[HN Gopher] No one knows how much the government can borrow
___________________________________________________________________
No one knows how much the government can borrow
Author : jger15
Score : 70 points
Date : 2021-01-23 15:07 UTC (7 hours ago)
(HTM) web link (noahpinion.substack.com)
(TXT) w3m dump (noahpinion.substack.com)
| signalfish wrote:
| 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/research/the-magic-money-tree-the-...
|
| I thought I remembered Freakonomics doing a fairly in-depth
| discussion on this, but I can't find it. Maybe I mis-remember.
| mikewarot wrote:
| 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 about it. We're the only
| ones (right now) with the system in place to hold the rest of
| the world hostage. When those in charge press their luck too
| far, or if by accident they let an idiot run the place for 4
| years, that grip on things could loosen, and eventually our
| position could collapse.
|
| When that happens, we'll be forced to use money from someone
| else's "magic money tree". Having to export hard currency
| instead of magic money, would cause prices on all things
| imported to double or worse in a few years or less.
|
| The only real question is how many % of the value of the dollar
| when spent as an export is real, and how much is the "global
| reserve currency" status. I suspect it used to be %20 real, and
| lately it's more like 50% as our leaders fumble the ball too
| much for the rest of the world's liking.
| AnimalMuppet wrote:
| 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?
| anticristi wrote:
| I can't help feeling that the question is ill-posed. It's not
| "how much", but "why" that matters.
|
| Think about it: Would you borrow $10,000 to a friend who opens a
| dentist with a solid business plan? Probably yes.
|
| Would you borrow $1000 to a friend to cover an existing debt?
| Probably not, or, if you are very generous, you would gift them
| the money.
|
| If a government can demonstrate that it borrows money to invest
| in the economy and increase future taxes -- e.g., by building
| infrastructure, educating the population, researching top-notch
| tech -- by all means, borrow more!
|
| However, if all the government does is increase social welfare
| that it already struggles to afford or satisfy the luxury of a
| dictator, then stop borrowing now!
| sesuximo wrote:
| government does both, but you cannot specify what your loan
| pays for
| drtillberg wrote:
| > Remember that some people thought that government borrowing ...
| facilitated by quantitative easing (Fed bond-buying) ... was
| going to lead to substantial inflation. But it didn't.
|
| Every time someone says "but where's the inflation" I sigh. Look
| at literally any financial asset, SP500, stocks, real estate,
| even bond values (the inverse of interest rates). There is your
| inflation.
|
| Maybe we like asset inflation, maybe we don't, but that's where
| it is. When the author claimed to be unable to find it, I stopped
| reading.
| [deleted]
| titzer wrote:
| "Official" inflation is based on the CPI, consumer price index,
| which is based on a basket of goods, not including CoL things
| like housing.
|
| edit:
|
| I stand corrected. It does include housing, but this "Owners'
| equivalent rent of residences" counts the cost of a Mortgage,
| which of course is majorly impacted by interest rates. It
| doesn't include the value of the housing market directly,
| though.
|
| Does anyone actually think that the housing market is counted
| correctly? It is clearly outpacing inflation by a lot:
|
| https://dqydj.com/historical-home-prices/
| em500 wrote:
| You probably need another correction: CPI does not count the
| cost of a mortgage, nor interest payments in any direct way.
|
| What the CPI estimates is the price of _shelter_ , by
| surveying renters how much rent they pay, and house owners
| how much rent they think their house would rent for.
|
| It's a bit frustrating that there are so many
| misunderstandings around this topic, while the BLS has clear
| and extensive explanations on their website.
|
| https://www.bls.gov/opub/hom/cpi/
|
| https://www.bls.gov/cpi/factsheets/owners-equivalent-rent-
| an...
| 1915cb1f wrote:
| This is untrue. Housing is part of the CPI, and you can see
| everything that's included here:
|
| https://www.bls.gov/cpi/tables/relative-importance/2019.txt
| trident5000 wrote:
| CPI is a convenient basket for the fed to sell bonds ideally
| at a positive yield. Thats why things are left out.
| throw0101a wrote:
| > _for the fed to sell bonds_
|
| The Fed does not sell bonds, the US government (through the
| Department of Treasury) does. They are independent of each
| other.
|
| (Then-President) Trump got lots of flack for going after US
| Fed Chairman Powell due to the desire to keep this
| independence as clear-cut as possible:
|
| * https://thehill.com/policy/finance/450283-powell-asserts-
| fed...
| trident5000 wrote:
| You are correct, I typed that too fast.
| dragonwriter wrote:
| > not including CoL things like housing.
|
| CPI includes both actual rents and imputed rents for home
| ownership. It doesn't include asset costs because it's a
| consumption price index, and doesn't measure additional costs
| to acquire non-consumption assets.
| SpicyLemonZest wrote:
| Under the conventional definition, "inflation" exclusively
| refers to an increase in the general price level, so it doesn't
| make a ton of sense to talk about "finding" the inflation or
| one sector or another. An increase in prices within specific
| industries isn't inflation, just a price increase.
|
| (Of course, you're free to use nonstandard definitions if you'd
| like, but you can't just toss other perspectives out the window
| because they use the conventional ones.)
| MrRiddle wrote:
| How can you have inflation while most of the services and
| commodities people are using are not increasing in price? Sure,
| you have equities rising, but that's about it. Inflation
| because call options are flooding the market? Bonds are going
| down, real estate market is stagnant.
| mamon wrote:
| Commodities prices might not be increasing right now, but
| that's not the point. The point is, Jeff Bezos's wealth is
| approaching $200B, Elon Musk is not far behind. Quantitive
| Easing and similar policies seem to be designed to increase
| wealth inequality - one more decade of such policy, one more
| big crisis, and all wealth will be concentrated in the hands
| of 0.01% richest men. Meanwhile middle class businesses are
| being drawn to banktruptcy by COVID-related lockdowns. We are
| slipping back in feudalism - soon most people will be at
| mercy of government, and small elite of billionaires.
| trident5000 wrote:
| Wages are stagnant which means they dont need to raise the
| price of goods on the other side, theres your uptick in
| inflation.
| jonas21 wrote:
| I don't get it. If wages are stagnant and prices are
| stagnant, isn't that by definition zero inflation?
| trident5000 wrote:
| Prices are not stagnant. You can see that quite clearly
| from the average price of a big mac over the years.
| AmericanChopper wrote:
| 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.
| snomad wrote:
| A McDonalds double cheeseburger meal costs $8.
|
| I remember when that was 3.99 not too long ago. Somehow I
| doubt that price difference is captured by the official 1 -
| 2% inflation rate.
| throw0101a wrote:
| > _Somehow I doubt that price difference is captured by the
| official 1 - 2% inflation rate._
|
| It was captured. It's just that food, and specifically
| restaurants is only _one component_ of CPI. In Canada it
| makes up 5% of the basket of goods ( "Food" makes up 17%):
|
| * https://www150.statcan.gc.ca/n1/pub/71-607-x/2018016/cpi-
| ipc...
|
| You are probably 'suffering' from familiarity bias:
|
| * https://www.valuewalk.com/2018/08/familiarity-bias-
| investing...
|
| * https://en.wikipedia.org/wiki/Familiarity_heuristic
| fastaguy88 wrote:
| Prices vary. While the price of a McD's meal may have
| doubled over some period of time (or space -- compare your
| neighborhood McD vs the one at OHare airport), MIT's
| billion prices project shows pretty conclusively that
| prices on average have been going up very slowly (<
| 2%/year) since the 2008 Great Recession.
| dragonwriter wrote:
| > A McDonalds double cheeseburger meal costs $8.
|
| > I remember when that was 3.99 not too long ago. Somehow I
| doubt that price difference is captured by the official 1 -
| 2% inflation rate.
|
| Probably not exactly (and maybe not even approximately),
| because while restaurant meals are included in the CPI, the
| CPI is a somewhat broader index than the "McDonald's double
| cheeseburger meal index" (also, McDonald's prices have
| regional and even store-to-store variation, and it's
| possible your local prices have varied differently than
| average for that particular item.)
| dragonwriter wrote:
| Like producer price inflation, asset inflation isn't what
| people are talking about when they talk about "inflation"
| without modifiers, which refers to consumer price inflation.
| When people predicted inflation from QE, they were predicting
| consumer price inflation. And depending on how you look at it,
| they were either right and that was entirely the point of the
| policy (if you look at the _difference_ between actual results
| and what was predicted without the policy) or wrong because
| they failed to consider the deflation that would happen without
| the policy (if judged by a net standard rather than delta from
| without-the-policy expectations.)
|
| Pointing to asset price inflation to say "there is the
| predicted inflation from QE" is the fallacy of equivocation;
| shifting definitions to suit the argument.
| alexpetralia wrote:
| Yes this failure to distinguish different types of inflation
| (wage inflation, financial asset inflation, consumer goods
| inflation) is a big analytical oversight.
| trident5000 wrote:
| "wheres the inflation?" "why cant I afford a house I dont get
| it"
| farseer wrote:
| For the average Joe, inflation is usually the price of milk,
| bread and eggs going up. America being an agricultural colossus
| with plenty of farm subsidies mean the price of essentials will
| not rise. Hence the unique manifestation of inflation in asset
| prices will not bring masses on the streets unlike most other
| countries. Coupled this with the fact that other countries are
| also printing money and are in worse shape ensures there isn't
| much to worry about yet..
| pstrateman wrote:
| The true increase in the cost of living is much higher than
| the official CPI.
|
| CPI is nearly completely worthless for identifying inflation
| in the cost of living, which is what actually matters.
| dragonwriter wrote:
| > The true increase in the cost of living is much higher
| than the official CPI.
|
| There's a decent argument that it's slightly higher,
| especially when you talk about the minimum cost at the low
| end, because of hedonic adjustments included in the CPI.
|
| There's not, that I've seen, a good argument that it is
| "much higher".
|
| > CPI is nearly completely worthless for identifying
| inflation in the cost of living
|
| This claims is desperately in need of supporting evidence
| or at least argumentation.
| Supermancho wrote:
| https://chapwoodindex.com/
|
| There are resources outside the CPI or individual verticals,
| to measure inflation.
| SpicyLemonZest wrote:
| This index doesn't pass the sniff test. 10% annual
| inflation would mean that someone making $100k today has
| the same standard of living as someone making $40k in 2010.
| [deleted]
| throw0101a wrote:
| > _There are resources outside the CPI or individual
| verticals, to measure inflation._
|
| No, there are not. CPI is about measuring consumables that
| one needs to live: food, shelter (either rent or mortgage
| carrying costs), utilities, clothing, etc. If you want to
| measure something outside of this basket of goods, then use
| another word, because "inflation" / CPI is already taken
| and you're overloading it and causing confusion by
| conflating different things.
|
| This "index" is garbage. Please see "Inflation Truthers":
|
| > _But if we take away the outlier 2020 data points, the
| average real annual GDP growth from 2010-2019 was 2.3%. The
| inflation rate in that time averaged roughly 1.8% per
| year._
|
| > _If you're one of the conspiracy people who believe
| inflation has actually been running at 5-6% per year, that
| would assume the economy has been contracting by 1-3% per
| year over the past 10 years._
|
| > _And if you're a full tinfoil hat person who assumes
| inflation is actually 10-12% per year, that's like saying
| we've been in a full-blown depression and the economy has
| lost 80% of its value._
|
| * https://awealthofcommonsense.com/2021/01/inflation-
| truthers/
|
| * https://news.ycombinator.com/item?id=25644580
|
| So if the GDP grew "only" ~2.5%, then any inflation above
| that (as the 'truthers' claim), would mean were actually in
| a recession/depression for the last decade... which makes
| no sense. If inflation is >5% (per the truthers), then the
| economic growth would have had to been _on top of that_ ,
| for a nominal growth rate of >7%.
|
| Has anyone been claiming a US GDP growth of 7% or more?
| Jommi wrote:
| You're right and wrong. You're talking more specifically about
| asset price inflation.
|
| Read this: https://www.valuewalk.com/2014/11/central-banks-
| asset-vs-pri...
|
| Btw it's an incredibly good topic and if anyone wants to talk
| more about it I would love to start a clubhouse room.
| amelius wrote:
| If you owe the bank $100, that's your problem. If you owe the
| bank $1000 billion, that's the bank's problem.
| anm89 wrote:
| That metaphor works better for huge businesses. There's really
| no bank here(yes I'm well aware of central banks, but that's
| not really how bank is being used here from a balance sheet
| solvency perspective).
|
| It's more like if you issue currency and owe trillions, that's
| the currency and the currency issuers problem.
| treeman79 wrote:
| Some of these banks have nukes.
|
| Oh and they can form a 100 million man army.
| anm89 wrote:
| We don't actually know what would happen if I went and cursed my
| boss out on monday morning and asked for a raise. The data simply
| isn't there!
|
| Therefor we should conclude this is a reasonable course of
| action.
|
| Do we know every specific outcome in the complex system of our
| world and economy from elevating debt to 200 or 500 or 1000% of
| GDP? Of course not.
|
| That doesn't mean we cannot predict most of the core mechanics of
| what will play out.
| newacct583 wrote:
| I try to post this everywhere people want to start yelling about
| federal debt (which correlates _much_ more closely to the thing
| the government wants to borrow _for_ than the actual size of the
| debt):
|
| Interest as Percent of Gross Domestic Product (essentially: how
| much money do we need to pay for our spending habits):
|
| https://fred.stlouisfed.org/series/FYOIGDA188S
|
| We are nowhere near the peaks that we saw in the 80's and early
| 90's. All those 30-year bonds issued at the start of the Reagan
| revolution matured and were paid off, no one seemed to notice,
| and none of the rhetoric seems to have changed at all.
|
| This just isn't a problem in the modern economy. Interest rates
| have been sitting at or very near GDP growth for four decades
| now, which means that money is as close to "free" as it is
| possible to get (that is, if the US borrows $4 and spends it, it
| sees a $4 increase in GDP).
|
| That doesn't mean that serious argument about sustainable
| spending can't be made in good faith, but it does mean that
| almost all arguments of the form "we can't afford it" are not.
| This is triply so if the argument includes a credit card
| metaphor.
| [deleted]
| trident5000 wrote:
| Buddy, the interest as a percent of gdp matches the 80's and
| 90's because rates are near 0%. Real yields are negative in
| europe. Its not even close to the same situation.
|
| "Interest rates have been sitting at or very near GDP growth
| for four decades now" thats short-sighted and not really true:
| https://fred.stlouisfed.org/series/fedfunds
|
| Theres no free lunch, you don't get to just print unlimited
| money and have no consequences.
| pessimizer wrote:
| > Theres no free lunch, you don't get to just print unlimited
| money and have no consequences.
|
| I think you're arguing the opposite. We are printing money,
| yet inflation stays stubbornly low. We borrow money, but
| don't have to offer any interest; in fact, in some
| circumstances people pay us to loan us money. That's the
| definition of a free lunch.
| trident5000 wrote:
| Inflation is not low, have you checked stock market lately?
| Have you seen home prices up 15% yoy? Education costs
| rising, auto, etc. There is a left and right tail of the
| inflation bell curve. High impact items are increasing in
| price rapidly while things like flat screen tv's stay low
| from certain market dynamics. Also because wages are not
| rising, inflation is rising faster than people understand
| even on left tail items.
| newacct583 wrote:
| Asset price increases and inflation are entirely
| different things. The former represents growth, the
| latter is a dilution (sort of "good" vs. "bad", but not
| really, economics is complicated, yada yada).
|
| Education costs are indeed part of inflation, as are car
| prices. And yes, those are rising, but they're being
| offset on balance by other things (phones, say) getting
| cheaper.
|
| Look, inflation indexes are complicated and there's room
| for argument about exactly how you want it computed. But
| statements like "inflation is not low" don't really
| capture the truth.
| trident5000 wrote:
| Yes my underwear is going to offset the rising prices of
| homes, education, healthcare, etc. Also even your example
| is incorrect, the iphone price keeps rising at a healthy
| clip. They can now be $1300.
| throw0101a wrote:
| > _the iphone price keeps rising at a healthy clip. They
| can now be $1300._
|
| The iPhone (1) was introduced in 2007 and cost US$ 600
| for the 8 GB model. What were its capabilities _in 2007_?
|
| * https://en.wikipedia.org/wiki/IPhone_(1st_generation)
|
| What, for $600, can you get now? And what are the
| _capabilities of a $600 smartphone in 2021_?
|
| An iPhone 12 mini is $700 [1], an iPhone 11 [2] 64 GB is
| $600, and a 128 GB for $650.
|
| The same number of dollars gets you much more in regards
| to technology in the past. That's not nothing.
|
| [1] https://www.apple.com/shop/buy-iphone/iphone-12
|
| [2] https://www.apple.com/shop/buy-iphone/iphone-11
| throw0101a wrote:
| Please see the article "Inflation Truthers"
|
| * https://awealthofcommonsense.com/2021/01/inflation-
| truthers/
|
| * https://news.ycombinator.com/item?id=25644580
|
| Inflation _is_ low.
| xxpor wrote:
| It's not that there are no consequences, it's a question of
| the trade off of those vs if you don't borrow/print money.
| The experience from the recovery of the great resession have
| moved the consensus largely over to the print more money
| camp.
| throw0101a wrote:
| > Theres no free lunch, you don't get to just print unlimited
| money and have no consequences.
|
| _Japan enters the chat_
|
| * M1: https://fred.stlouisfed.org/series/MYAGM1JPM189N
|
| * Debt: https://fred.stlouisfed.org/series/DEBTTLJPA188A
|
| * Interest rate:
| https://fred.stlouisfed.org/series/INTDSRJPM193N
|
| * CPI: https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
|
| The technical explanation why, when rates are zero,
| increasing the money supply doesn't do anything to inflation:
|
| * https://en.wikipedia.org/wiki/Liquidity_trap
| baybal2 wrote:
| For US to have problems with borrowing will require a decade
| long downturn at least.
|
| The best proof is the fact that Tbills keep flying like hot
| cookies during major downturns, which means people buying them
| at least plan for time spans exceeding them.
| beezle wrote:
| Title somewhat misleading as the actual question asked in the
| post was 'safely borrow.'
|
| The more abstract question of 'how much' is of course infinite
| when there exists a compliant central bank that will 'buy' the
| debt and issue currency in return. The real world value of that
| currency would be expected to approach zero, in the limit.
| TANSTAAFL
| [deleted]
| jldugger wrote:
| Seems like they can easily borrow 100 billion in one shot.
| Tendered Accepted Primary Dealer
| $77,850,000,000 $10,790,550,000 Direct Bidder
| $6,350,000,000 $2,009,150,000 Indirect Bidder
| $20,935,350,000 $12,193,340,000 Total Competitive
| $105,135,350,000 $24,993,040,000
|
| https://www.treasurydirect.gov/instit/annceresult/press/prea...
| trident5000 wrote:
| Because institutions like pension funds are mandated to buy
| them.
| njarboe wrote:
| 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/#introdu...
| throw0101a wrote:
| > _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-bill-gross-
| blun...
|
| *
| https://www.salon.com/2014/10/03/paul_krugman_schools_the_de...
|
| * https://delong.typepad.com/delong_long_form/2014/10/pimco-
| ho...
|
| Be careful about experts in one field trying to expound in an
| unrelated field. (I have found Dalio's writing to be
| interesting though.)
| hntrader wrote:
| A fixed income fund manager is a domain expert in this area,
| even though he was wrong about this prediction.
| ashtonkem wrote:
| 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.
| lend000 wrote:
| Everybody in the industry is making predictions 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 with a deep
| mastery of macro markets trading, 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....
| kukx wrote:
| Some counter perspective laid out by Peter Schiff, while I do not
| agree with everything said, I find it valuable and entertaining:
| https://www.youtube.com/watch?v=M6k0QEnYpSQ
| throw0101a wrote:
| The same Peter Schiff calling for runaway inflation in
| 2008-2009?
|
| > _He has that exactly right: the central dispute is between
| those who see depressions as the result of inadequate demand,
| implying that inflation will fall and that printing money does
| nothing unless it boosts employment, and those who see
| depressions as the result of maladapation of resources or
| something -- anyway, something on the supply side -- who
| predict that running the printing presses will lead to runaway
| inflation._
|
| > _How could you test those rival views? Why, how about having
| a huge slump, to which central banks respond with aggressive
| monetary expansion? And that is, of course, the test we've just
| run. And everywhere you look, inflation is low, verging on
| deflation._
|
| > _So we've just run the Schiff test -- and his brand of
| economics, by his own criteria, loses with flying colors. And
| that goes for just about all anti-Keynesian doctrines: we ran
| as close to a clean experiment as you're ever going to get, and
| the answer is no._
|
| * https://krugman.blogs.nytimes.com/2014/11/22/the-wisdom-
| of-p...
| kukx wrote:
| 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 reality, where the sweet
| falsehoods are preached to and believed by masses.
| throw0101a wrote:
| 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/bpea-articles/its-baaack-
| japans-sl...
|
| * Same paper:
| https://www.princeton.edu/~pkrugman/japans_trap.pdf
|
| The paper is probably still relevant today, especially
| since more places are hitting zero. Krugman has made better
| predictions than some trillion dollar asset managers:
|
| * https://www.businessinsider.com/this-was-the-bill-gross-
| blun...
|
| * https://www.salon.com/2014/10/03/paul_krugman_schools_the
| _de...
|
| *
| https://delong.typepad.com/delong_long_form/2014/10/pimco-
| ho...
|
| I started reading Krugman's weblog around 2009, and AFAICT,
| everyone who bet/predicted against Keynesian economics in
| the intervening years has generally been wrong (or at least
| more-wrong, even if K hasn't been spot-on).
| kukx wrote:
| 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.
| trident5000 wrote:
| 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.
| xxpor wrote:
| There were some responses on Twitter to this post that
| basically said every historical case of hyperinflation was due
| to behavior and governmental instability rather than pure
| economics of the supply of currency. I'm not sure how true that
| is, but it does seem odd that we don't really have a model for
| hyperinflation if it results directly from sovereign debt and
| money creation.
| throw0101a wrote:
| > _What happens to your currency in that process is debasement
| /hyperinflation._
|
| Japan may disagree with that assessment:
|
| * Interest rate:
| https://fred.stlouisfed.org/series/INTDSRJPM193N
|
| * Inflation: https://fred.stlouisfed.org/series/FPCPITOTLZGJPN
|
| * YEN-USD: https://fred.stlouisfed.org/series/EXJPUS
| trident5000 wrote:
| Japan is in a category of its own. They have a declining
| population which followed a massive asset bubble that popped
| 30 years ago.
| https://fred.stlouisfed.org/series/POPTOTJPA647NWDB
| throw0101a wrote:
| > _Dean Baker goes after people who claim that Japan has
| suffered terribly from its debt burden, arguing that Japan
| has actually done pretty well. But he 's wrong: Japan has
| done better than he says_
|
| > _Dean looks at GDP per capita. But Japan 's aging
| population means that you really want to look at GDP per
| working-age adult. And by that measure Japan's growth has
| been essentially the same as America's_
|
| [...]
|
| > _The truth is that these days Japan looks less like a
| cautionary tale than like a role model. Its performance
| only looks bad if you assume that the debt is a terrible
| problem, when all the evidence says that it isn 't_
|
| *
| https://twitter.com/paulkrugman/status/1215628645869420545
|
| 25 years of <1% rates, huge 'money printing', and yet no
| inflation or currency debasement, and respectable per-
| worker GDP growth.
|
| Where's the problem?
| trident5000 wrote:
| I have to admit Japan is an interesting case and brings
| up good counter points. Really wages need to go up to
| spark inflation on the ground floor for common items.
| throw0101a wrote:
| Krugman has a 1998 paper on Japan that's probably still
| relevant today, especially since more places are hitting
| zero rates:
|
| * https://www.brookings.edu/bpea-articles/its-baaack-
| japans-sl...
|
| * https://www.princeton.edu/~pkrugman/japans_trap.pdf
| trident5000 wrote:
| Giving these a read, thanks.
| anticristi wrote:
| 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?
| jedberg wrote:
| Yes it's totally rational. I do the same thing. I had a
| school loan that was at a 0.1% interest rate. I could have
| paid it off with my savings, but my savings interest was more
| than that, so it made more sense not to pay it off. I was sad
| when it was finally paid off, because it meant I was no
| longer arbitraging the interest.
| AnimalMuppet wrote:
| 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.)
| trident5000 wrote:
| Yes this is rational behavior unless the payback schedule
| gets you in trouble or the rates shift.
| throw0101a wrote:
| When it comes to cars, what's often offered is 0% financing
| _or_ some kind of cash back. It may actually be better to go
| with the cash back.
|
| Preet Banerjee made a 10 minute video laying out the math on
| why not going with 0% financing may be better:
|
| * https://www.youtube.com/watch?v=KGPu0jPryfU
| raducu wrote:
| > What happens to your currency in that process is
| debasement/hyperinflation.
|
| Not if the vast majority of population lives paycheck to
| paycheck and food and basic necessities production are not
| disrupted.
|
| In that/our case, you simply get the inflation of the assets
| the "elites" who have disposable income choose to spend that
| disposable income("investing" in real-estate, bitcoin).
| trident5000 wrote:
| The savings rate is a whole other issue. Strictly on the
| value proposition of the dollar and discussing economics, the
| savings of common folks in any amount cannot be invested into
| production assets meaningfully with real yields as prices
| rise = they are worthless. Meanwhile homes, auto, healthcare,
| education, all rise and what you are holding has less
| purchasing power. Inflation is very real even if the price of
| specific items like your socks are not rising substantially.
| Also CPI is a basket created by the fed to sell bonds, it has
| no other purpose.
| gruez wrote:
| Maybe not disrupted in their everyday lives, but it certainly
| leads to more concentration of wealth by the elites.
| Armisael16 wrote:
| That's only accurate if paychecks and food adjust at the same
| rate. You're pretty screwed if your wage is set at the
| beginning of the year but bread is ticking up every week.
| jennyyang wrote:
| 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.
| roenxi wrote:
| > 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.
| notyourwork wrote:
| Are house prices inflation or appreciation? It may be unfounded
| but is an increase in value always inflation? (Serious
| question, not disagreeing with your statement.)
| howeyc wrote:
| This misconception needs to die. The government doesn't borrow
| money. The government doesn't need your money.
|
| The government prints money. They could stop accepting taxes
| tomorrow and still be able to keep spending. They print the
| money.
|
| Treasuries exist as an accounting fantasy for people to believe
| the government needs to borrow, they don't. Any treasuries
| outstanding today basically just represent dollars to be printed
| in the future.
|
| What matters is amount of dollars in circulation and velocity of
| money. Inflation.
| mamon wrote:
| 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?
| netsharc wrote:
| 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 falling.
| AnimalMuppet wrote:
| 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.
| CryptoGhost wrote:
| Your point is accurate that true borrowing isn't really an apt
| description since they just alter the effective supply of money
| but technically they do need to borrow because they don't have
| complete control of the Federal Reserve. Granted congress could
| change that if they wanted to if the Fed angers them enough.
| But exactly how such a drama would play out is complicated.
| fallingfrog wrote:
| Nobody knows, but we're about to find out..
| rubyn00bie wrote:
| I'd really like to point out this:
|
| > Hyperinflation is so incredibly destructive that you'd think
| macroeconomists would spend a lot of time studying the
| phenomenon, figuring out when and why it happens. Especially
| because the answer to the question of hyperinflation is also the
| answer to the question of how much the government can borrow. An
| understanding of hyperinflation would give us a flashlight to
| shine down the infinite corridor, so we could avoid the pit.
|
| ... is pretty ignorant. You have an unrealistic fear of
| hyperinflation propagated by your ideals; to the point, you think
| it's important or relevant in situations where it's not. Perhaps,
| and this is just a thought here, if no one educated on the matter
| seems to give a shit about it there might be a reason. The US
| deficit is by and large a bogey-man most people love to wax on
| but hate to learn about... unless you like the scientific method
| but even then it is mostly depressing.
|
| To me, the whole things sounds like a rant telling physicists,
| "you haven't studied enough planets like Jupiter, and without
| Jupiter, I cannot explain Earth. Please explain Jupiter!"
|
| Here's the real shit, that's boring, but true:
|
| Hyperinflation is no risk to the US economy at present. We are
| the world's piggy-bank, the wealthiest piggies in the world love
| the US, because we're the only nation on the planet who has
| always let's them have it back. The USA has never frozen the
| dollar. This puts the US an unbelievable economic advantage that
| nearly all of its citizens fail to realize.
|
| Think about it:
|
| 1. The US dollar is the defacto (for now) global currency.
|
| 2. It's really hard to default when your debt is in your own
| currency. See link below:
|
| https://finance.yahoo.com/news/warren-buffett-explains-the-s...
|
| The USA can quite literally print money and get away with it
| almost indefinitely. Yep, that's the rub. We can 100% print
| money.
|
| Nope, instead of printing it [1] to invest in our infrastructure,
| citizens, and planet we share-- we piss it away. We piss it away
| handing out tax cuts to the rich. We piss it away blowing shit up
| in deserts fighting other nation's equivalent of rednecks. We
| piss it away funding racist police and prison systems. We piss it
| away every day; that's why it's called the "trickle down."
|
| In another 50 or a 100 years, when other nations are financially
| larger, more stable, and many, many, trillions of dollars of risk
| could be safely diversified anywhere else... then yes, the US
| could be at risk because it may not be able to issue debt in its
| own currency.
|
| [1] Most everyone doesn't understand extremely large numbers and
| when one looks at the quantities over a certain size they all
| muddle together. It takes a lot of effort and reading to be able
| to look at billions, hundreds of billions, and trillions to make
| sense of and not fear those numbers. That's why people are able
| to fear things that would literally help them; the numbers are
| "all the same to them" and thus they're all equally bad or
| misunderstood.
| dharma1 wrote:
| As long as much of the world's trade is settled in US dollars,
| there is a demand for them, and some demand for US treasuries.
|
| The merry-go-round of the Fed increasing the money supply and
| buying US government debt with the newly created money can keep
| going for a while, but it will lead to a steady decline in the
| value of the dollar vs other currencies and some official
| inflation over time, as the cost of imported goods rises. And
| there is already high inflation in other areas not measured in
| official inflation. The other component of inflation is
| increasing wages, but I don't see that happening soon.
|
| In terms of government debt - while the nominal value of US
| government debt rises, some of it is also somewhat eroded as the
| real value of the dollar decreases. So it looks like the plan is
| to monetise the debt, at least somewhat. I am not sure if paying
| the government debt back over time through increased taxes is on
| the agenda - I doubt it.
|
| There is a trend of increasing de-dollarisation of world trade,
| which can already be seen in trade between countries like Russia
| and China moving to using their own currencies and the euro for a
| larger portion of trade.
|
| I think in the future more world trade will be settled with some
| type of bancor type basket of currencies where USD is one
| component, rather than the only component.
| xxpor wrote:
| Folks like to talk about what really keeps the world at peace
| (relatively speaking compared to pre-ww2), and while I think
| nukes are a large part of it, another huge part is dollar based
| settlement and the absolute devestating sanctoning power the US
| derives from it. That isn't to say sanctions are morally pure:
| they exact a huge cost on the regular people who live in the
| countries subject to them. However, they're still probably
| better than being bombed.
|
| The more things that are not settled in dollars means the
| reduced effectiveness of sanctions and the higher likelyhood
| conflicts will escalate into hot wars.
|
| On the other hand, the US not being able to dictate to everyone
| else is probably a good thing itself, so I'm not sure on net
| what the best outcome is.
| cercatrova wrote:
| Pax Americana is the term you're looking for.
| dharma1 wrote:
| 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.
| xxpor wrote:
| I do wonder what will really end up as the alternative
| though. The yuan and euro both have major structural issues
| of their own.
| toomuchtodo wrote:
| A synthetic basket of the top currencies. Such a product
| exists (SDR aka Special Drawing Rights), but it's niche.
|
| https://www.imf.org/en/About/Factsheets/Sheets/2016/08/01
| /14...
| throw0101a wrote:
| > _As long as much of the world's trade is settled in US
| dollars, there is a demand for them, and some demand for US
| treasuries._
|
| Which is also why the US tends to have a trade deficit:
|
| > _The Triffin dilemma or Triffin paradox is the conflict of
| economic interests that arises between short-term domestic and
| long-term international objectives for countries whose
| currencies serve as global reserve currencies. This dilemma was
| identified in the 1960s by Belgian-American economist Robert
| Triffin,[1] who pointed out that the country whose currency,
| being the global reserve currency, foreign nations wish to
| hold, must be willing to supply the world with an extra supply
| of its currency to fulfill world demand for these foreign
| exchange reserves, thus leading to a trade deficit._
|
| * https://en.wikipedia.org/wiki/Triffin_dilemma
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