The Economy • Hacker News Board

Re: The Economy

#251

Post by YZF » Tue, Jul 01, 2014, 1:29 AM UTC

MaysonL wrote: post #171

DINKDINK wrote: post #154

Earlier quoted context omitted.

>The fact that interest rates on Treasury bonds remain so low, despite our debt levels and despite certain political figures repeatedly attempting to force the US Government to default on that debt, is prima facie refutation of the idea that no one in the market actually thinks US debt levels pose a major macroeconomic problem in the short to medium term. Not necessarily. If you have to ask yourself what the country…

Foreign debtors have zero leverage over the United States. What would happen if China decided to stop buying US debt? Their currency would appreciate, their exports would collapse, and their economy would go into recession. Our currency would depreciate, our exports would increase, and our economy would get a much desired boost.

You will pay triple for your iPhone, your car, your TV, your laptop, your monitor... If you haven't checked recently anything you buy comes from China or has a significant % of it's BOM from China and is essentially financed by that debt. Your standard of living would collapse.

Obviously both China and the US would take a big hit but I'd argue the US would take a bigger hit. Right now the US benefits from the status of the US$ as the world's reserve currency. If all foreign US bond holders sell their their bonds the US$ will not simply depreciate, it will collapse. The US will be able to import nothing and it's not geared to handle that. It's very comfortable having the cheap manufacturing and the environmental implications somewhere else. Now none of the US debt holders want to see this happen but also no one will want to be the last one holding to debt in a collapsed currency - if someone sneezes.

Given that a lot of US businesses do their business worldwide and keep their money out of the US they won't necessarily be impacted as much but this "run on the bank" scenario is not going to be pretty.

Re: The Economy

#252

Post by YZF » Tue, Jul 01, 2014, 1:37 AM UTC

ChrisBland wrote: post #180

pdovy wrote: post #170

Earlier quoted context omitted.

That doesn't really seem to follow, to me. The worst a single creditor could do is not bid, or bid for higher rates in future treasury auctions. The terms of existing debt are fixed. The impact of this wouldn't be large unless other creditors followed suit - there are many parties interested in buying up US debt. Furthermore, if a holder of US debt declared war on the US, I wonder if that wouldn't be viewed as a cred…

The creditor could dump the bonds on the open market, and depending on the level of pain they were willing to feel, could crush the us bond markets. The fed can only stand in and defend for so long until we have to go inflationary to defend the dollar. Its actually a good thing that china controls a large chunk of US bonds, they can't dump without taking a huge hit themselves, MAD (for you cold war buffs). The countr…

Exactly. If China dumps their bonds rates are going to go to the sky and the US currency will depreciate. No one wants to do this but no one will want to sit on the sidelines holding billions of US bonds if this starts happening. It's not that different than a run on a bank that does not have enough reserves. (well, it's a little bit different, a bank can't print money)

What everyone is trying to do is figure out a way to unwind this slowly and/or grow out of it. I think a lot of past growth was fuelled by population growth and "free" resources (oil, coal, etc.). Population isn't growing as fast and resources aren't as free any more.

Re: The Economy

#253

Post by jeffdavis » Tue, Jul 01, 2014, 1:48 AM UTC

nhaehnle wrote: post #235

jeffdavis wrote: post #99

Earlier quoted context omitted.

The thing that worries me about our debt is that it's not like the rates are locked-in for 1000 years. After bonds mature, we need to issue new bonds to pay for them. And if the interest rates are higher at the time, the new debt will have a higher interest rate (I guess, technically, the bonds will sell for a lower price, which has the same effect). Paying our current level of interest on our debt is not crushing. B…

However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance. Such an uptick would automatically go hand in hand with increased tax revenues and lower spending (because social safety net spending would shrink automatically). Basically, any scenario in which interest rates grow are scenarios in which automatic stabilizers will reduce the government deficit in other…

"However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance."

It's not that hard to imagine; what you describe is essentially Stagflation. You may consider it unlikely, but there are some known potential causes[1].

As I understand it, Stagflation happens when increased demand is less able to stimulate increased supply than one might expect.

As mentioned in [1], an oil supply shock could be a cause. That is not outlandish given the current instability in the middle east and our tense relationship with other oil producers (Russia and Venezuela). The US and Canada do produce a lot of oil, which may offer insulation, but I don't think that's necessarily a defense.

Another cause listed is tough regulatory atmosphere. For instance, if the EPA decides to strongly curb CO2 emissions, or misguided labor laws come into effect, or the healthcare system in the US gets even worse. Again, not outlandish.

[1] http://en.wikipedia.org/wiki/Stagflation

EDIT: reworded for clarity

Re: The Economy

#254

Post by mathattack » Tue, Jul 01, 2014, 2:47 AM UTC

danielweber wrote: post #105

mathattack wrote: post #81

Earlier quoted context omitted.

The issues of debt relate to a Minsky Moment. http://en.wikipedia.org/wiki/Minsky_moment It happens when the assets can't pay their interest payments any more. For now interest rates are low, so the government can pay it's billed. Unfortunately, we hold a lot of short denominated debt. We should lock in these rates while the going is good. If interest rates spike up, the government will have to cut programs, borrow a…

The US can't just "lock in" rates by deciding to do so. Most of the world treats debt very different than the US consumer is used to on credit-card and mortgage loans. The US issues debt and the market bids on what it will pay, nearly always charging higher rates for longer terms. And the US can't pay it down early; it has those rates for the entire term of the loan. If I read http://www.bankrate.com/rates/interest-r…

Right. In my view it's better to lock in relatively low 10 year (or better yet 30 year) rates rather than roll the dice on interest rates rising. Rates can easily rise to long term norms of 5%.

The market is anticipating that rates will rise, hence the nature of the yield curve.

If the government's assets are long term, shouldn't the liabilities match it?

Re: The Economy

#255

Post by tzs » Tue, Jul 01, 2014, 3:02 AM UTC

crazy1van wrote: post #97

moblahbl4hblah wrote: post #12

Earlier quoted context omitted.

A basic income is a great idea...it would also be a good idea to completely remove the profit motive from health care. A social safety net that includes a living wage, guaranteed higher education, and retirement is completely possible if you don't spend so much on defense and intelligence.

> it would also be a good idea to completely remove the profit motive from health care. If I had a fatal disease with no known cure, I want a system that makes whoever finds the cure filthy rich. That's my best chance at survival. If anything, I want a system with even more profit motive.

Why would anyone care about curing your fatal disease if they are profit driven? They should be able to make more money working on widespread non-fatal problems, like erectile disfunction or baldness.

Re: The Economy

#256

Post by autokad » Tue, Jul 01, 2014, 3:03 AM UTC

nhaehnle wrote: post #236

autokad wrote: post #77

Earlier quoted context omitted.

I don't think the writer ever said that a high Debt-to-GDP / government spending will send the economy into a recession. it means the government's ability to fight a recession if one comes will be extremely constrained; furthermore, having high debt prior to a recession makes the pains of having the high debt extremely painful as revenues will decline significantly.

The US federal government budget is not like a household or the budget of a firm. Households and firms are USD users , which means that they can only make payments in USD if they first obtain those USD (whether as income or by loan). The US federal government, on the other hand, is the issuer of USD. If it wants to make a payment in USD, then nothing can stop it. This means that the debt-to-GDP ratio is an entirely m…

i completely disagree. its not just politics as mentioned bellow, which is a very key point. The us government couldn't just keep printing money to pay for all of its deficit. the money would become worthless, and at a point it would be like breathing in a bag, but that doesn't matter as it would have collapsed before that ever happened.

the dept to GDP ratio (as well as printing money) has a huge effect on a countries ability to issue bonds, just ask the PIIGS. interests rates on bonds would rise very quickly making the annual deficit larger and since all interest rates in the country are based off the US treasury interest rate (the risk free rate), they would rise too, even if the US' interest rate was at 0. that'd make any recession get out of control as credit froze up.

it'd be the fed's worst nightmare. they would loose control of interest rates during a recession while the central government would loose its ability to borrow money.

Re: The Economy

#257

Post by chrishynes » Tue, Jul 01, 2014, 4:14 AM UTC

nostromo wrote: post #134

We need to find the next big growth engine. Like "the internet" big, or its baby brother "mobile" big. (Imagine what the US economy would be like without those growth engines. Even with them, their effect on the US GDP growth chart in the article is unnoticeable.) I have a hard time thinking of things that could be so dramatic in terms of growth. AI, radical life extension, space elevators, renewables... I'm not sure…

That's easy: cheap energy, particularly thorium reactors. Driving down the cost of energy creates a defacto boom, not to mention the industry to build out such infrastructure.

Re: The Economy

#258

Post by w1ntermute » Tue, Jul 01, 2014, 4:22 AM UTC

lsc wrote: post #223

hipcactus wrote: post #192

Earlier quoted context omitted.

Tech Innovation kills existing jobs by replacing 100 humans with one machine, this is true. If you're a cab driver, you may not be ecstatic about self-driving cars. But those same technological advances invent new goods and services for an ever increasing population. More people are fighting over the same set of resources, which technology allows markets to distribute more efficiently. The new tech creates new demand…

>While it's tough luck for the 99 workers who are not in a position to learn new skills, the bet is that tech advancing will create more economic opportunities for the next generation (while improving the quality of life) Sure. Personally, long-term, I think that will be true. The thing you have to understand, though, is that in the short-term, this hasn't been happening, for whatever reason, and the short-term, if i…

> Do you have an idea for a business that scales that could pay relatively unskilled folks better than minimum wage?

The problem with this lies in the nature of most service sector jobs - they require physical proximity to those people being served. Contrast this with manufacturing jobs, where a factory can be set up in a remote town (or on the other side of the world, which is precisely why they no longer exist in America in large numbers) and the products shipped en masse to consumers.

Unfortunately, in America, our zoning laws/NIMBYism and poor public transit have made it extremely difficult for service sector workers to cheaply and efficiently serve the burgeoning upper middle class. Nowhere is this more apparent than in SF. If the Bay Area public transit system were better and if housing were much denser, then more unskilled workers could afford rent in/near the city and have short commutes to service jobs.

Rather than raising minimum wages, we should be working to lower the cost of living for those not as well off. Our cities are currently so inefficient that you could squeeze a great amount of sheer waste out of them.

Re: The Economy

#259

Post by nhaehnle » Tue, Jul 01, 2014, 8:18 AM UTC

jeffdavis wrote: post #253

nhaehnle wrote: post #235

Earlier quoted context omitted.

However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance. Such an uptick would automatically go hand in hand with increased tax revenues and lower spending (because social safety net spending would shrink automatically). Basically, any scenario in which interest rates grow are scenarios in which automatic stabilizers will reduce the government deficit in other…

"However, it is hard to imagine that interest rates would increase without a serious uptick in economic performance." It's not that hard to imagine; what you describe is essentially Stagflation. You may consider it unlikely, but there are some known potential causes[1]. As I understand it, Stagflation happens when increased demand is less able to stimulate increased supply than one might expect. As mentioned in [1],…

Ah, right. I still think there are two mitigating factors here to what I said.

First: In the stagflation of the 1970s (which is really the only significant empirical data point we can draw from), increased interest rates were a political choice made by the central bank rather than an economic necessity.

Second, and more importantly: Stagflation is characterized by inflation, which means that nominal GDP grows even while real GDP is stagnating.

Since real GDP is irrelevant to the debt-to-GDP ratio (witness the debt-to-GDP ratio through the 1970s), the conclusions for whether one should worry about the debt-to-GDP ratio remains the same as far as I can tell.

Re: The Economy

#260

Post by nhaehnle » Tue, Jul 01, 2014, 8:25 AM UTC

autokad wrote: post #256

nhaehnle wrote: post #236

Earlier quoted context omitted.

The US federal government budget is not like a household or the budget of a firm. Households and firms are USD users , which means that they can only make payments in USD if they first obtain those USD (whether as income or by loan). The US federal government, on the other hand, is the issuer of USD. If it wants to make a payment in USD, then nothing can stop it. This means that the debt-to-GDP ratio is an entirely m…

i completely disagree. its not just politics as mentioned bellow, which is a very key point. The us government couldn't just keep printing money to pay for all of its deficit. the money would become worthless, and at a point it would be like breathing in a bag, but that doesn't matter as it would have collapsed before that ever happened. the dept to GDP ratio (as well as printing money) has a huge effect on a countri…

I'm afraid that saying "just ask the PIIGS" is to miss the crucial point. Those countries are members of the Eurozone, and therefore their governments are currency users rather than issuers. Therefore, an analysis that draws upon your everyday household experience carries at least some water, even though it is entirely inapplicable to a monetarily sovereign government such as the US government.

Other than that, I can only recommend that you try to consider all the relevant dynamic effects in the macroeconomy. For example, if money would indeed become worthless, this would not happen overnight due to the immense inertia of an economy as large as the US economy. It would be a drawn out process.

Throughout that process, as a consequence of money losing value, the nominal GDP would increase, and therefore the debt-to-GDP ratio would decrease, which means that the system has a very strong self-stabilizing tendency.