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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

#91

Post by AnimalMuppet »

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?

Yes, if it's the same cost.

Take my car insurance, for instance. I can pay it all in one chunk, up front, for $X, or I can pay two payments of $Y. But (IIRC) X < 2Y. It's not the same cost. (This is one of the ways that it's more expensive to be poor - if you don't have the money to pay for car insurance up front, it costs more.)

Re: No one knows how much the government can borrow

#92

Post by ashtonkem »

hntrader wrote: post #83
throw0101a wrote: post #68

Earlier quoted context omitted.

> He has had the resources and status to access any scholar on the topic he would like. So did Bill Gross of PIMCO, one of the largest fixed-income (bond) management firms in the world (AUM: $1.9T): * https://en.wikipedia.org/wiki/PIMCO He bet that interest rates would rise in 2011 after QE(2). Keynesian macroeconomists like Krugman said they wouldn't. Krugam was right: * https://www.businessinsider.com/this-was-the-…

A fixed income fund manager is a domain expert in this area, even though he was wrong about this prediction. Their full time job is largely to understand and anticipate Central Bank policy.

My time in finance has led me to believe that traders and investors are far more prone to groupthink than they’re willing to admit to. “Hedge fund manager predicted inflation after QE and was wrong” is very low on my list of things that surprise me.

Re: No one knows how much the government can borrow

#93

Post by AnimalMuppet »

mikewarot wrote: post #7
signalfish wrote: post #2

Directly related is "Modern Monetary Theory" or MMT. Here's a 24 minute explainer from NPR, Planet Money. https://www.npr.org/2021/01/20/958854717/modern-monetary-the... And a brief explainer from The Conversation https://theconversation.com/modern-monetary-theory-the-rise-... Also known by its detractors as "Magic Money Tree." One of those detractors is of course the Adam Smith Institute. https://www.adamsmith.org/r…

It's not really an economic question, it's one of politics, intimidation, and a global empire. The "magic money tree" is backed by the full force of the United States. Heads of state who have suggested alternatives found themselves confronted with a sweeping range of responses, starting with bribes, then coercion, sanctions, and if those fail, hiding in a hole from US forces. There's nothing magic, nor mysterious abo…

Does MMT work if you're not the reserve currency? (Honest question; I don't know enough about the theory to say.)

But it is really an economic question. What will be the results if you run your economy this way? What will be the results if you do so as the reserve currency, and what will be the results if you do so when you're not?

Re: No one knows how much the government can borrow

#94

Post by toomuchtodo »

xxpor wrote: post #52
dharma1 wrote: post #28

Earlier quoted context omitted.

Absolutely, the result of de-dollarisation of world trade will be a shift in the world’s power dynamics. I think it’s pretty inevitable by now. I hope we have learned enough about history to be able to have economic competition/conflict without military conflict. As a silver lining for some parts of America - a weaker dollar together with onshoring of some industries probably means some jobs will return to the US.

I do wonder what will really end up as the alternative though. The yuan and euro both have major structural issues of their own.

A synthetic basket of the top currencies. Such a product exists (SDR aka Special Drawing Rights), but it’s niche. When you consider securities indices (SPY, for example), it’s not that outlandish.

https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01/14...

Re: No one knows how much the government can borrow

#95

Post by AmericanChopper »

jonas21 wrote: post #43
trident5000 wrote: post #35

Earlier quoted context omitted.

Wages are stagnant which means they dont need to raise the price of goods on the other side, theres your uptick in inflation.

I don't get it. If wages are stagnant and prices are stagnant, isn't that by definition zero inflation?

You have to do quite a bit of statistical gymnastics to come to the conclusion that wages are stagnant. Wages are almost always increasing. The stagnation observations come up when you account for inflation (a statistic called real wages). Until recently, real wages had peaked in 1973, so if you only had two points of data, February 1973 and March 2019, they would make a perfectly flat line on a graph. That’s where you get your “stagnation”. In reality, they steadily trended downwards between the early 70s and mid 90s, and have since then been steadily trending upwards between the mid 90s and today. I’m sure COVID is going to confound this to a non-trivial extent, but in 2019 they were at the highest level recorded.

Re: No one knows how much the government can borrow

#96

Post by AnimalMuppet »

netsharc wrote: post #87
mamon wrote: post #51

Earlier quoted context omitted.

Another misconception that has to die is that governments can get away with printing money indefinitely. The concept itself is not new: Roman Empire also did the same, shortly before its fall. Soviet block countries did that before 1989. Venezuela and Zimbabwe also did it. See the common theme here?

The difference between the smaller countries and the USA is, the dollar is basically the world's currency now. The world can afford to let Venezuela fail, but if the USA fails, the whole world goes down with it, so IMO they'll happily "lend" the USA more money. With the Roman Empire, I'm guessing other problems caused it to fall; it didn't fall because of money printing, but it was printing money because it was falli…

But printing dollars like they're toilet paper might lead to the US no longer being the reserve currency. That isn't a divine right. It isn't a once-and-forever thing. We can lose it.

Re: No one knows how much the government can borrow

#97

Post by jennyyang »

The only time people care is when they care. And you can't predict when that will happen. It's like a flock of birds flying in the air, you can't figure out which individual bird caused the first change in direction, but it quickly spreads across the entire flock.

The other fallacy is that inflation is here, it's just not being measured by the Federal Reserve properly. There is crazy inflation in things like house prices and assets like stocks. Look at the vast income inequality that has occurred in the last 15 years. Whoever is invested in stocks and housing market has made money. Everyone else is basically forgotten or left by the wayside.

Re: No one knows how much the government can borrow

#98

Post by kukx »

throw0101a wrote: post #82
kukx wrote: post #80

Earlier quoted context omitted.

He predicted the financial crisis. And predicting is hard, especially, if you have a "creative" government. The underlying problem was postponed, not fixed, and it got bigger in the mean time. I do not agree with him on everything, but he has many apt observations and convincing explanations. And at least he looks at fundamental mechanisms, which I like to interpret as a hard reality. I believe we now live in a soft…

The technical explanation why, when rates are zero, and you 'print money', inflation does not (or at least in all our current experiences has not) appear(ed): * https://en.wikipedia.org/wiki/Liquidity_trap It's what Keynesians (like Krugman) generally follow, and they've been right to date. Krugman for one has been writing about this since (at least) 1998 when Japan entered this situation: * https://www.brookings.edu…

The money printed to finance the government debt is not backed by a production of value. It just increases the money supply, while not increasing the amount of goods that one can buy with that money, hence by nature it is inflationary, ie it makes money less valuable. The market is complex and the effects may be postponed in time by years, but the fundamental mechanisms persist. The consequences are negative and sooner or later we will see them, or it is likely that we are already deeply affected.

Re: No one knows how much the government can borrow

#99

Post by roenxi »

jennyyang wrote: post #97

The only time people care is when they care. And you can't predict when that will happen. It's like a flock of birds flying in the air, you can't figure out which individual bird caused the first change in direction, but it quickly spreads across the entire flock. The other fallacy is that inflation is here, it's just not being measured by the Federal Reserve properly. There is crazy inflation in things like house pr…

> The other fallacy is that inflation is here, it's just not being measured by the Federal Reserve properly.

Another theory is a 0% inflation rate doesn't mean 0% inflation. It means inflation is close to the rate that goods/services are getting cheaper naturally as technology & market organisation improves.

Re: No one knows how much the government can borrow

#100

Post by lend000 »

throw0101a wrote: post #68
njarboe wrote: post #27

Ray Dailo has been thinking about this idea for most of his life. He has had the resources and status to access any scholar on the topic he would like. Smart and motivated to understand the answer, he has written a book about this topic that is coming out soon, but is also available in full on-line for free[1]. I'm half-way through and it is very good so far. [1] https://www.principles.com/the-changing-world-order/#i…

> He has had the resources and status to access any scholar on the topic he would like. So did Bill Gross of PIMCO, one of the largest fixed-income (bond) management firms in the world (AUM: $1.9T): * https://en.wikipedia.org/wiki/PIMCO He bet that interest rates would rise in 2011 after QE(2). Keynesian macroeconomists like Krugman said they wouldn't. Krugam was right: * https://www.businessinsider.com/this-was-the-…

Everybody in the industry is making predictions (with 0 dollars on the line) constantly, so cherry-picking different credentialed people to support a narrative is pointless. Especially in the field of macroeconomics where a few individuals are making decisions behind closed doors that can radically alter the economy.

I do tend to put more weight on the predictions of people who statistically understand markets. By that, I mean people who beat the market in the long term without exceptional drawdown. Ray Dalio is one of those people, whose mastery of macro trading is on display across a number of different projects in his career, often with relatively low measured risk and volatility [0][1]. Paul Krugman is not. Unfortunately, many of the loudest voices in the field of economics wouldn't have made it in a career in which compensation is directly tied to understanding of markets.

[0] https://portfolioslab.com/portfolio/ray-dalio-all-weather [1] https://atticcapital.com/bridgewater-associates-average-retu....

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