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End of Golden Era for Investors Spells Troubles

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Re: End of Golden Era for Investors Spells Troubles

#141

Post by vasilipupkin »

cm2187 wrote: post #14

I think it can get much worse than that. I don't know why people think the current levels of accumulation of debt are sustainable but there is a limit to what even the US can roll in term of debt. All developped nations are at around 100% debt to GDP, more than 200% if you include private debt, and growing at 3-5% per annum. Now does anyone really think that sometime soon any developped country will start making publ…

all you need is gdp growth + inflation to be larger than debt service payment. So, back of the envelope, current debt service is about 1.3% of gdp. We are growing at 1.8% and inflation is 2%. So, we are easily going to be able to service our debts at current levels. So, there is no problem

Re: End of Golden Era for Investors Spells Troubles

#142

Post by cm2187 »

Theodores wrote: post #125
cm2187 wrote: post #61

Earlier quoted context omitted.

I don't think we can compare the Gulf wars with the all out World Wars. And none of the European countries or Japan were making any war effort, and accumulated as much if not more debt over the same period.

Didn't the US drop more bombs on Laos in a secret war than all the bombs dropped in WW2? I do not have the figures but in these 'little wars' there has been a lot of silver spent on munitions. The whole process is just a lot more efficient so we are not at total war on the domestic front, just paying our taxes so the military can buy vastly more effective killing machines. Things may have gone away from the unguided…

During ww2, the US were constructing one aircraft carrier a week. I don't think anything of these conflicts matched that ever since.

Re: End of Golden Era for Investors Spells Troubles

#144

Post by msandford »

RobertoG wrote: post #102
msandford wrote: post #83

Earlier quoted context omitted.

"Technical default" and "Effective default" are obviously different, but if the purchasing power of the dollars you're paid in are only 1% of the dollars you've loaned, that's effective default. If the government practices effective default over a period of 50 years most people don't really get it. If the government practices effective default over 3-6 months, everyone will understand and it could be very destructive…

Do you know what makes people poorer? Closing public services, not investing in infrastructure, reducing spending in science and technology, reducing spending in public education and public health. Those are real things. Why not we worry about this?

Do you know what else makes people poorer? Having fixed expenses (housing) and roughly fixed income (salary) and growing expenses (food, clothing, energy, entertainment, etc).

As your income grows slower than inflation -- and for many people it does -- your variable expenses grow and you have to start giving things up. You can't give up housing and you can't give up food so you have to buy cheaper food, cheaper clothing, etc.

Of course, infrastructure spending is totally dwarfed by wars/military budget, so it's kind of disingenuous to suggest that in order to spend on infrastructure, public education or public health that debt must be accumulated. Cut the military budget by half and you can go hog wild, while still balancing the budget.

Re: End of Golden Era for Investors Spells Troubles

#145

Post by jordanb »

Retric wrote: post #132
jordanb wrote: post #119

Earlier quoted context omitted.

Those exports were lend/lease and the Marshall plan. They were funded with US Govt. debt. Which is to say, they were funded with domestic stimulus spending.

Total government debt was dropping over that time period.

It absolutely was not in dollar terms. As a % of GDP perhaps, simply because the economy was growing so fast. The government ran an aggregate of $120 billion in deficits over those years and only $22.5 billion in surpluses.

The Marshal plan was 1948-1953 and the Korean War was 1949-1953.

Re: End of Golden Era for Investors Spells Troubles

#146

Post by redblacktree »

kspaans wrote: post #116
cm2187 wrote: post #109

Earlier quoted context omitted.

I think you are discounting the Zimbabwe and Weimar Republic experiences a bit too quickly. The equation I print money = I create inflation does hold. Right now we see a very concentrated inflation in real estate and stocks which are not counted in the CPI indices, because the money printing is done through bank balance sheets and asset managers (by buying treasury and ABS securities) but as soon as the gvt starts pa…

I've always wondered what the reasoning for not including housing in the CPI is.

Keeping the number low.

Re: End of Golden Era for Investors Spells Troubles

#147

Post by dragontamer »

maxerickson wrote: post #129
dragontamer wrote: post #128

Earlier quoted context omitted.

Last time I checked, if you're $1 million in debt... its your problem. If you're $18 Trillion in debt, its the bank's problem. Just saying. True, $5 Trillion of the debt is held by the US Government in some form (around $2 Trillion is held by the Fed, another $3 is held by Social Security). So it'd be bad for them if the US Government defaulted. And that's why we need to pay back the debt, so that Social Security and…

The primary banker of the US government is the organized society living in North America.

I recognize that, and yes, this is a very important note to consider.

The true reason we want to pay off our debt, is because we citizens of the US Government rely upon the debt to be repaid. (Pension funds, Social Security, Investors, and the Federal Reserve are the top lenders to the US Government. NOT China as some people have noted).

Indeed, if China became the chief banker, we'd just default and stick our middle finger across the Pacific Ocean. Station a few Aircraft carriers in the Pacific and tell them "Come get your money back, if you dare".

But since the debt plays a critical role in our economy (an investor wishes for 7% returns may yearn for 5%+ interest rates of the past), its important to consider the debt from both sides. Yes, the US Government arguably wishes to be debt free. But similarly, the US Public wishes for a safe location to store cash for years-and-years.

Long story short: the debt is only a problem if we the public decides its a problem. If that happens, we'd expect interest rates to go up. However, interest rates have only dropped, so that suggests that the market wishes for more debt to be created.

Re: End of Golden Era for Investors Spells Troubles

#148

Post by tremon »

Amezarak wrote: post #70
cm2187 wrote: post #14

I think it can get much worse than that. I don't know why people think the current levels of accumulation of debt are sustainable but there is a limit to what even the US can roll in term of debt. All developped nations are at around 100% debt to GDP, more than 200% if you include private debt, and growing at 3-5% per annum. Now does anyone really think that sometime soon any developped country will start making publ…

The US federal debt was even higher in the wake of World War II. The US government did not run surpluses and deleverage in the following decades. The economy grew, without hyperinflation, and the debt became irrelevant. The solution to high levels of debt is sustainable economic growth, not deleveraging. Mass deleveraging would be an economic catastrophe.

The reliance on economic growth as debt relieval is what brought us overexploitation of natural resources, and also serves as a major impediment in responding to the threats of climate change. I'm not sure the world can survive another 50 years of economic growth.

Re: End of Golden Era for Investors Spells Troubles

#149

Post by conanbatt »

RobertoG wrote: post #56
gruez wrote: post #54

Earlier quoted context omitted.

>A country that have debt in its sovereign currency have not need to default. How did that work out for Argentina?

Argentina currency was pegged to the Dollar, so not so sovereign. Also, a lot of their public and private debt was denominated in foreign currency. Again, not so sovereign.

The constant inflation made it only possible to issue bonds in a foreign currency. Sustained inflation does not solve public debt, because it also devalues the taxes the government gets back, creating a negative feedback loop of deficit and inflation (argentina's path in the last 10 years)

Re: End of Golden Era for Investors Spells Troubles

#150

Post by pm90 »

dragontamer wrote: post #147
maxerickson wrote: post #129

Earlier quoted context omitted.

The primary banker of the US government is the organized society living in North America.

I recognize that, and yes, this is a very important note to consider. The true reason we want to pay off our debt, is because we citizens of the US Government rely upon the debt to be repaid. (Pension funds, Social Security, Investors, and the Federal Reserve are the top lenders to the US Government. NOT China as some people have noted). Indeed, if China became the chief banker, we'd just default and stick our middle…

Deliberately defaulting on debts is probably the worst thing for a sovereign nation to do. The governments of other countries may still be do that risking higher interest rates as you mention. However, if the USG ever does that, there will be consequences far more dire than China or SSA or the Fed losing money.

And there are many reason for the low rate of interest, but historically, USG securities have been the safest investments, so you have a lot of dollars chasing them. So the USG can set the interest rate low and yet it will be bought up.

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