The US is running up a huge deficit and lowering rates yet the dollar is getting stronger. It is kind of strange.
The dollar is, essentially, losing in an ugly contest. It has problems; everyone else seems to have worse ones.
Yuan falls to 11-year low
31–40 of 79 posts
Re: Yuan falls to 11-year low
#32Earlier quoted context omitted.
With near record low interest rates, after a decade long economic growth cycle, we are back to running $ trillion and growing deficits each year, at the peak of the cycle. In a few years, assuming current rates and no recession, interest on the debt will exceed military spending [0]. Imagine what happens when we do have a recession and much bigger deficits. Mandatory spending items will at some point soon crowd out a…
MMT disagrees with the entire premise of your comment. The “why is this happening” podcast has an excellent explanation.
Perhaps it does. But since the majority of us here consider MMT to be insanity, your comment carries very little weight. (And some random podcast isn't very persuasive, either.)
To supply some evidence for the other side: Even Krugman considers MMT to be insane, and he's the economist who should be most favorable to it (since he's the most borrow-and-spend, deficits-don't-matter of any economist I am familiar with).
Re: Yuan falls to 11-year low
#33Earlier quoted context omitted.
Local and State in the US can't run deficits. They can put out bonds to fund projects but thats it. Its only the US federal government that can run deficits.
>> They can put out bonds Isn't that what the federal govt does too? The US sells treasury bonds and China buys them. https://www.investopedia.com/articles/investing/040115/reaso...
The majority of US debt is special bonds owned by the Social Security Trust Fund. Only about 30% of bonds are owned by foreign entities. And the top foreign holder fluctuates between China and Japan.
Re: Yuan falls to 11-year low
#34Earlier quoted context omitted.
The ECB is negative and preparing to cut lower. BoJ is buying 90%+ of their own bond market. Emerging markets are blowing up routinely, most recently Argentina. Australia and Canada have their own issues. The U.S. isn't perfect but it's comparatively safe with a large military and reserve currency status with positive interest rates giving them room to react short term. (Edit: To be crystal clear, this relative safet…
The crazy thing is that the US is pricing its treasuries between Greece and Italy . In other words, the US could pay much less for debt if it wanted to. https://tradingeconomics.com/bonds No other developed country is paying anything near that amount. That is drawing a large inflow of capital into long-term treasuries, which in my view, is the true cause for the recent inversion.
There's no question it's a bizarre choice given the epic funding requirements of the US Government now and for the foreseeable future ($12t in new debt minimum over the next ten years).
The Fed should be attempting to smash the cost of US Government debt to the floor so the treasury can issue 50 year paper at 1.x% while there may be a window to do so.
It would be very unpopular with the wealthy and the private US financial system. I believe it's the sole reason they're not working aggressively to minimize what the US is paying for its debt vs other more risky nations. The Fed views the private financial system as a critical partner. To an extent by intentionally leaving borrowing costs higher than they have to be, they're performing a middle ground compromise with those partners vs the government's fiscal condition.
Re: Yuan falls to 11-year low
#35Earlier quoted context omitted.
The US government as a whole, if you combine Local, State, and Federal spending, is not running a huge deficit. It is, in fact, paying its debts down. You can quip about how sustainable this state of affairs is, but of the three, only federal debt is growing... And, if you look at inflation-adjusted metrics, that growth is very minor.
When people refer to US government they mean Federal. And the concern is that the Federal government has structurally degraded its budget such that it is running larger and larger deficits. And unfortunately when you give away money as tax cuts it's often politically impossible to reverse it.
If one looks up the etymology of the word appropriate:
https://en.wiktionary.org/wiki/appropriate
"From Middle English appropriaten, borrowed from Latin appropriatus, past participle of approprio (“to make one's own”), from ad (“to”) + proprio (“to make one's own”), from proprius (“one's own, private”)."
So when you write, "when you give away money as tax cuts" it gives the impression that allowing people to keep more of their earnings is giving them things, it comes across as Orwellian. Legislation was passed, and signed into law. In the U.S., following the law is not giving people things, but income taxes are giving the federal government things (sometimes states too).
Re: Yuan falls to 11-year low
#36Earlier quoted context omitted.
The crazy thing is that the US is pricing its treasuries between Greece and Italy . In other words, the US could pay much less for debt if it wanted to. https://tradingeconomics.com/bonds No other developed country is paying anything near that amount. That is drawing a large inflow of capital into long-term treasuries, which in my view, is the true cause for the recent inversion.
There's no question it's a bizarre choice given the epic funding requirements of the US Government now and for the foreseeable future ($12t in new debt minimum over the next ten years). The Fed should be attempting to smash the cost of US Government debt to the floor so the treasury can issue 50 year paper at 1.x% while there may be a window to do so. It would be very unpopular with the wealthy and the private US fin…
The Fed explicitly does not involve itself in fiscal policy like this. This is a good part of the reason that people trust US currency.
Re: Yuan falls to 11-year low
#37Earlier quoted context omitted.
When people refer to US government they mean Federal. And the concern is that the Federal government has structurally degraded its budget such that it is running larger and larger deficits. And unfortunately when you give away money as tax cuts it's often politically impossible to reverse it.
It's the balance of payments that's the problem, not government deficits. All lowering the deficit does when there's a negative balance of payments is increase private debt. And if there are recession fears, the last thing you want to do is raise taxes. The problem is where the tax cuts are, not that they are tax cuts; you want to cut taxes on people who spend a high proportion of their income on consumption, not wea…
In the U.S., the bottom 47% pays zero income taxes. The tax rates on the middle class are far lower than in Europe. Look at the actual tax brackets (i.e. the data).
As for the idea that the latest tax reform only helped the wealthy:
"The analysis Doggett referenced indeed indicates benefits will accrue to the very wealthy over time. Yet in the first year of changes, the top 1 percent are projected to draw a little over half the tax savings. The threshold of 80 percent going to the top 1 percent is projected for the tenth year. Also, Doggett’s stated figure for incomes is too low; it ties to the first year of implementation."
https://www.politifact.com/texas/statements/2017/oct/20/lloy...
Re: Yuan falls to 11-year low
#38The US is running up a huge deficit and lowering rates yet the dollar is getting stronger. It is kind of strange.
Cynically, this means the rest of the world is doing that much worse that the US, for all its issues, is seen as a safe haven for parking your money. Alternatively, there's more capital floating around than there are reasonably safe investment vehicles with better ROI than US treasuries.
I think the US continues to be buoyed by it's reserve currency status, if say oil started to be priced in euros the US might find itself with a currency like everyone else's and giant debts, the dollar would crash (which would be good for US exports)
Re: Yuan falls to 11-year low
#39Earlier quoted context omitted.
The crazy thing is that the US is pricing its treasuries between Greece and Italy . In other words, the US could pay much less for debt if it wanted to. https://tradingeconomics.com/bonds No other developed country is paying anything near that amount. That is drawing a large inflow of capital into long-term treasuries, which in my view, is the true cause for the recent inversion.
There's no question it's a bizarre choice given the epic funding requirements of the US Government now and for the foreseeable future ($12t in new debt minimum over the next ten years). The Fed should be attempting to smash the cost of US Government debt to the floor so the treasury can issue 50 year paper at 1.x% while there may be a window to do so. It would be very unpopular with the wealthy and the private US fin…
> The Fed should be attempting to smash the cost of US Government debt to the floor
We have an “indepedent” central bank with a limited set of policy concerns which do not include this type of thing specifically so that “fiscal” concerns [0] like this are not factors in setting monetary policy.
[0] MMT correctly points out that the category is based on a fiction, but even MMT advocates (while they want Congress to consider monetary impacts of what has historically been considered fiscal policy instead of the fiscal myth) don't generally want the central bank doing the kinds of things that have been considered “fiscal”.
Re: Yuan falls to 11-year low
#40Real Vision has some great commentary on the Yuan and its implications. Most recently: https://www.youtube.com/watch?v=1ssFICVFH40 The big risk from my point of view is that currency weakness tends to spook international investment capital who is exposed to the local currency, triggering selloffs as capital flees, exacerbating the problem.
It's worth noting that China's capital controls provide some insulation against this problem-- though they obviously cannot work to compel ongoing outside investment.
China's currency controls actually made the problem worse--a lot of non-Chinese companies immediately backed off on Chinese investments (i.e., factories, etc.) as soon as the controls were introduced.