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No one knows how much the government can borrow

noahpinion.substack.com

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Re: No one knows how much the government can borrow

#141

Post by jedberg »

jjk166 wrote: post #135
anticristi wrote: post #62

Earlier quoted context omitted.

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?

You just need to be careful because usually these offers have fine print along the lines "if you don't pay this back fast enough, you will have to pay very high interest even on the debt you already paid off."

Yes!! I did one of those 0% TV purchases. They purposely made it so you couldn't set up automatic payments, so you had to do it manually every month. One month I was a day late, so they changed the interest to 19%, and charged me interest for all the past payments too.

Luckily I was able to get them to reverse it and then I just paid it off, but had I not noticed, I would have owed them a ridiculous amount of money.

Re: No one knows how much the government can borrow

#142

Post by erichocean »

throw0101a wrote: post #82
kukx wrote: post #80

Earlier quoted context omitted.

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…

The technical explanation why, when rates are zero, and you 'print money', inflation does not (or at least in all our current experiences has not) appear(ed): * https://en.wikipedia.org/wiki/Liquidity_trap It's what Keynesians (like Krugman) generally follow, and they've been right to date. Krugman for one has been writing about this since (at least) 1998 when Japan entered this situation: * https://www.brookings.edu…

Krugman said that Trump, if elected, would bring global a recession. [0] Oops.

Point being, he tends to let politics cloud his judgement—especially in the last 10 years or so.

[0] https://www.politico.com/story/2016/11/krugman-trump-global-...

Re: No one knows how much the government can borrow

#143

Post by jedharris »

MR4D wrote: post #133
throw0101a wrote: post #57

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

Turkeys think they have a great life right up until Thanksgiving. While I’ll readily concede that Japan has surprised everyone, at some point in time the sheer magnitude will overcome the lenders’ belief. Their ability to repay, and then it all goes downhill very fast. That’s the thing - hyperinflation happens fast. You usually don’t see inflation, high inflation, higher inflation, and then hyperinflation. Instead yo…

As Noah says in the article. The question he's addressing is how to know when we are approaching the cliff. We all agree it is out there but we can have a much better society if we know how far. If we fall off the cliff of course that is bad. Conversely if we cripple our opportunities because we are afraid, but the cliff is really many many trillions of dollars further away, that is also bad.

Re: No one knows how much the government can borrow

#144

Post by lr4444lr »

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…

Not to mention the inelastic necessities of healthcare, education, and housing, which don't make it into the CPI basket.

Re: No one knows how much the government can borrow

#145

Post by TheOtherHobbes »

Swizec wrote: post #125
flatline wrote: post #119

Earlier quoted context omitted.

20% is 1 of 5, hardly easy to miss. A lot of that money goes toward expenses in HCOL areas, where more people live, and the salaries are higher. A lot goes into consumer goods. People buy stuff, a lot of it. A lot of the rest is in the stock market in retirement accounts because nobody has pensions anymore. Americans don’t save a lot of money, and are not particularly fiscally responsible, that money is not hiding in…

> Now start talking the top 1-2% and the story changes dramatically. Probably the top 5-6%. The numbers are lower but the behavior is similar. You’d be surprised how soon you hit the “More money than I know what to do with” line. Make 150 to 200k/year (not uncommon on HN) and what are you gonna do, buy a new car every year? Rent is paid, food is paid, clothes are good, 1 or 2 vacations per year, go out to eat wheneve…

You'd be amazed how easy it is to spend $10m a year.

Real-estate, private jets, yachts, trophy cars, trophy alimony payments, security, art collections, horse breeding, interior design, fashion, private islands, expensive educations for the kids, bequests, public philanthropy, legal fees covering both public and personal disputes, investment management fees, political sponsorship and activism...

I'm not suggesting anyone needs this level of spending - just pointing out that the people who operate in that bracket wouldn't necessarily consider themselves completely secure and comfortable, even though they're spending sums that are unimaginably huge for most of the population.

Re: No one knows how much the government can borrow

#146

Post by jedberg »

throw0101a wrote: post #77
anticristi wrote: post #62

Earlier quoted context omitted.

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

That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset, ie. get a lease. Of course there are a lot of other factors, like how long you typically keep your car for. But if you're the kind of person who like a new car every 3-4 years, it's almost always better to just lease the car than to buy it. Especially if you have a schedule C business that you can write some of it off against.

Re: No one knows how much the government can borrow

#147

Post by hntrader »

ashtonkem wrote: post #137
hntrader wrote: post #112

Earlier quoted context omitted.

Yeah, they have an incentive to appear overconfident since their job is also largely a sales role, in order to prevent redemptions and encourage new fund inflows. They are still the number one domain experts insofar as Central Bank policy goes, as that's one of their primary preoccupations. Perhaps aside from economists that actually work at the Fed.

They’re not the number one domain experts though. As you said, those who work at the Fed are probably number one. I’d put academic economists at number two. That leaves the relevant traders/hedge fund managers in third at best . Fundamentally, trading an instrument doesn’t necessarily make you an expert in all aspects of it, only in those aspects related to making a buck on it. Exactly how much a trader ends up knowi…

I put them above most academic economists. Economics is a broad discipline and even macro specialists are most often not experts on monetary policy. Their research focus is likely distinct and tangential, and their understanding of central banks is theoretical and abstract with little understanding of the actual goings-on in the real Fed right now(1). Fixed income managers are experts on it since they need to understand the yield curve, to which Central Bank policy is one of the most important variables. Most importantly they are practical experts and know the minutae of the actual decision making variables being considered right now by the current Fed.

Yes there's some fixed income trades (in the short term quant space) that don't require such expertise, that's Taleb's Green Lumber problem, but that doesn't apply to PIMCO. Especially if we're talking about the lead at PIMCO. It's harder to get that job than it is to be a staff economist even at the Fed, so I would put him as close to number one in terms of expertise in understanding and especially predicting monetary policy.

(1) I've published papers with academic economists. I have to say, they really don't know the practical details of central bank policymaking, and nor do they have to in order to publish more papers. That's not their job.

Re: No one knows how much the government can borrow

#149

Post by autoditype »

dharma1 wrote: post #28
xxpor wrote: post #16

Earlier quoted context omitted.

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 s…

Absolutely, the result of de-dollarisation of world trade will be a shift in the world’s power dynamics. I think it’s pretty inevitable by now. I hope we have learned enough about history to be able to have economic competition/conflict without military conflict. As a silver lining for some parts of America - a weaker dollar together with onshoring of some industries probably means some jobs will return to the US.

The world's power dynamics will certainly shift. I wonder if there's any fictional thriller novel written about such a future shift and how nation states deal

Re: No one knows how much the government can borrow

#150

Post by Swizec »

TheOtherHobbes wrote: post #145
Swizec wrote: post #125

Earlier quoted context omitted.

> Now start talking the top 1-2% and the story changes dramatically. Probably the top 5-6%. The numbers are lower but the behavior is similar. You’d be surprised how soon you hit the “More money than I know what to do with” line. Make 150 to 200k/year (not uncommon on HN) and what are you gonna do, buy a new car every year? Rent is paid, food is paid, clothes are good, 1 or 2 vacations per year, go out to eat wheneve…

You'd be amazed how easy it is to spend $10m a year. Real-estate, private jets, yachts, trophy cars, trophy alimony payments, security, art collections, horse breeding, interior design, fashion, private islands, expensive educations for the kids, bequests, public philanthropy, legal fees covering both public and personal disputes, investment management fees, political sponsorship and activism... I'm not suggesting an…

Oh for sure. But there’s this wide spot in the mid 6-figure range where you can’t afford any of that and have way more than you can spend. Typical middle class trappings aren’t a concern, upper class trappings are inaccessible.

So what do you do? Personally I’m dumping it into index funds and business ideas. Maybe thinking about buying a house soonish.

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