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The US Government Interest Expense Was 93% of Military Spending in 2018

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Re: The US Government Interest Expense Was 93% of Military Spending in 2018

#11

Post by astazangasta »

salawat wrote: post #10
SamReidHughes wrote: post #7

Earlier quoted context omitted.

A bond paying 2% that matures in 10 years is worth less than a bond paying 4% that matures in 10 years. So you can buy back low interest long term bonds for cheaper.

So... What happens when you run out of people willing to hand you money until you actually pay them back? What you describe assumes someone is always willing to take the gamble on will you make good. That's one hell of an assumption.

Well, so far people continue to borrow from all major governments no matter how indebted. Also, your bond is legal tender guaranteed by the US Treasury (or some other sovereign treasury), so you can always sell it to someone else. No one is stuck waiting for their bond to mature.

Finally, and most critically, the Treasury pays back the bond in dollars when it matures. The treasury can also create dollars. Thus, the Treasury will never be unable to pay back a bond.

Re: The US Government Interest Expense Was 93% of Military Spending in 2018

#12

Post by whb07 »

pie_hacker wrote: post #9

I don't find any reason to believe this is inherently problematic. The federal funds rate is ~2.5%, and inflation is ~2.0%, so the real interest rate is approximately 0.5%. America's current debt-to-GDP ratio is not unprecedentedly high by any means. What is slightly concerning is that our debt-to-GDP ratio is increasing even though the economy is relatively strong.

This is only the case because investors are willing to buy treasury bonds and loan the money out at those levels. If things get worse(though no one knows where the line is) and they will, at some point those investors will wisen up and demand higher interest.

These rates are abnormal rather, go back 30-40 years and if the rates got anywhere above 5% (which are still incredibly low) it would crush the servicing of debt and cause runs on the system.

Re: The US Government Interest Expense Was 93% of Military Spending in 2018

#13

Post by defterGoose »

astazangasta wrote: post #11
salawat wrote: post #10

Earlier quoted context omitted.

So... What happens when you run out of people willing to hand you money until you actually pay them back? What you describe assumes someone is always willing to take the gamble on will you make good. That's one hell of an assumption.

Well, so far people continue to borrow from all major governments no matter how indebted. Also, your bond is legal tender guaranteed by the US Treasury (or some other sovereign treasury), so you can always sell it to someone else. No one is stuck waiting for their bond to mature. Finally, and most critically, the Treasury pays back the bond in dollars when it matures. The treasury can also create dollars. Thus, the T…

Ok, but when they print unlimited amounts of money I'm not exactly getting the return on value that I expected because of inflation.

Re: The US Government Interest Expense Was 93% of Military Spending in 2018

#14

Post by astazangasta »

defterGoose wrote: post #13
astazangasta wrote: post #11

Earlier quoted context omitted.

Well, so far people continue to borrow from all major governments no matter how indebted. Also, your bond is legal tender guaranteed by the US Treasury (or some other sovereign treasury), so you can always sell it to someone else. No one is stuck waiting for their bond to mature. Finally, and most critically, the Treasury pays back the bond in dollars when it matures. The treasury can also create dollars. Thus, the T…

Ok, but when they print unlimited amounts of money I'm not exactly getting the return on value that I expected because of inflation.

Inflation is pretty low right now. Just printing money does not produce inflation - if it did we would have seen massive inflation during Quantitative Easing, when the Fed put trillions into the economy. In fact there was almost none. This is because inflation is governed by the equation of exchange, MV = PQ. M is the supply of money, V is its velocity (how fast it is being spent), P is prices and Q is aggregate demand. If M goes up, P only goes up if Q and V are constant. In an economy like ours where the productive capacity is much greater than demand, M can rise without much effect on P.

In general the government can continue printing money at the rate that productivity growth supports. Since this is related to the amount of borrowing, debt probably isn't going to cause inflation.

Re: The US Government Interest Expense Was 93% of Military Spending in 2018

#15

Post by Fjolsvith »

defterGoose wrote: post #13
astazangasta wrote: post #11

Earlier quoted context omitted.

Well, so far people continue to borrow from all major governments no matter how indebted. Also, your bond is legal tender guaranteed by the US Treasury (or some other sovereign treasury), so you can always sell it to someone else. No one is stuck waiting for their bond to mature. Finally, and most critically, the Treasury pays back the bond in dollars when it matures. The treasury can also create dollars. Thus, the T…

Ok, but when they print unlimited amounts of money I'm not exactly getting the return on value that I expected because of inflation.

Exactly. The money you lost out on goes to the owners of the central banks.
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