Not that I believe the folks at the top at the GOP really cared about it, ever, going back to (at least) Reagan; it was mostly an excuse to cut taxes on the wealth and cut social programs:
Democrats Change In Deficit
----------- --------
Joe Biden -$999B
Barack Obama -$747B
Bill Clinton -$383B
Jimmy Carter +$25.3B
Republicans Change In Deficit
----------- --------
Donald Trump +$2.108T
George W. Bush +$1.541T
George H. W. Bush +$102B
Ronald Reagan +$73.7B
Gerald Ford +$47.5B
Richard Nixon +$9.4B
Dwight Eisenhower -$3.2B
This is how I view it these days as well. I'm fine with running a deficit as long as we're solving real problems at a mix of time horizons. Using public funds to funnel more money to the ultra wealthy is the issue for me as a citizen.
Eisenhower who, despite being exhausted by WWII efforts, ran for presidency because he saw that as the only way to prevent a civil war. Nowadays the American Left is Center Right, but back then the American Right was Center Left. Things change, things stay the same.
Not an American here, but doesn’t Congress pass budgets? Everyone always blames the president but as I look in from the outside, it’s entirely the house and the senate who bungle things.
I've had the same question for a long time and I suspect the answer is something like "the executive is still the one doing the analysis and making the proposals" - presumably Congress doesn't just allocate with complete disregard for what the executive requests. If the executive requests less then it (usually) gets less. But I'd definitely appreciate a more satisfactory answer.
Though I would like to see which dates were used to calculate them. And if it was from ”first day to last day of office” it would also be interesting to calculate with a certain ”lag” to account for the fact that effect of some legislation may not show until a bit later.
Democrats Change in Deficit
--------- -----------------
Joe Biden -6.1% GDP
Barack Obama -6.4% GDP
Bill Clinton -5.0% GDP
Jimmy Carter -0.2% GDP
Republicans Change in Deficit
----------- -----------------
Donald Trump +8.6% GDP
George W. Bush +11.0% GDP
George H. W. Bush +1.1% GDP
Ronald Reagan +0.2% GDP
Gerald Ford +2.3% GDP
Richard Nixon +0.7% GDP
Dwight Eisenhower -1.1% GDP
via ChatGPT which among other things verified the original table. I didn't bother with inflation adjustment since it's normalized by GDP.
Good call, normalizing to GDP instead of deficit fixes the flip into/out of surplus problem. Also, now that aggro "cite your sources" guy ran, it's probably worth duplicating the cite here:
Despite being witehouse.gov, I am pleased to see that this is one page that Trump has not yet updated to read "Republicans Rule Democrats Drool" over an editorialized fever dream replacing inconvenient data. Grab it while it lasts, and let's hope that accounting remains boring enough to repel such attention!
The idea that the GOP was ever about "fiscal restraint" is one of the most successful propaganda exercises ever because this hasn't been true since probably the Eisenhower administration.
What's funny is that this era (the 1950s) is often fetishized by people who absolutely oppose the policies that made that possible, including a top marginal tax rate of 91% and a CEO to median worker ratio of 20-25x instead of the 400x+ it is now.
So the Cato Institute finally realized something that hasn't been true for 50+ years. What we're witnessing is the looting of government coffers and transfer of wealth from the poor to the rich on a scale never seen before. And they don't care about the consequences because capital is mobile. They'll simply leave.
If you go back that far, you have to keep in mind major shifts in party alignment. The two parties changed drastically coming out of the civil rights era and by the 80s had effectively flipped.
I can't speak to the Republican politicians if the era, but all the Republican voters I know where legitimately focused on fiscal issues and balancing a budget until Trump showed up. Most of the older Republicans in my family have since left the party and registered independent, the younger Republicans I know are just about Trump though and, similar to Trump, don't really seem to hold any principles that underlie their views on any one topic.
Former Republican here aka Rino. It’s easily explained; the GOP ceased to exist when they all fell in line with Trump first term. Trump threatened to to form his own party with his massive following and make the GOP the third choice on the ballot. Trumpism is not conservative in any sense; it’s jingoistic nationalism to benefit Trumps interest.
Exactly. I remember hearing "tax and spend Democrats" as a slur back in the 90s/00s, but seeing the GOP spend without taxing during those years showed what it was really all about...
Yes, in the 1970s-1980s the GOP came up with the idea of "starve the beast" [1] which allowed them describe unfunded tax cuts and deficit spending as "fiscally conservative", like a parent taking away a child's allowance.
Complete nonsense in practice, obviously - but political gold! Voters get all the same public services, lower taxes, and to think they're being responsible with money. And if you're a 65-year-old legislator, you'll be dead and buried before the consequences start to bite.
> From 2018, "Sadly, Fiscal Restraint Is No Longer a Core Principle of the GOP":
While I agree, surely the assumption that the Democrats will be more fiscally responsible isn't true either?
This is more an issue with modern political expectations imo – compounded by challenges of aging demographics.
I can only give my view as a Brit, but I think the same applies here as in the US. Here people expect far more from the government today than at any point in history. Some of these exceptions are reasonable, but many are not.
But either way, despite huge government revenues theres just never enough money to fund all of the social programs voters ideally want. And under this pressure the only option to win elections is to borrow.
I guess to frame it another way – what spending would people want to see the politicians cut? I suspect the only way Western governments will get spending under control is to understand that government can't solve every problem, however nice it might be if they could.
Democrats have a track record that speaks to them being more fiscally responsible than GOP, in spite of the rhetorical narrative.
You can't assume anything about the next crew. Past performance is no guarantee of future results. But if you're predicting fiscal responsibility, past performance favours the Democrats.
The markets generally respond to US concerns by buying more US treasuries. That’s counter-intuitive but reflects the situation that if things hit the fan they feel loaning the US money is still the safest place for their money.
For better or worse there’s unlikely to be a scenario where the US becomes insolvent but it’s not far worse for those outside the US.
Why does the US need to prop Japan? Because they are the biggest holder of US treasuries ...and if they need to prop up their own currency, they will need to sell them.
<Insert Pearl Harbor reference...>
The US sold Euros to do the propping of Japanese bonds without telling the EU. Not only did we spend a lot to save our biggest sovereign buyer, but we undermined our relationship with another. And we didn't buy the Japanese much time.
Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week.
It feels like the BRICS are taking over as of this month.
Obviously we don't measure it in "how many traders", but what the effect their trading has on the instruments they buy.
The US Dollar is slipping from the world's reserve currency status and the US treasury is slipping from the default safe haven for liquid assets. The BRICS countries bonds are becoming more attractive as of this month.
Brazil, India and South Africa all have 5 year bond yields that are higher now than 5 years ago.
Russia is obvious outlier you can’t price well.
If there is any news this month in Chinese bonds it’s a) a crazy upward move that corrected and b) the Chinese authorities have upped the quota on foreign bonds that their asset managers are allowed to buy.
> The US will become insolvent by trying to prop up Japan.
No, it won’t. The worst case we are looking at is paying more interest on debt. It’s not great but we aren’t in danger of becoming insolvent because of Japan.
There's a non-zero chance that actually following through on Bessent's statements about support for the largest sovereign buyer of US bonds would push us towards insolvency. You are just stating an opinion that we would stop short of it becoming such a large support program that it would push the US past the tipping point towards inevitable insolvency.
May sound very similar but it's more like if everything is going down, the strongest one is going to go down last. It's not really "unlikely to be a scenario where the US becomes insolvent" — it's that if it happens, it happens last. And a lot of that just has to be because the US "owns" the dollar, and the world ended up picking (let's not get into how) the dollar as the reference point for their own currencies; aka everyone's reserve currency.
So no matter how much the US fucks up, they just print more and more dollars and ensure the entire world collectively pays up for their fuck-ups. But if the US doesn't fuck up and does something good, then the benefits of that? Oh, that's a different story. No excessive benefit printing, no sir.
The US world reserve currency status only happens by norm. When RU invaded UA the US cut off RU from most of their access to USD / US-allied banking. At that point, CN and the BRICS countries started working on a decentralized version of a "world reserve currency" which is partially implemented.
Investors know the US is going to lose this status if the current momentum continues and there are some possible alternatives.
Investors won't sit by and tolerate MONEY PRINTER GO BRRRRR if they have ANY alternatives and they have LOTS of incentives to find any.
>The markets generally respond to US concerns by buying more US treasuries. That’s counter-intuitive but reflects the situation that if things hit the fan they feel loaning the US money is still the safest place for their money.
I thought that dynamic broke down with the liberation day tariffs, where both stocks and bonds dropped at the same time?
The financial markets only bought US treasuries under those conditions because they were the least bad option during risky moments. There's no law of physics which says that will always be the same.
Trumpanomics is trying to weaken the dollar to make us more competitive as an exporter (along with tariffs which make imports into the US less competitive with domestic goods) and he is Trump's Congress is blowing away previous deficits, so investors are wise to reevaluate their previous risk mitigation strategies.
The Yen Carry Trade is now fully in reverse and both JP and US are going to see higher interest rates, causing both of their debt service to take up an increasing slice of the budget pie.
Investors are jumping into CN bonds now and are likely to look to the rest of the BRICS nations as the IS looks increasingly unable to manage a responsible budget, an economy that doesn't seem to be growing much, and sovereign bonds which have fewer buyers today than a month ago.
>For better or worse there’s unlikely to be a scenario where the US becomes insolvent
How can any organization that issues its own fiat currency become insolvent? Being solvent is simply an issue of adding digits to the borrowers' account in an electronic database.
The only thing that happens (and is happening) is the increase in the supply of currency outpaces the increase in the economic value of goods and services that can be exported, hence the currency loses purchasing power.
The US also used to have the distinction of being the most stable large organization, allowing it to earn a "trust" premium on its currency. But we are voluntarily giving that up.
Interesting part is the gap between beliefs and prices => if the investors expect a US debt crisis we expect it to show up somewhere in the term premium real yields dollar or inflation expectations ; those signals can remain muted for a long time
What happens if US becomes insolvent? Is USD going to be inflated? hyperinflated? Will other currencies appreciate or just devalue their own currency by the same percentage to keep up the exports and continue to earn USD for oil?
Iraq started taking Euros for oil. Shortly after that, they were invaded. Venezuela started selling oil for Yuan. Shortly after that, their president was kidnapped by American troops. Iran is selling oil in Yuan. Shortly after that, American bombs started falling on them.
There is a very strong incentive for oil producing nations to only accept USD.
If the US becomes insolvent, that would severely impact the USD. But other currencies will not try to follow the USD, there would be no point in that. The USD would just lose more status as an anchoring point. The US is also not a major oil exporter, so presumably most oil will trade for other currencies, rather than try to sell for an inflationary currency.
In short, if the US becomes insolvent, the rest of the world will largely ignore what happens in the (at that point) 8th economy in the world, and mostly try to untie their economy from it.
Absolutely no one serious thinks that, but when you feel like you need to diversify you don't have to find a like-for-like replacement. Any port in a storm.
Just consult Google. All a country has to do to find itself on the receiving end of punishing Chinese trade actions is being mildly critical of China in the wrong way, and next thing they know their exporters to China report being held up for months. The EU has taken offense at how China kicks around smaller EU members, Australia has been on the receiving end of it more than once.
If you'd said the EU might be seen as a relatively more stable trading partner, that may be true, the EU does seem to be fairly happy deindustrializing itself. Though it's fueling a rise in the fractured politics there too.
I'll tell you what is going to happen, b/c it is happening as we speak. The U.S. Government is soft-defaulting on the debt by devaluing the currency. (The debasement rate is somewhere in the 7%-8% range)
There will never be a real default, but it is likely that the USD will lose reserve currency status. The U.S. Government has $114+ Trillion in total debt. (Something like $325,000 per person in the US) We are never paying that off. The only way we can do anything about it is to grow the economy and devalue the debt via inflation.
To all the other currencies that are currently used as reserve currencies, other than the US dollar. There has never been a single reserve currency in the world.
It will likely be a cryptocurrency or perhaps a basket of cryptocurrencies. You essentially want a way to store wealth directly on the Internet as it is the fastest and easiest way to reassign ownership of money or collateral. The nice benefit too, then is the U.S. (and no other country as well) is subject to the Triffin Dilemma.
No one serious is worried about American solvency. The paper says 50% over the next 10 years, but even most economists misunderstand how the monetary system works.
There are so many other issues to worry about at the moment more immediate than solvency.
>> There are so many other issues to worry about at the moment more immediate than solvency.
The U.S. government spends about one-third! (roughly 33% to 39%) of individual income tax revenue strictly to pay the interest on the national debt and that is not even paying off the principal balance itself:
Why is the individual income tax revenue important to compare to interest costs? Total interest cost as a percent of total revenue seems like a more holistic comparison, which is 15%.
The word in the headline “solvency” versus the phrase in the article “debt crisis” is a major difference.
To your point, I don’t think anyone has to be worried about American solvency, but a looming debt crisis doesn’t seem like a stretch of imagination at all.
> but even most economists misunderstand how the monetary system works.
It seems to be more of a subjective topic to me. Otherwise we would all have a perfect plan and never any monetary concerns. Highlighting weak links in the system is I believe a perfectly healthy thing to do. A sanity check would go a long way these days.
This is the truest and most impactful point so far on this thread. Rescinding the Trump I tax cut (IIRC technically the permanent extension of a temporary tax cut) would fix a lot of problems. That and not being belligerent to our creditors gets you pretty close to a complete solution.
I am sure this is a nice article, but I'm always surprised when something with a hard paywall makes it this high up on HN. Does everybody but me have a Financial Times subscription?
The US emits two types of scrapes of paper, one of which (bonds) promises the other (the us dollar) and the "experts" somehow think america can actually go bankrupt. That's hilarious.
So US manufacturing would go up and up by that logic. Not to mention the US can simultaneously restrict the money supply via increased taxes at same time. The US also could just stop issuing bonds entirely and simply create the currency directly rather than the Rube Goldberg that is the bond market
There is less and less demand for US treasuries, and Trump’s tariff war has only accelerated it.
The GENIUS act gets US a set of entitites that are forced by law to buy US treasuries - stablecoin issuers. It helps the digital dollar be used around the world, and treasuries to still have some demand. That is probably why it is called “genius”. This is the last step before the demand shock.
The US will have to stop borrowing and eventually print money to service its sovereign debt.
And when they do, they could either send it to banks, corporations, fatcats and pork projects — or they can send it to every American equally. The latter would be a UBI that would trickle up into the economy, with people spending it on their actual needs. It would increase most health outcomes, emotional health as well, raise average effective IQ by 13 points. And then they could tax the corporations and robots, and pay down the debt.
As it is, there are literally not enough dollars in existence to pay down that debt. The US will have to print them, or default.
They don’t need to print—they could revalue US gold holdings (artificially held at $42.22/oz). Revaluing this to current market value (over $4k/oz) would instantly generate hundreds of billions on paper, enough to slightly offset debt-to-GDP. Revaluing it even higher would weaken the dollar without any printing. This can be done statutorily even if the statutory price is higher than the market price.
If all hell breaks loose wouldn’t the US just say “screw you we aren’t paying” and utilize the largest military (by far) in the world to keep the goods flowing? Some version of that seems far more likely than UBI does. I’m not saying this would be good (it wouldn’t) and it would be a terrible threat to quality of life and make the US an absolute hellhole, but let’s be real here, if the bread and circuses stop the US citizenry is going to call for blood long before they even remotely consider UBI.
It says a lot about the prevailing mindset of our politicians if they’d rather turn the country into a hellhole and kill a lot of people than just give the plebs $1000 a month and increase their healrh outcomes. The fact that we can spend trillions on bombs and totally avoidable wars, but ask how we can afford insulin and healthcare for our own citizens, is in my opinion a massive political sickness.
“Are we the baddies”? Well, our empire might be. If we are really a democracy, we should try to reform it.
US spending and the sovereign debt we racked up is already unsustainable. You have it backwards. Money IS credit. If we paid it back, we’d have no money. We need to print MORE money, give it to the spenders, and eventually it will trickle to the treasury holders, so we keep our promises. There will be more USD in the world - so what? It is bound to be devalued gradually anyway.
How would it help the average person? Because it lets people have better health outcomes, including mental health, including for kids and elderly, makes everyone have 13 points higher IQ and productivity. Helps them renegotiate with their employer, without minimum wage laws. Helps them be more entrepreneurial and start their own businesses. That $1000 a month can pay for a ton of AI spend for example, and will soon be able to pay for timeshared robots.
The average person will be paid less and less or even be laid off soon. We dint have a mechanism to supplement their income. At least we have medicaid, I guess.
Elon Musk is more extreme than me — he says money won’t even matter in 10 years. Meanwhile the guy is worth $1 trillion on paper. I don’t want to tax him. I want to tax his corporations as they lay off workers.
Sounds like a reheated version of MMT, modern monetary theory. The "just print money" approach exploded in a mushroom cloud of inflation during the COVID years, just as any economist even remotely aligned with the Austrian school of thought could've predicted. And you're still seeing the inflation, it's just partly hidden in and taking place in frothy equity markets.
MMT isn't inevitable. You're describing a path to where Argentina was before Milei. A path to amplifying all the social issues that started in the US with the creation of the welfare state. The alternative would simply be fiscal restraint.
The only real problem or question is if democracy is capable of restraint. The answer is unclear, seems like it may be 'no'.
Mild inflation (in global terms) is fine and actually rebalances money from savers/hoarders to spenders. Look at the Miracle of Worgl. And the inflation is only the result of the money supply being increased, due to the politicians fear of raising taxes on the corporations.
You need to increase taxes on corporations and automation if you want to prevent inflation, otherwise you aren’t removing money from the economy.
Printing money on the one hand can be counterbalanced by taxing the money on the other hand — if you actually burn the money collected by the taxes in a giant hole.
But instead the money from the taxes can be used to pay the treasury holders, and make them whole. This is in fact what the Grace commission found in the 80s under Reagan:
With two thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services that taxpayers expect from their government.https://en.wikipedia.org/wiki/Grace_Commission
Sounds vaguely like the dissolution of the Soviet Union. There too, assets of the State were distributed to the People. Somehow it all ended with oligarchs in the end.
Vague indeed. Why would you compare “shock therapy” privatization (essentially looting) of public resources directly to a handful of oligarchs hands promoted by the Chicago School (founded by Milton Friedman, who also advocated this with Chile’s Pinochet)
with a UBI gradually given directly to the People, and raising taxes on corporations?
The former led to a 1993 constitutional crisis where the parliament wanted to oust Yeltsin (“our man in the white house”) and Yeltsin had troops fire on the parliament and arrest the congress, which represented the people fed up with the wage repression and looting
Yeltsin had a 6% approval rating and we helped him win re-election by meddling in Russian elections. We bragged about in 1996 with movies like “Spinning Boris” and “Yanks to the Rescue” Time Magazine cover.
The latter led to - amazing health, business and productivity outcomes under MINCOME in Canada, and the lowest gini index in America under Alaska’s Permanent Fund
From 2018, "Sadly, Fiscal Restraint Is No Longer a Core Principle of the GOP":
* https://www.cato.org/commentary/sadly-fiscal-restraint-no-lo...
When you've lost the Cato Institute…
More recently in 2025, "The petrodollar, not GOP fiscal restraint, is what sustains our unsustainable debt":
* https://thehill.com/opinion/finance/5465671-republican-fisca...
Not that I believe the folks at the top at the GOP really cared about it, ever, going back to (at least) Reagan; it was mostly an excuse to cut taxes on the wealth and cut social programs:
* https://archive.is/https://www.nytimes.com/2003/09/14/magazi...
It would be nice to see change in debt numbers vs change in deficit numbers. I think only Clinton ran a surplus in the last 30 years.
With all the infrastructure work needed to adapt to a changing climate that’s very unlikely to happen. Assuming we decide to take the threat seriously
This is how I view it these days as well. I'm fine with running a deficit as long as we're solving real problems at a mix of time horizons. Using public funds to funnel more money to the ultra wealthy is the issue for me as a citizen.
Yep, and the last Republican to run a surplus was Eisenhower during FY 1960.
Eisenhower who, despite being exhausted by WWII efforts, ran for presidency because he saw that as the only way to prevent a civil war. Nowadays the American Left is Center Right, but back then the American Right was Center Left. Things change, things stay the same.
Not an American here, but doesn’t Congress pass budgets? Everyone always blames the president but as I look in from the outside, it’s entirely the house and the senate who bungle things.
I've had the same question for a long time and I suspect the answer is something like "the executive is still the one doing the analysis and making the proposals" - presumably Congress doesn't just allocate with complete disregard for what the executive requests. If the executive requests less then it (usually) gets less. But I'd definitely appreciate a more satisfactory answer.
Two thumbs up for bringing numbers.
Though I would like to see which dates were used to calculate them. And if it was from ”first day to last day of office” it would also be interesting to calculate with a certain ”lag” to account for the fact that effect of some legislation may not show until a bit later.
You need to adjust for inflation.
Also the correct measure is % of GDP
Good call, normalizing to GDP instead of deficit fixes the flip into/out of surplus problem. Also, now that aggro "cite your sources" guy ran, it's probably worth duplicating the cite here:
https://www.whitehouse.gov/omb/information-resources/budget/...
Despite being witehouse.gov, I am pleased to see that this is one page that Trump has not yet updated to read "Republicans Rule Democrats Drool" over an editorialized fever dream replacing inconvenient data. Grab it while it lasts, and let's hope that accounting remains boring enough to repel such attention!
There is theory that debt drives GDP. The more debt, the more money in circulation, more GDP.
So cutting debt, cuts GDP.
Also. Not sure GDP is completely normalized verses inflation.
> But Trump 2 will definitely lower it, more than anyone has ever seen before.
Lower what?
The idea that the GOP was ever about "fiscal restraint" is one of the most successful propaganda exercises ever because this hasn't been true since probably the Eisenhower administration.
What's funny is that this era (the 1950s) is often fetishized by people who absolutely oppose the policies that made that possible, including a top marginal tax rate of 91% and a CEO to median worker ratio of 20-25x instead of the 400x+ it is now.
So the Cato Institute finally realized something that hasn't been true for 50+ years. What we're witnessing is the looting of government coffers and transfer of wealth from the poor to the rich on a scale never seen before. And they don't care about the consequences because capital is mobile. They'll simply leave.
If you go back that far, you have to keep in mind major shifts in party alignment. The two parties changed drastically coming out of the civil rights era and by the 80s had effectively flipped.
I can't speak to the Republican politicians if the era, but all the Republican voters I know where legitimately focused on fiscal issues and balancing a budget until Trump showed up. Most of the older Republicans in my family have since left the party and registered independent, the younger Republicans I know are just about Trump though and, similar to Trump, don't really seem to hold any principles that underlie their views on any one topic.
Former Republican here aka Rino. It’s easily explained; the GOP ceased to exist when they all fell in line with Trump first term. Trump threatened to to form his own party with his massive following and make the GOP the third choice on the ballot. Trumpism is not conservative in any sense; it’s jingoistic nationalism to benefit Trumps interest.
[delayed]
The GOP was not fiscally conservative before Trump either.
Exactly. I remember hearing "tax and spend Democrats" as a slur back in the 90s/00s, but seeing the GOP spend without taxing during those years showed what it was really all about...
Yes, in the 1970s-1980s the GOP came up with the idea of "starve the beast" [1] which allowed them describe unfunded tax cuts and deficit spending as "fiscally conservative", like a parent taking away a child's allowance.
Complete nonsense in practice, obviously - but political gold! Voters get all the same public services, lower taxes, and to think they're being responsible with money. And if you're a 65-year-old legislator, you'll be dead and buried before the consequences start to bite.
[1] https://en.wikipedia.org/wiki/Starve_the_beast
> From 2018, "Sadly, Fiscal Restraint Is No Longer a Core Principle of the GOP":
While I agree, surely the assumption that the Democrats will be more fiscally responsible isn't true either?
This is more an issue with modern political expectations imo – compounded by challenges of aging demographics.
I can only give my view as a Brit, but I think the same applies here as in the US. Here people expect far more from the government today than at any point in history. Some of these exceptions are reasonable, but many are not.
But either way, despite huge government revenues theres just never enough money to fund all of the social programs voters ideally want. And under this pressure the only option to win elections is to borrow.
I guess to frame it another way – what spending would people want to see the politicians cut? I suspect the only way Western governments will get spending under control is to understand that government can't solve every problem, however nice it might be if they could.
> While I agree, surely the assumption that the Democrats will be more fiscally responsible isn't true either?
See the sibling thread parallel to yours, https://news.ycombinator.com/item?id=49329791
Democrats have a track record that speaks to them being more fiscally responsible than GOP, in spite of the rhetorical narrative.
You can't assume anything about the next crew. Past performance is no guarantee of future results. But if you're predicting fiscal responsibility, past performance favours the Democrats.
Financial markets work in strange ways.
The markets generally respond to US concerns by buying more US treasuries. That’s counter-intuitive but reflects the situation that if things hit the fan they feel loaning the US money is still the safest place for their money.
For better or worse there’s unlikely to be a scenario where the US becomes insolvent but it’s not far worse for those outside the US.
The US will become insolvent by trying to prop up Japan.
"The Insane US-Japan Currency Bailout" - https://youtu.be/yh18YXKMk3g
Why does the US need to prop Japan? Because they are the biggest holder of US treasuries ...and if they need to prop up their own currency, they will need to sell them. <Insert Pearl Harbor reference...>
Yes, and...
The US sold Euros to do the propping of Japanese bonds without telling the EU. Not only did we spend a lot to save our biggest sovereign buyer, but we undermined our relationship with another. And we didn't buy the Japanese much time.
Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week.
It feels like the BRICS are taking over as of this month.
> Worth mentioning that lots of buyers is jumping into Chinese bonds over the past week.
How many?
> It feels like the BRICS are taking over as of this month.
Taking over what?
The news about Chinese bond attractiveness today:
https://x.com/macropaperr/status/2089255200918007854?s=46
Obviously we don't measure it in "how many traders", but what the effect their trading has on the instruments they buy.
The US Dollar is slipping from the world's reserve currency status and the US treasury is slipping from the default safe haven for liquid assets. The BRICS countries bonds are becoming more attractive as of this month.
Brazil, India and South Africa all have 5 year bond yields that are higher now than 5 years ago.
Russia is obvious outlier you can’t price well.
If there is any news this month in Chinese bonds it’s a) a crazy upward move that corrected and b) the Chinese authorities have upped the quota on foreign bonds that their asset managers are allowed to buy.
> The US will become insolvent by trying to prop up Japan.
No, it won’t. The worst case we are looking at is paying more interest on debt. It’s not great but we aren’t in danger of becoming insolvent because of Japan.
There's a non-zero chance that actually following through on Bessent's statements about support for the largest sovereign buyer of US bonds would push us towards insolvency. You are just stating an opinion that we would stop short of it becoming such a large support program that it would push the US past the tipping point towards inevitable insolvency.
It's already ~20% of US government revenue. Every percentage point more of yield on bonds is going to be tough.
No, its 39%....
“Biggest holder of us treasuries”
3.1 percent. Just for context.
If Japan were to quickly unload a meaningful chunk of their $1.2 trillion in treasuries it would wreck the treasuries market.
If I'm not mistaken, $1.2T is roughly the year-to-date trading volume of the treasuries market [1].
[1] https://www.sifma.org/research/statistics/us-treasury-securi...
May sound very similar but it's more like if everything is going down, the strongest one is going to go down last. It's not really "unlikely to be a scenario where the US becomes insolvent" — it's that if it happens, it happens last. And a lot of that just has to be because the US "owns" the dollar, and the world ended up picking (let's not get into how) the dollar as the reference point for their own currencies; aka everyone's reserve currency.
So no matter how much the US fucks up, they just print more and more dollars and ensure the entire world collectively pays up for their fuck-ups. But if the US doesn't fuck up and does something good, then the benefits of that? Oh, that's a different story. No excessive benefit printing, no sir.
All hail exorbitant privilege.
The US world reserve currency status only happens by norm. When RU invaded UA the US cut off RU from most of their access to USD / US-allied banking. At that point, CN and the BRICS countries started working on a decentralized version of a "world reserve currency" which is partially implemented.
Investors know the US is going to lose this status if the current momentum continues and there are some possible alternatives.
Investors won't sit by and tolerate MONEY PRINTER GO BRRRRR if they have ANY alternatives and they have LOTS of incentives to find any.
>The markets generally respond to US concerns by buying more US treasuries. That’s counter-intuitive but reflects the situation that if things hit the fan they feel loaning the US money is still the safest place for their money.
I thought that dynamic broke down with the liberation day tariffs, where both stocks and bonds dropped at the same time?
> The markets generally respond to US concerns by buying more US treasuries.
I think the market is buying more gold from US than ever -- this is trading US dollar for gold
US gold export is at its all-time high.
The financial markets only bought US treasuries under those conditions because they were the least bad option during risky moments. There's no law of physics which says that will always be the same.
Trumpanomics is trying to weaken the dollar to make us more competitive as an exporter (along with tariffs which make imports into the US less competitive with domestic goods) and he is Trump's Congress is blowing away previous deficits, so investors are wise to reevaluate their previous risk mitigation strategies.
The Yen Carry Trade is now fully in reverse and both JP and US are going to see higher interest rates, causing both of their debt service to take up an increasing slice of the budget pie.
Investors are jumping into CN bonds now and are likely to look to the rest of the BRICS nations as the IS looks increasingly unable to manage a responsible budget, an economy that doesn't seem to be growing much, and sovereign bonds which have fewer buyers today than a month ago.
>For better or worse there’s unlikely to be a scenario where the US becomes insolvent
How can any organization that issues its own fiat currency become insolvent? Being solvent is simply an issue of adding digits to the borrowers' account in an electronic database.
The only thing that happens (and is happening) is the increase in the supply of currency outpaces the increase in the economic value of goods and services that can be exported, hence the currency loses purchasing power.
The US also used to have the distinction of being the most stable large organization, allowing it to earn a "trust" premium on its currency. But we are voluntarily giving that up.
Interesting part is the gap between beliefs and prices => if the investors expect a US debt crisis we expect it to show up somewhere in the term premium real yields dollar or inflation expectations ; those signals can remain muted for a long time
https://archive.is/L8RM7
What happens if US becomes insolvent? Is USD going to be inflated? hyperinflated? Will other currencies appreciate or just devalue their own currency by the same percentage to keep up the exports and continue to earn USD for oil?
> continue to earn USD for oil?
Iraq started taking Euros for oil. Shortly after that, they were invaded. Venezuela started selling oil for Yuan. Shortly after that, their president was kidnapped by American troops. Iran is selling oil in Yuan. Shortly after that, American bombs started falling on them.
There is a very strong incentive for oil producing nations to only accept USD.
Nobody knows. There is no precedent for that happening in a post globalisation world.
Think sht would get very real for everyone fast both inside and outside the US.
Global economy can’t even deal with a ship stuck in the suez without wobbling…
If the US becomes insolvent, that would severely impact the USD. But other currencies will not try to follow the USD, there would be no point in that. The USD would just lose more status as an anchoring point. The US is also not a major oil exporter, so presumably most oil will trade for other currencies, rather than try to sell for an inflationary currency.
In short, if the US becomes insolvent, the rest of the world will largely ignore what happens in the (at that point) 8th economy in the world, and mostly try to untie their economy from it.
> The US is also not a major oil exporter
I believe this is wrong? USA is the largest oil producer in the world, and also one of the 5 largest oil exporters.
"Largest producer" != "largest exporter"
The US is the largest exporter of oil and refined products. Saudi Arabia is the largest exporter of crude oil.
Yes I said that. Largest producer, and 4th largest exporter.
> and mostly try to untie their economy from it.
That is already happening.
The rest of the world is finding the likes of China to be more stable and predictable trading partners than the USA.
Absolutely no one serious thinks that, but when you feel like you need to diversify you don't have to find a like-for-like replacement. Any port in a storm.
Just consult Google. All a country has to do to find itself on the receiving end of punishing Chinese trade actions is being mildly critical of China in the wrong way, and next thing they know their exporters to China report being held up for months. The EU has taken offense at how China kicks around smaller EU members, Australia has been on the receiving end of it more than once.
If you'd said the EU might be seen as a relatively more stable trading partner, that may be true, the EU does seem to be fairly happy deindustrializing itself. Though it's fueling a rise in the fractured politics there too.
I'll tell you what is going to happen, b/c it is happening as we speak. The U.S. Government is soft-defaulting on the debt by devaluing the currency. (The debasement rate is somewhere in the 7%-8% range)
There will never be a real default, but it is likely that the USD will lose reserve currency status. The U.S. Government has $114+ Trillion in total debt. (Something like $325,000 per person in the US) We are never paying that off. The only way we can do anything about it is to grow the economy and devalue the debt via inflation.
> but it is likely that the USD will lose reserve currency status
To what though? Even if we accept the US and USD have issues, there is no other currency even close to be able to step in.
To all the other currencies that are currently used as reserve currencies, other than the US dollar. There has never been a single reserve currency in the world.
But who will take over world reserve currency status?
It will likely be a cryptocurrency or perhaps a basket of cryptocurrencies. You essentially want a way to store wealth directly on the Internet as it is the fastest and easiest way to reassign ownership of money or collateral. The nice benefit too, then is the U.S. (and no other country as well) is subject to the Triffin Dilemma.
There is no way, unless by political choice, for the US to become insolvent, meaning, not paying it's "debt" in US dollars
There is no way (except for the way I just articulated)...
There is a deliberate effort by the current administration to weaken the dollar.
Given their track record and interest in other forms of currency, I could see them going too far.
The US can’t become insolvent. Those who say it can are just hard of accounting.
It’s scaremongering nonsense.
All treasuries will be swapped back into dollars on maturity and interest settled
America will move to Trump Coin of course!
/s
He would legitimately try this. There’s no limit to the cartoonish narcissism. It’s absurd and would fail of course.
No one serious is worried about American solvency. The paper says 50% over the next 10 years, but even most economists misunderstand how the monetary system works.
There are so many other issues to worry about at the moment more immediate than solvency.
>> There are so many other issues to worry about at the moment more immediate than solvency.
The U.S. government spends about one-third! (roughly 33% to 39%) of individual income tax revenue strictly to pay the interest on the national debt and that is not even paying off the principal balance itself:
https://budget.house.gov/imo/media/doc/cbo_baseline_february...
A raise in interest rates for treasuries, can bring this into 50% to 60% within days.
Yeah...worry about other things...
That 33%-39% goes back into stimulating the global economic system where America is at the center. To people like me that own US Treasuries.
You’re not wrong. But it’s not as simple as 33-39% disappearing into a black hoe.
You are trying to pull yourself up by your own bootstraps...
Why is the individual income tax revenue important to compare to interest costs? Total interest cost as a percent of total revenue seems like a more holistic comparison, which is 15%.
https://fiscaldata.treasury.gov/americas-finance-guide/feder...
The word in the headline “solvency” versus the phrase in the article “debt crisis” is a major difference.
To your point, I don’t think anyone has to be worried about American solvency, but a looming debt crisis doesn’t seem like a stretch of imagination at all.
Our creditors will be reliable because of American soft power. Do you think we could lose that in single presidential term, much less a year?
Wait...
> but even most economists misunderstand how the monetary system works.
It seems to be more of a subjective topic to me. Otherwise we would all have a perfect plan and never any monetary concerns. Highlighting weak links in the system is I believe a perfectly healthy thing to do. A sanity check would go a long way these days.
Tell that to the Romans.
The Romans couldn't manufacture new cash by flipping bits in computers' memory
The Romans used the gold standard the US does not
When enough non-"serious" people believe it, they still sell the bonds, and shit can hit the fan pretty quickly.
The US ticked all the boxes that are credited with the break up of the USSR last year aiui.
Anyone not taking that seriously is in for the most hilarious of surprises.
Well reasoned throughout
US government solvency is backed by the power to tax and tap into the massive US economy.
Considering the US has one of the lower overall tax rates of developed economies, I’m not sure we’ve reached any sort of crisis level
This is the truest and most impactful point so far on this thread. Rescinding the Trump I tax cut (IIRC technically the permanent extension of a temporary tax cut) would fix a lot of problems. That and not being belligerent to our creditors gets you pretty close to a complete solution.
I am sure this is a nice article, but I'm always surprised when something with a hard paywall makes it this high up on HN. Does everybody but me have a Financial Times subscription?
Others know how to use https://news.ycombinator.com/item?id=49329360.
I guess most promote the title by sentiment.
The US emits two types of scrapes of paper, one of which (bonds) promises the other (the us dollar) and the "experts" somehow think america can actually go bankrupt. That's hilarious.
The US is not going to go bankrupt, but the purchasing power of the dollar will continue to go down and down and down.
So US manufacturing would go up and up by that logic. Not to mention the US can simultaneously restrict the money supply via increased taxes at same time. The US also could just stop issuing bonds entirely and simply create the currency directly rather than the Rube Goldberg that is the bond market
You will not go bankrupt, its just that a BigMac will cost you $10,000.
This is why UBI is inevitable.
There is less and less demand for US treasuries, and Trump’s tariff war has only accelerated it.
The GENIUS act gets US a set of entitites that are forced by law to buy US treasuries - stablecoin issuers. It helps the digital dollar be used around the world, and treasuries to still have some demand. That is probably why it is called “genius”. This is the last step before the demand shock.
The US will have to stop borrowing and eventually print money to service its sovereign debt.
And when they do, they could either send it to banks, corporations, fatcats and pork projects — or they can send it to every American equally. The latter would be a UBI that would trickle up into the economy, with people spending it on their actual needs. It would increase most health outcomes, emotional health as well, raise average effective IQ by 13 points. And then they could tax the corporations and robots, and pay down the debt.
As it is, there are literally not enough dollars in existence to pay down that debt. The US will have to print them, or default.
They don’t need to print—they could revalue US gold holdings (artificially held at $42.22/oz). Revaluing this to current market value (over $4k/oz) would instantly generate hundreds of billions on paper, enough to slightly offset debt-to-GDP. Revaluing it even higher would weaken the dollar without any printing. This can be done statutorily even if the statutory price is higher than the market price.
If all hell breaks loose wouldn’t the US just say “screw you we aren’t paying” and utilize the largest military (by far) in the world to keep the goods flowing? Some version of that seems far more likely than UBI does. I’m not saying this would be good (it wouldn’t) and it would be a terrible threat to quality of life and make the US an absolute hellhole, but let’s be real here, if the bread and circuses stop the US citizenry is going to call for blood long before they even remotely consider UBI.
We've done a hell of a job keeping the oil flowing haven't we?
It says a lot about the prevailing mindset of our politicians if they’d rather turn the country into a hellhole and kill a lot of people than just give the plebs $1000 a month and increase their healrh outcomes. The fact that we can spend trillions on bombs and totally avoidable wars, but ask how we can afford insulin and healthcare for our own citizens, is in my opinion a massive political sickness.
“Are we the baddies”? Well, our empire might be. If we are really a democracy, we should try to reform it.
UBI is usually proposed at 1k per month. Nobody is living off that. But doing that increases the budget by 3 trillion.
Why exactly would UBI help the average person? It gives them pennies and only worsens US spending.
US spending and the sovereign debt we racked up is already unsustainable. You have it backwards. Money IS credit. If we paid it back, we’d have no money. We need to print MORE money, give it to the spenders, and eventually it will trickle to the treasury holders, so we keep our promises. There will be more USD in the world - so what? It is bound to be devalued gradually anyway.
How would it help the average person? Because it lets people have better health outcomes, including mental health, including for kids and elderly, makes everyone have 13 points higher IQ and productivity. Helps them renegotiate with their employer, without minimum wage laws. Helps them be more entrepreneurial and start their own businesses. That $1000 a month can pay for a ton of AI spend for example, and will soon be able to pay for timeshared robots.
The average person will be paid less and less or even be laid off soon. We dint have a mechanism to supplement their income. At least we have medicaid, I guess.
Elon Musk is more extreme than me — he says money won’t even matter in 10 years. Meanwhile the guy is worth $1 trillion on paper. I don’t want to tax him. I want to tax his corporations as they lay off workers.
Sounds like a reheated version of MMT, modern monetary theory. The "just print money" approach exploded in a mushroom cloud of inflation during the COVID years, just as any economist even remotely aligned with the Austrian school of thought could've predicted. And you're still seeing the inflation, it's just partly hidden in and taking place in frothy equity markets.
MMT isn't inevitable. You're describing a path to where Argentina was before Milei. A path to amplifying all the social issues that started in the US with the creation of the welfare state. The alternative would simply be fiscal restraint.
The only real problem or question is if democracy is capable of restraint. The answer is unclear, seems like it may be 'no'.
Mild inflation (in global terms) is fine and actually rebalances money from savers/hoarders to spenders. Look at the Miracle of Worgl. And the inflation is only the result of the money supply being increased, due to the politicians fear of raising taxes on the corporations.
You need to increase taxes on corporations and automation if you want to prevent inflation, otherwise you aren’t removing money from the economy.
Printing money on the one hand can be counterbalanced by taxing the money on the other hand — if you actually burn the money collected by the taxes in a giant hole.
But instead the money from the taxes can be used to pay the treasury holders, and make them whole. This is in fact what the Grace commission found in the 80s under Reagan:
With two thirds of everyone's personal income taxes wasted or not collected, 100 percent of what is collected is absorbed solely by interest on the federal debt and by federal government contributions to transfer payments. In other words, all individual income tax revenues are gone before one nickel is spent on the services that taxpayers expect from their government. https://en.wikipedia.org/wiki/Grace_Commission
Sounds vaguely like the dissolution of the Soviet Union. There too, assets of the State were distributed to the People. Somehow it all ended with oligarchs in the end.
Vague indeed. Why would you compare “shock therapy” privatization (essentially looting) of public resources directly to a handful of oligarchs hands promoted by the Chicago School (founded by Milton Friedman, who also advocated this with Chile’s Pinochet)
with a UBI gradually given directly to the People, and raising taxes on corporations?
The former led to a 1993 constitutional crisis where the parliament wanted to oust Yeltsin (“our man in the white house”) and Yeltsin had troops fire on the parliament and arrest the congress, which represented the people fed up with the wage repression and looting
Yeltsin had a 6% approval rating and we helped him win re-election by meddling in Russian elections. We bragged about in 1996 with movies like “Spinning Boris” and “Yanks to the Rescue” Time Magazine cover.
The latter led to - amazing health, business and productivity outcomes under MINCOME in Canada, and the lowest gini index in America under Alaska’s Permanent Fund
https://www.youtube.com/watch?v=cUiyQ-yrk7k
https://en.wikipedia.org/wiki/1993_Russian_constitutional_cr...
https://en.wikipedia.org/wiki/Alaska_Permanent_Fund
https://en.wikipedia.org/wiki/Mincome