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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

#71

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 it's totally rational. I do the same thing. I had a school loan that was at a 0.1% interest rate. I could have paid it off with my savings, but my savings interest was more than that, so it made more sense not to pay it off. I was sad when it was finally paid off, because it meant I was no longer arbitraging the interest.

Re: No one knows how much the government can borrow

#72
post #37

Earlier quoted context omitted.

For the average Joe, inflation is usually the price of milk, bread and eggs going up. America being an agricultural colossus with plenty of farm subsidies mean the price of essentials will not rise. Hence the unique manifestation of inflation in asset prices will not bring masses on the streets unlike most other countries. Coupled this with the fact that other countries are also printing money and are in worse shape…

The true increase in the cost of living is much higher than the official CPI. CPI is nearly completely worthless for identifying inflation in the cost of living, which is what actually matters.

> The true increase in the cost of living is much higher than the official CPI.

There's a decent argument that it's slightly higher, especially when you talk about the minimum cost at the low end, because of hedonic adjustments included in the CPI.

There's not, that I've seen, a good argument that it is “much higher”.

> CPI is nearly completely worthless for identifying inflation in the cost of living

This claims is desperately in need of supporting evidence or at least argumentation.

Re: No one knows how much the government can borrow

#73
post #26

Earlier quoted context omitted.

"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…

CPI is a convenient basket for the fed to sell bonds ideally at a positive yield. Thats why things are left out.

> for the fed to sell bonds

The Fed does not sell bonds, the US government (through the Department of Treasury) does. They are independent of each other.

(Then-President) Trump got lots of flack for going after US Fed Chairman Powell due to the desire to keep this independence as clear-cut as possible:

* https://thehill.com/policy/finance/450283-powell-asserts-fed...

Re: No one knows how much the government can borrow

#74

Earlier quoted context omitted.

CPI is a convenient basket for the fed to sell bonds ideally at a positive yield. Thats why things are left out.

> for the fed to sell bonds The Fed does not sell bonds, the US government (through the Department of Treasury) does. They are independent of each other. (Then-President) Trump got lots of flack for going after US Fed Chairman Powell due to the desire to keep this independence as clear-cut as possible: * https://thehill.com/policy/finance/450283-powell-asserts-fed...

You are correct, I typed that too fast.

Re: No one knows how much the government can borrow

#75

Earlier quoted context omitted.

> 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

> Dean Baker goes after people who claim that Japan has suffered terribly from its debt burden, arguing that Japan has actually done pretty well. But he's wrong: Japan has done better than he says

> Dean looks at GDP per capita. But Japan's aging population means that you really want to look at GDP per working-age adult. And by that measure Japan's growth has been essentially the same as America's

[…]

> The truth is that these days Japan looks less like a cautionary tale than like a role model. Its performance only looks bad if you assume that the debt is a terrible problem, when all the evidence says that it isn't

* https://twitter.com/paulkrugman/status/1215628645869420545

25 years of Where's the problem?

Re: No one knows how much the government can borrow

#76
I'd really like to point out this:

> Hyperinflation is so incredibly destructive that you’d think macroeconomists would spend a lot of time studying the phenomenon, figuring out when and why it happens. Especially because the answer to the question of hyperinflation is also the answer to the question of how much the government can borrow. An understanding of hyperinflation would give us a flashlight to shine down the infinite corridor, so we could avoid the pit.

... is pretty ignorant. You have an unrealistic fear of hyperinflation propagated by your ideals; to the point, you think it's important or relevant in situations where it's not. Perhaps, and this is just a thought here, if no one educated on the matter seems to give a shit about it there might be a reason. The US deficit is by and large a bogey-man most people love to wax on but hate to learn about... unless you like the scientific method but even then it is mostly depressing.

To me, the whole things sounds like a rant telling physicists, "you haven't studied enough planets like Jupiter, and without Jupiter, I cannot explain Earth. Please explain Jupiter!"

Here's the real shit, that's boring, but true:

Hyperinflation is no risk to the US economy at present. We are the world's piggy-bank, the wealthiest piggies in the world love the US, because we're the only nation on the planet who has always let's them have it back. The USA has never frozen the dollar. This puts the US an unbelievable economic advantage that nearly all of its citizens fail to realize.

Think about it:

1. The US dollar is the defacto (for now) global currency.

2. It's really hard to default when your debt is in your own currency. See link below:

https://finance.yahoo.com/news/warren-buffett-explains-the-s...

The USA can quite literally print money and get away with it almost indefinitely. Yep, that's the rub. We can 100% print money.

Nope, instead of printing it [1] to invest in our infrastructure, citizens, and planet we share-- we piss it away. We piss it away handing out tax cuts to the rich. We piss it away blowing shit up in deserts fighting other nation's equivalent of rednecks. We piss it away funding racist police and prison systems. We piss it away every day; that's why it's called the "trickle down."

In another 50 or a 100 years, when other nations are financially larger, more stable, and many, many, trillions of dollars of risk could be safely diversified anywhere else... then yes, the US could be at risk because it may not be able to issue debt in its own currency.

[1] Most everyone doesn't understand extremely large numbers and when one looks at the quantities over a certain size they all muddle together. It takes a lot of effort and reading to be able to look at billions, hundreds of billions, and trillions to make sense of and not fear those numbers. That's why people are able to fear things that would literally help them; the numbers are "all the same to them" and thus they're all equally bad or misunderstood.

Re: No one knows how much the government can borrow

#77

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?

When it comes to cars, what's often offered is 0% financing or some kind of cash back. It may actually be better to go with the cash back.

Preet Banerjee made a 10 minute video laying out the math on why not going with 0% financing may be better:

* https://www.youtube.com/watch?v=KGPu0jPryfU

Re: No one knows how much the government can borrow

#78

Earlier quoted context omitted.

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

> Dean Baker goes after people who claim that Japan has suffered terribly from its debt burden, arguing that Japan has actually done pretty well. But he's wrong: Japan has done better than he says > Dean looks at GDP per capita. But Japan's aging population means that you really want to look at GDP per working-age adult. And by that measure Japan's growth has been essentially the same as America's […] > The truth is…

I have to admit Japan is an interesting case and brings up good counter points. Really wages need to go up to spark inflation on the ground floor for common items.

Re: No one knows how much the government can borrow

#79

Earlier quoted context omitted.

> Dean Baker goes after people who claim that Japan has suffered terribly from its debt burden, arguing that Japan has actually done pretty well. But he's wrong: Japan has done better than he says > Dean looks at GDP per capita. But Japan's aging population means that you really want to look at GDP per working-age adult. And by that measure Japan's growth has been essentially the same as America's […] > The truth is…

I have to admit Japan is an interesting case and brings up good counter points. Really wages need to go up to spark inflation on the ground floor for common items.

Krugman has a 1998 paper on Japan that's probably still relevant today, especially since more places are hitting zero rates:

* https://www.brookings.edu/bpea-articles/its-baaack-japans-sl...

* https://www.princeton.edu/~pkrugman/japans_trap.pdf

Re: No one knows how much the government can borrow

#80
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 p…

He predicted the financial crisis. And predicting is hard, especially, if you have a "creative" government. The underlying problem was postponed, not fixed, and it got bigger in the mean time. I do not agree with him on everything, but he has many apt observations and convincing explanations. And at least he looks at fundamental mechanisms, which I like to interpret as a hard reality. I believe we now live in a soft reality, where the sweet falsehoods are preached to and believed by masses.
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