The real question is, what negatively changed when the debt went from 600k to 666k? What about 500k to 600k? What will negatively change if it goes from 666k to 700k?
I hear a lot about the debt going up. Not once have I ever heard what the consequences of this debt are to the regular tax payer. None of these cuts are going to give normal people significant tax cuts, and cutting all these programs certainly doesn't seem like it'll positively impact people's lives. Research investment more than pays people back not just in terms of money, but quality of life. Same goes for general maintenance.
Generally sovereign debt is not a problem until creditors become worries that the debt will not be paid back. The exact threshold is subject to the regular market fear/greed manias and is not an exact figure. Once this happens the country issuing credit will have trouble lending at favorable rates and will be forced to choose between printing money (could lead to massive inflation) and making large cuts. Here is recent example: https://en.wikipedia.org/wiki/Greek_government-debt_crisis and here is an older more infamous one: https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R....
The sudden nature of these consequences without many real world impacts beforehand also happens at an individual level. It might be tempting to take on credit card debt at the moment and there might not be any real world consequences to running up the balance but if painful measures are not taken to address the situation before a moment of crisis (i.e. inability to service the debt), you are in for a world of pain.
Well, if the government starts defaulting on payments, then bond rates go to infinity while the domestic currency goes to zero.
The US is currently defaulting on all sorts of debts, and the deficit has nothing to do with it. I wonder why its credit rating hasn’t been slashed yet.
The US is not defaulting on bond payments and thus bond interest rates have not increased and the creditworthiness of bonds has not changed.
As I think you are hinting at, the US is in the process of cancelling many contracts deemed no longer in the interest of the country under a new administration. Contracts can represent a form of obligation similar to debt and there are many companies who will not sign contracts with the government due to the complications involved (or who will request very favorable terms). Unfortunately, there is not really a good rating mechanism (at least that I am aware of) for rating entities that is risky to enter into a contractional relationship with - this stuff is often passed around via word of mouth.
All debt is functionally similar in that it represents an obligation from the borrower to the creditor generally with interest which must be paid off in full or consequences will follow. Analogies can recognize similarities in a situation which can help to illustrate a point even when situations are not identical. But sure, no one is coming to confiscate air force one if the US doesn't pay off it's debt :D.
>Not once have I ever heard what the consequences of this debt are to the regular tax payer.
Inflation, and systemic fragility.
The second part is esoteric but extremely important. In financial systems, you often find that risk clusters in gray areas where models are incomplete or where the cost doesn't show up as a line item on a report. For example, increasing the bank leverage ratios to tamp down long term yields (some talk of this possibly happening that I've seen in the trading space), swaps the cost of higher interest rates for banking fragility. Risk cannot be erased, just transformed.
When it comes to debt, the Federal Reserve balance sheet spiked from 4 trillion to 8 trillion during 2020, which was in and of itself a result of earlier systemic fragility (bond leverage/basis trade collapse, which is essentially the link between the directly FED controlled ecosystem and the even more massive modern global dollar system). That balance sheet expansion seemingly had no "cost", due to interest rates being zero, but when looked at with a wider lens, the Fed essentially had massive amounts of convex interest rate risk on its books. When inflation did wake up (in large part due to the sharp fiscal infusion), their response function is to raise rates, but that functions as an immediate devaluation of their book which in part functions as a large wealth transfer to the private sector (which includes many things like mortgage holders, to the embedded inflation in long term options which the trading account I was managing got for essentially free). The net result was inflation that ran away, a borderline housing bubble where a generation is priced out, and of course a massive spike in inequality. With higher rates, Reverse Repo was also paying hundreds of billions in interest, directly fighting the inflation reducing effort.
The previous regime looked good on paper - yields were low, inflation was low, etc, but essentially what was happening was an overheating system that didn't fully factor in the costs of QE. Naturally, the costs are eventually realized. But it's insidious when these effects are, as I said, things like increasing wealth inequality that won't show up on a balance sheet report on WSJ. Risk clusters in gray areas.
So the situation now is that the treasury has shifted most of the issuance to the short end, Which means that there is a concentration of risk that starts to accelerate if inflation starts to tick up again. Because all of the T-bills get rolled every six months to two years. Before too long the debt is going to have to be termed back out to the long end, but at that point you're going to see some serious issues absorbing all of the issuance. That line raises the risk of a liquidity crisis and a breakdown of the repo market, which is a financial crisis. Alternatively, the debt can be once again stuffed in the central bank balance sheet, but it's unlikely that that regime is going to come back in full force because the costs of doing so are now extremely apparent and humans have recency bias. If the options become too constrained, the net result would be a Bank of Japan style situation, where a major currency devaluation is the only realistic scenario.
So as for the costs, it's not something that's ever going to be immediately seen, unless something's going wrong. You will probably see a mix of all of the above. Bank regulations loosened so they can take on more risk. Central Bank reversing balance sheet runoff. Some slow grinding currency devaluation. And a slew of creative financial repression (lower long term bond yield) initiatives.
Zooming way back out, it's just not an ideal or efficient way to run the system, to have these slow rolling crisis waves reverberating through time. Billions dollar pet startups levered against the QE regime was not efficient allocation of resources. Negative cost leverage for private equity is not ideal for an egalitarian society. Etc. Of course there are the more obvious examples, like sharp inflation shock risk, and budget constraints as interest payments rise, but my point is that the costs are there. All around you. You just don't see them.
The fragility point is a good one, but it's also misleading if you only look at one side of the equation. The other side is assets sloshing about the system -- like a large tanker without internal divisions, if there are a lot of assets sloshing about and the tanker gets into bad weather, the internal movement of assets can increasingly destabilize the whole thing.
That's one aspect of retirement systems that has always concerned me. Sure, it's neat to give people the control over retirement that comes with investing in an open market. But contrast this to public retirement systems where you pay in and the money is used to pay out retirement (of other people) immediately. Ultimately, both systems have to be sustained by a real economy that can provide the goods and services that folks require during retirement. But one of them puts a large amount of assets into the hands of unelected money managers, which is surely a potential source of instability.
The consequences are inflation. However, as long as there isn't inflation, it's just fine. And there are other sources of inflation, like energy crises, outside of spending based inflation.
Actually it goes the other way. Inflation erodes public debt [1][2]. It is, however, not necessarily good[3].
But at the end of the day, the causes of inflation are not cause and effect. You can print money to save an economy without causing inflation as we did during the 2008 financial crisis[4] or you can print money and cause hyperinflation as in the case of Argentina[5] or Zimbabwe. It’s more about how you do it instead of what you do.
Like you say inflation erodes public debt and so the consequences of taking on a lot of public debt is that the government is also tempted to increase inflation.
If you print money you will increase the rate of inflation. The question is how much and when. During crisis, often lending is impacted which can lead to a decrease in the supply of available capital. Printing money in this circumstance can head off deflation and thus like you point out you have printed money without causing inflation to increase above the historical baseline rate like we did in the 2008 crisis. Crucially, you cannot rely on this strategy to reliably make up for a budget shortfall as we have seen time and time again (see bullets for two examples). The parent comment is correct that often a perpetual budget shortfall leading to an expansion of public debt can and often does lead to an inflation crisis but you are right that there is a bit more nuance.
To make an analogy: if you eat much more than the average person you will become overweight. You might object that this is factually incorrect and a silly thing to say because there are some exceptions such as if you only eat fresh vegetables, are training for a marathon, have a medical condition etc but in broad strokes this is true. However in the general case, eating too much leads to weight gain (even if it is arguably not the root cause which may be that we have engineered our food supply for financial incentives rather than compatibility with our evolutionary history :D).
Financial conditions tightened after 2008, despite QE. The money supply in the broader sense (global liquidity) tightened significantly because of banking regulations limiting balance sheet size, and because of collateral requirements massively tightening up. No more sending CMBS into repo to originate systemic leverage - it's treasuries or nothing. Repo within the US is about 5 trillion today, and probably about 20 trillion globally (with USD assets at the core of the chain), so the 2008 style collateral crisis was massively deflationary despite the various liquidity injections.
There is also a cost for the QE activity - the central bank takes on interest rate risk, essentially putting on a giant prop trade on short-term interest rates (and the results of such an unwind were seen post 2020, especially in areas like the housing price surge and the banking collapse).
QE is not money printing though. It's a misconception. In some ways it can tighten. It takes high quality collateral out of the system and exchanges it for bank reserves which are extremely limited. As the QE "money printing" got obscene, banks had massive amounts of excess reserves and further reserve accumulation from QE was not an injection of liquidity at all. It really had almost no effect. If you remember, trillions of dollars of reserves were parked back at the Fed in Reverse Repo, and when inflation forced interest rates up, the inflationary loop was accelerated by the interest on reserves - the risk never goes away, it transforms and slashes around. In the '10s though, there was arguably collateral scarcity from QE, and indeed it is undeniable that a giant bond bubble was built up with 0% (negative in Europe) long term debt. Meanwhile leverage was zero cost or even negative real cost, which showed up in massive asset inflation (bank reserves from QE mostly don't propagate to the real economy. Even bank lending post 2008 has little to do with reserves.)
Not sure why you're getting downvoted, since this is a very reasonable question to ask, especially since the related deficit spending doesn't just disappear. It goes somewhere, and you can't reduce one without reducing the other.
I hear a lot about the debt going up. Not once have I ever heard what the consequences of this debt are to the regular tax payer. None of these cuts are going to give normal people significant tax cuts, and cutting all these programs certainly doesn't seem like it'll positively impact people's lives. Research investment more than pays people back not just in terms of money, but quality of life. Same goes for general maintenance.