> But there are two solutions: reduce spending and/or raise taxes.

there are other solutions, that are more convenient politically than austerity:

- productivity boost

- higher nominal growth through inflation

- financial repression

and in theory there is also the option of defaulting

No, it's still a problem. The reserve currency just raises the headroom by something like 20 points by making cost of borrowing lower than it would be otherwise. There is no free lunch, just subsidized lunch.

Italy and Greece have been running at over 100% for ~30 years. It's not great, but it's also not the end of the world. It's even less bad for the US, as long as lenders still trust that the US government will pay them back.

30% of GDP would be better, but 100% isn't going to collapse the US economy on it's own.

Agreed. And driving 95mph is not a problem as long as there aren't any tricky situations hidden a few miles down the road.

Borrowing costs have already gone up. The 10 year treasury yield is already double from where it was during the 2010s. There are other factors contributing but it’s worth mentioning as a partial factor

It is not just reserve status that keeps borrowing costs low. It helps, but it's not the whole story.

The US dollar was the reserve currency in 1979. That didn't keep borrowing costs down.

The practical framing would be as two follow-up questions: what do the lenders care about? And what happens empirically when debt spirals?

If lenders do nothing, then nothing really matters - keep borrowing and let your debt grow exponentially.

In practice though, lenders, in their wisdom or folly, get spooked when debt goes up. In the Greek debt crisis, it all started with debt in the region of 130% of GDP. Rolling the debt with more debt spiralled away as lenders wanted an ever higher interest.

So US would either need to start really inflating its debt and test the investors patience, print the cash and let inflation run away, or tax and cut spending.

In the first scenario it kind of doesn't matter where the limit is - people sometimes argue about magic levels. The issue is that eventually the debt grows exponentially, so once it's out of control, it will exceed any reasonable level pretty quickly.

Can the US convince the world that their debt is special? I'm not sure. My reading is that investors are already twitchy about US debt, for other reasons for now, but higher debt levels surely won't calm them down.

So really I think the US has no better choice than to keep its debt down.

> The MMT folks think this is business as usual

MMT folks generally advocate that inflation is the way to measure if the spending is "too much" and argue that spending should generally aim to improve productivity (i.e. increase gdp) to minimize this issue (e.g. spending to build infrastructure so people can get to work is productive vs spending so people stay home is inflationary).

There is this pervasive idea that MMT promotes limitless spending and I'm not sure where it comes from, what they actually preach feels like a reasonable way to evaluate government spending to me.

> The right says it’s fine as long as it goes to endless wars, and the left says it’s fine when we spend the money on social programs. Both say it’s bad when the other side spends it, but not when their own spends it.

Spending is only one part. The part that almost nobody wants to touch is raising taxes to support the spending.

Having an economic science without politics at all isn't really possible - you have to define a goal for economic development to evaluate different approaches. And defining that goal introduces politics into economics. "Development for what or whom or whether at all" simply can't answered in a neutral way, it will always be in the interests of some and against the interests of others.

> I really need some politics-free scholarship on this.

It's impossible to discuss GDP without politics, could you describe exactly what it is about political discussion that you'd want to avoid?

The problem is that our political leaders don’t really understand economics, and they think you can pick and choose the parts of an economic system that you like while leaving the “bad parts” (the parts that don’t benefit our benevolent rulers) on the table. So we get MMT inflationary printing with military Keynesianism and Austrian austerity.

None of these systems work if you only take a part of the system! Any of them would probably be viable, implemented properly with a good understanding and fine adjustments to account for reality, but you can’t mix and match!

As somebody already pointed, you should always ignore the Austrians.

Now, keep in mind that "business as usual" is different from "not an issue". The MMT folks will be able to tell you exactly what the consequences are (a hint, they are not very different from when it was 95% of the GDP), while the Keynesians will rush to tell you that the stuff the MMT people are talking about isn't as important as other stuff the government could be doing. Notice that both can be correct at the same time.

Empirically, at some level of inflation the Keynesians become just wrong. Most people usually stop being Keynesian at that level.

> MMT folks

Does this still have purchase? I thought following post-Covid inflation, the MMT folks took a backseat (in politics).

If we look at the worst case, the French Revolution, it started with a deeply indebted Louis XVI.

Jacques Necker tried to restore investor confidence by publishing the Compte rendu au roi in 1781, which hid key expenses. This allowed the king to continue borrowing but did not fix the fiscal crisis.

Attempts at tax reform failed due to resistance from the nobility and the clergy who paid nothing, leading Louis XVI to convene the Estates-General of 1789. Which triggered a series of events leading to the revolution.

Revolutionary leaders seized Church lands and issued assignats to fund the state, but overissuance caused inflation. More durable financial stabilization came later under Napoleon Bonaparte through institutional reforms and, in part, revenues from military campaigns. He looted much of the wealth of the Italians who he “freed” from the Austrians.

The insight I get is that the debt is similar to NIMBY. Local interests benefit from an ever increasing debt, but collectively we are all hurt by it.

I don't think there are any MMT'ers in any position of influence on either side of the aisle (I mean, obviously, they'd be on the Democratic side of the aisle, but you get what I mean). Among serious actors there's a universal agreement that the Democratic party's fiscal policy was mismanaged --- it's not fair to blame the whole situation on them, the GOP did their part and so did the universe, but they had the controls when it mattered.

Nobody's going to make the mistake of blowing off inflation as an abstract concern again.

MMT - it was a flash in the pan pre-COVID during the "capital is infinite / ZIRP" era. It was used as a political tool to justify increasing deficits/debt.

The challenge with this problem set is the timeline is tricky. At some point the bridge can only handle so much weight before it buckles and collapses but we don't know how strong the bridge is and we have no way of measuring it.

MMT is the equivalent of saying the bridge doesn't have to worry about physics because (a) we said so and that the (b) bridge hasn't broken yet so its fine. It is a bad economic philosophy.

> The MMT folks think this is business as usual.

The MMT folks think that, when inflation gets high, you need to raise taxes to take money out of the economy. The fatal flaw in that is raising taxes is politically impossible.

I dunno it seems to me that whenever the Democrats are in office the deficits start to go down; and whenever there is a Republican in office they tend to go up. That's been the pattern my whole life so far.

Like, you say the two sides are the same because one wants to spend endless money on wars and the other wants to spend endless money on social programs, but we only ever spend endless money on wars. There's no spending comparable to war on poverty / illiteracy / sickness / homelessness.

You don't have to speculatively both sides the issue. There is a track record: https://amarkfoundation.org/reports/u-s-presidents-and-the-f...

Some of this is political, but Trump especially wildly makes a mockery of Republican supposed deficit hawkishness, not based on ideology, but by lack of a competent cabinet.

I view it as a rational play of prisoners dilemma in a nation with central bank and fiat currency. You will ~always lose (well until things get hyperinflationary) to someone promising OPM without more taxes. The system since the 70s ensures that.

The Freakonomics podcast episode "Ten Myths About the U.S. Tax System (Update)" actually goes into a lot of depth about this issue: https://freakonomics.com/podcast/ten-myths-about-the-u-s-tax... (Includes transcript)

To oversimplify, basically:

With the exception of Social Security, we (the US) has a balanced budget. No politician will get re-elected if they cut social security. (Thus) the politicians are working on the problem very quietly.

The general problem with Social Security is that it pays out way more then it takes in. Part of the issue is that everybody of retirement age collects social security, including multi-millionaires.

the left says it’s fine when we spend the money on social programs.

FWIW, for every dollar given to people for social programs like the child tax credit, they spend $1.50-$2 locally. This seems fine to me & it was popular country-wide. Meanwhile, we've gained nothing from the Iran war. We've obviously lost money and probably weakened our global standing and strengthened some of our enemies. It is also unpopular with the people. You don't have to "both sides" every issue. You can assume republican leadership is generally bad and don't have to give them the benefit of the doubt on issues you're not studied on.

https://www.ncsl.org/state-legislatures-news/details/tax-cre... https://economicsecurityproject.org/resource/public-opinion-...

Here's the real issue. Economic innovation only really happens when the government is spending big on some issue. That's at least half the reason war advances technology so fast. It's not like Ukrainians weren't able to figure out drones 5 years ago.

Stopping spending kills the economy. Which kills tax income. Which puts far more stringent limits on spending. Which reinforces the need to stop even more spending.

The parties were not symmetric on this issue. They were not symmetric in terms of actual behavior (as in how much debt each added when in government) nor in terms of rhetorics. For a start, Democratic party was acting mostly in centrist technocratic manner and rather then radical leftist manner you are implying.

It is really not necessary to knee jerk bothside everything.

1/3 of the debt has come under Trump. This isn't political, it is just a fact.

He passed tax cuts (which are the real debt driver) that are just not sustainable. Without those, we have a reasonable debt to GDP ratio.

That is an issue, I agree. I think a larger issue is that the people in Congress are for the most part spoiled children. They're "cliquey" the way schoolkids are. Their politics is essentially "yelling across the playground at each other". Their entire existence is simply begging people for money on social media or "winning points" on ... you guessed it ... social media.

These aren't serious people. The institution itself is damaged beyond all belief by this nonsense. We capped the number of seats in the house because ... we ran out of room for seats? Again, not serious people, not leaders. Spoiled children who sit on top of a hill deciding the outcome of our lives like they're toys.

We need to begin again.

The problem isn't politics, its been made to look that way but the issue is that the people who would know have been silenced in a way that the general public hasn't recognized. Its not in the benefit of the corporate overlords that you be properly educated on this.

I'll give you a brief TL;DR on the issues.

The wealth of a nation is based in its ability to produce primarily goods, and sometimes services. Pricing is a signaling mechanism that allows efficient resource allocation of both goods, and factor market labor.

When misallocation results, you get things like busts and booms where the benefits are front-loaded and a resource exhaustion cycle takes place. There are constraints which cannot be breached for any length of time, such as wages being lower than the cost of living enough to support a wife and three children to 18, and other things. Legitimate business can't operate if it can't make a profit.

There is silently nationalized industry that is unconstrained via a cycle of money-printing that has sieved assets into few hands, and risk concentrated in few hands. This is part of the danger of the ECP, and other fundamental failures related to centralized systems.

The Austrian school lives in the future. The future under a breakdown of organized society is one of death and potentially extinction. We depend on food production in ecological overshoot which depends on technology and farming. The 1970s represented ecological overshoot. When that fails you get shortage, that then sustains, famine, slavery, death, and then extinction.

Under socio-economic collapse everything fails. Currency is abandoned. Exchange cannot happen. The store of value and exchange of value fails. This happened during the Bronze Age (of which we have very little records that remain).

If these happen for extended periods of time, capital dries up and you get something like the great depression, Nintendo, and other places where logistics refuses to deliver goods at any potential profit because they were burned too many times.

There exist systems that will fail eventually and predictably (in general), but which you cannot predict specifically when those failures will happen, its unknowable, and the effects one would use to justify any decision lag behind the objective indicators of the actions that needed to be avoided.

Money-printing extracts value from those that hold the currency through the cantillion effect. Its an extraction of unpaid slave labor. Eventually it exceeds the store of value, and the businesses that normally produce stop producing. Exchange stops, etc. AI presents a unique spin on this as well because it accelerates the corruption of signalling presenting false signals chaotically in both labor and good markets.

In positive feedback systems, these type of systems commonly run-away and converge at a point of calamity. When they do the dynamics are unstoppable.

The MMT folks are delusional, having rested quite a lot of their false justifications on unsound practice to justify extraction of value.

The Keynesian's aren't so different from the MMT folks because they improperly look at certain things only in isolation with a seeming mental block to all other things, which is a form of false justification.

The bankers (if you can call them that) have corrupted leadership, and enabled sieving through non-reserve debt issuance. The mechanism over the years is leveraged buyout. The business cycle today largely runs on the ponzi cycle with debt issued upfront providing benefits upfront, followed by enshittification as the resource exhaustion cycle runs its course.

Chaos is fundamentally destructive. Large societies don't implode when they have stable stores of value, a rule of law (not by law), and manufacture goods their populace needs.

Market dynamics fundamentally fail to operate as a market under slave labor as a function of the cost function for the majority of participants. It doesn't matter if that labor is provided by a foreign power with costs socialized, or stolen through the currency through deficit spending. When you cannot know correct prices, everything falls apart at fundamental levels but you don't see it until its too late after which point the only thing you can do is start over; but existing structures under such systems seek control to the point of extinction.

No one gives power up willingly, and those that have it seek to destroy the ability for others to take it.

You can't ever make a consensus when a good portion of the people part of that consensus have become delusional, often without them even realizing it.

Austrian school is less an academic discipline or study of economics and more a post-hoc justification for libertarian philosophy. So you can freely ignore them.

Maybe decide if the right or left has better priorities. Do you think spending money on guns and war like the right is good? Do you think spending money on social programs to be good? Seems like an easy decision to me, but hey, i have empathy and don't like killing.

As long as the debt is denominated in US dollars, default is a choice. The US cannot be forced into default; it can always choose to inflate away the debt instead.

Default itself will cause massive inflation, default is not a way to prevent inflation.

A ratio (e.g. 100%) of quantities expressed in different units can be useful. "How many years of GDP is the debt?"

Miles per gallon is another example. It's a useful number.

GDP provides a rough measure for how fast a country could drain its debt—similar to looking at debt-to-income ratio when issuing mortgages to individuals.

Interest is a percentage of debt.

Income through taxes is roughly a percentage of GDP.

You could also just compare interest spending vs budget, and lots of people do. Spending on interest is roughly $1T out of a total $7T with income of $5.23T

$1T of an incoming $5.23T is pretty concerning. Especially given projections that the $1T is likely to go up significantly over the next decade.

GDP is literally just in dollars as a unit

GDP is also an amalgam of various indicators of general economic activity: Consumption + Investment + Government Spending + (Exports - Imports). It might be all in dollars, but it is kinda like adding $X of Apples with $Y of Oranges.

Its good as a rough score to do relative comparisons between countries (and actually Debt/GDP is useful in that sense too), but as an absolute amount it doesn't mean all that much.

What matters is how much the debt servicing costs versus government revenues. Also how much that debt is growing (deficit) and/or what it would cost to reduce it.

But there's not much of a consensus around what is too much or too little.

I suppose 100% Debt/GDP is a good arbitrary number to raise the alarm, but it doesn't mean much on its own.

A quarterly debt to revenue ratio would be a lot more illuminating. There are very good reasons not to care if that ratio goes out of whack for one or two quarters. But any bro divergence that persists is bad.

This ratio isn't just better because the units match, you don't have to adjust the units for growth and inflation.

If someone has a debt it's entirely sensible to compare that to their yearly income, of course this tells you something. GDP is a proxy for potential yearly income in taxes for the government.

And now debt is 1 GDP year. I don’t see the problem.

Inflation is also a factor, in absolute terms. In 2025, interest payments totaled $970 billion, or 3.2% of GDP.

The US public debt-to-GDP ratio peaked at 106% in 1946 following WW2. Next year the US will likely match or exceed that, imo.

> It's a good time to be a debtor

So you mean rich people, for whom loans are easy to get so inflation always works in their favour

The debt is owed to other countries, and private bond holders.

They can request their money back, refuse to purchase future bonds, and if things get really dire, potentially go to war with the US (Don't worry, this is beyond unlikely).

Historically lending money to the US government has not been a problem. It's been a low earning but guaranteed return. Many of those loans have very long terms, and so even if it's a problem today, it wasn't when the loans were initiated, and it might not be when loans issued today come due.

Government debt is not like personal debt, for a lot of reasons that I am not smart enough to explain.

They continue lending to the US government because they are demanding a higher rate of return. The risk premium (i.e. the problem) is priced in.

Structurally a large chunk of the debt is owed to a different part of the federal government, the Federal Reserve.

That's an important question, and why US Gov Debt is different than Japanese Gov Debt, which also has a higher debt-to-GDP ratio than the US (due to decades of "zombie economy").

About 90% of Japan's debt is held by Japanese themselves, so it's much more insulated from a crisis that can't be resolved through domestic economy policy. (It could in theory print its way out of it.) Whereas about 25% of US gov debt (which is 3x Japan's in nominal terms) is held by foreign governments, including very large amounts by China. This, combined with the US being the main currency used for international transactions, gives those countries leverage over the US economy (though selling off the treasuries would impact their own holdings as well), and conversely means that US monetary policy has a global effect.

And wasn't inflation in the Biden era a consequence of the poor handling of the economy during Covid the previous years?

And something like half again as much for the military.

War in Iran just topped 25 billion so far

It’s not as good as it might sound. By “canceling” US debt, it would mean that the government failed to pay back those who lent it money, of whom the majority are US nationals themselves.

Well, he’s single handedly responsible for 1/3 of the debt! And, will add more before his term ends either by force, naturally, or duration completion. He don’t know how to cancel debt, but would happily add more to it and laughingly take home that cash.

>Jesus died carrying humanity’s original sin.

I dont think I'll ever understand how this isnt regarded as just fanfic.

Printing more money also devalues all the previously issued dollars, such as in savings accounts and your paycheck. So it's kind of equivalent to a flat tax.

Printing more money will speed inflation.

> Can't we just print more money to pay off the debt?

Indeed

> And there will be no consequences since we're the reserved currency for the world backed by the most powerful military in human history.

Yup, and it works until you're not the reserve currency anymore, which ... happened before quite a few times (Dutch guilder. French franc. British pound)

But hey, this will be in what ? 50 years ?

Half of us will be dead by then, so who cares?