No one knows how much the government can borrow

The Fed can increase its overnight rate to 20% or 200% in one meeting. There is no situation ever where inflation of the sort you're talking about can't be instantly and completely killed.

Supply shock inflation (oil embargo) is a different matter.

> That’s true, but it misses the point because printing money is debasing your currency, not defaulting on debt.

> And if it’s true that borrowing $x billion and printing money can be done without consequences ‘almost indefinitely’, then why stop at x? Why not 2x, or 10x, or 1000x?

That's my whole fucking point. For America, right now, we pretty much can. And if we chose to invest it in ourselves instead of subsidising rich fuckos we'd surely see a positive return on our investment even (thereby paying it off).

sigh There's literally no place worse on the internet for Economics than HN. I should just delete this fucking account.

Thank you.

The 1960's is a fascinating decade to me for the economy because everything turned out backward to what was expected and it seems that nobody learned anything from it.

Check the statistics in the 1960s. Inflation was out of control. And yet curiously, the stock market was down. How can everything be rising in price except stocks?

Why was this? Well take a look at my previous comment. The 60s were under the era of the gold standard. That means that the money supply was roughly constant. Back in the 60s we had 5% productivity growth. So money was growing slower than productivity. Now we see the picture, cash was the bottleneck so it was the treasured asset. Governments used this cash for welfare starting with the new deal and continued to spend, and so people had money to spend. The economy was vibrant, the companies were actually flourishing. And so companies earnings were higher than ever, but their price was down which caused their PE to drop by a lot. This PE drop is a result of deflationary spiral.

So in 1971 we flipped the script. Money supply grows, and for a decent amount of time we were cautious and grew the money supply slowly. This cautiousness ended up being that balance I mentioned. But as we grew the money supply, the fears that inflation would come back never appeared. But that is because we grew the money supply in a completely different way this time. Not through government debt but though interest rates.

We keep growing the money supply, and as wealth inequality grows, we notice we can keep growing the money supply further. Drop those interest rates! All the while productivity is dropping like a rock as money managers are out-competing entrepreneurs for capital. But there's a problem. And that's today. Interest rates are at 0%. We've run out of runway.

Suddenly we have to rise the money supply not by lowering interest rates, but directly though government debt. And so this is the argument that you are hearing right now between economists and in the linked article. "Well, we've increased the M2 by 4000% since 1971, so I guess that means the government can borrow just as much". They are conflating. That are assuming the perfectly spherical cow of neutral money is the system. You. Need. To. Track. Who. Gets. The. Money. Money flows.

What happens when the government starts spending? Exactly what happened in the 1960s. CPI Inflation rises because people are spending it. What's happening to the money supply? Well, it's getting bigger because the government is spending, but it's getting bigger at a slower rate than we are used to and it might even match productivity. That slower growth might cause some growth stocks to take a hit, but the economy should be fine. It's possible that we slow the growth of the money supply to match our 1% productivity, and that the beautiful deleveraging occurs.

But what is the FED thinking of this? They are terrified. Oh no! The inflation is back. They are thinking through the neutral money state, so they know what they have to do. To stop inflation, we rise interest rates. This is exactly what they did in the 60s. And so what we have is an economy where the money supply is shrinking, but the CPI keeps rising until the government stops spending. But the stock market is dropping, which only causes the government to spend more! The trend has reversed, the stock market crashes, interest rates spike back to 20%, and homes are going for 10% of the current prices so people are underwater, which cases them to default, and deleveraging has decimated the money supply. But due to the welfare, happiness is up. People are doing just fine.

What should have happened? Well, the money supply should match productivity. This means that interest rates should not determine the money supply, the money supply should determine interest rates. If productivity is rising at 1% and the money supply is rising at 5%, well, interest rates should rise until the amount of new debt created is back down to 1%. If productivity is rising at 5% and the money supply grew at 1%, we should lower interest rates until the cheap money stimulates people to take out loans. What rate will that be? Only the economy at the time can discover it based on their biases and fears.

So how much should the government borrow? People see comparison between Capitalism vs Communism as a scale, but it's just as important to track Centralized vs Decentralized. The government has a freedom to think big and long-term, but that makes them less efficient at the small stuff. People need to care about the small stuff and are punished if they do so poorly. If you have wealth inequality, you end up with a Centralized system no different than Communism, but power is granted through wealth not politics. This is what limits how much debt the government should take out.

You should read my other post to get the full context. Surely you don't believe the Fed could buy $100 quadrillion worth of low interest government bonds tomorrow without consequence (although that distortion would peg the interest rate to whatever low rate they bought at). While Krugman is technically right that the CPI does not increase, it is for the wrong reasons, and he does not seem to be aware or care that other assets inflate as a direct consequence. Take a look at the increase in GDP adjusted equities and population adjusted real estate indices over the last two decades [0][1].

The point is that we have been experiencing inflated asset prices from these operations, another form of inflation. Because these benefit a relatively small proportion of the US population, it doesn't spill into staples as much as if it were helicopter dropped. Whereas when the Fed prints money for a stimulus check, it is more directly inflationary. We will see that with the $2000 stimulus checks, although that will be a drop in the bucket compared to Social Security once it becomes insolvent, assuming the Fed starts printing money to fund it.

> Want to reduce wealth inequality? Increase taxation/redistribution.

It seems we are in agreement if you read the last part of the sentence you quoted. Long term capital gains on 20 billion dollars of realized income is less than the effective rate paid by a doctor or engineer who made $400k. However, just because tax brackets are a problem, doesn't mean Fed market interventions aren't also creating problems.

From your "inflation truthers" link, it seems to be shut down pretty effectively in the discussion you also linked. If you want to understand why in a more quantitative way than Carlson's ramblings against a straw man, see this graph: https://fred.stlouisfed.org/graph/?graph_id=532320&rn=290#0. This is the approximate percentage of household paper wealth tied up in equities. Monetary policy has changed substantially since record keeping began, but we can see that higher highs and higher lows are being sustained over time as the Fed becomes more trigger happy with open market operations and low interest rates.

[0] https://fred.stlouisfed.org/graph/?g=kYEb [1] https://fred.stlouisfed.org/graph/?g=oCZ

At one point China had aspirations to turn CNY into a reserve currency, which would almost certainly necessitate releasing their capital controls. But now I think they've gone back to the viewpoint that there's no safe way to do that (even a trickle of dollars from China would be a deluge elsewhere due to sheer numbers) and that being a reserve currency is more trouble than it's worth.

Heck, I'm sure if they could Switzerland and Japan would like to cease being a safe haven currency overnight; the role comes with a lot of things that have lots of downside and no upside domestically.

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The other thing might be an increase in housing supply. Housing supply increases are now firmly out of the realm of wonky think-tank policy with real advocacy happening at a grassroots level. Already Minneapolis has removed exclusive single family zoning. But this would probably take the better part of a decade or two to start showing real progress.