Will America's debt doom us?
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Will America's debt doom us?
1–10 of 251 posts
Re: Will America's debt doom us?
#2The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causing high inflation.
Re: Will America's debt doom us?
#3The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causin…
There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does.
Which means that the Fed has been keeping interest rates already artificially low by printing money.
It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs.
The govt will have to make a choice between cutting services vs paying the debt.
Re: Will America's debt doom us?
#4Like the housing bubble, our debt hasn't been a problem and it's not going to be a problem right up until it is a problem. It will be a black swan event and afterward everyone will claim that they saw it coming and "the other guy" ignored it.
Re: Will America's debt doom us?
#5The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causin…
There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs.…
The government "prints money" when it sells treasuries on the public market.
The Fed creates most of the money, but it isn't the only mechanism.
Re: Will America's debt doom us?
#6Betteridge's law says no.
Less glibly, this article presents a good set of arguments for why not. The doomsayers need to be clearer with exactly how their proposed doom would come about - and why there would be no effective government response, and how this could happen without the rest of the world economy also getting into trouble and fleeing to the safety of the US dollar.
Re: Will America's debt doom us?
#7The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causin…
This is wrong. The risk free rate is equal to the real risk free rate plus expected inflation. If there's a significant risk of excess inflation, then the yields on treasuries will rise correspondingly.
Re: Will America's debt doom us?
#8The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causin…
There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs.…
The Fed might be independent in the law, but the govt makes the law.
Re: Will America's debt doom us?
#9The interest rates on US debt are artificially low because their default risk is based on the willingness, not the ability, of the USG to repay them. That's because the ability is a given, since the government can print the currency the debt is denominated in. Corporate bonds are a bad analogy because their risk is mostly in defaulting, whereas if something goes sideways in America, Treasury bonds will fail by causin…
There's a difference. The govt doesn't have this ability to print money and pay debt. The Fed does. Which means that the Fed has been keeping interest rates already artificially low by printing money. It'll take one misstep or one recession for the debt requirements to be so high that the Fed will have to make a choice between keeping rates low, causing massive inflation vs high causing massive drop in gdp and jobs.…
The Fed can't directly influence real interest rates, only nominal. What exactly are you claiming interest rates are "artificially low" compared to?
The scenario you describe can't happen. If money is so easy that it's leading to high inflation above the target, then tightening money until no excess inflation happens won't cause a drop in employment. Think about it like this: either the extra money being printed is going to inflation and propping up prices, or it's enabling more jobs. If the marginal extra dollar is adding to inflation, then removing it won't hurt jobs.
Re: Will America's debt doom us?
#10What amount of debt would doom us, Mr. Fisher?