US national debt and fiscal policy

From: allin

The United States national debt and its corresponding fiscal policies are a significant concern, with discussions often highlighting the urgent need for action to avert a potential fiscal crisis [00:48:45].

Current State of the Debt

The US national debt stands at approximately $37 t r i ll i o n < a c l a ss = " y t - t im es t am p " d a t a - t = "00 : 49 : 11" > [00 : 49 : 11] < / a > . T h e ann u a l d e f i c i t i s p ro j ec t e d t oc l imb t o$ 2.5 trillion, adding to the federal debt load every year [00:49:54]. This means the deficit-to-GDP ratio is around 8% [00:54:05]. This level of deficit spending is compared to that of Argentina, indicating an unsustainable path [01:14:15].

Interest payments on the debt are close to $2 trillion a year, as the debt gets refinanced [00:49:16]. Treasury yields, particularly the 30-year yield, have reached 5% [00:49:07]. These rising interest rates reflect the market’s increasing demand for a higher return due to a perceived greater probability of the U.S. defaulting on its debt payments [00:49:33].

“At 5%, we’re paying close to $2 trillion a year just in interest on our debt as this debt gets refinanced” [00:49:16]

“The US debt to GDP ratio is extraordinary already. It’s only going up from here” [00:55:39]

Historical Context

The accumulation of the national debt has seen significant increases across administrations [00:53:21]:

Clinton Era: Added $392 billion over 8 years, barely noticeable on the debt chart [00:53:29].
Bush Administration: Added $5.4 t r i ll i o nin f o u rye a rs (ab o u t$ 1.3 trillion/year) [00:53:34].
Obama Administration: Added about $1 trillion/year [00:53:39].
Trump Administration (1.0): Added $2 trillion/year, effectively doubling the rate [00:53:41].
Biden Administration: Added almost the same amount as Trump 1.0 [00:53:46].

Fiscal Policy Proposals and Debates

There are calls for Congress to take action to address the fiscal crisis [00:50:11]. The proposed tax bill supported by Republicans aims to extend the 2017 tax cuts through 2034, which could reduce revenues by $4.1 trillion over 10 years [00:47:01]. It also includes campaign promises like no taxes on tips or overtime, which some argue could create loopholes [00:51:56].

Republicans are also pushing for spending cuts, with some advocating for $2 t r i ll i o n or m ore in c u t s < a c l a ss = " y t - t im es t am p " d a t a - t = "00 : 47 : 38" > [00 : 47 : 38] < / a > . N o t ab l e p ro p ose d c u t s in c l u d es t r i c t er SN A P r u l es an d t i g h t er M e d i c ai d c a p s, an d re m o v in g t a x p a yer b e n e f i t s f ro m u n d oc u m e n t e d immi g r an t s < a c l a ss = " y t - t im es t am p " d a t a - t = "00 : 47 : 41" > [00 : 47 : 41] < / a > . Ho w e v er, cr i t i cs a r gu e t ha tt h esec u t s a re in s u ff i c i e n t; f or in s t an ce, a p ro p ose d$ 30 billion cut to SNAP would still leave it 50% higher than pre-COVID levels [00:51:19].

Core Principles for Fiscal Responsibility

Two guiding principles are proposed to address the debt [00:50:26]:

Cut all existing programs to pre-COVID (2019) budget levels. [00:50:39]
Add no new programs. [00:50:46]

These measures, if implemented, could significantly improve the U.S. fiscal situation [00:50:42].

Monetizing American Assets

An alternative approach to increase revenue involves monetizing the U.S. balance sheet [01:03:16]. The federal government is the largest landowner in the U.S., controlling 500 million acres of land and 3.2 billion acres in the outer continental shelf, which hold immeasurable trillions of dollars in resources [01:03:51]. The idea is to enter into private partnerships, such as land leases and royalties, to extract value from these assets [01:04:17]. This includes being a leading exporter of liquid natural gas (methane) [01:07:06], which, when burned, is 60% less carbon-intensive than oil or coal [01:10:53].

This strategy suggests that while cutting spending is crucial, generating new revenue streams from America’s vast assets could provide significant inflows, especially if combined with a commitment to no new spending [01:05:02].

The 333 Plan

Scott Bessant’s “333 plan” (also advocated by Ray Dalio) proposes [01:05:43]:

3% inflation [01:05:49]
3% GDP growth [01:05:52]
3% deficit-to-GDP percentage [01:05:56]

Achieving this combination mathematically would lead to a “renaissance in the United States” [01:06:00].

Challenges and Long-Term Outlook

A major challenge is the political will to enact meaningful cuts to entitlement programs like Medicare, Medicaid, and Social Security, which are the largest drivers of spending [00:56:48]. The argument is that unless systemic changes are made to these programs, the fiscal problems cannot be solved [00:56:48].

“Nobody is willing to do that. So just as we were saying earlier, maybe Americans are addicted to to cheap goods from abroad. Americans are certainly 100% addicted to government sustenance” [00:56:56]

If the current trend continues, the U.S. faces two main outcomes:

Wild inflation of the currency. [00:57:22]
Massive austerity measures 5 to 10 years from now. [00:57:25]

The concern is a “debt death spiral,” where rising interest rates on increasing debt lead to higher deficit spending, further increasing the debt [00:59:01]. The public’s perception of uncertainty for investors, combined with any allegations of corruption, could further derail economic stability [00:44:50].

Ultimately, addressing the debt requires a shift in societal priorities and a willingness to make difficult choices, moving away from a “colonial mindset” of imposing one’s way of governing [02:21:46] and towards pragmatic, long-term solutions [01:17:16].

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