<p>The US is in a <a href="https://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm" rel="nofollow noreferrer">privileged position</a> of producing a currency that people in other countries want to use (as reserve). There's even a <a href="https://en.wikipedia.org/wiki/Exorbitant_privilege" rel="nofollow noreferrer">French name</a> for that. Anyway, a result of that is cheap credit for the US government:</p>
<blockquote>
<p>Many believe that this dollar dominance has allowed the United States to live beyond its means, running sizable current account deficits financed by borrowing from the rest of the world at cheap interest rates. Some other countries have chafed at this “exorbitant privilege” enjoyed by the United States.­ [...]</p>
<p>There are tangible and intangible benefits to a country whose currency serves as a reserve currency. In addition to the prestige conferred by this status, it also means access to cheap financing in the country’s domestic currency and the benefit of seigniorage revenue—the difference between the purchasing power of money and the cost of producing it—which can be extracted from both domestic and foreign holders of the currency.­</p>
</blockquote>
<p>In more mundane terms, the Chinese (and others) don't just hold on to their reserve dollars, but they then lend them back to the US gov't.</p>
<p>So the incentive to not be indebted is less than elsewhere.</p>
<p>In particular, the <a href="https://www.bbc.com/news/business-41248503" rel="nofollow noreferrer">classical idea is that</a>:</p>
<blockquote>
<p>Economists say the US need not ever pay its debts back entirely, so long as the economy keeps growing enough to cover the payments.</p>
</blockquote>
<p>But there are even more extreme ideas like <a href="https://www.bloomberg.com/opinion/articles/2019-01-10/u-s-economy-modern-monetary-theory-bets-deficits-don-t-matter" rel="nofollow noreferrer">the MMT</a>, which says the US can pay even less than that.</p>
<p>Of course, you could ask, why don't the Chinese (and others) do something else with their dollars. The <a href="https://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm" rel="nofollow noreferrer">catch</a> is that there's nothing better on the horizon, in a certain (risk averse) sense:</p>
<blockquote>
<p>Moreover, there are no alternative currencies or investments that provide a similar degree of safety and liquidity in the quantities demanded by investors.</p>
<p>The reason the United States appears so special in global finance is not just because of the size of its economy, but also because of its institutions—democratic government, public institutions, financial markets, and legal framework—which, for all their flaws, still set the standard for the world. For instance, despite the Federal Reserve’s aggressive and protracted use of unconventional monetary policies, investors worldwide still seem to trust that the Fed will not allow inflation to get out of hand and diminish the value of the dollar.</p>
</blockquote>
<p>(That was written in 2014, quantitative easing is even less controversial now.)</p>
<hr />
<p>As for &quot;can not&quot;: it is a matter of time frame and it is relative to other objectives. Here are some silly ways to pay the debt (quickly):</p>
<ul>
<li><p><a href="https://www.businessinsider.com/donald-trump-default-print-money-2016-5" rel="nofollow noreferrer">print money</a>; it will causes substantial inflation, loss of confidence etc., and not really solve the problem because a lot of costs the government faces will rise with inflation.</p>
</li>
<li><p>mega-austerity, i.e. cut suddenly spending, a lot. The a-word is nearly unheard of in the US, unless it's news about Europe. Largely unacceptable politically. Also a shrinking economy means less tax revenue. <a href="https://aeon.co/ideas/in-a-highly-indebted-world-austerity-is-a-permanent-state-of-affairs_" rel="nofollow noreferrer">Classical example nowadays</a>:</p>
</li>
</ul>
<blockquote>
<p>Under the auspices of ‘bailouts’ from the IMF and the EU, Greece cut more than 20 per cent of GDP in spending. It lost nearly 30 per cent in final consumption.</p>
</blockquote>
<p>There's of course debate whether <a href="https://qz.com/69302/austerity-is-bad-economic-policy/" rel="nofollow noreferrer">a little austerity will do that</a>; it depends what you'd cut.</p>
<p>But here's an example <a href="https://www.theguardian.com/world/2015/jul/03/greece-overspending-defence-wages-taxation-economic-crisis" rel="nofollow noreferrer">what Greece cut (and didn't)</a>:</p>
<blockquote>
<p>The International Monetary Fund (IMF), which joined the rescue of Greece in 2010 alongside the EU and the European Central Bank (ECB), never asked for defence cuts, but insisted on reductions to wages. So while the defence equipment budget remained intact, soldiers suffered a near 40% drop in salaries.</p>
</blockquote>
<p>And that's actually a little misleading too, because (except for defense) <a href="https://www.economist.com/finance-and-economics/2018/08/02/greece-exits-its-bail-out-programme-but-its-marathon-has-further-to-go" rel="nofollow noreferrer">investment tanked as well</a>, in fact more than the GDP did, to some 40% of the pre-crisis value.</p>
<p><a href="https://i.sstatic.net/KzCBa.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/KzCBa.png" alt="enter image description here" /></a></p>
<p>Someone with better macroeconomics knowledge may be able to quickly estimate what paying the whole US debt at one would do. But since serious sources dismiss the idea off-hand, I can't find a published calculation.</p>
<p>There's no quick fix for the debt that won't impact some other long-term goal.</p>

CC BY-SA 4.0
2019-04-04T19:06:05.337Z
This explains why the US is less incentivized to pay its debts back, but isn't the question about ability?
Giskard
CC BY-SA 4.0
2019-04-04T19:20:10.333Z
@Giskard: well, I think the question was based on a wrong premise. But if you or someone else wants to prove the US is solvent... (of course I know it never really defaulted).
fantastic peace and prosperity
CC BY-SA 4.0
2019-04-04T19:30:32.717Z
@Giskard: mkay with Trump [talking of haircuts](https://www.businessinsider.com/donald-trump-default-print-money-2016-5) a while back, maybe that needs a more detailed answer.
fantastic peace and prosperity
CC BY-SA 4.0
2019-04-04T22:18:15.950Z
:) I agree, the question is based on a bad premise. Why not address this?
Giskard
CC BY-SA 4.0
2019-04-05T00:52:29.260Z
@Fizz - your solutions (*printing money* and *mega-austerity*) are about increasing the taxes for the poor (or to reduce their incomes - which is in fact the same thing). Why do you think you missed the option [to simply tax the rich](https://economics.stackexchange.com/questions/27605/is-it-possible-to-pay-the-internal-debt-of-the-country-and-to-cover-the-budget-d)? Say 10% increase in taxes for the rich. They won't starve if they pay 10% of their incomes so it really looks like they can afford it.
Joe Jobs
CC BY-SA 4.0
2019-04-05T01:55:50.927Z
@Fizz  -  can anyone guarantee that the creditors will always lend money to USA? Maybe tomorrow they find something more interesting to do with those money - like increasing the wealth and the living standards of the citizens in their countries. And then the economy of USA will crash/collapse. Or maybe that's what the creditors (like China for example) had in mind since the very beginning? Maybe they lend more and more money to USA in order to make it collapse? Can anyone prove beyond any doubt the good intentions of China for USA?
Joe Jobs
CC BY-SA 4.0
2019-04-05T06:55:06.637Z
@JoeJobs: I was talking about "silly ways". Increasing taxation will get more revenue over time under the same constraints as cutting expenditures: not tanking the economy. Whether higher taxes are or aren't likely to do do that is a huge debate, and it's quite politically charged, particularly in the US. See https://en.wikipedia.org/wiki/Supply-side_economics
fantastic peace and prosperity
CC BY-SA 4.0
2019-04-05T07:05:08.310Z
@JoeJobs: and regarding "can anyone guarantee that the creditors will always lend money to USA?" No. It requires some assumptions.
fantastic peace and prosperity
CC BY-SA 4.0
2019-04-06T02:31:05.223Z
@Fizz - so it's not safe to keep increasing the debt of the country (to keep creating budget deficit) because the creditors can change their, right?. And sorry, somehow I skipped the "silly ways".
Joe Jobs
CC BY-SA 4.0
2019-04-06T02:47:27.827Z
I meant "the creditors can change their mind"
Joe Jobs
CC BY-SA 4.0
2019-04-06T03:11:47.180Z
@Fizz - what kind of impact on a long term goal has taxing the rich for 10% of their income? How about 5%? Or 1%? Or 0.1%? Is there any proof that such an austerity for the rich will hurt the economy? Was it ever tested?
Joe Jobs
CC BY-SA 4.0
2019-04-07T12:17:52.317Z
@JoeJobs: that is a good question, but really should be asked separately; here is a teaser: http://www.igmchicago.org/surveys/taxes
fantastic peace and prosperity
CC BY-SA 4.0
2019-05-11T12:56:22.637Z
Regarding the link you provided for “the MMT”. No MMT economist would ever ENCOURAGE creating money beyond our productive capacity, yet that is a fundamental assumption of this (COUGH) critique.
aliteralmind
CC BY-SA 4.0
2019-04-04T18:29:51.780Z
2020-05-07T05:42:35.623Z
2020-06-17T09:40:54.643Z
fantastic peace and prosperity
<p>Fizz gave a great answer. I also wanted to add a little to the original question. 
The US has no incentive to pay back its debts!</p>

<p>The US dollar is used as a major global Forex reserve. This helps to reduce risk in investing for the country buying US debt. The US then uses leverage to generate positive GDP above and beyond the rate of debt...rinse and repeat. </p>

<p>I don't think Hungary and the Czech Republic can be compared in terms of paying of debt. China, though an export economy versus US import economy, has $5.2T* of government debt (excluding private debt), which is more worrisome for an export economy.</p>

CC BY-SA 4.0
2019-04-06T02:37:36.033Z
Thanks. So it's not really safe for the creditors like China to lend money to a country (USA in this case) that is not capable to pay it's debt on it's own and that is always making more and more debt, just like it's not safe to lend money to a drug addict, right?
Joe Jobs
CC BY-SA 4.0
2019-04-06T02:42:25.410Z
The US generates positive GDP above and beyond the rate of debt - so be it - yet USA is not capable to pay it's debt on it's own. USA always makes more and more debt. A drug addict can create awesome artwork and sell it for good money - therefore make nice profits - similar with the GDP growth you are pointing at - and then spend all the money on drugs. And then ask other people to lend him money to buy more drugs. So the GDP growth doesn't matter. The only thing that matters is the capacity to pay it's debt.
Joe Jobs
CC BY-SA 4.0
2019-04-06T03:02:46.103Z
Do you have any link to support the claim that "China, though an export economy versus US import economy, has $5.2T* of debt"? And how much debt does USA, though an export economy versus China import economy, have? Or is that 5.2T a net debt? If you have a debt of 5\$ for me and I have a debt of 10\$ for you that means that your net debt is -5\$ - i.e. I have a net debt of 5\$ towards you.
Joe Jobs
CC BY-SA 4.0
2019-04-05T20:29:33.910Z
2020-05-08T09:54:48.590Z
2020-05-08T09:54:48.590Z
caszboy
<p>Why is the USA not capable to pay its public debt on its own?</p>

<p>The country needs to create new debt in order to pay its due debt.</p>

<p>Not only that, but the debt is also only increasing and the country is not capable to reduce the debt. Since 2000 or so, the country is only capable to increase its debt. And the prediction is that the debt will only increase - <a href="https://en.wikipedia.org/wiki/History_of_the_United_States_public_debt#/media/File:Federal_Debt_Held_by_the_Public_1790-2013.png" rel="nofollow noreferrer">Link1</a> - <a href="https://www.heritage.org/debt/commentary/how-fast-us-public-debt-will-grow-if-we-dont-change-course" rel="nofollow noreferrer">Link2</a> - <a href="https://www.cbpp.org/research/long-term-budget-outlook-remains-challenging-but-recent-legislation-has-made-it-more" rel="nofollow noreferrer">Link3</a></p>

<p>Hungary and the Czech Republic are capable to pay their debt on their own but in the same time USA is not capable to pay its debt on its own. Why is that?</p>

<p>What makes a country not capable to pay its debt on its own?</p>

CC BY-SA 4.0
2019-04-04T22:55:26.510Z
Mostly because paying the debt would require taxing rich people.  (I'm not being sarcastic -- this is the honest truth!)
Hot Licks
CC BY-SA 4.0
2019-04-05T07:08:20.023Z
If this is really your underlying question, i.e. "why is the US decreasing, not increasing taxes (even though they have pile of debt)?" I think you'd better head over to politics SE. https://en.wikipedia.org/wiki/Supply-side_economics and all that.
fantastic peace and prosperity
CC BY-SA 4.0
2019-04-05T07:19:04.297Z
I'm not among those who downvoted your question, but I can see now why some didn't like the way you've cloaked it in comparative economics, if that is really what you have done.
fantastic peace and prosperity
CC BY-SA 4.0
2019-04-05T21:44:55.923Z
FYI: a similar question about France on P.SE, why it cannot reduce its deficit: https://politics.stackexchange.com/questions/38521/why-does-france-have-systematic-difficulties-in-obtaining-a-budget-deficit-below
fantastic peace and prosperity
CC BY-SA 4.0
2019-10-24T23:44:30.120Z
the problem here is term definition. Debt can mean many things in macroeconomics. the lay understanding of debt is basically and IOU. but in macro economics there is current account deficit (more imports than exports) there is government debt (which is not actually anybody owning anything to anybody) ie deficit spending as opposed to surplus. the later, deficit spending is the most common notion of public debt, but it isn’t debt in the way you think it is. the government cannot run out of money as a sovereign currency issuing entity. even allen greenspan has said govt cannot run out of money.
wide_eyed_pupil
<government-debt><public-economics><comparative-economics>
Why is the USA not capable to pay its debt?
Joe Jobs
# Why is the USA not capable to pay its debt?

(Asked by: username_0 on 2019-04-04)

Why is the USA not capable to pay its public debt on its own?

The country needs to create new debt in order to pay its due debt.

Not only that, but the debt is also only increasing and the country is not capable to reduce the debt. Since 2000 or so, the country is only capable to increase its debt. And the prediction is that the debt will only increase - [Link1](https://en.wikipedia.org/wiki/History_of_the_United_States_public_debt#/media/File:Federal_Debt_Held_by_the_Public_1790-2013.png) - [Link2](https://www.heritage.org/debt/commentary/how-fast-us-public-debt-will-grow-if-we-dont-change-course) - [Link3](https://www.cbpp.org/research/long-term-budget-outlook-remains-challenging-but-recent-legislation-has-made-it-more)

Hungary and the Czech Republic are capable to pay their debt on their own but in the same time USA is not capable to pay its debt on its own. Why is that?

What makes a country not capable to pay its debt on its own?

**Tags:** government-debt, public-economics, comparative-economics

> **Comments:**
> **username_1**: Mostly because paying the debt would require taxing rich people.  (I'm not being sarcastic -- this is the honest truth!)  
> **username_2**: If this is really your underlying question, i.e. "why is the US decreasing, not increasing taxes (even though they have pile of debt)?" I think you'd better head over to politics SE. https://en.wikipedia.org/wiki/Supply-side_economics and all that.  
> **username_2**: I'm not among those who downvoted your question, but I can see now why some didn't like the way you've cloaked it in comparative economics, if that is really what you have done.  
> **username_2**: FYI: a similar question about France on P.SE, why it cannot reduce its deficit: https://politics.stackexchange.com/questions/38521/why-does-france-have-systematic-difficulties-in-obtaining-a-budget-deficit-below  
> **username_3**: the problem here is term definition. Debt can mean many things in macroeconomics. the lay understanding of debt is basically and IOU. but in macro economics there is current account deficit (more imports than exports) there is government debt (which is not actually anybody owning anything to anybody) ie deficit spending as opposed to surplus. the later, deficit spending is the most common notion of public debt, but it isn’t debt in the way you think it is. the government cannot run out of money as a sovereign currency issuing entity. even allen greenspan has said govt cannot run out of money.  

---

## 2 answers

### Answer by username_2 on 2019-04-04. Score: 6

The US is in a [privileged position](https://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm) of producing a currency that people in other countries want to use (as reserve). There's even a [French name](https://en.wikipedia.org/wiki/Exorbitant_privilege) for that. Anyway, a result of that is cheap credit for the US government:

> Many believe that this dollar dominance has allowed the United States to live beyond its means, running sizable current account deficits financed by borrowing from the rest of the world at cheap interest rates. Some other countries have chafed at this “exorbitant privilege” enjoyed by the United States.­ [...]
>
> There are tangible and intangible benefits to a country whose currency serves as a reserve currency. In addition to the prestige conferred by this status, it also means access to cheap financing in the country’s domestic currency and the benefit of seigniorage revenue—the difference between the purchasing power of money and the cost of producing it—which can be extracted from both domestic and foreign holders of the currency.­

In more mundane terms, the Chinese (and others) don't just hold on to their reserve dollars, but they then lend them back to the US gov't.

So the incentive to not be indebted is less than elsewhere.

In particular, the [classical idea is that](https://www.bbc.com/news/business-41248503):

> Economists say the US need not ever pay its debts back entirely, so long as the economy keeps growing enough to cover the payments.

But there are even more extreme ideas like [the MMT](https://www.bloomberg.com/opinion/articles/2019-01-10/u-s-economy-modern-monetary-theory-bets-deficits-don-t-matter), which says the US can pay even less than that.

Of course, you could ask, why don't the Chinese (and others) do something else with their dollars. The [catch](https://www.imf.org/external/pubs/ft/fandd/2014/03/prasad.htm) is that there's nothing better on the horizon, in a certain (risk averse) sense:

> Moreover, there are no alternative currencies or investments that provide a similar degree of safety and liquidity in the quantities demanded by investors.
>
> The reason the United States appears so special in global finance is not just because of the size of its economy, but also because of its institutions—democratic government, public institutions, financial markets, and legal framework—which, for all their flaws, still set the standard for the world. For instance, despite the Federal Reserve’s aggressive and protracted use of unconventional monetary policies, investors worldwide still seem to trust that the Fed will not allow inflation to get out of hand and diminish the value of the dollar.

(That was written in 2014, quantitative easing is even less controversial now.)

---

As for "can not": it is a matter of time frame and it is relative to other objectives. Here are some silly ways to pay the debt (quickly):

* [print money](https://www.businessinsider.com/donald-trump-default-print-money-2016-5); it will causes substantial inflation, loss of confidence etc., and not really solve the problem because a lot of costs the government faces will rise with inflation.
* mega-austerity, i.e. cut suddenly spending, a lot. The a-word is nearly unheard of in the US, unless it's news about Europe. Largely unacceptable politically. Also a shrinking economy means less tax revenue. [Classical example nowadays](https://aeon.co/ideas/in-a-highly-indebted-world-austerity-is-a-permanent-state-of-affairs_):

> Under the auspices of ‘bailouts’ from the IMF and the EU, Greece cut more than 20 per cent of GDP in spending. It lost nearly 30 per cent in final consumption.

There's of course debate whether [a little austerity will do that](https://qz.com/69302/austerity-is-bad-economic-policy/); it depends what you'd cut.

But here's an example [what Greece cut (and didn't)](https://www.theguardian.com/world/2015/jul/03/greece-overspending-defence-wages-taxation-economic-crisis):

> The International Monetary Fund (IMF), which joined the rescue of Greece in 2010 alongside the EU and the European Central Bank (ECB), never asked for defence cuts, but insisted on reductions to wages. So while the defence equipment budget remained intact, soldiers suffered a near 40% drop in salaries.

And that's actually a little misleading too, because (except for defense) [investment tanked as well](https://www.economist.com/finance-and-economics/2018/08/02/greece-exits-its-bail-out-programme-but-its-marathon-has-further-to-go), in fact more than the GDP did, to some 40% of the pre-crisis value.

[![enter image description here](https://i.sstatic.net/KzCBa.png)](https://i.sstatic.net/KzCBa.png)

Someone with better macroeconomics knowledge may be able to quickly estimate what paying the whole US debt at one would do. But since serious sources dismiss the idea off-hand, I can't find a published calculation.

There's no quick fix for the debt that won't impact some other long-term goal.

> **Comments:**
> **username_4**: This explains why the US is less incentivized to pay its debts back, but isn't the question about ability?  
> **username_2**: @username_4: well, I think the question was based on a wrong premise. But if you or someone else wants to prove the US is solvent... (of course I know it never really defaulted).  
> **username_2**: @username_4: mkay with Trump [talking of haircuts](https://www.businessinsider.com/donald-trump-default-print-money-2016-5) a while back, maybe that needs a more detailed answer.  
> **username_4**: :) I agree, the question is based on a bad premise. Why not address this?  
> **username_0**: @Fizz - your solutions (*printing money* and *mega-austerity*) are about increasing the taxes for the poor (or to reduce their incomes - which is in fact the same thing). Why do you think you missed the option [to simply tax the rich](https://economics.stackexchange.com/questions/27605/is-it-possible-to-pay-the-internal-debt-of-the-country-and-to-cover-the-budget-d)? Say 10% increase in taxes for the rich. They won't starve if they pay 10% of their incomes so it really looks like they can afford it.  
> **username_0**: @Fizz  -  can anyone guarantee that the creditors will always lend money to USA? Maybe tomorrow they find something more interesting to do with those money - like increasing the wealth and the living standards of the citizens in their countries. And then the economy of USA will crash/collapse. Or maybe that's what the creditors (like China for example) had in mind since the very beginning? Maybe they lend more and more money to USA in order to make it collapse? Can anyone prove beyond any doubt the good intentions of China for USA?  
> **username_2**: @JoeJobs: I was talking about "silly ways". Increasing taxation will get more revenue over time under the same constraints as cutting expenditures: not tanking the economy. Whether higher taxes are or aren't likely to do do that is a huge debate, and it's quite politically charged, particularly in the US. See https://en.wikipedia.org/wiki/Supply-side_economics  
> **username_2**: @JoeJobs: and regarding "can anyone guarantee that the creditors will always lend money to USA?" No. It requires some assumptions.  
> **username_0**: @Fizz - so it's not safe to keep increasing the debt of the country (to keep creating budget deficit) because the creditors can change their, right?. And sorry, somehow I skipped the "silly ways".  
> **username_0**: I meant "the creditors can change their mind"  
> **username_0**: @Fizz - what kind of impact on a long term goal has taxing the rich for 10% of their income? How about 5%? Or 1%? Or 0.1%? Is there any proof that such an austerity for the rich will hurt the economy? Was it ever tested?  
> **username_2**: @JoeJobs: that is a good question, but really should be asked separately; here is a teaser: http://www.igmchicago.org/surveys/taxes  
> **username_5**: Regarding the link you provided for “the MMT”. No MMT economist would ever ENCOURAGE creating money beyond our productive capacity, yet that is a fundamental assumption of this (COUGH) critique.  

---

### Answer by username_6 on 2019-04-05. Score: 2

Fizz gave a great answer. I also wanted to add a little to the original question.
The US has no incentive to pay back its debts!

The US dollar is used as a major global Forex reserve. This helps to reduce risk in investing for the country buying US debt. The US then uses leverage to generate positive GDP above and beyond the rate of debt...rinse and repeat.

I don't think Hungary and the Czech Republic can be compared in terms of paying of debt. China, though an export economy versus US import economy, has $5.2T\* of government debt (excluding private debt), which is more worrisome for an export economy.

> **Comments:**
> **username_0**: Thanks. So it's not really safe for the creditors like China to lend money to a country (USA in this case) that is not capable to pay it's debt on it's own and that is always making more and more debt, just like it's not safe to lend money to a drug addict, right?  
> **username_0**: The US generates positive GDP above and beyond the rate of debt - so be it - yet USA is not capable to pay it's debt on it's own. USA always makes more and more debt. A drug addict can create awesome artwork and sell it for good money - therefore make nice profits - similar with the GDP growth you are pointing at - and then spend all the money on drugs. And then ask other people to lend him money to buy more drugs. So the GDP growth doesn't matter. The only thing that matters is the capacity to pay it's debt.  
> **username_0**: Do you have any link to support the claim that "China, though an export economy versus US import economy, has $5.2T* of debt"? And how much debt does USA, though an export economy versus China import economy, have? Or is that 5.2T a net debt? If you have a debt of 5\$ for me and I have a debt of 10\$ for you that means that your net debt is -5\$ - i.e. I have a net debt of 5\$ towards you.  

---

