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canada canada goose uk goose Yesterday’s reddit gold goalEdit: For the record, I think this is my most comprehensive single post on issues of the US debt, its relation to “household debt,” canada goose outlet in chicago and the drivers of public finance in the next few decades. canada goose

canada goose store Let first clarify canada goose outlet washington dc the composition of US government debt. canada goose store

canada goose clearance The US government has $17 trillion in debt outstanding, source. We can partition that debt into four groups: canada goose clearance

cheap Canada Goose Debt held by the Federal Reserve (about $2 trillion) source cheap Canada Goose

buy canada goose jacket Debt held by foreign entities (about $5.5 trillion) source buy canada goose canada goose outlet uk sale jacket

canada goose canada goose outlet hong kong clearance sale Debt held within canada goose kensington parka uk the government (about $5 trillion) source canada goose clearance sale

Debt held by households, pension firms, and state local governments (the rest, about $4.5 trillion)

I pulling those numbers from canada goose outlet near me a few sources, which you can look at. The foreign holdings comes from Treasury (July 2013); the Federal Reserve holdings comes from the Fed (October 2013), the intergovernmental holdings comes from the GAO (2011, so I interpolated) and the remainder is arithmetic.

Canada Goose Outlet Foreigners own about one third of the debt, so only about two thirds is owed “to ourselves.” Canada Goose Outlet

canada goose coats on sale Second, let talk about the reasons US government debt is not like household debt. canada goose coats on sale

canadian goose jacket US government debt is not the same as household debt, because there is demand for US debt. custodia iphone 6s cadorabo canada goose outlet london Individuals, firms, state local governments, and foreign entities buy US government debt as a safe asset. custodia neoprene iphone 8 Nobody flocks to your door to purchase “/u/integralds debt instruments” or “/u/fortif debt canada goose factory outlet toronto location instruments,” but people do flock to Treasury auctions. canadian goose jacket

Canada Goose online [Edit: I getting 9,001 types of pushback on this. Let me simplify massively by saying that any given individual household debt (which is what we talking about) is a perfect substitute for other households debt. No lender really cares about which individual households they own assets from. custodia adore june iphone x By contrast, US Treasuries play a special role on many players balance sheets. That the difference I was getting at here. Read it in the context of the entire post, and see the various edits scattered about.] Canada Goose online

canada goose coats So there demand for US debt. But there also demand for corporate debt (commercial paper). custodia iphone 6 portacarte Google sells debt, just like the US Treasury. So what distinguishes US government debt from other kinds of in demand debt instruments? The US government issues debt denominated in US dollars. In addition, the US government (via the Fed) is able to print US dollars. canada goose coats

Canada Goose sale That is, the US government issues debt denominated in a currency that it also issues. canada goose outlet mississauga That nontrivial, because it means that in a worst case scenario the US government can always print currency to pay back its debts. There is no reason in principle that the US should default. Yes, paying off debt with newly minted currency (called “monetizing the debt”) likely leads to a loss of confidence, inflation, and other bad outcomes; it is a worst case scenario, but it does matter. Canada Goose sale

Caveat: 2 leads me to the recent debt ceiling/default issue. custodia iphone x silicone There are other things going on here. custodia iphone 6 plus armani The Fed canada goose outlet montreal is independent of the rest of the government precisely so it doesn print money to pay back US debt. Yes, that canada goose stockists uk means 2 is less of a factor than it otherwise would be, canada goose outlet winnipeg but 2 continues to run rampant in popular accounts of “why government debt is different.” So you have canada goose outlet jackets reason to think 2 is not the main thing going on here, regardless of what you might see in /r/politics.

buy canada goose jacket cheap So the fact that the US prints debt in its own currency canada goose parka outlet should be discounted due to the independence canada goose outlet new york of the Fed. Why else is government debt different from commercial paper? The government is a large player in the economy and has noticeable effects on aggregate demand. Individual households and firms do not have that luxury. What that means is that, for you, interest rates are givens; for governments, interest rates are something that can vary depending on how much the government itself spends. apple custodia iphone 7 plus silicone buy canada goose jacket cheap

Canada Goose Parka To speak in jargon for a second, households exist in partial equilibrium while governments exist in general equilibrium. That the basic reason that the government is not a household and why government debt is not like household debt. When times are bad, and the government borrows in order to stimulate the economy, it possible for output to rise and for, on net, debt/GDP to fall. (Though I don really want to talk about stabilization policy, and especially fiscal stabilization policy, unless someone forces me to. Let focus on longer run issues first, they less controversial.) Canada Goose Parka

canada goose black friday sale Given the fact that there is serious demand for US debt, the optimal level of debt is most likely positive, canada goose outlet vancouver not zero. Continued demand for US debt also implies that the government can indeed run deficits, even in the long run. canada goose black friday sale

The proper variable to look at is the debt to GDP ratio canada goose jacket outlet toronto or, even better, the interest payments to GDP ratio, or even the interest payments to government revenues ratio, canada goose outlet buffalo along with the likely future trajectories of those objects. This measures the “sustainable” increase in the debt each canada goose outlet year, in a broad sense.

Canada Goose Jackets The single driver of the US government deficits over the next two decades is medical payments. Source Canada Goose Jackets

Cutting defense spending is not going to help. Defense spending is about 4% of GDP. We could cut it to, say, 3% of GDP, and that would temporarily improve the buget outlook. However, cutting defense does nothing to stop medical care expenditures from eating a growing portion of revenues and GDP.

Cutting social security doesn help canada goose outlet store quebec either, for the same reasons. Social Security will rise from 4% to about 6% of GDP after the baby boomers are done retiring, then will stabilize. Social Security could use some reforms, perhaps bringing it to 5% of GDP in line with social security taxes, but again the elephant in canada goose outlet store montreal the room is medical care and medical care alone.

It is very hard to get revenues/GDP much above 20%.