Does the national debt ever have to be paid back? Can it go to $40 trillion, no problem? At my age I don't expect to be here for the implosion, if there is to be one, but I'm curious, don't have the expertise to look into it for myself and so here I am asking the question which will hopefully educate me on the topic.

Yes, the federal govt borrows money by selling debt instruments like bonds. The federal govt pays the coupons and when the bond matures the principal is paid back. They just keep selling more bonds and the interest paid keeps rising.

Are you talking about paying down the aggregate debt levels?

Why pay back debt when you can just roll it over and the economy keeps growing? Tax receipts grow with the growth of the economy. Inflation will also eat away at the value of the debt.

The national debt 50 years ago has almost no impact today.

Obviously this doesn't always work out ala Greece.

The key to this entire equation of world economics is growth. As long as you have growth, the sun will rise and every mistake done today is ok.

I understand both replies above: Pay-off the old debt w/ new debt instruments (did I get that right?) and as long as enough money comes in to service it then, ok. I suppose my real question is is there a limit? And what happens if the economy tanks. I really don't get it. I know that government can't be likened to a family w/ a budget but it seems as if it can't go on forever.

I have a question about this that I hope makes sense.

It seems that every country is in debt to every other country. What would happen if everyone just squared up? Is something like this possible and if so, who would be the winner or what effect would that have on the world economy?

The economy did tank in 2008-2009, one of the worst tanks. And it bounced back with stimulus spending and growth, not debt pay down.

We're in trouble when growth stops or slows considerably.

A family with a budget can't print money when times are tough or borrow money at 2% rates in massive quantities.

Not possible. Calling due loans to governments that can't afford to raise the money to pay it off would trigger a collapse that would cascade everywhere.

IT is actually possible that the debt does not have to be paid back, if it is monetized by the central bank. IE central bank buys government debt and either implicit doesnt plan to collect (just roll it over) or explicitly wipes the debt upon maturity.

Japan has pretty much monetized their debt...60% or something is owned by its central bank and the interest paid by the government to the central bank gets returned to the government. so its free debt that doesn't have to be paid back, and this policy hasn't really weakened their currency or caused inflation.

So people have started to take notice of this, and I wont be surprised if low inflation countries start to do the same down the road.

I think it's really important to realize that how we think about this stuff is actually advancing. There are a lot of people in the world who understood the popular understanding of how this stuff works x years ago who are now hopelessly out of date but feel informed.

Definitely not a bad thing to just let this stuff run itself and not worry about it... but if you're going to worry about it you have to stay current.
https://www.youtube.com/watch?v=PHe0bXAIuk0 That's the best video I know of on basic economics.

If the debt becomes too high, investors will start to lose confidence in the government's ability to keep making payments and interest rates will rise. Buying bonds becomes more risky so investors require a higher interest rate to compensate for the increased risk. This is bad for US tax payers because the portion of the budget and tax revenue allocated to interest payments will rise. If the percentage of tax revenue allocated to interest payments becomes too large the government may default either due to

1) inability to pay or
2) unwillingness to pay (usually only happens if the debt has become too unsustainably high, but it could also happen if politicians do something dumb like fail to increase the debt limit)

The government could just print a bunch of money and cause high inflation to eliminate the debt, but that could result in a USD currency collapse. This is super unlikely to happen, but it is possible. Usually what happens once a country accumulates too much long term debt is they default on a payment, interest rates skyrocket, and they ultimately work out some type of debt restructuring where the debt principal is reduced or interest payments/rates are reduced and the investors take a loss.

The vast majority of the debt is owed to ourselves. The debt to GDP is very manageable. The real fear is that you get some crazy libertarian politicians like Rand Paul and he blows everything up.

A monetarily sovereign nation can never become insolvent, can never be forced to default, and is not dependent on credit markets to remain operational. Tax revenues do not pay for government spending, government spending allows for the collection of tax revenues -- the spending always comes before taxes are levied. A sovereign government that issues its own currency can't be revenue-constrained because the currency is issued as the government spends.

All government-issued currency is government debt. Sales of US bonds do not change the amount of government debt, rather they change the form of debt from one that bears no interest to a form that does. If you want to buy US bonds, you need US currency or bank reserves -- the government only accepts its own debt for the bonds it issues. The government will always be able to make interest payments regardless of the amount of debt or the interest rate because the payments are made in the same manner as any other form of government spending, by crediting the appropriate accounts.

The "national debt" is the sum of the world's dollars held in US Treasury securities (savings) accounts as opposed to reserve (checking) accounts at the federal reserve. Government spending (deficit) puts money into these accounts and taxation on non-government sectors takes money out. There is no solvency risk for a monetarily sovereign nation but there is a risk of inflation if there is too great of a divergence between output (GDP) and the money supply.

Sovereign debt is an asset for future generations, not a liability -- a government deficit is a private sector surplus. Future generations inherit bonds on which they earn interest in addition to whatever output was created by spending such as roads, airports, etc.

There are no 'run on the bank' scenarios to be feared? Bear in mind that I admitted I'm clueless.

There is a name for that. What is it? It starts with a P, like patosi or posey or something? Its some kind of scheme. And if you think about the money flows they kind of look like a pyramid.

I once worked through an Econ 101 text book, which means I've been exposed to this and I'm ignorant on economics, obv. From my memory, the text said about the same thing as this video.

Can you give an example where things changed to the point where someone would be hopelessly uninformed?

I think this is different because a ponzi has no external sources of income or way to correct itself.

short answer - no

money in existence < debt

WAT?

A ponzi depends on a constant influx of money depending on an inelastic value.

This isn't the same thing as bonds or even remotely close to how the banks work.

Efficient market hypothesis was all the rage for years. Not so much now for obvious reasons.

What's scary is that huge amounts of EMH are embedded in the fundamental assumptions that people use to guide corporate strategy. The central idea being that the CEO is doing his job by maximizing share prices today because that means the market is demonstrating the long term value of his decisions.

Part of the reason BRK does so well is that Warren Buffett is a great investor. Part of it is because they are really good at insurance. But a HUGE part that nobody talks about as much is the fact that every subsidiary is trying to maximize the long term EV of the company without really worrying too much about the results today except to the extent that they tell said CEO that something isn't working.

I think you are mistaken on what defines a Ponzi schemes because some if not most/all have sources of income (not including their funding) but they just are unable to substain their expenses. Hard to raise money without some idea of a business to sell.

The differentiation between Ponzi schemes and failing businesses is basically only intent. If the intent is to make enough money to sustain oneself at some point in time then even if you don't you're considered a legitimate business. If the intent is to constantly draw debt from new investors until you are unsustainable and collapse while benefiting from the company along the way you are a Ponzi scheme.

I tried to make my answer more generic to all government debt. It's worth pointing out that there's basically two kinds of government debt

1) Debt taken on by a nation where that nation is also the currency issuer
2) Debt taken on by a nation where some other nation is the currency issuer

All of US debt is 1) so the US can always just print more money and inflate away its debt. This is in contrast to a country like Greece where its debt is in Euros and was the source of many of its problems in 2009. https://en.wikipedia.org/wiki/Greek_...nt-debt_crisis Just because a country's debt falls into category 1) does not mean it can't or won't default though. By default I mean miss an interest payment. See Russia's ruble crisis in 1998 https://en.wikipedia.org/wiki/1998_R...nancial_crisis This led to the collapse of LTCM https://en.wikipedia.org/wiki/Long-T...tal_Management and resulted in US government bailouts. Russian inflation reached 84% in 1998.

A great book on financial crises is "This Time is Different" https://www.amazon.com/This-Time-Dif...inancial+folly

Bank runs are only a problem if people can't redeem their IOUs from the bank. In 1929 USD was backed by gold and banks' gold reserves weren't high enough to redeem all the outstanding USD. Nowadays it's not backed by anything and FDIC insurance is up to $250k.

First basic principle of life: there's no free lunch

If you start with that, you can derive a surprising number of correct conclusions.

So this brings us to the question: where is the cost to debt? There are a number of costs to going to the market to borrow:

1. External creditors start to own more of your wealth producing capital. Ownership of wealth producing capital is the only form of wealth a country ultimately has. And when you borrow, you give that away bit by bit. During growth periods, that might seem ok (you borrow at 2% to fund 3% growth), but when it all comes crashing down is when the bill comes due (all of your previous borrowings cost you 4% when rates go higher to curb inflation, to fund -1% growth survival in a recession). The latter period is when the cost of borrowing bites, and other nations get wealthier as a result.

There are many other less obvious and indirect effects of debt sending ownership of productive capital outside the economy, that disadvantage the debt seekers. I could write pages.

2. You create long term structural inefficiencies in the economy. Welfare and college loans, for example, are very inefficient at current levels of utilization. Debt has allowed the net-negative-to-educate lowest intelligence college goers to spend four years at college learning cuckology rather than growing the labor pool and producing. And the offshoots from that can be very destructive - the civilization hating, incompetence-promoting* alt-left in the US being a good example. Another example: inefficient wars like Iraq and the occupation of Afghanistan. If they had to raise taxes in the trillions rather than go to the debt market, these would receive a lot more cost-benefit analysis and would be far less popular with the public over say, infrastructure spending. There are tons more examples - biofuel and green subsidies, etc.

3. Ultimately, the debt either needs to stabilize, or people will stop wanting to lend to you at reasonable rates. If people stop wanting to lend to you, you either severely curtail your spending, for decades, raise taxes a lot, or kickstart inflation (printing money to pay the debt), which is a form of tax. You're not getting a free lunch here.

The debt-growth model is probably wrong imo. China has had massive growth - much of it at the expense of the US and a net negative for the world - while piling up $3 trillion in foreign reserves financing US debt. Saving and growth and austerity are probably more in line with long run growth than people think.

*the definition of Affirmative Action is to promote the less demonstrably competent over the more demonstrably competent, else you wouldn't need Affirmative Action.

A government takes on debt to reinvest now for later gains, just businesses and savvy humans do. Credit creates new money from vapor, which adds money to the entire economy.

In contrast, the money in a Ponzi just sits there and stays stale.In 10 years (or so), the value of each dollar in a Ponzi goes down by a penny, so the money has no way of growing today or tomorrow. Any money that is taken out of the ponzi ensures a faster collapse.

Having hundreds of trillions in collateral helps. The average person borrows far more proportional to their net worth in the form of mortgages.