How many once-in-a-lifetimes is this for me again? I’ve stopped counting tbh
Well, 12 times a year.
That means the service payments on public debt are roughly equal to spending for the same period on both the Department of Defense’s military budget and the Department of Education. These two outlays contribute costs of $461 billion and $70 billion respectively.
I know how we can solve the debt crisis! We just cut the education budget by $70 billion and add $140 billion to the military budget! Problem solved!
If that seems like a comically bad idea, keep in mind that Mr. Peace President wants to increase annual military spending by more than $500 billion.
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Please explain it like I’m 5. Who is the U.S. government paying interest to?
To the people that buy that debt in the form of US treasury bills, bonds and notes.
They are simple US bond buyers. People of the Land.
Common clay of the west.
You know… morons.
Thank you.
You too can offer a loan to the US Government that they will actually repay at the cost of devaluing the currency it gets paid back in
The United States government raises money by issuing bonds. It’s a “bond” as in “a promise.” It is literally a promise that if you buy one for a dollar, they will buy it back from you for a dollar and five cents next year. Not the highest interest you can get, but it’s always been rock solid reliable, unlike the stock market which earns more over time but also crashes periodically.
These bonds are just one more investment type that you can buy on the market, like stocks or mutual funds. So anyone can own them. Your grandma can own some. Jeff Bezos can own some. The government of China can own a lottttt of them.
The national debt is the five cents we have to pay every year on top of the dollar we borrowed last year. If we didn’t use that dollar to earn more than 5 cents of economic growth during that time, it was a losing bet for the US to make. We’ve made a lot of those losing bets. And now we have so many 5 cents coming due, and not enough new incoming tax revenue from our general economy to easily pay them.
Borrowing money makes sense if you can use it to grow. We are still paying off the massive borrowing we did for World War 2, but the thing is our economy has also grown massively since then so that debt is like nothing to us. WW2 put the US into a position of world dominance that has been hugely beneficial for us monetarily. So that debt was a good bet.
But we’ve been borrowing more and more and growing less and less. Now we’re borrowing to pay off the borrowing we did before, and that’s a rapid spiral down the drain.
So in the end, the national debt isn’t scary if you think America can keep growing rapidly. It’s built in that growth mentality that we’ll just keep getting bigger and bigger and have more and more to work with. That’s held true for 75 years, but it really can’t hold true forever. It’s the same dumbass growth mentality that fuels the rest of capitalism.
The reason grandparents always think the debt is scary is that they are past their own growth phase of life and spend their time trying to figure out how to live long term on what they’ve got now and nothing more. This is old people’s daily reality. And then they look at the government behaving like a teenager saying no no I can borrow like crazy to go to college because when I get out of college I’m going to earn so much money I won’t even feel it when I pay it back.
You get that college —> big earnings leap once in a lifetime (if you’re lucky) and we’ve been trying to live that leap continuously as if it’s going to just go on and on for centuries.
What’s the interest rate of the money the US government is burrowing right now?
Wouldn’t the treasury yield rate be the more precise answer to their question than the federal prime lending rate?
I’m really asking. I’m not that educated on this stuff.
so you have the consumer rate which is what we can get t-bills at (which is what you linked), but the fed also loans to major banks at the prime rate and those loans are huge. like, billions dollar loans. those loans are at the prime rate and it’s what i had in mind, but the treasury yield rate is what you or i can get on t-bills. i think the major fed to bank loans use t-bills (i haven’t read up on this stuff in 20 years) instead of moneys, but i don’t remember. what rate the majority of the debt is at, i haven’t looked in a while.
Less than soon…
Thank you. This was extremely informative and helpful.
Pleased to help
Pleasend help
This is the most eloquent way I’ve ever heard this expressed. I feel I have a much much deeper understanding of Americas debt crisis after reading this comment. Do you work in finance? Did you use ai to write any of this?
No I don’t work in finance. I consider myself pretty low on financial literacy to be honest. But that may help with writing explainers. I find that advanced people very often make poor explainers because they don’t realize when they are using jargon or high level concepts that their audience doesn’t have the foundation to understand.
And no I didn’t use AI.
The oligarchy
The US GovernmentThe US taxpayer.
Donald doesn’t mind running up other people’s credit cards.
Yeah but 2/3 of that is domestic. It’s flowing into retirement accounts and pension funds.
So subsidising retirees.
Repaying bondholders.
Every country is in debt and these bills will never be paid. Kind of like how rich people own assets, real estate, stock that define their wealth, but hold little actual money and owe lots. They get spending money via loans.
They do pay these debts. That’s exactly what this article is pointing out. We are spending this money on debt rather than something beneficial to citizens. Yes, we print our own money but we still have to pay our debts.
No it’s the interest if the debt they are paying 88billion for. Not the debt itself. So the debt isn’t actually being paid off.
Treasuries have a limited lifetime, and then are repaid. They are expiring all the time, and they are being repaid.
Interestingly enough the country can actually make money by being in debt, as long as the interest rate is below inflation. Imagine: you owe $1000 in 2026, one year later you owe $1010 (1% interest rate) but inflation is 3% so it’s only worth $980 in 2026 dollars.
Question is, what is the current interest rate that the state has to pay, and how much is the current inflation?
I got got this way with some bonds that my grandmother bought me when I was born. They were some kind of long term bonds that took a very long time to mature. I had no idea that I even had them, they were in my parents closet or something, and my parents completely forgot about them as well. I was like 35 when they gave them to me. At that point they had been fully matured for a very long time, but because of inflation, the buying power of the money earned actually made them worth less. I forget the exact numbers, but it was like:
$100 matured to $200
But a quick lookup with an inflation calculator, $100 from the year I was born showed that it had the same buying power as $280 now. So the $100, while going up in number, actually went down in value. Certainly better than keeping the $100 under the mattress, but that sucked.
Oh and it was significantly more than $100. Nothing near life changing amounts of money, but probably money that I could have used earlier in my life - to help with student loans or something. When there was less inflation.
I feel like your explanation is missing some details. Because if you owe $1010 in 2027, what good does the comparison to 2026 do you? You can’t pay with last years currency…?
I’m not disagreeing, mind you. Economics is rather arbitrary, after all. Just confused (which does not surprise me).
There is more currency every year because of inflation, which means more available to pay back the debt which is growing slower (in this scenario). Imagine being on the other side of this, you are earning interest on your treasury bonds and planning on using it to buy gas for your car, but in 2027 can buy less gas than 2026 because you got ripped off by the government indirectly.
One problem with this is, at some point people may realize loaning money to the government is a bad deal and stop doing it.
Purchasing power I have an easier time wrapping my head around - I’m poor as dirt. So…sorta get it, but not really.
¯\_(ツ)_/¯
One problem with this is, at some point people may realize loaning money to the government is a bad deal and stop doing it.
People (actually, institutions) keep buying government bonds because they’re typically very low-risk. So you’re losing actual wealth, yes, (a small bit), but it’s the safest form of carrying wealth into the future at all. Like, you could buy gas for your car for $1000 in 2026 instead, but then you risk the price of gas dropping and losing value that way too. Government bonds have a small predictable negative profit, but are virtually risk-free, which makes them attractive nevertheless.
So you’re losing actual wealth, yes, (a small bit), but it’s the safest form of carrying wealth into the future at all
That’s how it has worked, but if we’re talking about the government using inflation as a strategy for getting out of a debt they keep expanding at a faster rate, the assumption of a small, predictable loss won’t necessarily hold. IIRC treasuries suddenly becoming a worse deal was a factor in many US banks being forced to consolidate in recent years.
Zimbabwe was ahead of the game!
You’re describing this like it’s a life-hack, and not the entire reasons major economies moved away from the gold standard. To be able to take on debt “for free”
Aaand that’s not how youmake money, no.
88 hey? Well didn’t that just work out fine for their base.
So stop issuing bonds. It’s a relic of the gold standard.
You know, the one that caused the Great Depression.
