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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

#61

Post by dragonwriter »

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…

Like producer price inflation, asset inflation isn't what people are talking about when they talk about “inflation” without modifiers, which refers to consumer price inflation. When people predicted inflation from QE, they were predicting consumer price inflation. And depending on how you look at it, they were either right and that was entirely the point of the policy (if you look at the difference between actual results and what was predicted without the policy) or wrong because they failed to consider the deflation that would happen without the policy (if judged by a net standard rather than delta from without-the-policy expectations.)

Pointing to asset price inflation to say “there is the predicted inflation from QE” is the fallacy of equivocation; shifting definitions to suit the argument.

Re: No one knows how much the government can borrow

#62

Post by anticristi »

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.

Small tangent: I tend to borrow all the money that is offered to me at 0% effective rate, e.g., when buying a new mobile phone. I would even go as far as to borrow all money that is offered to me at sub-inflation rates.

Is this rational?

Re: No one knows how much the government can borrow

#63

Post by dragonwriter »

snomad wrote: post #45
MrRiddle wrote: post #29

Earlier quoted context omitted.

How can you have inflation while most of the services and commodities people are using are not increasing in price? Sure, you have equities rising, but that’s about it. Inflation because call options are flooding the market? Bonds are going down, real estate market is stagnant.

A McDonalds double cheeseburger meal costs $8. I remember when that was 3.99 not too long ago. Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

> A McDonalds double cheeseburger meal costs $8.

> I remember when that was 3.99 not too long ago. Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

Probably not exactly (and maybe not even approximately), because while restaurant meals are included in the CPI, the CPI is a somewhat broader index than the “McDonald’s double cheeseburger meal index” (also, McDonald's prices have regional and even store-to-store variation, and it's possible your local prices have varied differently than average for that particular item.)

Re: No one knows how much the government can borrow

#64

Post by dragonwriter »

titzer wrote: post #26
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…

"Official" inflation is based on the CPI, consumer price index, which is based on a basket of goods, not including CoL things like housing. edit: I stand corrected. It does include housing, but this "Owners' equivalent rent of residences" counts the cost of a Mortgage, which of course is majorly impacted by interest rates. It doesn't include the value of the housing market directly, though. Does anyone actually think…

> not including CoL things like housing.

CPI includes both actual rents and imputed rents for home ownership. It doesn't include asset costs because it's a consumption price index, and doesn't measure additional costs to acquire non-consumption assets.

Re: No one knows how much the government can borrow

#65

Post by trident5000 »

anticristi wrote: post #62
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.

Small tangent: I tend to borrow all the money that is offered to me at 0% effective rate, e.g., when buying a new mobile phone. I would even go as far as to borrow all money that is offered to me at sub-inflation rates. Is this rational?

Yes this is rational behavior unless the payback schedule gets you in trouble or the rates shift.

Re: No one knows how much the government can borrow

#66

Post by throw0101a »

kukx wrote: post #8

Some counter perspective laid out by Peter Schiff, while I do not agree with everything said, I find it valuable and entertaining: https://www.youtube.com/watch?v=M6k0QEnYpSQ

The same Peter Schiff calling for runaway inflation in 2008-2009?

> He has that exactly right: the central dispute is between those who see depressions as the result of inadequate demand, implying that inflation will fall and that printing money does nothing unless it boosts employment, and those who see depressions as the result of maladapation of resources or something — anyway, something on the supply side — who predict that running the printing presses will lead to runaway inflation.

> How could you test those rival views? Why, how about having a huge slump, to which central banks respond with aggressive monetary expansion? And that is, of course, the test we’ve just run. And everywhere you look, inflation is low, verging on deflation.

> So we’ve just run the Schiff test — and his brand of economics, by his own criteria, loses with flying colors. And that goes for just about all anti-Keynesian doctrines: we ran as close to a clean experiment as you’re ever going to get, and the answer is no.

* https://krugman.blogs.nytimes.com/2014/11/22/the-wisdom-of-p...

Re: No one knows how much the government can borrow

#67

Post by trident5000 »

throw0101a wrote: post #57
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. Japan may disagree with that assessment: * Interest rate: https://fred.stlouisfed.org/series/INTDSRJPM193N * Inflation: https://fred.stlouisfed.org/series/FPCPITOTLZGJPN * YEN-USD: https://fred.stlouisfed.org/series/EXJPUS

Japan is in a category of its own. They have a declining population which followed a massive asset bubble that popped 30 years ago. https://fred.stlouisfed.org/series/POPTOTJPA647NWDB

Re: No one knows how much the government can borrow

#68

Post by throw0101a »

njarboe wrote: post #27

Ray Dailo has been thinking about this idea for most of his life. He has had the resources and status to access any scholar on the topic he would like. Smart and motivated to understand the answer, he has written a book about this topic that is coming out soon, but is also available in full on-line for free[1]. I'm half-way through and it is very good so far. [1] https://www.principles.com/the-changing-world-order/#i…

> He has had the resources and status to access any scholar on the topic he would like.

So did Bill Gross of PIMCO, one of the largest fixed-income (bond) management firms in the world (AUM: $1.9T):

* https://en.wikipedia.org/wiki/PIMCO

He bet that interest rates would rise in 2011 after QE(2). Keynesian macroeconomists like Krugman said they wouldn't. Krugam was right:

* https://www.businessinsider.com/this-was-the-bill-gross-blun...

* https://www.salon.com/2014/10/03/paul_krugman_schools_the_de...

* https://delong.typepad.com/delong_long_form/2014/10/pimco-ho...

Be careful about experts in one field trying to expound in an unrelated field. (I have found Dalio's writing to be interesting though.)

Re: No one knows how much the government can borrow

#69

Post by anticristi »

I can't help feeling that the question is ill-posed. It's not "how much", but "why" that matters.

Think about it: Would you borrow $10,000 to a friend who opens a dentist with a solid business plan? Probably yes.

Would you borrow $1000 to a friend to cover an existing debt? Probably not, or, if you are very generous, you would gift them the money.

If a government can demonstrate that it borrows money to invest in the economy and increase future taxes -- e.g., by building infrastructure, educating the population, researching top-notch tech -- by all means, borrow more!

However, if all the government does is increase social welfare that it already struggles to afford or satisfy the luxury of a dictator, then stop borrowing now!

Re: No one knows how much the government can borrow

#70

Post by throw0101a »

snomad wrote: post #45
MrRiddle wrote: post #29

Earlier quoted context omitted.

How can you have inflation while most of the services and commodities people are using are not increasing in price? Sure, you have equities rising, but that’s about it. Inflation because call options are flooding the market? Bonds are going down, real estate market is stagnant.

A McDonalds double cheeseburger meal costs $8. I remember when that was 3.99 not too long ago. Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

> Somehow I doubt that price difference is captured by the official 1 - 2% inflation rate.

It was captured. It's just that food, and specifically restaurants is only one component of CPI. In Canada it makes up 5% of the basket of goods ("Food" makes up 17%):

* https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-ipc...

You are probably 'suffering' from familiarity bias:

* https://www.valuewalk.com/2018/08/familiarity-bias-investing...

* https://en.wikipedia.org/wiki/Familiarity_heuristic

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