If you had 34 trillion in debt and a centuries-long history of making on-time payments, you’d have a perfect credit score.
“Bankers hate him! Get an 850 credit score and dictate the terms and interest rate of your own debt using this one simple trick.”
The US govt basically has a perfect credit score. They have almost infinite payment history and almost infinite available credit.
Credit rating also depends on credit to debt ratio. You want to keep it below 35%, so you would need a credit line of $100T or more to have a great rating.
I think sovereign debt would work like an AmEx Platimum with “no fixed limit”, which makes the algorithm ignore utilization.
Yeah, this is just people not understanding how credit scores work, part #57294, lol
Hey remember that one time where the country’s credit rating got downgraded due to political idiocy?
Pepperidge Farm remembers.
Are you immortal? Do you have an income vastly higher than the servicing cost of that debt? Do you owe the large a majority of that debt to yourself? Are you able to, if push came to shove, tell your external creditors to go fuck themselves and dare them to so much as try to collect on the debt you don’t feel like paying? If you can’t answer “yes” to all these questions, you aren’t the US and have a debt situation that has absolutely nothing in common with the US debt.
Do not forget that you are also the very entity that hands out the currency you hold your debt in.
It’s like Dwight printing IOUs for Schrutebucks
Wait till you learn about how the stock market works. Everyone with a share actually just holds an IOU in the DTCC.
It’s all built on bullshit
I remember users on another platform went into full rage mode when I said the stock market was just legalized gambling, telling me how SAFE!!! IT IS IF YOU DO YOUR RESEARCH!!!>
Okay. Black Friday and Too Big to Fail only happened in my dreams.
US debt is currently higher than their GDP. Even if they could leverage the entire country into only paying debt (they can’t), it would take over a year to pay off. At the current average interest rate of ~3%, that’s enough to pay for the entirety of NASA’s budget five times over.
The last time US debt was greater than their GDP was the second world war.
Ignoring, for a moment, the inherent and fundamental differences between an individual and a state…
…in my late 20s and early 30s I bought a new car.
At the time, that car cost more than I had in my accounts plus my other possessions at the time. In fairness, my annual income was more than the total cost of the car, buuuut I also was carrying tens of thousands of dollars of student loan debt as well, meaning my overall total debt was significantly higher than my annual income, or my “personal GDP” if you will.
Yet when I applied for my car loan, it came through with easy approval and I even qualified for the best possible interest rate.
Why? Because I’ve always paid on my debts adequately and promptly.
Nobody bats an eye when a couple buys a house that costs more than what they can cover with their combined income in one year. Why? Because that’s an arbitrary and unrealistic yard stick of comparison and nobody expects them to pay off a house in a year. They’re able to buy their house and live in it immediately, and pay for it incrementally, over time, as they earn over the coming years because of debt. And the bank is willing to lend the money because they’ll make money in the long run through interest.
Similarly, it’s unreasonable to imply that the US shouldn’t carry more debt than it’s GDP because the two metrics aren’t directly linked in any way. And since the US has excellent credit worthiness, that debt is far safer than the bank’s loan to the homebuyers. And the US gains access to borrowed funds by setting it’s own interest rates through the Fed, which tells lenders exactly how much they’ll make in interest if they let the US government borrow some of their money.
And since the US is a safer bet than homebuyers, that’s why home interest rates are higher than the rate at the Fed: if they were equal, banks would never lend to homebuyers since they could get the same return by lending to the government. So instead, they set their own, higher rates for homebuyers, to account for the higher risk of lending to a party who has a much higher likelihood of default.
They said service the debt, not pay off the whole thing. For an analogy, your whole mortgage being less than your annual salary isn’t a requirement; your monthly mortgage payment being a fraction of your monthly salary is.
The government is 100k in debt on my behalf
Two things:
- if you owe the bank $34,000, it’s your problem; if you owe the bank $34,000,000,000,000, it’s the bank’s problem.
- its a big club, and you’re not in it.
That’s a lot of zeros, when written like that
Yes, and it is the correct number of zeros to use. I find it helps to put things into scope. “Trillion” is an abstract magnitude to most people. Writing it out numerically makes it clear how absolutely enormous the number is.
Worth pointing out that credit scores are completely detached from the government. They are entirely private industry, that is collecting and selling your financial info without your consent or opt in. If you were born before 2004, then they have also accidentally leaked literally all your personal info to the dark web, with literally 0 consequences.
Nah uh! We forced them to pay an hour’s worth of profits to their own charity!
-1000 social credit for questioning government
We ain’t China…. Yet
Aww hell nahh if they ever do that I’m out of here going to another universe see ya
Micro-economics vs. macro-economics
I strongly encourage people who still think like OP to look up what happened the last time we paid off the national debt.
…link?
Andrew Jackson sold off enough Native American land to cause a real estate bubble, and between that and other things started a bank run, and the kind of people that think they’ll win the shell game pretend it’s because non-productive debt is good, and the problem was elimination of debt, not how it was done and other circumstances (among them being on a gold standard so you can actually do a bank run)
https://www.history.com/this-day-in-history/andrew-jackson-national-debt-reaches-zero-dollars
The US has a fantastic credit score. Being the world’s reserve currency helps.
And collateral lol
Well, since the billionaire class doesn’t pay it’s fair share of the tax burden, that money has to come from somewhere.
This is a popular thought, but even if we take 100% from the billionaires it pays for almost one year for the US.
Now imagine if we had taken 30-40% from billionaires every single year… hmm…
We could have a couple year of almost not having a deficit.
While I understand what assumption you’re running under no one said for only billionaires to pay. The idea is progressive tax brackets the less you make the less you pay percentage wise. We also need less loopholes for the people that can buy lawyers and manipulate their funds to get out of paying what they should. There is no reason companies and the extremely wealthy should be paying an effectively less tax percentage than the diminishing lower middle class.
It’s not about only billionaires paying, it’s about them not being a magical money source. A higher rate might feel better, but it’s not solving government revenue problems.
It will not suddenly balance the budget but it is funding that will either reduce the deficit, or reduce the burden on poorer people. We can’t fix decades of poor decisions with one good decision, it’s simply a good decision we can make now that will help.
On a serious note. Are there any countries without any national debt? Because if not then clearly capitalism is broken right?
No, if anything it shows capitalism is working. When you can increase or tighten money supply (ie when you can print and shred money) debt isn’t what you think it is. A state with money issuance powers is not a household.
I can thoroughly recommend “The Deficit Myth” book by Stephanie Kelton, if you wish to understand modern monetary policy better.
Or watch the film Finding the Money: https://youtu.be/3HRgsYSLOYw?si=g_CgqMWtC7oBCkGn
And to answer your specific question, there are countries with very low debt, but that’s usually due to either not being able to “borrow” money (again, borrowing doesn’t always mean what we would think as borrowing when you can issue your own money), being locked to another currency (Denmark is a great example - amazing economy and locked to the euro) or having a large generation of wealth (typically oil). Larger countries can issue debt more easily.
The debt we’re talking about here (as opposed to deficits) is practically all bond sales, isn’t it?
Yes more or less, that is indeed how the central bank creates money most of the time; the government creates a piece of paper that says “IOU 100k and I’ll pay you 5% interest on it for 20 years and then I’ll return your original 100k to you in 20 years” (that’s a bond), which they sell on the open market, at auction (where the variable element is the interest rate someone is willing to accept). When the central bank wishes to increase the money supply they buy government bonds on the open market (ie from other holders, rarely from the government directly) by materialising money out of thin air.
When they wish to shrink the money supply they sell their government bonds and destroys the money that they receive from the sale.
What do you mean by Denmark being locked to the euro? It has it’s own currency
Denmark has not introduced the euro, following a rejection by referendum in 2000, but the Danish krone is pegged closely to the euro (with the rate 7.46038±2.25%) in ERM II, the EU’s exchange rate mechanism.
So if euro gets stronger, so does the krone. If euro drops, so does the krone.
Okay, makes sense
<giggle.gif>
Not really. They’ve got a version of the euro, called kroners, which allows Danes to believe they have their own currency. They are locked into an exchange rate band (extremely tight) which means the Danish central bank has to follow every decision the ECB takes within minutes). And this makes complete sense, in that it’s a compromise that’s edible by voters (maintaining the illusion that Denmark didn’t adopt the euro) and edible by business (allowing businesses in Denmark to participate fully in the common market).
And that’s one of the reasons Denmark has such small national debt and runs a government surplus - they can’t really invent new money because it would break the bond with the euro. So the Danish budget is sort of a “household budget” in that in contrast to, say, Sweden, they cannot create money (meaningfully) and the books have to balance (which they do; lots of oil, Novo Nordisk, Maersk, Vestas and a few other big international plays who still pay a majority of their tax in Denmark obviously helps a lot).
Here is an alternative Piped link(s):
https://piped.video/1JpZZcD8C4M?si=efc3KJCUSP9k5kP4
Piped is a privacy-respecting open-source alternative frontend to YouTube.
I’m open-source; check me out at GitHub.
I’m not the biggest fan of capitalism myself but the existence of debt does not mean it is broken. Debt is a mechanism to allow for solid investments, e.g. building infrastructure or schools that will create a net positive in the (far) future.
Germany for example has enacted a Schuldenbremse (debt-break) in 2009 and forbids our states to take on new debt and limits the debt taken on the federal level to a minisule percentage of the GDP. Our infrastructure is currently slowly but noticeably crumbling away, bridges are getting closed for heavy traffic and experts say many of them have become irreparable due to missing maintenance and need to be fully rebuild in a few years. The local military barracks are in such a desolate condition that the soldiers need to drive two towns over to shower. We might not take on financial debt, but an infrastructure debt that will demand an even bigger toll on us.If 90% of the countries in the world are in debt and corporations have more money than god, then clearly the system isn’t ideal.
$34T is insane for one single country.
As for infrastructure, proper taxation of corporations would raise more revenue to fix such things. If Amazon is contributing to the breakdown of roads due to all the couriers then they should be paying more tax.
Look at the water companies in the UK. Paid out their shareholders for decades and did nothing to improve the infrastructure which is now likely to end up with them being nationalised after they’ve looted what they could.
I think you entirely missed the point haha
Well, that’s a misleading title. All the countries in their list have some debt, just less than most.
All countries carry some debt, because they need to show a history of reliably making payments on that debt in case they need to borrow money in the future for whatever reason. Not all countries, however, run massive deficits every year.
have you considered printing your own money?
Yes I have but then I relized hey that’s illegal
Printing imitation US dollars is illegal. Printing Varven Bux is legal! They may not be accepted everywhere, though.
Imitation is illegal… Smh why does nobody just print real money? Am I the only one seeing this loophole?!
Money = reputation
So I have a money for putting out easily? That tracks, actually.
Credit scores are just some fake shit that boomers made up. It’s so dumb.
…except that it used to be that your ability to secure a loan was based on where you went to school, how firm your handshake was, and if you happened to have the right skin color and sex organs.
The current system certainly isn’t perfect; and if you’re denied a loan you have a legal right (in the US) to know the reason.
There are systemic issues, to be sure. But the nominal goal is absolutely better than what we used to have.
We can’t ignore that there are other ways of doing it besides credit scores or overt racism. Some countries have no credit scores at all and just base loan eligibility on your salary and employment history.
And how exactly is guessing your credit worthiness based on those factors a better system than literally keeping track of what happened each previous time money was lent to you, when it comes to making a decision on lending money to you?
This is like arguing it’s a better idea to select NBA players by their height, than by their performance in high school and college basketball games.
Sorry, I’m not sure how to answer “how is measuring your credit worthiness based on your income a good way to determine how much to lend you.” I would think it’s pretty obvious that your capacity to repay a loan is dependent on your current income, not how many loans and credit cards you’ve had active in the past.
1 in 4 households earning over $100,000 a year live paycheck to paycheck–not because they can’t make ends meet, but because their money management sucks. A high income has very little relationship with responsible borrowing, despite what many would assume.
If you stop paying your car or home loan it gets repossessed, people with bad money management still have incentives to pay those on time.
My mom should have amazing credit, but she doesn’t. She does literally everything right.
Meanwhile I have really good credit and have no idea why.
It’s just made up shit and we should find a better system.
I’d definitely recommend getting a credit report (not from the websites that advertise with an insane jingle, but from the actual credit bureaus — you’re entitled to a free report). Mine had debt from a relative with a similar name; I was able to get that removed. They will also tell you in more detail what goes in to calculating it.
I agree that it’s not perfect, and often very opaque, but you should be able to get some understanding of why she doesn’t have good credit.
Does your mom have debt that she pays on time? Is her “doing everything right” visible to credit scoring agencies and aligned what statistic says about good borrowing customers?
Credit score doesn’t mean “runs a good personal economy” it means “likely to pay their loans on time, consistently, based on statistics that are observable”.
and have no idea why
Just because you refuse to learn doesn’t mean it’s magic. It is very simple to understand why exactly you have the credit score you do. Maybe mommy isn’t being entirely truthful with you.
Most people who think they understand how credit scores work…don’t understand how credit scores work.
The biggest things are loan-to-limit, payment history, and average age of accounts.
Loan-to-limit is easily achieved by keeping balances below 50%, and ideally below 30%. It’s also helped tremendously by not carrying a revolving balance (paying the statement balance in full each month) and not closing idle cards.
Payment history is of course helped by making payments on time.
And AAoA is probably the easiest. Just don’t close cards. Call and “downgrade” a card if it isn’t worth the annual fee. If there’s no annual fee, there’s no reason to close a card.
Just make sure you use it every now and then and pay it off. I sock-drawered one of my oldest cards a long time ago and it just closed last month from being idle, and that took a hit to my score (high limit gone and it’s no longer incrementing time in my AAoA).
It’s also worth mentioning that credit scores don’t matter until you are looking for credit. Credit cards are probably the easiest way to build credit, as long as they are used properly. But they’ll give a basic card to any schmuck. Where it really matters is getting mortgages and larger loans like cars. That’s where having a good score matters. And also better cards that earn more points/miles/cashback and have other fringe benefits.
Fuck credit scores and all that …but you can find out the reasons for both of those things.
Only people who are bad credit risks ever come up with this take, lmao.
The sole function of credit scores is to benefit people who are reliably ‘good for it’ when they borrow money. Without them, everyone is treated as just as high a risk as the worst borrowers who are least likely to pay back their debts, and you gain no benefit from reliably paying back your debts. But with them, your good borrowing is kept track of, and good reputation means lenders trust you more to pay your debts back, so they’re willing to lend more, and they are willing to charge less interest.
Removing credit scores changes nothing for bad borrowers, and hurts good borrowers.
You’re discounting the people who have always lived within their means and so never took on debt. They also don’t have good credit. They’ve never missed a payment. They’re good for the money. But they don’t have a history showing that because they’ve never needed that.
You’re discounting the people who have always lived within their means and so never took on debt.
No I’m not. Those people are unknown quantities, and so also suffer if credit scores go away, because bad borrowers are worse than first-time borrowers, so without credit scores, first-timers will be treated worse.
I’m saying people who don’t play this credit game but otherwise are good financially also think it’s dumb. Not just bad risks.
Tell me you don’t understand how credit score works without telling me you don’t understand how credit score works
Countries can print money. If the debt is denominated in your own currency you will never not be able to pay them.
This.
More people need to understand that the debt of a sovereign nation isn’t analogous to that of a household.
Public sector debt is private sector surplus.
The current American debt is more than the current GDP. That would be fine, if we were paying it down, but it’s growing faster than ever.
It would also be fine if it was healthy debt. Debt taken to improve infrastructure in meaningful ways, improve education, shit, even a war debt to create an old school tributary state (economically speaking).
And it would all be fine if everyone in the room were adults, and there wasn’t a significant portion of America actively and willfully trying to cause governmental collapse.
The American citizen, on average, will spend $37,000 in the next decade to pay the interest on that debt, $12.4 trillion in total.
All without universal healthcare mind you. Or, on average, a reasonable retirement age.
You need to start asking yourself whether the people who keep assuring you not to worry your pretty little head about the APR on your loans, and they are ultimately partly your loans as a citizen, are actually acting in your interest.
Public sector debt is private sector surplus.
Yes! This is the very essence of our monetary system that nobody seems to understand.
The other person who responded to me made a very all written post but it gets a core assumption completely wrong.
They seemed to think that tax revenue in some way has to happen for spending to happen. That’s why they think GDP has anything to do with our ability to service debt. But the federal government creates money ex nihilo.
Money has to be created before it can be destroyed through taxation. Spending and back stopping creation of money by private banks through the reserve system comes first. You can’t destroy something you haven’t created.
It’s sad, really. Economists and politicians have blinded everyone with what I think of as “the money delusion”.
It doesn’t matter if the money can be “gathered up” to be spent on things we need. We do not rely on the money of the wealthy. What matters is actual, real resources and services we can provide.
The national “debt” is a misnomer. That’s the amount of dollars left in circulation that have not been destroyed through taxation, as well as the “dollars” that pay interest which we call bonds.
I’m glad to see at least a handful of other people who understand. Fight the good fight, fellow human.
They seemed to think that tax revenue in some way has to happen for spending to happen.
Noo!
But the federal government creates money ex nihilo.
Yes!
Money has to be created before it can be destroyed through taxation.
Yes!!
We do not rely on the money of the wealthy. What matters is actual, real resources and services we can provide.
Yes, yes and yes!! ❤️
Thanks for your concise explanation of MMT! I wouldn’t be able to phrase it this well. ❤️
I get your point, but they cant just “print” currency so we could actually not be able to pay when people/countries stop buying the bonds or lose faith in the system.
No, that is not true. That states sell bonds is a self-imposed rule.
As long as a state collects its taxes in its own currency there will be demand for that currency.
What happens when they run out of people to sell bonds to and they run out of money to tax?
Then stop selling bonds and start investing directly (build schools, repair bridges, pay your employees, etc.).
Countries don’t have to take the detour through state bonds because they can make money out of thin air. State bonds are a self-imposed and there’s no law of nature that mandates using them.
How do they make money out of thin air?
Serious question? Money today is nothing more than a number in an account. When a country needs more of its own currency, it can increase it’s account by that amount.
No they cant, that is illegal. You could say they will change the law so that they can do that, but that is not possible (in america) at this time.
But you do have to pay that shit back … forever. And printing money leads to currency devaluation, makes everything else more expensive
Even if you don’t think the debt itself is unmanageable, you start having problems like
The economist ewww. The limits to how much money you can print is defined by the productive capacity of your country. If you print more money to increase productive capacity then it’s generally not a problem. The debt is simply an accounting fiction at that point.
Credit scores require you to get some kind of debt. This is because it’s not a score of your financial health. It’s a score of how reliably you repay your debt.
Terry Pratchett’s “Making Money” taught me enough economics to know that individual debt and national debt are two different things.
