default on its current obligations, we're witnessing, it seems to me, an admission that the country is flat-out broke.

Your thoughts? Again, I would be particularly interested in hearing the alternative view--i.e., that everything is okay.

Maddy wrote: ↑Wed Jan 18, 2023 7:16 am
In another thread, my assessment that the U.S. economy was "in shambles" was challenged, but without elaboration or argument. I'd like to explore this issue a little further, and in particular to understand whatever counterargument there may be to my view that our economy is not only in dire trouble, but is nearing the breaking point.

Further to my observations regarding skyrocketing inflation, supply chain disruptions, depression-level unemployment coupled with government-incentivized labor shortages, negative attitudes toward work, fragility of highly interdependent financial institutions, and unprecedented levels of debt (personal, institutional, and governmental), I find this morning a commentary concerning the 2023 budget proposal sent to Congress by Joe Biden:

At the end of fiscal 2021, it indicates, the total federal debt was $28.386 trillion. At the end of fiscal 2032, it predicts, the total federal debt will be $44.797 trillion. . . . That is an average increase of $1.49 trillion per year.

* * *
Treasury Secretary Janet Yellen sent a letter to House Speaker Kevin McCarthy last week asking him to immediately increase the statutory limit on the federal debt, which, she noted, is currently "approximately $31.381 trillion."

"I am writing to inform you that beginning on Thursday, January 19, 2023, the outstanding debt of the United States is projected to reach the statutory limit," said Yellen. "Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations. . . It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit," she said.
* * *
If Congress were to establish a new debt limit that covered all of the borrowing Biden's budget proposal envisions the government will undertake in the coming decade, it would need to increase that limit by $13.433 trillion.

That is more debt than the federal government accumulated in the 233 years from 1776 through 2009.

https://www.cnsnews.com/commentary/tere ... e-debt-578


This is a staggering admission. If the government needs to take on $1.5 trillion per year in debt to maintain its bearings, and requires an immediate $13.4 trillion increase in the debt limit just to avoid default on its current obligations, we're witnessing, it seems to me, an admission that the country is flat-out broke.

Your thoughts? Again, I would be particularly interested in hearing the alternative view--i.e., that everything is okay.

I will isolate my response to the debt, which is described above.

I am basically a "no-debt" person. Never had a mortgage. Never had a car loan. Never not paid my credit card balance in full. Only time I had any debt was in the late 70s. About $2,000 of student loans resulting from the last two years of undergraduate collage and then a following third year to get a masters degree. That $2,000 was soon paid off. (For reference, after college, I was initially earning about $12,000 to start.)

Therefore I have a basic stance of no debt. But that is a decidedly un-American position as most Americans just assume that debt is necessary.

In 1998 I was trying to counsel two recent high school graduates (who did not have fathers) about what kind of car they really needed (a cheap, cheap one, of course). But I was shocked that they'd already been brainwashed that they "needed" a certain type of car, which, of course, would necessitate debt for them to acquire said car.

That told me that Americans are inculcated at a fairly young age that there is nothing wrong with having debt.

I fully share your concern of the amount of debt that our country with it seemingly ever growing at a way too high rate.

Yes, the politician are the ones who are creating this debt but it is ultimately the electorate which is allowing and supporting them in doing so with all the "must have's (NOW!)" that the electorate demands.

I would just like to point out again that debt as a currency user (an individual, a household, a state, a country with a currency that's backed or pegged) is qualitatively a completely different thing from debt as a currency issuer (a nation-state with its own fiat currency).

Xan wrote: ↑Wed Jan 18, 2023 9:06 am I would just like to point out again that debt as a currency user (an individual, a household, a state, a country with a currency that's backed or pegged) is qualitatively a completely different thing from debt as a currency issuer (a nation-state with its own fiat currency).

Yes, but is it different in any meaningful way--i.e., in terms of there eventually being a "wall" that is hit, at which time the party stops?

In the case of an individual, there's a point where the family's credit card limit is hit and no other lenders are willing to lend. Or where the interest accruing on the debt cannot ever be paid down. At that point, there's a default.

In the case of a nation, they just print more money, but even in that case there comes a point when the value of the currency has been undermined, when no one is willing to buy or hold the country's debt, and when interest rates have to be pumped to a point where the economy crashes. Pretty similar outcome, it seems to me, the main point being that it can't go on forever.

Cullen Roche has written some interesting articles regarding debt and the economy, etc:

The Biggest Myths in Economics

Be sure to check out the related posts he's listed for more details.

flyingpylon wrote: ↑Wed Jan 18, 2023 9:49 am Cullen Roche has written some interesting articles regarding debt and the economy, etc:

The Biggest Myths in Economics

Be sure to check out the related posts he's listed for more details.

Excellent link. Thank you for sharing
#10 Fallacy of Composition is relevant here.

glennds wrote: ↑Wed Jan 18, 2023 10:19 am

flyingpylon wrote: ↑Wed Jan 18, 2023 9:49 am Cullen Roche has written some interesting articles regarding debt and the economy, etc:

The Biggest Myths in Economics

Be sure to check out the related posts he's listed for more details.

Excellent link. Thank you for sharing
#10 Fallacy of Composition is relevant here.

https://www.pragcap.com/say-americas-ba ... more-time/

https://www.pragcap.com/chart-of-the-da ... he-ledger/

This article is old but bears repeating. When people say the US Gov is XX trillions in debt, they are only looking at one side of the ledger. The energy reserves that the US owns can pay for the national debt many times over by themselves. That doesn't even count the land the government owns.

yankees60 wrote: ↑Wed Jan 18, 2023 8:08 am
Yes, the politician are the ones who are creating this debt but it is ultimately the electorate which is allowing and supporting them in doing so with all the "must have's (NOW!)" that the electorate demands.

George Will once brilliantly described the American people as talking like Jeffersonians but choosing to be governed by Hamiltonians and that their most damaging characteristic is that they are loss averse. So once the government starts spending money on something, be it Head Start or Affordable Care Act, there will never be enough call to shut it down. I think behavioral economists call it the "status quo bias."

The country is rich, but the distribution could get worse. Tech is making stuff cheaper and cheaper. Easy jobs are disappearing, making the minimum wage a huge problem. People need structure.

Debt service levels are still low
https://thesoundingline.com/corporate-d ... oric-lows/

The main risk is cultural, covid-apps used to force everyone into compliance like they are doing in Asia. Along with shutting down "misinformation" and humor and satire along with it. You dont get a lot of comedians coming out of N korea, China, Japan.

Maddy wrote: ↑Wed Jan 18, 2023 7:16 am In another thread, my assessment that the U.S. economy was "in shambles" was challenged, but without elaboration or argument. I'd like to explore this issue a little further, and in particular to understand whatever counterargument there may be to my view that our economy is not only in dire trouble, but is nearing the breaking point.

Further to my observations regarding skyrocketing inflation, supply chain disruptions, depression-level unemployment coupled with government-incentivized labor shortages, negative attitudes toward work, fragility of highly interdependent financial institutions, and unprecedented levels of debt (personal, institutional, and governmental), I find this morning a commentary concerning the 2023 budget proposal sent to Congress by Joe Biden:

At the end of fiscal 2021, it indicates, the total federal debt was $28.386 trillion. At the end of fiscal 2032, it predicts, the total federal debt will be $44.797 trillion. . . . That is an average increase of $1.49 trillion per year.

* * *
Treasury Secretary Janet Yellen sent a letter to House Speaker Kevin McCarthy last week asking him to immediately increase the statutory limit on the federal debt, which, she noted, is currently "approximately $31.381 trillion."

"I am writing to inform you that beginning on Thursday, January 19, 2023, the outstanding debt of the United States is projected to reach the statutory limit," said Yellen. "Once the limit is reached, Treasury will need to start taking certain extraordinary measures to prevent the United States from defaulting on its obligations. . . It is therefore critical that Congress act in a timely manner to increase or suspend the debt limit," she said.
* * *
If Congress were to establish a new debt limit that covered all of the borrowing Biden's budget proposal envisions the government will undertake in the coming decade, it would need to increase that limit by $13.433 trillion.

That is more debt than the federal government accumulated in the 233 years from 1776 through 2009.

https://www.cnsnews.com/commentary/tere ... e-debt-578


This is a staggering admission. If the government needs to take on $1.5 trillion per year in debt to maintain its bearings, and requires an immediate $13.4 trillion increase in the debt limit just to avoid default on its current obligations, we're witnessing, it seems to me, an admission that the country is flat-out broke.

Your thoughts? Again, I would be particularly interested in hearing the alternative view--i.e., that everything is okay.

Hey Maddy,

Apologies for challenging your take and then not having time to post for the last week or so.

A couple of things...

1) I believe that Yellen is talking about $13.4 trillion over the next decade, not an immediate increase of that much.

2) There doesn't seem to be a general agreement about how much debt is unsustainable, but one measure that I frequently see is debt to GDP ratio. That has actually been coming down since the 2nd quarter of 2020. See this Fred link:

https://fred.stlouisfed.org/series/GFDEGDQ188S

3) The GDP is actually increasing by over a trillion dollars a year. See this link:

https://fred.stlouisfed.org/series/GDP

Of course if you believe that the CPI-U is cooked (and you may indeed be correct about that), then you may not trust any of these other numbers either.

Anecdotally, our family business that is very much dependent on people and organizations having disposable income has been doing great since the beginning of 2022. We also drive a lot of miles and see interstates, at least in the Northeast, absolutely packed with 18-wheelers. I tend to believe they are not driving around empty.

To be clear, I am not saying there are no problems. You listed a number of items and their cost increases in your original post and you've obviously been tracking those numbers. My wife does most of the day-to-day shopping for us so I don't know the actual amount that many products & services have increased. But my sense is that most of the increases happened through the middle of 2022 and that prices have been moderating since then.

So I think we are now headed in a better direction.

Lastly, a certain amount of the increase in our national debt was a given at the beginning of the pandemic. That happened pretty much in every developed country. Much of what came later was obviously horseshit (i.e. unemployment "benefits" being extended way past any reasonable timeframe).