When will USA's burgeoning public deficit bite it back?
There are numerous aspects at play. The first and most important for the next 10-20 years, is the debt interest cost.<p>That is, the federal net interest payments. You want to look at that as a share of the economy and budget (and actual tax revenue as well).<p>As a share of GDP that was around 1.8% for 2019. In 1996 it was 3% by contrast, on a much smaller pile of debt. As a percentage of government outlays it was 9% in 2019, versus 15% in 1996.<p>Most likely the US can safely go up to $40 to $50 trillion in public debt, holding the average interest rate on the debt where it is now, without suffering a severe event.<p>That&#x27;s not what will happen however. The Fed will press the cost of the debt persistently lower over time and hold rates low permanently. But but but, I can hear other people say: what about inflation?!? The increasing debt maintenance costs rob the economy of dynamism and growth, and largely prevent traditional consumer inflation from running out of control (this is why Japan couldn&#x27;t spark traditional inflation, despite low rates forever; they had to forcibly take a hatchet to the Yen to get the result they wanted). You will see considerable asset inflation however, and it&#x27;ll also show up in many (but not all) commodities. It helps that the other global currencies are simultaneously debasing as well, the US just has to compete with peer fiscal disaster mostly (China, Eurozone, Japan; all three are debt and growth nightmares). The winners will be nations in great fiscal shape that have independent currencies, their purchasing power will soar - they&#x27;ll become wealthier in real-terms - versus the major currencies over time.<p>At 1% rates on the US debt, you can run up $60 trillion in magic Fed backed debt and only be paying about the same debt interest we are today. Can they squeeze the debt load down to that average rate? Yep, and they will. Eventually the US will issue debt at zero rates as in Europe, and economic dynamism will approach heat death as in most of Europe and Japan.<p>That&#x27;s impossible, to push rates so low on the debt? Of course it&#x27;s not. The ECB is doing it right now and Japan has already done it. Both of those central banks have monetized far larger shares of their respective economies than the US Fed has so far.<p>So to answer your question: this can continue for a very long time. 20 to 30 years at a minimum before the US reaches where Japan is at today, and 10 to 15 years before the US reaches where Europe is at. The doom forecasters are going to be persistently very distraught as their scenarios fail to play out (they&#x27;ll endlessly be baffled by it; the professional economists will be baffled at the lack of traditional inflation, but that&#x27;s trivially easy to explain).<p>In several decades, after the US maxes out on how low it can push rates on the debt, then it&#x27;ll move to the last resort: hatchet debasement of the USD, as in Japan with the Yen. That&#x27;s when you just start cutting down the population&#x27;s standard of living in aggressive drops (done to debase the debt; that has to continue until you crawl out from under the debt enough to be able to pay your government bills again (ie until you can afford your welfare state &amp; entitlement obligations again); this is a point where there is no choice, the outcome happens regardless of whether anyone decides to aggressively debase the currency or not). That stage, is in summary simply shifting from eating fat, to eating muscle and bone; you&#x27;re eating your nation&#x27;s assets and the value of its output very aggressively, in an almost direct swap to debase the debt.