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No one knows how much the government can borrow

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Re: No one knows how much the government can borrow

#11

Post by dharma1 »

As long as much of the world’s trade is settled in US dollars, there is a demand for them, and some demand for US treasuries.

The merry-go-round of the Fed increasing the money supply and buying US government debt with the newly created money can keep going for a while, but it will lead to a steady decline in the value of the dollar vs other currencies and some official inflation over time, as the cost of imported goods rises. And there is already high inflation in other areas not measured in official inflation. The other component of inflation is increasing wages, but I don’t see that happening soon.

In terms of government debt - while the nominal value of US government debt rises, some of it is also somewhat eroded as the real value of the dollar decreases. So it looks like the plan is to monetise the debt, at least somewhat. I am not sure if paying the government debt back over time through increased taxes is on the agenda - I doubt it.

There is a trend of increasing de-dollarisation of world trade, which can already be seen in trade between countries like Russia and China moving to using their own currencies and the euro for a larger portion of trade.

I think in the future more world trade will be settled with some type of bancor type basket of currencies where USD is one component, rather than the only component.

Re: No one knows how much the government can borrow

#12

Post by Armisael16 »

raducu wrote: post #10
trident5000 wrote: post #9

The answer is you can borrow unlimited debt if you pin interest rates at 0% (though eventually you will lose control at the back end of the yield curve without heavy govt intervention). What happens to your currency in that process is debasement/hyperinflation.

> What happens to your currency in that process is debasement/hyperinflation. Not if the vast majority of population lives paycheck to paycheck and food and basic necessities production are not disrupted. In that/our case, you simply get the inflation of the assets the "elites" who have disposable income choose to spend that disposable income("investing" in real-estate, bitcoin).

That’s only accurate if paychecks and food adjust at the same rate. You’re pretty screwed if your wage is set at the beginning of the year but bread is ticking up every week.

Re: No one knows how much the government can borrow

#13

Post by trident5000 »

raducu wrote: post #10
trident5000 wrote: post #9

The answer is you can borrow unlimited debt if you pin interest rates at 0% (though eventually you will lose control at the back end of the yield curve without heavy govt intervention). What happens to your currency in that process is debasement/hyperinflation.

> What happens to your currency in that process is debasement/hyperinflation. Not if the vast majority of population lives paycheck to paycheck and food and basic necessities production are not disrupted. In that/our case, you simply get the inflation of the assets the "elites" who have disposable income choose to spend that disposable income("investing" in real-estate, bitcoin).

The savings rate is a whole other issue. Strictly on the value proposition of the dollar and discussing economics, the savings of common folks in any amount cannot be invested into production assets meaningfully with real yields as prices rise = they are worthless. Meanwhile homes, auto, healthcare, education, all rise and what you are holding has less purchasing power. Inflation is very real even if the price of specific items like your socks are not rising substantially. Also CPI is a basket created by the fed to sell bonds, it has no other purpose.

Re: No one knows how much the government can borrow

#14

Post by drtillberg »

> Remember that some people thought that government borrowing ... facilitated by quantitative easing (Fed bond-buying) ... was going to lead to substantial inflation. But it didn’t.

Every time someone says "but where's the inflation" I sigh. Look at literally any financial asset, SP500, stocks, real estate, even bond values (the inverse of interest rates). There is your inflation.

Maybe we like asset inflation, maybe we don't, but that's where it is. When the author claimed to be unable to find it, I stopped reading.

Re: No one knows how much the government can borrow

#15

Post by pessimizer »

trident5000 wrote: post #5
newacct583 wrote: post #3

I try to post this everywhere people want to start yelling about federal debt (which correlates much more closely to the thing the government wants to borrow for than the actual size of the debt): Interest as Percent of Gross Domestic Product (essentially: how much money do we need to pay for our spending habits): https://fred.stlouisfed.org/series/FYOIGDA188S We are nowhere near the peaks that we saw in the 80's and…

Buddy, the interest as a percent of gdp matches the 80's and 90's because rates are near 0%. Real yields are negative in europe. Its not even close to the same situation. "Interest rates have been sitting at or very near GDP growth for four decades now" thats short-sighted and not really true: https://fred.stlouisfed.org/series/fedfunds Theres no free lunch, you don't get to just print unlimited money and have no con…

> Theres no free lunch, you don't get to just print unlimited money and have no consequences.

I think you're arguing the opposite. We are printing money, yet inflation stays stubbornly low. We borrow money, but don't have to offer any interest; in fact, in some circumstances people pay us to loan us money. That's the definition of a free lunch.

Re: No one knows how much the government can borrow

#16

Post by xxpor »

dharma1 wrote: post #11

As long as much of the world’s trade is settled in US dollars, there is a demand for them, and some demand for US treasuries. The merry-go-round of the Fed increasing the money supply and buying US government debt with the newly created money can keep going for a while, but it will lead to a steady decline in the value of the dollar vs other currencies and some official inflation over time, as the cost of imported go…

Folks like to talk about what really keeps the world at peace (relatively speaking compared to pre-ww2), and while I think nukes are a large part of it, another huge part is dollar based settlement and the absolute devestating sanctoning power the US derives from it. That isn't to say sanctions are morally pure: they exact a huge cost on the regular people who live in the countries subject to them. However, they're still probably better than being bombed.

The more things that are not settled in dollars means the reduced effectiveness of sanctions and the higher likelyhood conflicts will escalate into hot wars.

On the other hand, the US not being able to dictate to everyone else is probably a good thing itself, so I'm not sure on net what the best outcome is.

Re: No one knows how much the government can borrow

#18

Post by anm89 »

We don't actually know what would happen if I went and cursed my boss out on monday morning and asked for a raise. The data simply isn't there!

Therefor we should conclude this is a reasonable course of action.

Do we know every specific outcome in the complex system of our world and economy from elevating debt to 200 or 500 or 1000% of GDP? Of course not.

That doesn't mean we cannot predict most of the core mechanics of what will play out.

Re: No one knows how much the government can borrow

#19

Post by [deleted] »

drtillberg wrote: post #14

> Remember that some people thought that government borrowing ... facilitated by quantitative easing (Fed bond-buying) ... was going to lead to substantial inflation. But it didn’t. Every time someone says "but where's the inflation" I sigh. Look at literally any financial asset, SP500, stocks, real estate, even bond values (the inverse of interest rates). There is your inflation. Maybe we like asset inflation, maybe…

[deleted]

Re: No one knows how much the government can borrow

#20

Post by trident5000 »

pessimizer wrote: post #15
trident5000 wrote: post #5

Earlier quoted context omitted.

Buddy, the interest as a percent of gdp matches the 80's and 90's because rates are near 0%. Real yields are negative in europe. Its not even close to the same situation. "Interest rates have been sitting at or very near GDP growth for four decades now" thats short-sighted and not really true: https://fred.stlouisfed.org/series/fedfunds Theres no free lunch, you don't get to just print unlimited money and have no con…

> Theres no free lunch, you don't get to just print unlimited money and have no consequences. I think you're arguing the opposite. We are printing money, yet inflation stays stubbornly low. We borrow money, but don't have to offer any interest; in fact, in some circumstances people pay us to loan us money. That's the definition of a free lunch.

Inflation is not low, have you checked stock market lately? Have you seen home prices up 15% yoy? Education costs rising, auto, etc. There is a left and right tail of the inflation bell curve. High impact items are increasing in price rapidly while things like flat screen tv's stay low from certain market dynamics. Also because wages are not rising, inflation is rising faster than people understand even on left tail items.
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