55% of the US National Debt Is the Result of Repaying Debt with More Debt • Hacker News Board

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#71

Post by cheald » Thu, Jul 19, 2018, 4:21 PM UTC

whb07 wrote: post #63

bubbleRefuge wrote: post #41

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Governm…

I agree with this statement: "There will always be demand for interest bearing risk free government debt". Now go ask investors how they feel about Greek/Argentinian/Venezuelan etc bonds. A country is just a large collection of people and can be thought of as a giant person. They aren't magical creatures / objects. If a country has no steady job and loves wasting money no one will lend it money. Same applies to a bus…

One might suggest that Greek/Argentinian/Venezuelan bonds aren't risk-free. :)

It's true that the US Govt could print its way out of nominal debt, but there are market constraints on how aggressively it may do so if we want the system to keep working, because stable inflation is a key component in the demand for government bonds. Once inflation stops being stable, your government's ability to issue new bonds is in trouble, because buyers demand higher yields to encapsulate the risk of that uncertainty.

I'm of the opinion that reality is somewhere in the middle - US government debt isn't the same as household debt, but it's not meaningless, either, and I think it does everyone a disservice when we discuss it as being characteristic of either extreme.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#72

Post by rdiddly » Thu, Jul 19, 2018, 4:28 PM UTC

Four_Star wrote: post #46

rdiddly wrote: post #43

"This interest includes repaying principal." Stop right there. Something's fishy with the terminology/math/reasoning then, no? If the "interest" includes principal, then what is the interest? It's like saying "Use one cup of flour and water" or "The size of my penis is 6 feet including my height." Here's what let's do: subtract the principal from the interest. That should leave you with the interest only. Therefore I…

That's the way reporting on the repayment of the national debt is done. The point of the article is unchanged. Those familiar with Treasuries will understand If I run a deficit of 100 dollars, borrow 100 dollars and I repay the loan by borrowing 100 dollars and the interest on both is 10 dollars, than I owe 220 dollars but I only got 100 dollars of real spending. That is what the article is saying. of the $21.4 trill…

My point is that it's bad terminology, which I show by proving it leads to bad math. I notice at no point do you refer to the $10 as including part of the $100 in either case, so apparently you agree.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#73

Post by jrs235 » Thu, Jul 19, 2018, 4:28 PM UTC

khuey wrote: post #70

jrs235 wrote: post #67

Earlier quoted context omitted.

I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).

Inflation is a tax on savers, not the poor.

Yes, I forgot savers/creditors.

However, it does affect those whose expenses rise and a) are on fixed income or b) don't get raises as quickly and frequently as the prices of everyday needs increase.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#74

Post by JumpCrisscross » Thu, Jul 19, 2018, 4:29 PM UTC

lrajlich wrote: post #69

JumpCrisscross wrote: post #33

Earlier quoted context omitted.

> That is partly because of the petrodollar BTW No, it's not. It's because Americans are massive consumers. We buy things, domestically and internationally, with U.S. dollars which in turn fuels demand for U.S. dollar-denominated assets. Attributing the dollar's hegemony to its use in commodities pricing reverses cause and effect.

Foreign demand for USD does in effect lower US govt borrowing costs given our situation of having a fairly large trade deficit as well. Petroleum is one example of foreign USD demand (china buys oil with USD, for example), as are central bank reserve holdings, real estate transactions in Argentina, and I'm sure there are other examples as well. These foreign demands for USD in effect lower our borrowing cost as it pr…

> Foreign demand for USD does in effect lower US govt borrowing costs

This is correct. But petroleum trading in dollars is an effect of the dollar's hegemony, not a cause.

Every dollar transaction contributes to the dollar's network effects. But petroleum's contribution is small and overstated. Petrodollar hypotheses are closer to conspiracy theories than useful models.

The U.S. dollar is underwritten, ultimately, by American consumption. About 15% of American imports are petroleum [1][2], so it's a significant factor. But it's not special in any particular regard.

[1] https://traderiskguaranty.com/trgpeak/what-are-the-top-10-u-...

[2] https://wits.worldbank.org/CountrySnapshot/en/USA/textview

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#75

Post by JumpCrisscross » Thu, Jul 19, 2018, 4:30 PM UTC

cheald wrote: post #71

whb07 wrote: post #63

Earlier quoted context omitted.

I agree with this statement: "There will always be demand for interest bearing risk free government debt". Now go ask investors how they feel about Greek/Argentinian/Venezuelan etc bonds. A country is just a large collection of people and can be thought of as a giant person. They aren't magical creatures / objects. If a country has no steady job and loves wasting money no one will lend it money. Same applies to a bus…

One might suggest that Greek/Argentinian/Venezuelan bonds aren't risk-free. :) It's true that the US Govt could print its way out of nominal debt, but there are market constraints on how aggressively it may do so if we want the system to keep working, because stable inflation is a key component in the demand for government bonds. Once inflation stops being stable, your government's ability to issue new bonds is in tr…

> there are market constraints on how aggressively it may do so if we want the system to keep working

Part of which involves discussing deficit and debt.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#76

Post by lrajlich » Thu, Jul 19, 2018, 4:33 PM UTC

bubbleRefuge wrote: post #54

JumpCrisscross wrote: post #45

Earlier quoted context omitted.

> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fisc…

No . But you are getting there. Yes fiscal policy is the lever that determines the amount ( quantity) of money ( or demand ) driving the economy . Monetary policy is interest rates or the price of money. And ,there is mounting evidence that hight interest rates actually have the opposite of the intended effect . That is, that higher interest rates lead to higher net income to the private sector which is a bit inflati…

> higher interest rates lead to higher net income to the private sector which is a bit inflationary.

There a paper for this? low interest rates tend to be associated with poor economic conditions, in the extreme liquidity trap or secular stagnation, so this conclusion makes sense though the causal effect is the opposite of what is suggested by your comment... As an example, interest rates (ex fed funds) were really low during the great depression!

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#77

Post by damptowel » Thu, Jul 19, 2018, 4:55 PM UTC

JumpCrisscross wrote: post #45

bubbleRefuge wrote: post #41

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Governm…

> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fisc…

Government debt isn’t “debt” in the classical sense. Let me suggest an analogy: a bank lends you a loan at intrest, but no expiry date. You can pay back the loan at any point in the future. Not only that, the bank has no ways of enforcing you to pay it back through legal action. On top of that, you are infinitely credit worthy, you can get as much loans as you want, including loans to cover existing loans. Would you consider this a “debt”. The answer is that it’s nothing like a debt in any meaningful sense of the term, it is merely a label used because of accounting convention.

Could you “print”* an amount of money several times the world GDP and get inflation?

That depends whether te money is circulated at all. Inflation is not a function of the money stock, it happens when sellers collectively mark up their price above current market rate. This is easier to do with rising expectations of higher return. The money stock is not some magical denominator on top of a real goods numerator.

*(it’s really just incrementing a number in a database, zero production cost, so print is another misnomer)

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#78

Post by damptowel » Thu, Jul 19, 2018, 4:58 PM UTC

jrs235 wrote: post #67

zzzzzzzza wrote: post #66

Earlier quoted context omitted.

that cost would be inflation, but inflation is not even close to unreasonable levels. In fact, 2% ish inflation is healthy, so the "cost" is really more of a benefit at this point.

I often wonder how many people have thought about inflation as a tax on the poor. It hurts those with less discretionary funds the most. I also think it's ridiculous what the government does and does not include in it's inflation calculation(s).

Inflation is not a tax...

Inflation also reduces the value of old debt in relation to current income.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#79

Post by lrajlich » Thu, Jul 19, 2018, 5:00 PM UTC

bubbleRefuge wrote: post #41

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Governm…

> There will always be demand for interest bearing risk free government debt.

This is really naive. Question is always at what price? I could argue there is always a demand for the common stock of a company in bankruptcy, just at a really poor price :-). More pertinent, Late 70s US bond market saw a huge decline in the value of government bonds... Though they were never defaulted upon, holding them was not exactly risk free. Fluctuations in price of "risk free" govt bonds can bankrupt traders/investors, eg, LTCM.

Re: 55% of the US National Debt Is the Result of Repaying Debt with More Debt

#80

Post by damptowel » Thu, Jul 19, 2018, 5:08 PM UTC

maxerickson wrote: post #61

SkyMarshal wrote: post #56

Earlier quoted context omitted.

The notion this can go on indefinitely with no repercussions just bc the debt is denominated in our own currency doesn’t square with reality. Everything has a cost.

The big cost of the national debt is that we have stuff now instead of later.

That’s only true of external debt. I.e. debts owed to other currency areas. Government debt is just the number of funds from the currency originator (central bank) to it’s distributor (treasury). Both institutions are a subject of the nation state, which is controlled by the government. So it’s not a “debt” in any colloquial sense of the term, neither is it an intergenerational transfer, since the souvereign nation state is an institution that both creates and enforces it’s own currency... which by definition implies it can create as much money (“debt”/“credit”) as it seems fit.