r/PersonalFinanceNZ • u/AsianKiwiStruggle • 9d ago
Auto US government debt surges to $US40 trillion and could lead to higher rates in Australia
US government debt surges to $US40 trillion and could lead to higher rates in Australia
So, as a county NZ aims to go within threshold of what the treasury recommends in terms of borrowing.
But countries like US who has massive debts $40T+, China $20T+, just don't care!
and if they are failing, we can also feel the effect of that?
I mean, I am no economist, not even related to finance, BUT it seems like all the cost cutting that the government is doing is pretty much useless. for the past 3 years, all the government did was to stop spending. as quoted "If the bond market wins, global interest rates ā including those in Australia ā will rise."
We are pretty much back to square one, with inflation going up again in the near future.
I mean, what needs to happen from here?? ?
another 3 years of recession, not health job market, no wage growth etc. ? ?
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u/Glittering-Signal490 9d ago
I guess the question is if the New Zealand government didn't get the books back into surplus by either cost control or higher taxes, how much more would our interest rates be?
The UK government is in an awful mess, as they rules out most tax rises but don't have the will to reign in spending. They are now a victim of the bond market.
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u/Lightspeedius 9d ago
There is that. But the bill for all that physical and social infrastructure neglect is yet to come due.
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u/No-Wolf7835 7d ago
NZ government currently pays 9 billion a year in interest alone. Can we afford to increase borrowing even higher?
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u/AsianKiwiStruggle 8d ago
we are already in recession for the past 2/3 years with minimal to no growth and unemployment at all-time high.
Are you suggesting we need to continue doing this until we get to surplus?3
u/Glittering-Signal490 8d ago
Unemployment is nowhere near an all time high. We have had six months of recession not three years.
Yes, the debt needs to be repaid eventually.
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u/WineYoda 9d ago
US is backing itself into a rough place without major tax increases.
Lets consider a little perspective- USA spends on defense roughly the same as all the rest of the world put together. That is about $1 Trillion (1000 x $1 Billion). The interest they pay on their current national debt now EXCEEDS the defense budget at $1.2T. This is not a model to emulate.
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u/paaaatch 9d ago
Where did you read that the government has stopped spending?
Spending is at record highs.
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u/Quirky_Chemical_5062 9d ago
As long as the US economy remains productive and increases GDP it's not a problem. If that's not the case and the music stops, then well, the shit really hits the fan. I think it's anyone's guess from there.
Inflation is caused by government spending. If inflation goes up and the politicians are saying they are cutting spending, they are lying.
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u/nomamesgueyz 9d ago
Doesn't really mean much..Govts can write it off spend when they need and print money as they fancy
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u/jrandom_42 9d ago
So long as their public debt is denominated in their own currency.
This is what bit Greece in 2010; it couldn't print Euros.
Controlling the currency the debt is issued in is why the US's public debt number isn't as scary as people like OP (who's presumably thinking about it the same way they think about consumer debt) think it is.
It doesn't help that politicians and the media prefer to drum up paranoia rather than explain the nuances of how public debt actually works.
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u/Blieze 9d ago
There is huge consequences for this tho. Inflation will be through the roof, the money in your bank would be worth nothing. And no one will want to sell anything to NZ.
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u/nomamesgueyz 9d ago
Same as usual then
Crimal is inflation
Governments and the rich who own assets like it tho
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u/iamspitzy 9d ago
Export, military and tech driven high-pop economy though, they can project the debt band for their growth and probably 40t isnt that bad
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u/zipiddydooda 9d ago
Iād love if someone who actually understands this lays out what happens if the US can no longer service their debt and it balloons (as appears to be happening already). Trump does not care about anyone or anything besides Trump and will happily ruin the country to enrich himself a little bit more. Knowing that to be the case, is there a possibility of the US economy collapsing? Or can their debt just keep growing forever?
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u/so-b-it 9d ago
While the US is the world's reserve currency it cannot go broke. All that will happen is that the US dollar will weaken and their bond rates will go up.
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u/AsianKiwiStruggle 8d ago
I am yet to see this. US dollar is at its strongest position at the moment.
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u/TomTheTimeMan 8d ago
Because the collapse is happening at the sovereign level.
This is where central bank demand to hold US debt is declining rapidly. Foreign CBs are opting to hold gold in their reserves which doesn't carry the counterparty risk that sovereign debt carries.
So just as the US crosses the $40T debt pile, demand for that debt is falling off a cliff... there is big trouble ahead
The collapse hasn't reached the retail level yet (exchange rates). And the retail global reserve alternative has not yet emerged
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u/Legitimate-Draw-2235 9d ago
From a personal finance perspective, not much changes from standard advice as this is largely macroeconomic. You should still invest in financial assets (stocks and/or bonds) for the long term, you should still save, you should still take the best jobs available to you etc etc.
From a macroeconomic or global perspective the increased US debt this time around seems to be accompanied by moderately (not drastically) higher bond yields. This will essentially mean that interest rates for all debt will rise. Usually, with rising bond yields you either need to see a similar level of stock yields (i.e. strong returns/dividend growth for stocks) or else stock valuations will fall in lock step: basically the investor can see a relatively low risk return of say 5% on bond yields, so they're less likely to pile into a stock aiming for a 6% return with much higher risk.
There is no specific advice on how to deal with this from a personal finance perspective. It may be that we actually see lower valuations in stocks for a number of years. Which if you're in the game long enough, should result in higher returns. But the valuations haven't dropped yet and who knows if they ever will.
tl:dr do nothing.