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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

#211

Post by walleeee »

anticristi wrote: post #69

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…

> if all the government does is increase social welfare that it already struggles to afford or satisfy the luxury of a dictator

Or prioritizes surveillance of its citizens and invasion of foreign countries on flimsy pretext over human health and wellbeing at home and abroad

Re: No one knows how much the government can borrow

#212

Post by bdefore »

XorNot wrote: post #175
Clewza313 wrote: post #131

Earlier quoted context omitted.

Why not? Is there something that makes the US immune? Also, people fixate on the "hyper" part and assume the US is going to go full Zimbabwe/Venezuela where an egg costs a trillion dollars, but even sustained non-hyper inflation of 10% or 20%/year would wreak havoc on most people's retirement funds or mortgages.

The highest rate of inflation the US ever hit was in the 1980 ( https://www.usinflationcalculator.com/inflation/historical-i... ) at 13%. The world did not end, and the rate was not sustained. This time period corresponds to high interest rates because it has to, but the value of loans was depreciating rapidly. Since then the Federal reserve has had a target inflation rate of 2% over time and if you look at the data…

The rate was not sustained because the books have been cooked. How the US measures has been periodically tweaked to keep the 2% story going. Using the early 1980's metric of inflation we've been at roughly 10% annually since the turn of the millennium: http://www.shadowstats.com/alternate_data/inflation-charts

Re: No one knows how much the government can borrow

#213

Post by mr_toad »

alexmingoia wrote: post #190
chii wrote: post #178

Earlier quoted context omitted.

They _can_ create it. But they mostly borrow (via bonds like treasury bonds), rather than create. Only those countries' gov't who can't borrow at a low enough rate would create - such as venezuela.

Treasury bonds are bought with USD. Where does USD come? The government prints it. Borrowing doesn’t fund the government, the printing press does. At the bottom of the tower of USD is printing money. ~80% of treasuries are held domestically, and the foreign buyers purchase it with USD that came from the treasury.

They could opt to pay for it out of tax revenues. Or they can issue new bonds to repay old bonds. They can print money, but the optics are bad.

The loss of confidence in the value of the dollar is as much a cause of hyperinflation as the actual money supply. Loss of confidence in the value of the dollar can rapidly increase the velocity of money, which means that less money supply is needed. This causes more inflation, which further weakens confidence, increasing the velocity further, causing prices to spiral out of control.

Re: No one knows how much the government can borrow

#214

Post by MR4D »

throw0101a wrote: post #184
MR4D wrote: post #133

Earlier quoted context omitted.

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…

UK debt-GDP has hit 250% during the Napoleonic Wars and 240% after WW2: * https://en.wikipedia.org/wiki/File:UK_GDP.png * https://en.wikipedia.org/wiki/United_Kingdom_national_debt#H... The UK is still rolling forward that debt: * https://www.theguardian.com/business/2014/oct/31/uk-first-wo... Japan peaked at 180%. The US can always revert the Trump tax cuts (for the rich), as they didn't seem to do anything useful a…

Japan has been well above 180% for years. [0]

[0] - https://www.statista.com/statistics/267226/japans-national-d...

Re: No one knows how much the government can borrow

#216

Post by mikem170 »

runawaybottle wrote: post #165
AnimalMuppet wrote: post #96

Earlier quoted context omitted.

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.

The U.S. share of world GDP has already shrunk from over 40% after WWII to under 25% today. This was the reason Nixon had to take the dollar off the gold standard and make deals with Saudia Arabia and OPEC to ensure oil was priced in dollars, otherwise many countries would have used other currencies for their trade. Since then we have been importing consumer goods, first from Japan and more recently China, to the detriment of American workers. The rest of the worlds growing share of GDP needs more and more dollars, and we can't satisfy that demand without continuing to debase our currency and causing problems at home. More and more countries are making deals outside the dollar system, countries that are too big for us to blow up easily.

This is what ended the British pound as the worlds reserve currency, and the Dutch gilder before that. Their share of world GDP shrunk rendering their position untenable.

I can't do this topic justice, but I thought this was a really good write-up, https://www.lynalden.com/fraying-petrodollar-system/

Re: No one knows how much the government can borrow

#217

Post by usefulcat »

mr_toad wrote: post #198
headmelted wrote: post #104

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…

It’s all going into the housing market. Try getting a loan for anything else and you need a pound of flesh as collateral.

Consider also that the value of the stock market is approximately 5x what it was 12 years ago:

SPY on 2/23/09: 73.93 SPY on 1/22/21: 382.99

Re: No one knows how much the government can borrow

#218

Post by skissane »

toomuchtodo wrote: post #94
xxpor wrote: post #52

Earlier quoted context omitted.

I do wonder what will really end up as the alternative though. The yuan and euro both have major structural issues of their own.

A synthetic basket of the top currencies. Such a product exists (SDR aka Special Drawing Rights), but it’s niche. When you consider securities indices (SPY, for example), it’s not that outlandish. https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14...

> Such a product exists (SDR aka Special Drawing Rights), but it’s niche

The primary reason that SDRs are niche is that only governments are allowed to hold them. If the IMF allowed them to be bought and sold by private investors they might see more use.

Re: No one knows how much the government can borrow

#220

Post by toomuchtodo »

skissane wrote: post #218
toomuchtodo wrote: post #94

Earlier quoted context omitted.

A synthetic basket of the top currencies. Such a product exists (SDR aka Special Drawing Rights), but it’s niche. When you consider securities indices (SPY, for example), it’s not that outlandish. https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14...

> Such a product exists (SDR aka Special Drawing Rights), but it’s niche The primary reason that SDRs are niche is that only governments are allowed to hold them. If the IMF allowed them to be bought and sold by private investors they might see more use.

Agreed, but I'm unaware if there is any regulatory constraint preventing commercial financial entities from offering a similar product. The IMF doesn't need to provide approval if there is no regulation preventing financial institutions from providing the same currency mix to retail and institutional as a product (with the provider managing the abstraction between individual currencies and the basket).
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