I'm confused - Sam who held a fundraiser for Obama is now saying the economy is screwed?
The Economy
231–240 of 270 posts
Re: The Economy
#232Earlier quoted context omitted.
That doesn't dispute my point at all. I'm not worried about the payments now . I'm worried about the payments if interest rates go up. And we shouldn't be surprised if rates go up substantially, because they are at historic lows right now.
There is a reason why they are at historic lows-- it is the decision of market participants. Your concern is essentially that market participants will somehow do a complete 180, for no stated reason.
"Your concern is essentially that market participants will somehow do a complete 180, for no stated reason."
If market participants demand a higher interest rate, I wouldn't call that a "complete 180".
Regardless, change is the only constant, as they say. Markets move. Behavior changes in response to the environment. If we really are supposed to be a risk-free place to loan money, then I would think we'd be a little more resilient to rising interest rates, which happen fairly often historically.
Re: The Economy
#233Earlier quoted context omitted.
Not being sarcastic here. 2013 A = Debt is around: $17.5 trillion B = Debt Service: $416 billion C = Average Rate: 2.38% ($416 billion / $17.5 trillion) D = U.S. Tax Revenue: +/- $2.8 Trillion Things won't get interesting until B approaches D. So one way of looking at is if everything remained constant (which it won't) you'd need 15% interest rates on the current debt for debt service to approach tax revenue. If inte…
"Things won't get interesting until B approaches D." I'd say things would get pretty interesting well before that point. B=D is just the point at which a default is inevitable (unless much higher tax revenue is achievable without causing other problems). But the problem is that the interest rates are so low now that large increases are not outlandish. 7 years ago, the rate was more than double what it is now. Looking…
There is no reason for the government to default when B=D. (If you disagree, please take a deep breath and think through the mechanics of exactly how the US federal government could be forced into default.)
In reality, B=D is likely to balance itself out again. This becomes apparent once you think through where the interest payments go.
If they are reinvested in government bonds, nothing happens. If they are reinvested in other financial assets, the general interest rate decreases, which will also pull down the interest rate on government bonds (reducing B). And if the interest payments end up with people who spend them on goods, well, that grows the economy, which increases D.
Re: The Economy
#234Earlier quoted context omitted.
That doesn't dispute my point at all. I'm not worried about the payments now . I'm worried about the payments if interest rates go up. And we shouldn't be surprised if rates go up substantially, because they are at historic lows right now.
There is a reason why they are at historic lows-- it is the decision of market participants. Your concern is essentially that market participants will somehow do a complete 180, for no stated reason.
If you count the federal reserve as a market participant.
Re: The Economy
#235Earlier quoted context omitted.
Agreed. Further, there's little evidence that Debt-to-GDP over 100% (despite "feeling" meaningful, because, 100%!) has any kind of predictive value for the long term direction of an economy, particularly one that has unusually low interest rates. If Debt-to-GDP were a problem for the US, you'd expect higher interest rates, not lower ones, as investors would be demanding higher returns on US debt. The fact that intere…
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 places. It's a healthy system in which the feedback mechanism go in the right (i.e. stabilizing) direction.
Re: The Economy
#236I'm not clear on how any of this will lead to a recession. Why will high Debt-to-GDP or government spending send the economy into a recession? Q1 GDP numbers were clearly affected by dismal weather (although still bad), but labor markets are improving markedly, and there are reasons for optimism. I don't see this as a very convincing bear case. For the bull case, see this post, from a guy who's been right about every…
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 meaningless measure as far as the government's ability to fight a recession is concerned. (It may have play a role in other consideration, such as questions about equity and distribution of wealth, but that's a digression.)
Re: The Economy
#237Corporate savings are high across a broad basket of companies like the S&P500 because the earnings of multinationals are parked in Luxembourg, avoiding US taxes. We've all read about the Double Dutch and other IP licensing schemes that avoid taxes for Google, Apple and others. I personally feel these funds are waiting for a US corporate income tax holiday, perhaps under the guise of creating new jobs and investment d…
So, the 0% interest is a catalyst for startup investment? Do institutional investors or big banks directly fund incubators and the like? I read somewhere recently that global bank income was up 29 billion from last year, does any of that profit come from startup success?
Institutionals and investment banks are higher up the chain. Accredited investors serve as front-line angels that fund would-be entrepreneurs, and then the aforementioned parties provide them with liquidity (distribution and marketing of the company's other shares to more sophisticated investors).
Re: The Economy
#238Earlier quoted context omitted.
This. Especially when some economists recommend recession spending as a way to fight it. We've already spent the money, maxed out the "credit cards" and currently interest rates are poised to go up. If another recession does take hold, it will be a nasty fight.
"it will be a nasty fight" Yes, possibly literally. Major wars are often the ultimate solution to this kind of problem. When the dust settles a new order exists. I detest war. I detest human suffering. But it appears sometimes war has amazing cleansing power. Hopefully this isn't always the case.
This is the saddest part of it. Wars have economic benefit because of the giant injection of spending and incentives for investment. One could have the same benefit using much less destructive and even beneficial projects such as colonizing the oceans or space or building gigantic solar power plants to solve all our energy problems.
Alas, there seems to be always at least one party that is opposed to any kind of visionary project.
Re: The Economy
#239Earlier quoted context omitted.
Why will high Debt-to-GDP or government spending send the economy into a recession? Do you agree that it is a problem at some point? If so then why not at current levels?
If you think about this in a more general context it's easier to see that "Debt-to-GDP" ratio alone isn't enough to determine that there is a problem. You need a combination of debt level and interest rate. For example, I personally could have $100 Trillion in debt but with an infinitesimally small interest rate and an infinitely long repayment period, I would not be concerned. What matters is Debt-Payment-to-GDP rat…
Still, there hasn't actually been any argument as to why a high debt-whatever-to-GDP ratio would cause a recession.
I would actually argue the opposite: If debt payments suddenly increased, this would infuse cash into the economy which would likely boost GDP.
Re: The Economy
#240Earlier quoted context omitted.
It turns out to be right, often enough. In the 19th century, for instance, there was a class of physical laborers whose numbers in the USA reached the tens of millions. But as technology--particular the combustion engine and fossil fuel refining--took off, they became surplus unusable labor that literally was more valuable being turned into glue, or letting them starve to death. Yeah, horses. "But it's different this…
I'll grant your premise, for the sake of argument. So where's the big negative fallout? If the set of unemployable people has been growing for centuries, where is the mass starvation and misery? How can it be possible that the 20th century -- well into the process you describe -- saw a burgeoning middle class in the West, and then later a burgeoning middle class in Asia? Clearly the benefits of productivity growth ha…
I didn't intend to suggest we see mass starvation and misery now, simply that a larger and larger proportion of the population of working-age population would fall out of the workforce. Which we've seen for men for decades, and women as well recently. We've dealt with this by a hodgepodge of measures, from a hacky attempt to patch those weak portions of the labor market using SSDI; to kids living in their parents' basements and sharing their family health insurance; to extending unemployment for periods much longer than it was originally designed; to encouraging early retirement. We've muddled through, basically. As the tendency intensifies, it'd be worthwhile to figure out a solid way to rationalize and optimize all those programs.
Your other points I'm in broad agreement with. More and more of the economy will shift from hierarchical, institution-oriented "jobs" to something more freeform. This effectively amounts to shifting management and monitoring costs to the individual instead of the organization, which I think makes loads of sense and is a practice that'll end up outcompeting others. I don't think the average worker will end up screwed in the next ten or thirty years. I'd expect that a surprisingly large number of them will be working in autonomous jobs outside of corporate environments.
But many of those new freeform activities will be marginal, and many of them will involve barter as compensation or even be wholly uncompensated.
So, I'm not so sanguine about the bottom 20%: even if we do manage to revamp our education system to deal with contemporary economic problems better (a huge, giant if that'd take decades to implement), it'll take time to replace the whole workforce (40 years!), and there will always be students who end up performing significantly below average. Retraining programs of older workers haven't shown exceptionally promising results, either.
One of the things I like a lot about the Basic Income is that it provides a way for those displaced workers to experiment with new ways of work without the vigilant eye of the State trying to shove them into legible, easily-taxed, and controlled corporate employment.