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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

#161

Post by notahacker »

jedharris wrote: post #140
notahacker wrote: post #118

Earlier quoted context omitted.

This. Economists may not studied hyper inflations much, they've spent a lot of time looking at inflation, the one economic variable public policy designed by mainstream economists is very good at predicting and influencing. They know it's the result of the amounts people are willing to spend on stuff (including labour) rising faster than the amount of stuff available. They know that government spending more money int…

Recently the Fed hasn't been good at getting inflation to 2% (their published target) and economists haven't been good at predicting whether the Fed will succeed, or modeling why the Fed has failed. Noah (article) doesn't emphasize this but he does refer to it. We don't really understand ordinary inflation much less hyper-inflation. Even the cause of the famous period of inflation in the 1970s is still very much deba…

The Fed faces exactly the opposite challenge to hyperinflation though (and there's no shortage of literature about zero lower bounds and liquidity traps, and no real surprise economies find themselves [back] in one)

But my point isn't that we know everything about inflation, it's that we know some spending is more likely to trigger it than others and so asking 'how much' the government can borrow before triggering hyperinflation is asking the wrong question, not least because expectations are known to have a large impact on inflation and so Goodhart's Law applies. And whether the current macroeconomic policy emphasis on stabilising inflation is excessive[1] or not, we definitely do know ways to get inflation down

[1]a more usual line of criticism than arguing economists don't study inflation enough!

Re: No one knows how much the government can borrow

#162

Post by kyrieeschaton »

You can consider "hyperinflation" as a consensus that the government is lying about the value of its currency. How does a consensus develop that someone is lying? It's a complex process, and doesn't have a neatly aggregatable answer.

This is incidentally why Sargent considers the end of hyperinflation to be coincident with a regime change - a liar cannot become credible nearly as easily as he can be replaced.

Re: No one knows how much the government can borrow

#163

Post by spoonjim »

A democracy can only function if people believe that they have shared interests with the majority of the people in the society. A democracy that can deficit spend can only function if they believe not only that, but that they have shared interests with the majority of the future members of the society. I don’t think either assumption holds for the United States right now.

Re: No one knows how much the government can borrow

#164

Post by jackcosgrove »

lend000 wrote: post #139

This really is one of the most interesting and consequential economic questions of our time. And I do imagine we will get an answer, because there is no political will to cut spending anymore. The reason that all this stimulus hasn't affected measured inflation all that much is because the mechanism of monetary policy tends to be top-heavy, creating low interest rates which obviously benefits the rich more than the p…

You are correct that QE printed money while keeping inflation in check by using financial institutions as conduits of the new money. The new money mostly ended up inflating assets which aren't necessary to survive. (Rents inflated some, but house prices more.)

However the recent stimulus payments have been more like direct payments to people. We are already seeing this shift from asset inflation to staples inflation, but yes when SS exhausts its savings the Fed will top up the difference with new money and we will see monetary inflation of staples.

Re: No one knows how much the government can borrow

#165

Post by runawaybottle »

AnimalMuppet wrote: post #96
netsharc wrote: post #87

Earlier quoted context omitted.

The difference between the smaller countries and the USA is, the dollar is basically the world's currency now. The world can afford to let Venezuela fail, but if the USA fails, the whole world goes down with it, so IMO they'll happily "lend" the USA more money. With the Roman Empire, I'm guessing other problems caused it to fall; it didn't fall because of money printing, but it was printing money because it was falli…

But printing dollars like they're toilet paper might lead to the US no longer being the reserve currency. That isn't a divine right. It isn't a once-and-forever thing. We can lose it.

There would have to a perfect storm of events that stains the US as unstable. A Pandemic or mortgage crisis is not enough.

We’d need devastated cities, war on our soil, or a string of insane natural disasters (Yellowstone erupting).

The only other realistic event? China brings a billion people into mostly lower middle class, and dwarfs the notion of American consumerism through sheer scale.

Re: No one knows how much the government can borrow

#166

Post by kukx »

throw0101a wrote: post #120
kukx wrote: post #98

Earlier quoted context omitted.

The money printed to finance the government debt is not backed by a production of value. It just increases the money supply, while not increasing the amount of goods that one can buy with that money, hence by nature it is inflationary, ie it makes money less valuable. The market is complex and the effects may be postponed in time by years, but the fundamental mechanisms persist. The consequences are negative and soon…

> The consequences are negative and sooner or later we will see them, or it is likely that we are already deeply affected. This was published ten years ago (November 2010): > We believe the Federal Reserve's large-scale asset purchase plan (so-called "quantitative easing") should be reconsidered and discontinued. We do not believe such a plan is necessary or advisable under current circumstances. The planned asset pu…

There is the CPI, but it does not represent all prices. House prices and stock went up a lot, in many cases to irrational levels. The young people without a house feel the pain. They will inherit the national debt as well. Now the commodity prices steadily increase. Add to it increasing wages and more expensive imports and we will see rising costs of production and in consequence the CPI.

Re: No one knows how much the government can borrow

#167

Post by jackcosgrove »

AnimalMuppet wrote: post #93
mikewarot wrote: post #7

Earlier quoted context omitted.

It's not really an economic question, it's one of politics, intimidation, and a global empire. The "magic money tree" is backed by the full force of the United States. Heads of state who have suggested alternatives found themselves confronted with a sweeping range of responses, starting with bribes, then coercion, sanctions, and if those fail, hiding in a hole from US forces. There's nothing magic, nor mysterious abo…

Does MMT work if you're not the reserve currency? (Honest question; I don't know enough about the theory to say.) But it is really an economic question. What will be the results if you run your economy this way? What will be the results if you do so as the reserve currency, and what will be the results if you do so when you're not?

It's supposed to work for any monetary sovereign, not just the reserve currency.

> What will be the results if you run your economy this way?

The old Daily Show (with Craig Kilborn) used to have a bit where they would announce weekly box office totals denominated in Turkish lira. The numbers were absurdly large.

Re: No one knows how much the government can borrow

#168

Post by sfblah »

howeyc wrote: post #32

This misconception needs to die. The government doesn't borrow money. The government doesn't need your money. The government prints money. They could stop accepting taxes tomorrow and still be able to keep spending. They print the money. Treasuries exist as an accounting fantasy for people to believe the government needs to borrow, they don't. Any treasuries outstanding today basically just represent dollars to be pr…

My understanding is that, while government debt is in some ways a fiction, it serves an important purpose in setting the risk-free rate of return in the economy. Yes, the debt could be eliminated and replaced with constant money printing, but this would eliminate that important market signal.

By pinning rates low as the Fed has done, that signal has been disrupted, and that is probably why we've seen repeated financial bubbles and panics. Also, it runs the risk of money being diverted to projects that only make sense because the risk-free rate of return is so low that extremely risky ventures seem "worth it."

Re: No one knows how much the government can borrow

#169

Post by dnhz »

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…

Kids are expensive, especially if going the private school route.

Re: No one knows how much the government can borrow

#170

Post by toomuchtodo »

jjk166 wrote: post #130
sesuximo wrote: post #89

Earlier quoted context omitted.

government does both, but you cannot specify what your loan pays for

If someone loans you money to start a business and you blow it gambling, you're going to have a hard time getting them to give you another loan. The government can say it's taking on debt responsibly, but if there are no subsequent economic improvements eventually their credit rating will fall.

You don’t have to be faster than the bear, just faster than your slowest friend. The entire first world is headed towards Japanification.
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