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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

#321

Post by imtringued »

Clewza313 wrote: post #132
throw0101a wrote: post #75

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.

An aging society would suffer from inflation because there is a lot of wealth but not enough workers to service all the demand.

Re: No one knows how much the government can borrow

#322

Post by imtringued »

anticristi wrote: post #62
trident5000 wrote: post #9

The answer is you can borrow unlimited debt if you pin interest rates at 0% (though eventually you will lose control at the back end of the yield curve without heavy govt intervention). What happens to your currency in that process is debasement/hyperinflation.

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?

It is rational if you think you can meet your debt obligations e.g. through a job.

However, the problem with this approach is that your bank account no longer offers "resistance" to spending. It is easy to get into debt that you can never repay. This shouldn't be an issue if you do proper accounting but many people don't do that.

Re: No one knows how much the government can borrow

#323

Post by jjk166 »

toomuchtodo wrote: post #170
jjk166 wrote: post #130

Earlier quoted context omitted.

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.

That analogy only works if lenders can only stop giving loans to one nation at a time. In reality, rates can be raised for any combination of nations simultaneously. It's not like the DRC looks like a good investment just because its not as bad as Venezuela.

Re: No one knows how much the government can borrow

#324

Post by rojeee »

alexmingoia wrote: post #317
rojeee wrote: post #314

Earlier quoted context omitted.

Wow! Accounting fraud? You do realise that if you kept personal accounts and you lent money to me, you would post exactly the same journals as the bank because you are carrying out exactly the same operation. The only difference between you and the bank is that the bank’s IOU is widely accepted and yours isn’t. I used to be an advocate of Austrian economics until I worked as a bank auditor and really got to understan…

I'm aware of how accounting and banking works. Borrowing does not create money in FRB, since all loans are deposits. Unless of course, the bank creates more certificates than deposits (but don't call it fraud!), which the Fed did prior to 1971, as did many private banks prior to the Fed. FRB always ended in bankruptcy and bank runs. A central bank was created to bail them out. And what happened? The central bank went…

Can you cite your sources? There's a lot to unpack in your post but let's just focus on a couple of things. Firstly, borrowing _does_ create money - it's how most money comes into existence. Straight from the horse's mouth:

> Most of the money in the economy is created, not by printing presses at the central bank, but by banks when they provide loans. [0]

You said:

> Borrowing does not create money in FRB, since all loans are deposits

Loans are not deposits. Loans sit on the asset side of the balance sheet and represent an IOU from the borrower to the bank. Deposits sit on the liability side of the balance sheet and represent an IOU from the bank to the deposit holder - the borrower in this case. Banks are literally in the business of swapping IOUs... Our IOUs which are not widely accepted for their IOUs which are widely accepted.

Furthermore, commercial banks make absolutely zero promises to redeem their IOUs for base money or central bank issued money, or anything else for that matter. Read the terms and conditions of your bank account to see for yourself! If the bank creates too many bad loans, then the value of their IOUs fall to take this into account.

Lastly, Central banks were not created to bail out commercial banks. The first central bank (the Bank of England) was created by the Government at the time to fund the on-going war with France. The government gave the Bank of England monopoly rights over currency issue in return for financing the war - i.e. giving them a whole bunch of IOUs on the Bank of England to pay soldiers and factories because the credit risk of the government at the time was considered quite poor.

[0] https://www.bankofengland.co.uk/knowledgebank/how-is-money-c...

Re: No one knows how much the government can borrow

#325

Post by gonehome »

gonehome wrote: post #185
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…

A Bay Area house that isn’t total trash is easily 3M on the peninsula. Elsewhere, yeah - you’d be fine if you don’t spend stupidly.

For an example: https://www.redfin.com/CA/Palo-Alto/3785-Park-Blvd-94306/hom...
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