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No one knows how much the government can borrow

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201–210 of 326 posts

Re: No one knows how much the government can borrow

#201

Earlier quoted context omitted.

We’re basing the prediction of inflation on the notion that there’s more money “sloshing around out there”. I’m not convinced that more of it is sloshing. Wage growth has been largely absent for many people in the 12 years since the crisis, and as a result those people haven’t had more money to spend. The money clearly exists of course given that it’s been printed, but there’s a good chance it just isn’t finding it’s…

> I’m not convinced that more of it is sloshing. A lot of the 'inflationistas' only look at the quantity/supply of money (M1/2), and don't bother examining what it is doing. The velocity of money is an important component: > This view can also be represented by the so-called “quantity theory of money,” which relates the general price level, the total goods and services produced in a given period, the total money supp…

Yep, people keep conflating growth of the money supply should lead to rising CPI inflation. But money isn't neutral, you need to pay attention to the Cantillion Effect.

When money enters into the economy through the wealthy, they buy stocks and it gets trapped. You can track this trapped money by looking at the velocity. When you increase the money supply by dropping interest rates, its essentially given according to whom is already wealthy. So if interest rates drop, you should expect the money supply to rise, velocity to drop, and assets to rise, but CPI should barely be touched. Therefore the more wealth inequality you have, the less that money supply increases through interest rates affects the CPI.

The CPI tracks how the common person spends their money. On the other hand if you were to institute a UBI, this would barely touch the money supply, but the CPI would sky-rocket. Disentangle the two concepts.

I've built up an intuition that the money supply should match changes in productivity, and that if it doesn't it will eventually lead to problems. But it's also notable that the trend is extremely important. If you do match, everything should be fine and this can last forever. If the money supply rises faster than productivity, you see what we've seen these past 50 years since we've been off the gold standard, a huge surge in asset prices. And if productivity rises faster than the money supply, people flee assets and into money. This is called a Deflationary Spiral. But the opposite state is basically an Inflationary Spiral, with people unwilling to spend their assets.

Dalio in his "Explaining the Economic Machine" video talks about a "Beautiful Deleveraging". My thought currently is that such a thing isn't possible. If you wait for the debt to get so bad that you have to do something, you can't match productivity anymore. Therefore the only thing you are left to do is grow the money supply less than productivity. And that changes everything. Suddenly the trend is to money. And once the money managers work that out, they all rush out of assets and into cash. This triggers a crash. So it's the trend that dominates, and there is no way to balance the deleveraging.

Re: No one knows how much the government can borrow

#202

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…

You can't just ignore all the people who aren't working though? One of Japan's specific problems (which will also hit much of the West in a decade or two) is that society is aging fast and the ratio of retirees to working people is increasingly unsustainable.

> ratio of retirees to working people is increasingly unsustainable.

I'd like to see the economic models that were used to calculate at what (estimated) point this becomes "unsustainable". Do you have a citation?

What percentage of the population has to be "elderly" or taking their pension? What is the minimum percentage of the population that needs to be in 'working age' years before it becomes a problem?

Unless there are models people are just throwing darts in making these statements. Show me that the math exists (even though I may not understand it as a layman). Pontificating is cheap.

Krugman in 1998:

> The purpose of this paper is to show that the liquidity trap is a real issue-that in a model that dots its microeconomic i's and crosses its intertemporal t's something that is very much like the Hicksian liquidity trap can indeed arise. Moreover, the conditions under which that trap emerges correspond, in at least a rough way, to some features of the real Japanese economy. To preview the conclusions briefly: in a country with poor long-run growth prospects—for example, because of unfavorable demographic trends […]

> In the model of sections 1-3, a liquidity trap will arise only if future productive capacity is actually lower than current capacity. Before loosening that constraint, we can ask why one might expect Japan's future capacity to be relatively low compared with today's. And the obvious answer is demography: Japan's combination of declining birth rate and lack of immigration apparently means a shrinking rather than growing labor force over the next several decades.

[…]

> Moving outside the formal model, the prospects for a liquidity trap also depend on investment demand. Here demography again comes into play: the prospective decline in the labor force reduces the expected return on investments.

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

Re: No one knows how much the government can borrow

#203
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-…

Krugman recently came out and said almost all of his advice about globalism was wrong. The man can't be trusted.

Re: No one knows how much the government can borrow

#204

The only time people care is when they care. And you can't predict when that will happen. It's like a flock of birds flying in the air, you can't figure out which individual bird caused the first change in direction, but it quickly spreads across the entire flock. The other fallacy is that inflation is here, it's just not being measured by the Federal Reserve properly. There is crazy inflation in things like house pr…

Inflation is intended to measure middle class distress. If gas/food/rent goes up people making under 50k can fall into poverty and bankruptcy. If GME goes up to $2000 the middle class isn't hurt much at all. Just a few hundred or few thousand people get rich.

Inflation has many measures. Household inflation is one of them, but there are many others, and using one measure (e.g. CPI) for measuring all inflation is problematic.

Re: No one knows how much the government can borrow

#205
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…

My ex...liked to spend money. We made 300k combined in 2019 in a MCOL area, and I still have no idea where it all went. Mortgage, nice cars, eating out, a couple vacations - all gone! I’ve heard of people making 7 figures and can barely afford their lifestyle. Rule of thumb, people spend what they make. Some spend on saving/investing. I think that’s what sets apart the top percentage with a few exceptions, they make…

The top percentage have no idea how to manage money or budget, they have people that do it for them.

Re: No one knows how much the government can borrow

#206
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…

printing money is essentially a wealth tax on everyone that owns the money. It's a flat tax. However, it also can cause prices to rise, and then... what will they do?

Inflation isn’t evenly distributed, because new money isn’t evenly distributed. Those who get the new money earlier experience less inflation. This phenomena is known as the Cantillon effect.

Re: No one knows how much the government can borrow

#207

Earlier quoted context omitted.

You can't just ignore all the people who aren't working though? One of Japan's specific problems (which will also hit much of the West in a decade or two) is that society is aging fast and the ratio of retirees to working people is increasingly unsustainable.

> ratio of retirees to working people is increasingly unsustainable. I'd like to see the economic models that were used to calculate at what (estimated) point this becomes "unsustainable". Do you have a citation? What percentage of the population has to be "elderly" or taking their pension? What is the minimum percentage of the population that needs to be in 'working age' years before it becomes a problem? Unless the…

Do you really think a rich country of 100M hasn't done its homework on this? I'm personally partial to Matsutani's Shrinking-Population Economics:

https://www.amazon.com/Shrinking-population-Economics-Lesson...

From a review: " The parlous state of Japan's pension system is well known, but Matsutani reviews the projections: by 2030, contributions will cover only 44% of expenditure, leaving a projected yearly deficit of ¥‎57 trillion by 2030 and a cumulative debt load of ¥‎1,240 trillion, roughly equal to the sum of all household wealth in Japan today. Getting back to balance would entail either more than doubling contributions from 15% to 34%, or cutting benefits by 56%."

Re: No one knows how much the government can borrow

#208

Earlier quoted context omitted.

> 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-…

We’re basing the prediction of inflation on the notion that there’s more money “sloshing around out there”. I’m not convinced that more of it is sloshing. Wage growth has been largely absent for many people in the 12 years since the crisis, and as a result those people haven’t had more money to spend. The money clearly exists of course given that it’s been printed, but there’s a good chance it just isn’t finding it’s…

>Wage growth has been largely absent for many people in the 12 years since the crisis,

Median real household income [1] since the bottom of the crisis has risen over 20%.

Median real personal income [2] is up over 15% over the same time (a younger demographic).

If you dig more you find similar income gains across every quintile and breakdown. The vast majority of groups from what I can find have seen decent wage growth.

Which group and how large is it that has largely absent wage growth? Citation?

[1] https://fred.stlouisfed.org/series/MEHOINUSA672N

[2] https://fred.stlouisfed.org/series/MEPAINUSA672N

Re: No one knows how much the government can borrow

#209
post #105

Earlier quoted context omitted.

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 spe…

How are homes having less purchasing power? The rise in real estate prices in western democracies has been a global phenomenon, and everywhere it's happened the problem is exactly because the value of homes is rising disproportionate to everything else - that's not inflation! If you own a house, you are materially increasing your wealth by a lot because if you could liquidate that asset (and a bunch of people can bec…

[deleted]

Re: No one knows how much the government can borrow

#210

Earlier quoted context omitted.

> ratio of retirees to working people is increasingly unsustainable. I'd like to see the economic models that were used to calculate at what (estimated) point this becomes "unsustainable". Do you have a citation? What percentage of the population has to be "elderly" or taking their pension? What is the minimum percentage of the population that needs to be in 'working age' years before it becomes a problem? Unless the…

Do you really think a rich country of 100M hasn't done its homework on this? I'm personally partial to Matsutani's Shrinking-Population Economics : https://www.amazon.com/Shrinking-population-Economics-Lesson... From a review: " The parlous state of Japan's pension system is well known, but Matsutani reviews the projections: by 2030, contributions will cover only 44% of expenditure, leaving a projected yearly deficit…

> Do you really think a rich country of 100M hasn't done its homework on this?

I'm sure they have. But we're all a bunch of randos on the Internet to each other, which is why I'm asking for citations: I'd like to hear the sources which people's thoughts come from so I can better assess them.

Otherwise the person on the other end of the screen is just another crazy from /r/wallstreetbets. :)

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