Yes, but:

1) The alternative is downsizing the military which will create a lot of unemployed disenfranchised career military folks.
2) Interest on this debt is illusory as long as people both domestically and abroad are willing to recycle their excess saving capacity into Treasuries (which is the case for now). E.g. your pension fund holding US treasuries gets paid more as interest goes up (helping index your pensions) and keeps rolling (reinvesting) into those Treasuries that it purchased as they mature to pay you your pension when you retire. Think of it not as "debt burden" but aggregate saving of the e.g. pension system that is invested in US government, indexed by inflation. 10% inflation means debt has to grow from 30trln to 33trln. The problem only arises if people are not willing to reinvest their money into US treasuries. I doubt this will happen as Russians have been expelled, Chinese are slowing down, but will not crater the system. Out of $26trln of Treasuries outstanding only about $3.7trln are held by foreigners (mostly Japan).



This post was edited by Malopox on Dec 4 2023 09:11am

Exactly that. I read that China is getting rid of US debt whenever they can and the US treasury is now paying premiums in order to get investors buy their debt https://www.barrons.com/articles/treasury-auction-bond-yields-stock-market-db08c04b

Edit:

In contrast Russian debt to GDP is still very low compared to Western countries although rising because of the war



This post was edited by Djunior on Dec 4 2023 09:24am

Yes that is true, China has reduced their holdings by about $150Bn since Jan 2022 and a premium has to be paid if there is less interest. Question is - who is the marginal buyer at these auctions right now? Perhaps can chime in?

I also see that a lot of Europeans are being tempted by MMF investments instead of deposits as those yield higher (e.g. Revolut offers those). MMFs invest a.o. in Treasuries.



Russian economy functions differently as Russian govt debt is not an investment vehicle for foreign pension funds.

Russian govt debt is used to manage or speed up inflation. E.g. Russian minister of finance Siluanov just annoinced they will execute a "budget impulse" which translated means that the govt will issue debt that will be sold to private banks that will be able to repo this debt with CB and earn a skim fee - essentially printing money to finance the war at the expense of accelerating inflation. Current budget expects the war to last at least 3-4 years before this "budget impulse" becomes an issue to manage. Don't forget that in case of Russia with its export oriented economy this would mean 1) inflation will cause rouble to devalue, 2) devaluation will increase revenue taxation in absolute terms and will allow the govt to repay its debt easier, 3) devaluation will speed up domestic production increase competitiveness of domestic analogues (crude as they may be) of stuff as chinese imports will become more expensive.

This post was edited by Malopox on Dec 4 2023 09:38am

for sure the numbers russia is now spending on its war machine is definitely at the war footing level. i.e. it is taking the ukraine conflict with the utmost seriousness.

From what I know Russian budget is mostly driven by commodity export prices (oil, metals, agri, uranium, precious) and therefore fluctuates year-to-year. This time they need to add extra c.a. 3 trln roubles to pay all the military purchases and fund the conflict for 2023
https://www.reuters.com/markets/europe/russias-budget-deficit-seen-around-1-gdp-this-year-finance-minister-2023-11-22/.

Here is an infographic from a russian source how Russian budget developed over the years in Roubles (dont forget rouble devalued from c.a. 1usd: 30 to 1usd: 100 over the past 10 years). It doesnt seem too dramatic yet.

The only way the collective West can make a dent in this if they agree with Saudis to drop oil prices to 10-20$ a barrel for a year to bankrupt Russian exporters (while simultaneously bankrupting domestic US shale production and other OPEC nations) which I dont think is feasible.

(roubles trillion)


This post was edited by Malopox on Dec 4 2023 10:14am

What has been happening with treasuries is not that foreigners are selling per se but rather as their holdings are maturing they aren't re-buying but just letting that roll off. They aren't buying for several reasons.

I think one of the bigger reasons why bonds are doing bad with lack of interest is that on average a bonds return over the last 30 years was around 7%. When money markets/short term treasuries that have no interest rate risk are yielding 5-5.5% it just makes more sense to be holding cash vs take on that IR risk.

Another big reason is it's pretty much confirmed that the US is in a debt spiral. We haven't shown any willingness or seriousness about getting debt or deficits under control. So why would foreigners load up on long term US debt? They really got burned over the last 2-3 years with some of the long duration bonds losing like 20-30% fair value-- and this is investment grade US treasuries and MBS not junk bonds.

The marginal buyer that will step in is going to be domestic pension funds, 401k's etc. There's trillions sitting in money markets that once rate starts to budge to the downside you will have that money probably flow back in. In the near future, we, the US will basically own our own debt. Something like 70% is already domestically owned, that will continue to grow IMO as the US starts to fade as the global hegemon.

This post was edited by ofthevoid on Dec 4 2023 10:16am

Domestic buyers holding a large chunk of a nation's debt can work, just look at Japan. It does become a problem, however, when the central bank arrives at a point where it has to monetize the debt. The higher the share of public debt held by foreigners in such a situation, the more of the resulting losses will be sucked up by someone else. If most of the debt is held by domestic investors, the monetization will hit domestic wealth and purchasing power. So in this sense, a shift of the debt structure toward domestic buyers is detrimental to the US since it effectively reduces the degree to which they can let the rest of the world pay for their debt-making.

There will be some level of foreign buyers for as long as 1. We have military/geopolitical supremacy 2. We have technology supremacy. So the runway for the US to completely go off the rails is still long.

I agree that it's going to be the domestic public ultimately holding the bag. There's no one else to hold it lol.

"Maj Gen Vladimir Zavadsky, the deputy commander of Russia’s 14th army corps, has been confirmed killed in Ukraine, said the governor of Russia’s Voronezh region, Alexander Gusev.
He said Zavadsky had died “at a combat post in the special operation zone”, but further details have not been released."

https://www.theguardian.com/world/live/2023/dec/04/russia-ukraine-war-live-latest-updates-volodymyr-zelenskiy-vladimir-putin

Landmines don't pick sides it seems.

Trying to get attention? You posted it a week ago.