I'm increasingly concerned about this. We (as in the US) are running very large deficits at a time of relatively strong growth and high borrowing costs. Japan, Italy, France, and the UK are in similar situations, and this is going to get combined with a demographic problem as birth rates continue to decline. We're not only running a large fiscal deficit, but ALSO a large current account deficit. We are structurally dependent on the world continuing to accumulate dollar assets.
I really think we could be in trouble within the next decade. Gross debt is 126% of GDP and still rising rapidly. Japan is rough at 203% but at least theirs is declining, same with Italy, 137% and declining (albeit they have a crap economy and demographics relative to the US). France is in a similar boat to the US, maybe even worse since their taxes are already ridiculously high so they can't get more revenue from taxes without causing a revolution.
This is a serious problem for the entire world and no one has the political balls to do anything about it. Whenever the straw breaks the camel's back it will be worse than the 1930s.
What do we do about this? Is it as bad as it seems? Is anyone going to be willing to cut spending enough?
I was hopeful with DOGE but that ended up being a disaster. Personally I would cut military spending and welfare programs (yes including social security) but you'd have to GUT so many federal programs to get where we need to be. I think it needs to happen though, even if it causes a short-term recession, we just need to take our medicine to get out of this.
Both parties are to blame. Need serious, drastic change otherwise it’s gonna keep growing. That means slowing spending AND raising revenues. Debt has doubled in 10 years.
Just under 30% of the debt is from Trump terms, majority of the debt under Biden was from the trump tax cuts. Reagan/Bush/Trump added more to the debt then their dem counterparts and Clinton (a dem) was the last president to balance the budget. One party is clearly less fiscally responsible
You need to ignore party lines. Clinton in 2000 was a moderate dem at most. Look at his policies, would seem far right by todays standards (Illegal Immigration Act of 1996 for example). Both parties have consistently increased the debt as they have both lost all form of fiscal responsibility. Now you are right that trump/bush/regan did increase it at a faster rate, but if your trying to blame 1 party, would it not make sense for the dems to campaign on government spending being an issue.
This isn’t even a 2 party problem, its a voter problem. Voters are so easily swayed by the ‘promise’ of ‘free’ shit. Much less people would have taken stimulus checks if they would have known that groceries are twice as much. It was so obvious that if you pump a shit ton of money into the economy, inflation happens, which disproportionately affects lower classes. But nobody wants to think ahead, its all about now. And politicians recognize this. I mean like why not create massive government programs and spend a bunch for short term gain, but long term pain where it can be blamed on the next administration.
Failed subsidies and aid programs have exponentially increased. Why? Because the programs employ bureaucracy and cushy jobs. Nothing is as permanent as a ‘temporary’ government program. You’re considered fringe if your willing to cut shit programs, cause its bad pr.
Military spending wont meaningfully decrease anytime soon. Its such an easy thing to say that if we decrease it, everthing will work out. It’s not even currently the top 3 things we spend on. In order to enforce the Oil-Dollar hegemony, the US needs to have a tight grip on world affairs (not saying this is a good thing). Obviously it would be necessary to cut our military spending, but how we are currently set up, it cannot be 0.
Nobody here is defending Trumps spending so stop with the orange man bad shit, cause you cant blame him when the next president (rep or dem) is going to spend as much if not more.
Clinton managed to keep fiscal discipline, imo the original sin started with both Bush presidents whom encouraged deficit financing for tax cuts inspired by Reagan et al. In hindsight, perhaps the US only had a finite time of global geoeconomic hegemony which was backed up by expanded cross-regional influence, a growing but not current-day assertive China and the reserve currency that supplied mass liquidity (but also increasingly foreign ownership of debt) that kept yields at an acceptable rate. Japan is an interesting example of stagflation and why you don't print endless money, but they at least had the domestic buyers of debt whom managed to supply liquidity to Japanese credit markets whilst still having a devalued yen for export competitiveness.
Yea your definitely right. And could even consider that H.W’s “read my lips, no new taxes” was a false promise. The problem is that if the government finds new ways to tax people, it will ALWAYS find a new way to spend it. Simply repealing tax cuts and cutting military spending, would not fix our debt situation. There would have to be cuts within the 2 largest expenses: medicare/caid, social security(besides from interest). And we both know that most politicians wouldn’t run on that premise, especially democrats.
Though, a sin with farther reaching influence would be the abolishment of the Bretton-Woods system in order to further fund the foreign influence and government programs. It was the last straw until the dollar truly became fiat.
It's boomer luxury communism...
https://americanmind.org/salvo/what-is-total-boomer-luxury-communism/
Until boomers die out, this will be a problem.
They keep allocating resources to themselves and brutalizing young people to do it.
Hogwash. The problem has always been fiat currency. Social security and medical costs rising so lets keep those borders open. I am sure that is not contributing. Social security was not a boomer invention. But thanks for the propaganda.
The borders didn't become less open than before. It was even easier to cross illegally in say...the 70s lol...
And no it wasn't a boomer invention, but they have beefed it up incredibly and given themselves insane tax benefits!
Old people should not be paying LESS in tax on the same income that a couple with kids. Kids are the future!
never going to get fixed reaching escape volicity, read ray dalios books and it will freak you out even more
tl;dr it for us
If you’re having debt problems then just call Ken Moelis.
Doing something about the debt is political suicide. Therefore, it is what it is
.
Yeah next time it will be different!
Truly comical.
Name me a democrat that would enact the same fiscal responsibility policies as Clinton did. Because I can barely think of a republican who would.
2000 Clinton could easily be framed as republican / right by todays political standards.
I don’t think anyone is arguing with you on this, but pretending like either party are the “fiscally responsible” ones that will reduce spending is also a complete farce.
Solving the debt problem is politically impossible. The debt will grow in real terms until the bond market stops demanding US bonds at acceptable yields, and then the US will soft-default via money printing and inflation.
It's still mathematically possible to solve the debt with a combination of tax increases and spending cuts, but that would require a broad political consensus that isn't possible in today's US. The different factions in the country don't trust each other enough to work together to solve the problem.
The Democrats might agree to cut spending under different circumstances. But they won't agree now, because they assume that Republicans would take the next opportunity to give back the savings to billionaires by cutting their taxes rather than paying down the debt.
The Republicans might agree to raise taxes under different circumstances. But they won't agree now, because they assume that Democrats would take the next opportunity to give away the new revenue to members of their political coalition rather than paying down the debt.
Since neither side trusts the other enough to compromise, the default outcome is to maintain low taxes and high spending, and borrow until the debt markets won't let us borrow. It is what it is.
Completely agree, politically impossible to fix. If you're US based and have a lot of investments, make sure you are diversified and hold foreign assets too. I think this will reach a head in the coming decades. Happening now with Japan. Deficits like this aren't a problem - until suddenly they are.
Are foreign assets going to help you here? If the debt market in the US implodes I'm sure the rest of the world will too
What can we do to minimize risk in this increasingly shit environment? I frequently come back to this question, and all I can come up with is dual citizenship and divesting from USD
Reaching the stage in life where I'm ready to have a family, settle down and buy a house, etc. But am worried abt macro conditions causing cataclysmic financial strains in this country at some point in our lifetimes.
Gold is a start
Yeah I have 2 visas outside the US and keep those options open.
Nice, how'd you go about getting those/identifying good opportunities?
You guys keep voting Republican and then Republicans keep increasing the debt. Most Republican voters won't give a shit either until Democrats are in power again, at which time it will suddenly become a priority because right-wing media will whip them up into a fury. We'll see a post like this once a week in a few years.
How many people on WSO told me Trump was a "peace president" lmao? Now we spend $1 billion a day on the Iran war and give $10M-$30M per day to Israel. Even you "being hopeful with DOGE" makes you part of the problem, as that was obviously nonsense from the beginning. I bet you supported Trump's tax breaks on the super rich too and completely ignored that if the super rich don't pay taxes, and the poor don't pay taxes, and the middle class doesn't exist anymore, who does? Oh that's right, high earners, aka everyone on this website.
Stop drinking the kool-aid and start to understand the con Republicans have been running for decades.
As soon as he said he was hopeful about DOGE, I busted out laughing.
How the fuck are you all so goddamn gullible?
Not just gullible, but also completely ignorant. Discretionary spending is only 26% of the Federal budget (and half of that is defense), making small cuts there isn't going to make a different. The entitlements, and interest make up the rest, and those are political non-starters. No politician is going to vote to reduce benefits or willingly and purposefully default on our debt.
Entitlement reform is the only way to realistically fix the deficit.
One party absolutely refuses to consider entitlement reform. Which party is that?
Now what do we call this type of argument?
I believe it begins with “straw”
No, we could also raise taxes. Cut spending on the military. We had a whole healthcare reform bill which was going to cut medical spending. Guess who opposed it?
Both parties refuse to consider entitlement reform. Equally. The difference is one party has a plan to pay for it, and the other doesn't.
Also, I'd point out that universal healthcare is projected to save huge sums over the current system. Who is advocating for that?
Republicans want to privatize social security, and that's mostly so financiers who back the GOP can earn fees managing it. That isn't "entitlement reform" in the way most people mean it
Bingo. I don't frequent WSO anymore, but hopefully Wall Street's smartest young minds have done some deeeeeep reflection over the last 2 years of how they convinced themselves that the biggest conman of our lifetime wasn't gonna con them. I won't hold my breath for the mea culpa...
This is idiotic. Dems have historically forced much greater debt load expansion than Republicans. Don't get me wrong -- esp in recent 2 decades the Republicans have also been horrific. It's just foolish to say it's driven by Republicans, it's driven by both with a majority driven by Dems if we look at % growth nbs
Source: “Trust me, bro”
So provide the numbers?
It's also absolutely fucking absurd to compare numbers without considering context. Trump's various tax cuts have all come in times of economic health and expansion and relatively low unemployment, not to stimulate the economy or employ people. Compare that to spending during a recession or giving out stimulus checks and Trump's record looks even worse.
Look, Donald Trump is a grifter and an incompetent businessman whose entire career can be summarized by using legal means to defraud his partners, and then using lawfare to stiff contractors and vendors. That's it. Until his political career and the advent of cryptocurrencies, he was a complete, utter failure at literally every single thing he turned his hand to, bar reality television (and fraud).
Why is it so surprising that he's used the same basic principles once in office? After all, taking on a ton of debt he couldn't afford to repay and then walking away to leave someone else holding the bag is literally the only thing he's ever been good at as a businessman.
No, you.
I noticed you refusing to provide actual numbers, so here are some for you: $1.39T vs. $1.22T on average and 4 of the top 6 are Republicans. The majority has not been driven by Democrats and Republicans have been "horrific" since the 80's.
There’s a thousand things we need to do that will never happen. We need to establish peace in the Middle East, solve world hunger, assassinate horrible people, etc.
It’s not gonna happen. Just be prepared for a slow death or fast collapse, then prepare for the aftermath when something new is established.
National debt is not an issue. We can be $100T in debt and still be okay. Read into MMT
This is sarcastic hopefully.
I'm not a MMT debt-market denier but the real life experiment of this is basically the US from the 1990s-2008 and subsequently 2010-2020; the US had balooning debt but:
Low yields on debt, which were manageable with real economic growth and being the reserve currency of the world
2 of these 3 things do not exist currently
Solution:
- Remove legal tender laws, people should be able to transact in whatever currency or thing they want to.
- Consolidate the nations gold and silver supply
- Institute a gold standard on a new, U.S. Dollar currency with an equal supply to the current money supply
- Immediately afterwards, pay the debt which is denoted in federal reserve notes, not with the new currency
- Use the new U.S. dollar currency as new legal tender, and convert all federal reserve notes that individuals hold into this new currency through the banking system
- Shatter the fed into a million pieces, remove its charter
- We now have a gold/silver backed currency with zero debt.
- Preserve the constitution’s provision that it is only Congress who should “mint coin” instead of the treasury forced by the federal reserve
This would shatter our international alliances but the debt is going to do that anyways when our grandkids enter the economy… preserve American wealth and stop exporting dollars. The Keynesian lie of money printing bringing prosperity has to end
All that would happen here is that you would rapidly sell gold to keep the peg. You would need to raise rates to an astronomical level to halt the gold sale and maintain currency balance since you can no longer inflate. The system would break by either 1 running out of gold (back to square one) or 2 yields and rates have jumped to such an insane level the dollar can actually maintain the peg and not be debased against gold without needing gold intervention. This would 1 kill economic activity 2 bankrupt the government (deficit would blow out) and you would need to abandon the peg again anyway just with more steps.
I'm surprised someone is suggesting this here and it got SBs. But then again I guess most people here are students and maybe haven't done econ101 yet.
Edit: ah 'pay the debt' came first. You would still have the same twin deficit problem that you can only solve with extremely high rates, and in the new world where you've destroyed all the old debt (your proposal is the same as defaulting on the debt) the rates would need to be even higher to try and entice any foreign entity to fund the twin deficit. So basically my second scenario with even more drastic societal and trade collapse.
You’re relying on deficit spending continuing, my suggestion would require it to stop or else the peg would break. I prioritize the store and building of individual wealth over domestic wealth, you prioritize domestic wealth over individual wealth (I’m assuming u do maybe I’m reading wrong). Neither is correct, but I’d rather have a country where individuals are wealthy and there is broad based prosperity over a system where my currency is inflated randomly, due to elements out of my control, and I’m punished for simply not investing my money. That is hostile to citizens in a republic
Our best hope at this point is to just grow our way out of it. Hopefully AI gives us an unprecedented productivity boom that pays it off many times over.
You really are incapable of talking about nothing else.
Yes, let’s hope the slop machine saves us all…
AI will be the #1 biggest issue of the decade, if not the century. It will permeate the economy, jobs, foreign policy, energy policy, and everything else. You, like most American people, are genuinely clueless about what these labs are cooking right now...
Real fiscal conservatism hasn't even been tried... and never will be tried so long as we remain a boomer-ocracy.
The US needs a CRO to make sweeping cuts to social security, defense, and university grants (why do they need this if they have $bns and charge 80k p.a.??). Semi-subsidizing HC and and College tuition (through guaranteed fed loans) has been a disaster and we need to either bite the bullet and go full Euro on those or revert back to not intervening in those markets at all.
This "We" you speak of does not exist in these 50 glorious states
Neither side is going to commit political suicide to actually fix this. They'll just keep the money printer running and soft-default through inflation until the wheels fall off
Ditto, echo this in the UK and Europe too. We've had nearly 2 decades of endless money printing, over regulation, and a political class happy to maintain the status quo on welfare (the Conservatives introduce the triple lock because they knew boomers are their main voting bloc and vote in disproportionate numbers; Labour are happy with high levels of youth unemployment and encouraged the great University scam which has indebted a good 50-70% of young adults). We need to rapidly increase defence spending, but only Germany has the fiscal capability to do so and that too had to undo their fiscal debt brake, the UK and Germany are the worst offenders of being net importers (At least France built and developed nuclear energy that gives them comparatively cheaper energy costs). The populist incumbents in the UK both left and right will also not address this; the Greens are desperate for more wealth taxes, defunding of police and de-armament, Reform are in the midst of a circus and their main voting bloc is 65+ Brexit voters, who will be first in line for welfare cuts, so they will not make a material dent on our overspend. I actually asked Claude to make a income statement and balance sheet for the UK budget and break it down by each department, it's genuinely eye-watering....
There is negative utility in discussing the UK in big 2026.
The country is irreparably broken, and unlike the US, doesn’t have the scale or levers to soften the landing
you can't compare the UK to US. We don't have even close to the growth they do in GDP terms (not to say the US is explosive), have a growing welfare state and unaddressable cultural issues cascading throughout society. Cooked.
Agree
The US has a very divided, increasingly partisan 2 party system whereby the more extreme and radical elements of both parties are the loudest voices (Republicans may have hit peak MAGA, Dems are desperate to go down the Mamdani-AoC radical left MMT debt market deniers path). However, they still have the reserve currency of the world, robust productivity growth, less unionised labour markets and freer planning laws for drilling and house planning. The UK has the negative opposite conditions of the above
You're already doing the right thing, which is getting people to wake up about this issue. Of course a finance forum is a place where most will be aware of it, but outside of our little world people are very unaware.
DOGE to me was like broken-windows policing for finance. Start small, change the attitudes a bit, and grow the effort. Sadly, because the country is mis-informed on how terrible the situation is, popular support never fully got off the ground and the effort operated on constant thin ice.
There have only been 5 years in the last 50 where federal spending declined year-over-year. All 5 budgets were passed under Democrat Presidents (2010/12/13 under Obama, and 2022/23 under Biden).
There is no world in which Republicans are the more "fiscally responsible" party. That narrative needs to die permanently.
Republicans spend on defense which is no doubt wasteful on many levels, but at least ostensibly is a public good.
Democrats spend on entitlement programs to directly benefit one group of private citizens at the expense of another.
But far worse than that, Democrats want to set up society around those programs so they become entrenched. Medicare for All may or may not jack up federal spending in the immediate years under the Democrat in the White House when it passes, but it will create a long tail of waste for generations to come.
How is military spending a public good, but spending on the public isn't? You can like or dislike one or the other according to your values, but it is absolutely absurd to act like making sure your citizens are healthy or well-fed is somehow not within the legitimate purview of government. As the US military is always complaining about, you cannot have an effective national defense if all your citizens are too obese or ill to make effective soldiers/sailors/pilots/etc.
And lets remember, both parties spend on entitlement programs. As always, Republicans display no more fiscal responsibility than Democrats. They just lavish those benefits on big business instead of people in need.
The main ideological difference between liberals and conservatives in terms of fiscal discipline is that liberals have a plan to pay for all their spending, and conservatives, as we now know with 100% certainty, don't.
The solutions are very easy actually. But politically impossible:
Problem is, no one will do this. Only route left is raising taxes taxes taxes. Poster above Rahma nailed it, the Dem agenda is to lock a program in place such that people don't want to give it up. And then that program sucks the people dry
This + you have to put our currency back on a gold standard. Our money has no automatic feature that curbs overspending by our government
It is so funny to watch you repeat the same talking points we've been hearing since Reagan.
"Cut out waste and fraud" is easy to say, but it turns out that decades of conservatives gutting federal government has made it so there isn't all that much waste to cut. And given that the GOP is owned heart and soul by the most corrupt grifter in America, it's a little much to expect any conservative to really want to cut "fraud". What we've seen is an increase in fraud so vast and all-encompassing that it gets wholly unremarked, lest it destroy the entire Republican Party.
The rest of your post is basically chipping around the edges, or outright nonsense.
Given how low taxes are, maybe we should just consider, for once, raising them? Mr Trump has categorically proven that there is not enough spending to be cut to make a difference, since conservatives will never cut military spending or make meaningful reforms to healthcare, and neither party will touch Social Security (nor should they).
I simply don't understand how anyone with a functioning brain thinks this is some kind of genius argument.
Yeah, Democrats like creating programs that help people. And, amazingly, people respond to that because people like being helped. It's unclear to me how any of this "sucks people dry," and it isn't like Republicans are above this either. The GOP wastes money on their constituents and special interest groups in the most obscene manner imaginable, and with less justification.
Both sides spend. Both sides spend money like water. The difference between Democrats and Republicans is that Democrats understand that someone has to pay for that spending. American conservatives have spent 20 years driving this country into debt, and then howling in outrage when liberals try to fix the problems they created.
But that's American politics. Republicans cause problems to campaign on. Democrats try to fix them, and get blamed.
the fact that some of you all still either pretend or believe Republicans are the party of fiscal responsibility is hilarious
It’s their whole identity. It would require far too much painful introspection and reinvention to change.
The best they can do is a sort of defeatist “both sides bad.”
Relevant piece in WSJ today - Let the Bond Market Speak by Druckenmiller
After reading the total boomer luxury communism piece, I was pretty shocked and did an exercise with GPT and came to the conclusion below. Didn’t realize how much less boomers used to get taxed on SS and now get the benefit of both SS regardless of wealth, but also home prices skyrocketing and higher comp back then. Obviously I don’t think the below ever gets passed as avg. age of a senator is past retirement age but always can theorize what could work. Curious other people’s thoughts on this:
1. Reform SS by introducing progressive Social Security benefit brackets based on total net worth, including primary-home equity (rather than just all retirees getting benefits regardless of wealth)
2. Introduce a federal home-equity assessment for retirees with more than $1M in primary-residence equity. Use progressive rates that increase with equity, while leaving existing state and local property taxes unchanged
3. Make downsizing financially attractive. Give affected retirees generous exemptions from federal capital-gains and transaction-related taxes when they sell their primary residence, encouraging them to move into smaller 1–2 bedroom homes or apartments.
4. Use the combination to reallocate existing housing stock. Encourage older households to release larger, family-sized homes onto the market, increasing supply and putting downward pressure on prices for younger families without requiring retirees to move into newly built senior housing.
5. Use the fiscal savings to reduce federal deficits and strengthen Social Security. Benefit reductions for high-net-worth retirees plus new home-equity-tax revenue improve the government’s fiscal position; greater family-home affordability and potentially higher family formation/birth rates are secondary long-term benefits.
Can you share the article?
This is so embarrassing
Can’t do anything unless we kick the bums of social security and Medicaid / Medicare which will never happen.
The bums?
You mean the elderly who worked hard for decades to build the country and contributed to the system with each paycheck and now depend on it in their retirement?
Truly a ghoulish mentality.
I don't think anything gets fixed. I am letting Trump Admin pump my bags. All I do is purchase more assets.
I had to chuckle when you said you thought DOGE was going to be effective and fruitful. Lol.
I think we need to elect a financially austere leader who can not only make hard cuts, but actually clean up the wastefulness and corruption. For example, I’m pro defense spending, but the kickbacks and overcharging is really out of control. I want drastic changes to social security, but I do believe we need some type of government support for old people or it would cause chaos. Etc. Like you said, the issue is no one can really do this politically because they would never get elected.
If someone could swoop in and do these things - prosecute the welfare, healthcare and military fraud, overhaul the prison system and increase use of capital punishment, increase taxes on mega corporations and billionaires, effective gun control, stringent immigration policies - I think most Americans would support it, it’s just hard to get bi partisan support these days.
I actually think this all ends with the US stiffing most foreign nations except China and Russia lol. What could other nations really do? It would roil the markets but at the end of the day the us capital market is the deepest and strongest. The new president would come in and blame the old president and within a decade things would be back to normal. I don’t think the US can realistically service its debt anymore and will restructure or even default in 20 years.
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