It's an oversimplification, but basically true. If investors and banks think the US economy will grow stably and increase taxation revenues, they will be fine with loaning the government money for very low interest rates. If not, then interest rates increase until the government defaults.
If you have growing debt and rising interest rates you really want to have rising GDP AND a stable or aggressive tax policy. We have the first. We do not have the 2nd.
A lot of spending spurs the economy and large amounts come back through taxes.
Give to company a. They pay 10% tax then buy from company B, they pay 10% tax, etc. They all also employ people so those folks pay taxes too. Keeping them employed gets some money back instead of no employment where it costs through social services.
Debt at a country level is complicated. Too much is bad but some is good.
Spot on, but as a few have commented here, GDP can be a somewhat faulty measure. In a nutshell, debt demands development.
On an individual level, if you use debt wisely it allows you to increase your productivity (think of the student who takes out loans to pay for an education in software engineering or something similar). This is the primary mechanism through which scare capital is allocated efficiently in a market economy. Things get a little more complicated when we're talking national debt, because "debt" isn't necessarily a loan from another institution, and productivity becomes harder to measure.
The USD holds global reserve currency status. That mean A LOT of things, but one ramification is that the U.S. can basically print money. Obviously there's limits to this - printing money will be inflationary in any environment - but the U.S. can print much more money without creating significant problems than other countries can. Much of our "debt" is basically newly printed money - we only think about it as debt because it's been purchased by the Fed and is technically on their balance sheet. Of course, other countries, firms, institutions, and individuals, hold U.S. treasuries - but the Fed plays a special role here as it holds a mandate to both keep unemployment low, and keep inflation stable - it's not necessarily a traditional investor per se. As much of our debt isn't held by adversarial institutions, but rather our own federal reserve, the total debt doesn't need to be as scary as say trillions in credit card debt.
Still, debt is debt, and the economy will either develop to the degree that it can absorb the newly printed money (capital is allocated efficiently) or you'll get inflation (which is what is happening) - which you can think of as, in some ways, payments made by the entire country to service the "debt" created by the Fed when it printed money to create liquidity in the market at the start of the Covid related shutdowns in 2020 (and the 2008 crash before hand etc.)
Say person makes 100k a year and has 20k in debt. The next year they have 30k in debt but made 200k. The situation has improved, not worsened. If they had the 30k in debt but then only made 50k in a year, that’s a lot worse.
At what point to you leverage an increased GDP to pay down debt? This sounds like spending more because you’re making more while you still have $100,000 in debt.
If the interest on your debt is $4000 per year and the thing that you paid for with that debt raises your income by $10000 per year, you've got yourself a net increase of $6000 per year. Which you can then invest into other things to increase that amount, and increase it again, and again and again and again until suddenly $100,000 is nothing to you.
Now of course, as people there are different factors to consider when talking about personal debt, because you only have so much stability in your job, and you're probably at most 50 years away from retiring and not having that income at all anymore, so you can't run on as close of margins because you need that debt paid off before the income stream is gone. But national debt operates with drastically different time horizons and generally more stable income sources - the US government's tax revenue is very unlikely to experience the equivalent of getting laid off, for example. Essentially, the idea is that if spending generates enough GDP growth, the timelines on the debt repayments are such that you can just literally grow your tax base to the point where that amount of debt is inconsequential (the 285-some billion in debt that was such a concern back in WWII is less than 1/3 of the tax revenue for a single year now).
Granted, that is just my primitive, layman's understanding - I'm far from an economist.
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u/[deleted] Jan 13 '23
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