An MMT critique of Musk's latest musings on US debt.

(Fortune)

Elon Musk warns the US is '1,000% going to go bankrupt' unless AI and robotics save the economy from crushing debt

Tesla CEO Elon Musk doubled down on his warnings about U.S. debt, predicting financial doom will be guaranteed without the transformative effects of AI and robotics on the economy.

In a lengthy, wide-ranging interview with podcaster Dwarkesh Patel alongside Stripe cofounder and president John Collison on Thursday, the tech billionaire was asked why he pushed for aggressive spending cuts while leading the Department of Government Efficiency if technology will supercharge GDP growth and ease the debt burden.

Musk replied that he was concerned about waste and fraud. That’s despite reports that many across-the-board staffing cuts included critical employees who had to be hired back.

“In the absence of AI and robotics, we’re actually totally screwed because the national debt is piling up like crazy,” he added.

Interest payments alone on the $38.5 trillion debt pile are about $1 trillion a year, exceeding the U.S. military budget, Musk pointed out.

Debt-servicing costs also top spending on social programs like Medicare. But President Donald Trump has vowed to boost annual defense outlays to $1.5 trillion, so the defense budget could overtake interest payments again, at least temporarily.

Reflecting on his work with DOGE, Musk said he had hoped to slow down the unsustainable financial trajectory the U.S. is on, buying more time for AI and robotics to boost growth.

“It’s the only thing that could solve the national debt. We are 1,000% going to go bankrupt as a country, and fail as a country, without AI and robots,” he predicted. “Nothing else will solve the national debt. We just need enough time to build the AI and robots to not go bankrupt before then.”

In late November, Musk made similar comments, saying on Nikhil Kamath’s podcast that the deployment of AI and robotics “at very large scale” is the only solution to the U.S. debt crisis.

But he cautioned that the increased output in goods and services as a result of the technologies would likely lead to significant deflation. “That seems likely because you simply won’t be able to increase the money supply as fast as you increase the output of goods and services,” Musk added.

My comment: Musk apparently isn't aware Treasury can create money ex nihilo, as noted below:

Deflation would actually worsen the debt burden in real terms, while inflation would ease it initially, though a resulting spike in bond yields would eventually send debt-interest payments soaring.

To be sure, the U.S. has some built-in advantages given that the dollar remains the world’s reserve currency, allowing the Treasury Department to borrow at lower interest rates than would be possible otherwise.

The ability of the U.S. to issue debt in its own currency and the Federal Reserve’s bond-buying capacity also lessen the risk of an outright default.

Still, the Committee for a Responsible Federal Budget warned last month that the U.S. is on a trajectory that could trigger six distinct types of fiscal crises.

While it’s “impossible” to know when disaster will strike, “some form of crisis is almost inevitable” without a course correction, the CRFB said in a report.

.......

Yet, despite the acknowledged "ability of the U.S. government to issue debt in its own currency", the CRFB - blinded by  Neoclassical 'balanced govt. budget' dogma, still persists with its "some form of crisis is almost inevitable" narrative.

Meanwhile, Musk is concerned about (how to deal with) DE-flation......

Pathetic.

Re "The ability of the U.S. to issue debt in its own currency and the Federal Reserve’s bond-buying capacity also lessen the risk of an outright default." (from post #1411):

It is this same ability which has enabled Sanae Takaichi to increase her majority  in the Diet by promising lower taxes to ease the c-o-l crisis, even though Japan has the highest debt/GDP in the world  (c. 240%).

Bond vigilantes have often tried - and failed -  to force the BofJ to raise interest rates, but the BofJ simply buys Japanese bonds to maintain demand for these bonds, hence keeping yields (interest rates) low.

Interestingly MMT economist prof. Bill Mitchell is a visiting scholar in Japan and has established communication channnels  with some  Japanese politicians; needless to say the debate with mainstream Neoclassical economists is raging in Japan.

https://billmitchell.org/blog/?p=34830

Bank of Japan is in charge not the bond markets

But the PM must be very pleased that her lower taxes policy - despite the massive government debt - has gained her a sizable majority,  and she will not suffer Liz Truss's fate....

https://edition.cnn.com/2022/10/14/investing/uk-market-credibility-truss

Liz Truss was defeated by the bond market. Investors aren’t satisfied yet


The difference?
 
Japan makes stuff, the UK  ("The City") juggles money...

Note: Germany makes stuff too, but it can no longer issue debt in its own currency..ouch.