Comment by VectorLock
2 months ago
There is no upper bound on how much debt the US gov can carry as long as they're paying their interest and people still have trust that they will. Its the TRUST part that is at most risk right now.
2 months ago
There is no upper bound on how much debt the US gov can carry as long as they're paying their interest and people still have trust that they will. Its the TRUST part that is at most risk right now.
> There is no upper bound on how much debt the US gov can carry as long as they're paying their interest...
Get it? There is no limit... so long as we don't go past the limit!
We already spend ~20% of federal revenue on debt service. How high would that percentage need to get before you would consider it a problem?
The limit could depend on a lot of other things. In theory, it's possible that you are paying 100% of revenue on debt service yet still the best option is to take on more debt. This is if you believe that investing the money raised via additional debt provides returns that outweigh the increase in debt service costs. So in that situation, additional debt can even lower the debt service / income ratio.
So this is meant to illustrate that the limit on debt is more a function of the concrete circumstances. In this line of argumentation, debt is not limited by a mathematical formula that just takes GDP and similar statistics as input.
Your analysis leaves out one teeny tiny little thing--the ~6 Trillion dollar federal budget!
If you're paying 100% of revenue on debt service, taking on more debt isn't optional. All other federal outlays must either cease or be funded by new debt. Given current levels of federal spending, that would mean increasing the national debt by ~20% of GDP, per year.
More debt --> higher debt service costs --> even more debt --> even higher debt service costs --> et cetera
Yeah but that’s almost a tautology. This has been true for every government that ended up in hyperinflation (Germany in the 20s, Russia in the 90s, etc. etc.).