Any household that consistently runs a deficit goes bankrupt

While a simple comparison, a HH and government are very different.

So the government can borrow into infinity and it will never matter?

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Any household that consistently runs a deficit goes bankrupt
But the government is some exception to that?

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Yes.

Does your household have:

the ability to print its own currency that the entire world clamors to accept as the standard?

the capacity to borrow consistently - at decent rates - despite never actually net paying down existing debt?

the right to collect income (in the form of taxes) on denominators that are measured in nominal dollars that more or less increase by definition along with the growth of the economy?


I'm guessing not.

Let's look at Japan - by far the most indebted "western" nation. The majority of their debt is held internally by their own citizens. To answer your question - no, it's possibly not sustainable. I'm guessing at some point they might just ask their citizens to take a 30% haircut on what they're owed and be done with it. Debt is just accounting, so they'll do it.

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So the government can borrow into infinity and it will never matter?
Possibly, yes.

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Correct but if the average Joe borrows to infinity that person is called dumb and undisciplined with money.

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If the government prints its way out of debt, we experience hyperinflation and the dollar becomes worthless and the world abandons it for another standard currency-- this is already happening by the way.

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That's not really right, at least not necessarily. People skyscreamed about this for years after the GFC, but what they missed was demand was so slack. We went well more than a decade of QE with the primary worry still being DEflation.

The stupid covid stimulus stuff is what caused the majority of the current inflation. And that was not monetary policy - not fiscal policy.

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If the government doesn't print its way out and continues to borrow, at some point interest on that debt will consume most of if not all of tax revenues.

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Yes, agreed. You could argue Japan is already there. Something like 50% of their budget is spent on debt service. For comparison, the US is like 6-10%. As you can see, that's a lot lower than it was even just in the 90s:

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So what's the workable outcome if they're apparently unwilling to spend dramatically less?

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I guess we'll see where rates go. I'd say many decades more can go like this before we have to think too hard about it - especially if rates don't go much higher. If the $ stays the reserve currency and the US maintains dominance (which I think is very likely), this just won't matter very much.

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Any household that consistently runs a deficit goes bankrupt

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Apples and oranges, not sure why this is such a talking point. It is in the best interest of everyone for the government to leverage.

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If General Motors, AT&T, and individual households had been required to balance their budgets in the manner being applied to the Federal government, there would be no corporate bonds, no mortgages, no bank loans, and many fewer automobiles, telephones, and houses.

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William Vickery

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leverage do you mean eternal global conflict?

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Not even sure how you came to that conclusion.

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Let's look at Japan - by far the most indebted "western" nation. The majority of their debt is held internally by their own citizens.

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Most of that debt will be held by older Japanese. I could see their government passing a law that when that person dies, so does the debt.

If the government can borrow infinite money to cover its expenses and there is no repercussion, why bother collecting tax revenue? Why not just borrow 100 trillion dollars and then print the money to cover it?

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The dollar will eventually lose its reserve currency status and it will get ugly

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Who exactly is your nominee to replace it?

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Or we'll get to a point where we can't afford to service the interest on our debt.

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Maybe. Look at the chart. We're still spending WAY less of our budget on debt service than Japan - and do they seem teetering to you? Certainly if rates go A LOT higher than here, you could be right. Or they could stabilize and even go lower, in which case, this is "affordable" for much longer than you can live.

I'm not defending any of this. I'm merely hoping to help some of you understand the folly of making your investments as bets against the US. Betting against Japanese currency and rates has long been called "the widowmaker" because so many fund managers have been carried out betting on the same macro thesis of this thread. And the US is WAY better than Japan.