US foreign aid package: how is it financed?
US foreign aid package: how is it financed?
I was just wondering how the US (or any country really) can pull out 100 billion on a given occasion ? Is the treasury just "printing" more money, or are taxes raised? (let's say 200million Americans are active, that's still $500 per person) . Or is it just debt passed on to future generations? It goes without saying that I am not fluent in finance
Governments need to do things, sometimes expensive things, so generally all the debt capacity and revenue (i.e. taxes) goes into a big bucket and we spend out of that. So the real answer for you is "some vague combination of debt and revenue" that is, admittedly, an extremely unsatisfying answer, but it's accurate.
If you're curious what our debt capacity is... well, there's no answer to that. So long as we're spending money in a way that we'll get a return over interest (in this case, funding Ukraine can be measured against fighting Russia ourselves but it's vague and hard to quantify) then debt is totally fine... when we start diverting a large portion of our revenue and debt to issue kickbacks (outlandish military contractors, unproductive tax cuts, political favor currying) that's when we get into trouble.
IMO, and this is highly subjective, our expenditures to defend Ukraine are pretty clear budgetary wins.
There are three ways governments obtain money.
- Taxes
- Borrow Money
- Print Money
The US government does all three. In this particular case, it's likely just borrowing money.
The biggest thing people don't understand about this is that governments don't borrow money like people do. Borrowing money today has the potential to increase tax revenue tomorrow if spent on the right things, which covers part (or all) of the cost.
The US government isn't just shipping $100 billion in cash to these countries. They're mostly paying American companies to send products or provide services to Ukraine and Israel. Those spent dollars have an economic effect inside the country, stimulating the economy.
Will that make up for the cost? Probably not, but it's also not as bad as the number sounds and it keeps certain industries well stocked and ready in case the US government needs them if a global conflict escalates to where the US needs to get directly involved.
Will that make up for the cost? Probably not [...]
I think you're being a bit too conservative here, especially with your finishing point about direct US involvement there is a compelling argument that 60B today would quite a steal if it avoided the cost of waging a direct war against Russia in military expenses alone. If we start considering lost productivity due to a draft and especially economic damage on US soil and especially especially the damage if nukes were involved... then it's hugely profitable. All that, of course, depends on the likelihood of direct conflict.
In addition, Ukraine is a valuable economic partner and investing in their future stability might also be a fair justification.
The TL;DR is that I don't really disagree with anything you said but I think you're under valuing how good of an RoI this grant is.
There are three ways governments obtain money.
- Taxes
- Borrow Money (issuing government bonds)
- Print Money (Called Quantitative Easing in the USA, the last time this was used ended March 9th, 2022)
Added clarity and more money sources:
- Fees charged to domestic individuals and companies (passports, charged interest on unpaid income taxes. etc)
- Fees charged to foreign nations or foreign companies. (exim bank fees, tariffs)
For 2, If you want to get technical it's not just bonds. The government also issues Treasury Bills and Notes.
For 4 and 5, I would classify both of those as "taxes" but they're such a small amount individually that they get grouped into a giant "Other" bucket in the general summaries the US government puts out about their revenue.
Part of the previous package was explained as....
1- send some of our old stockpiled munitions
2- pay US companies to build new ones to replenish
So it's a value, not a lump of cash.
2- is still money though, even if it remains domestic. So debt?
Would it still be pulled from the Military spend budget? (Not that it’s not debt - but if it is part of that budget it’s not exactly pulled from thin air.)
For pretty much all big spending projects it’s a bit of all of the above. Also how the money is actually spent is usually the far more interesting part.
For example, while I haven’t looked at the latest aid package for Ukraine, if it follows the same pattern as the previous ones, most the the money doesn’t actually go to Ukraine. What actually happens with most of it is that the US military is told to give Ukraine some of their old kit, the US military then uses the money from the aid package to replace what they shipped off with new kit. The money stays in the US and effectively doesn’t get spent as it winds up back in Uncle Sam’s pocket one way or another.
At the scale of governments, especially governments that control their own currency, the money isn’t what’s truly important. It’s the resources that matter. Manpower, materials and energy.
Debt for governments doesn't really work like debt for people. The vast majority of it is owed either to the US government, or individuals/companies in the US.
It's generally treated like a low-yield extremely safe investment. You can absolutely count on a US government bond being paid on time, every time. If the US starts defaulting on debts like that, it's a safe assumption that the entire economy has gone to shit a long time ago. Which means it's good for everyone.
It's debt. And they don't pay it.