Nov

13

The $38 Trillion Question: An Interview with Stanford Professor Hanno Lustig

Hanno Lustig: I started thinking about the valuation of government debt by looking at the valuation of all Treasuries. What do we have to believe to get to a number like $38 trillion? You must believe there will be a huge fiscal correction, because ultimately the value of debt should be backed by future primary government surpluses. When you do the numbers, you realize that either bond investors are pricing in a huge fiscal correction that seems impossible, or Treasuries are significantly overpriced.

Carder Dimitroff notes:

The interest on debt is approaching $1 trillion per year and continues to compound. Interest costs currently exceed Department of Defense spending.

Larry Williams disagrees:

Meaningless measure look at debt vs gdp

Carder Dimitroff responds:

Yes, that makes sense. However, from a different perspective, it becomes meaningful under the One Beautiful Budget Bill when automatic sequestrations are implemented. Unless new legislation is passed, sequestrations will result in Medicare cuts and other reductions in expenditures. Current projections suggest sequestration will present in early 2026.

Big Al checks with FRED:

Nils Poertner writes:

recession + zero short term rates + lots of QE ….leading to a lot more public debt
maybe that is more likely path.

Stefan Jovanovich offers some history:

This chart shows the solvency ratios that can be found from the Census and other data [by decade 1880 to 2020] - how much "we the people" have in money divided by how much the American governments promise to pay.


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