But the SMH's international editor Peter Hartcher zeroes-in on the wrong cause, like all mainstream macroeconomic ignoramuses  ....

(Sydney Morning Herald)

At debt’s door: US superpower is waning and Trump’s part of the problem

In short order, Donald Trump has inflicted deep damage to three of the unique sources of American superpower. And he’s on the very brink of shattering a fourth.

The US enjoyed the unique advantage of an alliance network of more than 40 countries. But an alliance is meaningless to Trump’s America. The US uniquely created and built the world trading system as a source of growth and prosperity. Trump is dismembering it.

The US uniquely held in check war between great powers through its military might and strategic credibility. Its might remains. But American credibility started to slide under Barack Obama and today approaches the point of extinction.

Trump’s threats and promises are worth nil. Russia ignores his threats to stop the war in Ukraine. China successfully called his bluff over tariffs. Trump claims to have stopped an escalating war between India and Pakistan, but they say he had nothing to do with it.

Two newborn acronyms, both coined in the finance world, tell the story. One, coined by Financial Times columnist Robert Armstrong this month, is TACO – Trump always chickens out. The other, first reported by The Wall Street Journal last week, conveys investor sentiment about where to put money. It’s ABUSA – anywhere but USA.

Now Trump is on the cusp of surrendering a fourth unique source of US superpower, and perhaps the single most important – America’s “full faith and credit”. That is, the ability to borrow cheaply, to spend lavishly and to enjoy the “exorbitant privilege” of issuing the global reserve currency.

China’s foreign ministry last month described Trump’s America as a “paper tiger”. Now even its paper – in the form of its Treasury bonds – is under challenge.

It’s no secret that the US has been building a vast national debt for years. Indeed, it’s literally up in lights in the form of debt clocks at multiple bus shelters around Washington, DC, courtesy of the Peterson Foundation. The clocks show US government debt at $US36 trillion and ticking higher by the minute. That’s about $US106,000 for every man, woman and child in that nation. Before the pandemic, US debt stood at the equivalent of about 100 per cent of America’s GDP. Today, it’s 122 per cent.

Some investors are starting to doubt that the US ever will repay it. The doubters include Trump himself. In 2023, he was asked about the risk of a US sovereign default. He replied: “You might as well do it now because you’ll do it later.”

The worry is that “later” has arrived. Eleven days ago, the credit rating agency Moody’s cut the US government’s creditworthiness – for the first time since 1919 – to second-tier.

Of the 200 countries in the world, only 10, plus the EU, are rated as risk-free by all three major credit agencies. The US is not among them. The AAA sovereigns are Australia, Canada, Denmark, Germany, Luxembourg, Netherlands, Norway, Singapore, Sweden and Switzerland.

There are signs of growing anxiety in the markets. The US dollar has been sold off in the last week and bond interest rates bid up. And now comes the fiscal vandalism that Trump likes to call his “big beautiful” bill.

He’s half-right. It’s big, but it’d be ugly. The domestic politics of the bill are ugly enough. The poor get poorer through cuts to food stamps and Medicaid. The rich get richer; Trump’s tax cuts for high incomes and corporations get extended.

But that’s their country, their business. Where it gets ugly for the world is its effect on the federal debt. The technocrats of the Congressional Budget Office calculate that it would add about $US4 trillion to the debt over a decade.

The bill was passed narrowly by the House of Representatives and now goes to the Senate. If this is passed into law, market reaction will be critical. A sudden sell-off of US bonds would create a financial crisis with unpredictable consequences.

Peter Orszag, head of the US investment bank Lazard, previously director of the Congressional Budget Office, said this month that, in the past, he had ignored “all the Chicken Little, kind of, ‘the sky is falling’ fiscal stuff, because all the dire predictions were not happening. But if you compare where we are now to where we were a decade ago, it’s a lot different. The deficit is twice as high. Interest rates are dramatically higher. I think it’s time to worry again about this trajectory.”

So does the historian Niall Ferguson. In February, he proposed something he calls “Ferguson’s law”. It posits that “any great power that spends more on debt servicing than on defence risks ceasing to be a great power”.

He describes his proposed threshold as timely “as the US began violating Ferguson’s Law for the first time in nearly a century in 2024”. The Congressional Budget Office says that US net interest payments hit 3.1 per cent as a share of GDP last year, overtaking defence spending at 2.9 per cent.

Different agencies have slightly different estimates, but the broad point is that the US is now in Ferguson’s danger zone, which he calls “a useful predictor of the decline of a great power”.


(cont.)

Tertiary economics professors take note:

https://profstevekeen.substack.com/p/comments-on-entropy-economics-by?utm_source...

Comments on Entropy Economics by Galbraith and Chen

(first paragraph)

The greatest compliment that I can to give Entropy Economics is that the vast majority of today’s economists would not recognize it as a work on economics at all. There’s far too much about Nature in it! There’s nothing about how agents form their preferences! And there is no proof of the equilibrium conditions! Where’s the economics???

In other words, Entropy Economics is a work that develops at least part of the new paradigm that economics so desperately needs.
....

For people who are not economics professors,  but are nevertheless interested in learning how the economy actually works, here is a definition of "entropy":

entropy
/ˈɛntrəpi/
noun
1.
Physics
a thermodynamic quantity representing the unavailability of a system's thermal energy for conversion into mechanical work, often interpreted as the degree of disorder or randomness in the system.
eg "the second law of thermodynamics says that entropy always increases with time".

2.
lack of order or predictability; gradual decline into disorder.
"a marketplace where entropy reigns supreme".

The 2nd is discounted by mainstream Neoclassical economists with their DSGE  models, as explored in this brilliant article by Keen.

I’m wondering if this is the correct thread to ask questions about investing in bitcoin via coinspot?

Daves2017 wrote on Aug 14^th, 2025 at 12:32am:


Not really.

MMT knows bitcoin is a ponzi scheme, fueled by a classical liberal mistrust of government, and misunderstanding of fiat currencies.

Note: the value of fiat currencies is based on a nation's productive capacity; bitcoin - like all ponzi schemes - is based, in this case,  on people's desires to escape government regulation, and the desire for speculative gains. Trump has attempted to reduce the speculative element via the 'Genius' act:

(google)

"The GENIUS Act outlines comprehensive regulatory guardrails for stablecoins and stablecoin providers. The bill aims to establish clear rules for issuers and reserves while also protecting consumers and maintaining financial stability".21 July 2025

Hmm... government intervention again, in this case to protect private speculators like Daves2017....

While the mainstream post-Keynesian economists are wrong on government debt, their fears re tariffs are beginning to be vindicated:

(Alternet)

'Kick in the teeth': Key indicator comes in ‘scorching hot’ just as Trump tariffs hit

A leading inflation indicator surged much more than expected last month, just as the impact of U.S. President Donald Trump's tariffs started to weigh on American businesses and consumers.

New Producer Price Index (PPI) numbers released on Thursday showed that wholesale prices rose by 0.9% over the last month and by 3.3% over the last year. These numbers were significantly higher than economists' consensus estimates of a 0.2% monthly rise and a 2.5% yearly rise in producer prices.

PPI is a leading indicator of future readings of the Consumer Price Index, the most widely cited gauge of inflation, as increases in wholesalers' prices almost inevitably get passed on to consumers. Economists have been predicting for months that Trump's tariffs on imported goods, which at the moment are higher than at any point in nearly 100 years, would lead to a spike in inflation.

Reacting to the higher-than-expected PPI number, some economic experts pinned the blame directly on the president.

"So much for foreigners paying tariffs," commented Joseph Brusuelas, chief economist at tax consulting firm RSM US, on X. "If they did, PPI would be falling. Wholesale prices up 3.3% from a year ago and 3.7% in the core. The temperature is definitely rising in the core. This implies a hot PCE reading lies ahead."

Liz Pancotti, the managing director of policy and advocacy at the Groundwork Collaborative, took a deep dive into the numbers and found that Trump's tariffs were having an impact on a wide range of products.

"There is no mistaking it: President Trump's tariffs are hitting American farmers and driving up grocery prices for American families," she said. "Wholesale prices for grocery staples, like fresh vegetables (up 39% over the past month) and coffee (up 29% over the past year) are rising, squeezing American families even further in the checkout line."

Pancotti singled out the rise in milk prices as particularly worrisome for American families.

"Milk drove more than 30% of the increase in prices for unprocessed goods, rising by 9.1% in just the past month," she explained. "Tuesday's CPI print showed that milk prices rose by 1.9% in July, and this PPI data suggests further price hikes are on the way."

Betsey Stevenson, who served on former President Barack Obama's Council of Economic Advisers, also pointed the finger at Trump's policies.

"Tariffs will cause higher prices," she said. "Volatility and uncertainty will cause higher prices. The PPI jump is not a surprise, it was inevitable."

On his Bluesky account, CNBC's Carl Quintanilla flagged analysis from economic research firm High Frequency Economics stating that the new PPI numbers were "a kick in the teeth for anyone who thought that tariffs would not impact domestic prices in the United States economy."

The firm added that it "will not be a long journey for producers' prices to translate into consumer prices" in the coming months.

Liz Thomas, the head of investment strategy at finance company SoFi, argued that the hot PPI numbers could further frustrate Trump's goal of getting the Federal Reserve to lower interest rates given that doing so would almost certainly boost inflation further.

"The increase in PPI was driven by services, and there were increases in general services costs and in the Trade component (i.e., wholesale/retail margins)," she commented. "The Fed won't like this report."

Ross Hendricks, an analyst at economic research firm Porter & Co., described the new report as "scorching hot" and similarly speculated that it would stop the Federal Reserve from cutting rates.

"Good luck with them rate cuts!" he wrote. "Can't recall the last time we've seen a miss that big on a single monthly inflation number."

Hedge fund manager and author Jeff Macke jokingly speculated that the bad PPI print would cause Trump to fire yet another government statistician just as he fired Erika McEntarfer, the former commissioner of the Bureau of Labor Statistics.

"Whoever compiles the PPI needs to update their CV," he wrote.

....

Oh dear...and the midterm elections are still a way off, with leading economic indicators only likely to get worse...

Bobby. wrote on Aug 18^th, 2025 at 4:34pm:


Correct - because thery are forced to reduce taxes to get elected.

Quote:


Resulting in increasing government debt - which is NOT a problem for a currency-issuing government, PROVIDED the spending increases productive efficiency and capacity, and avoids inflation....

Quote:


Same as above, for public service employees; as for immigrants, of course houses should exist for everyone BEFORE a housing supply crisis occurs.

Quote:


And refusal of citizens to support UN machinery to eliminate war - we are all to blame. 

Quote:


Well...covid was responsible for a large part of that; but the currency-issuing federal government has no purely financial constraints (by definition), it has a RESOURCE constraint;  and so long as state debt was accrued to develop necessary productivity improving  infrastucture etc, state treasurers can send the bill to the federal government with its Oz currency-issuing treasury.

Quote:


That's what you get for slavishly  following delusional mainstream Neoclassical economists - see the latest post from prof Steve Keen above.

And government spending eg on public housing and education and productivity-enhancing infrastructure -  need not cause inflation, as addressed above.

eg if the federal government subcontracted the private-sector building industry for a period of time, thereby avoiding inflation caused by competition with private sector resources, and funded by free treasury-created money, the effect would result in the double benefit of housing everyone (in public OR private housing), resulting in massive productivity gains as people gain the security to  learn and advance,  and house prices cease rising as the government increases supply for free.

Bobby. wrote on Aug 18^th, 2025 at 9:30pm:


You continue to ignore the fact "printing money" need not cause inflation, as I explained in the rest of my post.

Quote:


That "massive" inflation (which is now back down to 2-3%) was caused by

1. supply chain disruptions caused by covid, including extended illness among some workers.

2. later,  the Ukraine war, affecting energy and food costs.

3. Companies attempting to maintain profits amid rising production costs.

Quote:


It didn't happen because governments abandoned Keynesian deficit spending after the Arab oil embarbo in the 70s, and handed supply of housing to the private sector - resulting in the current housing crisis.

And of course you - a Western classical liberal ideologue - bleat about "Marxism", when the solution is staring you in the face; govt. subcontracts the nation's building industry for free  (ie funded by "debt-free money printing"), thereby housing everyone AND reducing inflation caused by high interest, housing and rental costs.

Quote:


Yes.

Quote:


No one knew how bad it would be in Febuary 2020, at the start of the pandemic when we saw pictures of people dying in the streets overseas.

Government was forced to lock-down the economy. 

Unfortunately, government (treasury and central bank) didn't "print free money" to pay essential bills of locked-down workers, it "printed debt money" which the govt. pretended has to be repaid to bondholders (in this case, the central bank).

Quote:


Addressed above; start exercising your brain instead of reacting, in a Pavlov dog manner, to ideas capable of solving the problem.

See the idiocy of denying the govt. the capacity to "print" debt-free money, when steps have been taken to avoid inflation - in this case by subcontracting the buliding industry (to avoid inflation caused by competition with the private sector) for a period of time? 

Note: public money in MMT is debt free money available to government for specific non-inflationary spending, not private-sector money created in private banks, money which you and I use - which must be earned or borrowed and repaid with interest.

And here Steve explains why Ray Dalio is wrong to claim the US will go broke because of the growing US debt.

https://youtu.be/KnkDdbpm_fQ