Debt ceiling: Why the Great American Ponzi scheme might just keep running

Sigh. So much writing and yet his logic train goes off the rails right out of the station.<p>The crucial difference between what the U.S. is doing and a Ponzi scheme is that the U.S. is actually generating income, to the tune of 1&#x2F;4 of the world&#x27;s economy. That income stream is missing in a Ponzi scheme. Paying off maturing debt by refinancing it with new debt is nothing unusual--corporations do it all the time. It&#x27;s fine because there is the underlying income stream.<p>Now, the fact that it&#x27;s not running a Ponzi scheme doesn&#x27;t mean the U.S. can continue borrowing forever. Creditors might get nervous if the debt levels get too big relative to the income stream. What the U.S. has to worry about is not how much debt it&#x27;s taking out now. What the U.S. has to worry about is some other country becoming a more attractive place for the world to stash its cash.

The good times will keep rolling for quite some time. 12% of the debt is held by the Fed (aka. they printed money), and inflation is still 1.5%.<p>The solution to our fiscal woes is simple: we keep printing money. Eventually the markets will tire of this, and interest rates will go up. When that happens, companies and rich individuals will have a disincentive to hoard money and will begin to do something with it, which may increase inflation and interest rates more. The risk is that countries, companies and wealthy individuals will stop hoarding funds and start spending money, further increasing the money in circulation.<p>The gamble is whether this happens before or after the demographic bubble that is weakening the ability of schemes like Social Security to fund their benefits. Once the boomers go away, the entitlement programs will be more self-sufficient.

<i>Governments typically spend more than they earn</i><p>Funny how at the end of the 90s, we had set things up to pay down the national debt, and how one of the issues in the 2000 election was what to do with the projected surplus. I believe it was Gore Vidal who referred to the &quot;United States of Amnesia.&quot;

Interesting article. Particularly this:<p>&quot;The way this entire arrangement evolved had the structure of a Ponzi scheme. China and other countries invested money in various kinds of American financial securities including government bonds. This has helped keep interest rates low in the US. This helped Americans consume more. The money found its way back into China (like a return on a Ponzi scheme), and was invested again in various kinds of American financial securities, helping keep interest rates low and the consumption going.<p>Foreign countries have an incentive in keeping this Ponzi scheme going.&quot;<p>TLDR: When nearly all parties have a vested interest in continuing to kick the can, the can will likely be kicked for a very long time.

&quot;This money printing adds to the money supply. This excess money can ultimately lead to high inflation with excess money chasing the same amount of goods and services.&quot;<p>I&#x27;m in the process of writing a blog post on this. For now, the printing hasn&#x27;t led to an increase in the money supply. Banks are holding record amounts in reserves and aren&#x27;t lending the way that they were in 2008, so the money supply hasn&#x27;t increased.

interestingly of all developed countries only the US and Denmark of all places have a debt ceiling.