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It might be just true. Destroying value is not such a big deal since after all value can always be created. But when bonds default people start losing trust i

It might be just true. Destroying value is not such a big deal since after all value can always be created. But when bonds default people start losing trust in fiduciary instruments. And trust is much more difficult to build than pure value.

daodedickinson 10y ago
I'd say wars since Vietnam have eroded quite a bit of trust.
adevine 10y ago
Agreed, but I find it funny/dangerous how bond markets can get into risky positions and then demand to be bailed out because they basically argue that bonds shouldn't be risky. Fannie/Freddie bonds before the housing crash were a perfect example of this. All the information marketing the bonds came with specific warnings that they were not backed by the US government and didn't carry any "explicit or implied" government guarantee. Of course, this turned out to be bunk, and the bond markets knew it, which is why Fannie and Freddie were able to borrow money at lower rates than everyone else. When push came to shove, everyone knew Fannie and Freddie were too big to fail and the government would have to bail them out. I wouldn't be surprised if history repeats itself.
pjc50 10y ago
> Destroying value is not such a big deal since after all value can always be created. ?! I'm not sure what you mean by that, but value is rather hard to create. Certainly the value in real estate and physical goods. Stock value and services are a bit more ephemeral. But the reason Keyensian hole-digging makes sense is that labour is a wasting good - you can't store the output of people who would otherwise be unemployed, and having people unemployed does long term damage to productivity.
- justincormack 10y ago
  Bonds are not net value, just an asset and an equal liability. Default is just a redistribution.
  - pjc50 10y ago
    I think that's undervaluing the time value of money.
    - hilop 10y ago
      How? A debt is a promise to transfer. A default is equivalent to a repayment plus a theft. The only sense in which value is destroyed is if the money ends up in the hands of someone who less productive at invest it. But that can't really be predicted. If value is lost in a default, the value was already destroyed in the past, regardless default choice.
      - pjc50 10y ago
        My point was that the only reason to take out a bond in the first place is time value of money: the auto industry needs them for its inventory and input parts. Bond markets seizing up present a problem for this kind of company, because it's possible to be profitable but bankrupt due to cashflow issues if the company cannot roll over its bonds when they fall due. Bankruptcy causes real destruction of value as inventory is sold at liquidation prices and the concentration of knowledge and organisation that makes a firm valuable in the first place evaporates.
- hilop 10y ago
  Almost. Hole-digging isn't any meaningful sort of employment, it's merely a tactic to put dollars in the hands of consumers, increasing "aggregate demand" (consumer spending), which DOES provide employment, as that spending is spent on OTHER people's otherwise-unemployed labor (not the hole-diggers' labor)
  - enraged_camel 10y ago
    >>Almost. Hole-digging isn't any meaningful sort of employment We aren't talking about literal hole-digging. There are a ton of infrastructure projects in America (highways, bridges, etc.) that could use the labor in construction.
  - enraged_camel 10y ago
    >>Almost. Hole-digging isn't any meaningful sort of employment We aren't talking about literal hole-digging. There are a ton of infrastructure projects in America (highways, bridges, etc.) that could use the labor in construction.
  - deleted 10y ago
    [deleted]
- branchless 10y ago
  Debt is trivial for private banks to create t siphon off wealth creation.

daodedickinson 10y ago

I'd say wars since Vietnam have eroded quite a bit of trust.

adevine 10y ago

Agreed, but I find it funny/dangerous how bond markets can get into risky positions and then demand to be bailed out because they basically argue that bonds shouldn't be risky. Fannie/Freddie bonds before the housing crash were a perfect example of this. All the information marketing the bonds came with specific warnings that they were not backed by the US government and didn't carry any "explicit or implied" government guarantee. Of course, this turned out to be bunk, and the bond markets knew it, which is why Fannie and Freddie were able to borrow money at lower rates than everyone else. When push came to shove, everyone knew Fannie and Freddie were too big to fail and the government would have to bail them out. I wouldn't be surprised if history repeats itself.

pjc50 10y ago

> Destroying value is not such a big deal since after all value can always be created. ?! I'm not sure what you mean by that, but value is rather hard to create. Certainly the value in real estate and physical goods. Stock value and services are a bit more ephemeral. But the reason Keyensian hole-digging makes sense is that labour is a wasting good - you can't store the output of people who would otherwise be unemployed, and having people unemployed does long term damage to productivity.

justincormack 10y ago
Bonds are not net value, just an asset and an equal liability. Default is just a redistribution.
- pjc50 10y ago
  I think that's undervaluing the time value of money.
  - hilop 10y ago
    How? A debt is a promise to transfer. A default is equivalent to a repayment plus a theft. The only sense in which value is destroyed is if the money ends up in the hands of someone who less productive at invest it. But that can't really be predicted. If value is lost in a default, the value was already destroyed in the past, regardless default choice.
    - pjc50 10y ago
      My point was that the only reason to take out a bond in the first place is time value of money: the auto industry needs them for its inventory and input parts. Bond markets seizing up present a problem for this kind of company, because it's possible to be profitable but bankrupt due to cashflow issues if the company cannot roll over its bonds when they fall due. Bankruptcy causes real destruction of value as inventory is sold at liquidation prices and the concentration of knowledge and organisation that makes a firm valuable in the first place evaporates.
hilop 10y ago
Almost. Hole-digging isn't any meaningful sort of employment, it's merely a tactic to put dollars in the hands of consumers, increasing "aggregate demand" (consumer spending), which DOES provide employment, as that spending is spent on OTHER people's otherwise-unemployed labor (not the hole-diggers' labor)
- enraged_camel 10y ago
  >>Almost. Hole-digging isn't any meaningful sort of employment We aren't talking about literal hole-digging. There are a ton of infrastructure projects in America (highways, bridges, etc.) that could use the labor in construction.
- enraged_camel 10y ago
  >>Almost. Hole-digging isn't any meaningful sort of employment We aren't talking about literal hole-digging. There are a ton of infrastructure projects in America (highways, bridges, etc.) that could use the labor in construction.
- deleted 10y ago
  [deleted]
branchless 10y ago
Debt is trivial for private banks to create t siphon off wealth creation.