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The word "borrow" is not entirely accurate. Exactly what happens when the US federal government has a deficit is complicated, but it's closer to issuing new mon

The word "borrow" is not entirely accurate. Exactly what happens when the US federal government has a deficit is complicated, but it's closer to issuing new money than it is to taking out a loan.

devereaux 9y ago
coinmarketcap says: Market Cap: $398,126,739,977 so about 0.4 trillions for all crypto - everything and the kitchensync included. This article says that this year alone, the government is borrowing 1 trillion. I wonder if people who say crypto is a bubble are factoring in seignorage, especially in this order of magnitude.
- tehlike 9y ago
  :) how much of that money is used for transacting/buying/selling goods - that is why it is a bubble.
- Theodores 9y ago
  So if there are 50 million people with anything from $10 to 0.4 trillion in crypto, I reckon that it is on average at the lower end of that scale, the ponzi schemes, freely printed 'Tethers' and 'valuation' boosting that figure up into some absurd number. Plus you always have the guy who mined his first bitcoins on a 386DX 66MHz machine with a maths co-processor and Hercules graphics card, however, he saved his bitcoins onto a 3" Sony drive that is not compatible with modern day 3 1/2" drives. The main market has had a bit of a tough time, the crypto side show is nothing. However it is a bubble. The bigger bubble in the economy is because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts. Where else do you put your money when banks are no more useful than hiding hard currency under the mattress? Meanwhile a large part of the world does not have access to printing presses and cannot just print money, as per the USA. These places have to buy dollars before they can buy oil. Yet these other places seem to balance their books. For instance, the Russians, despite the childish sanctions from America are managing to balance the books and not live in deficit. As for China, no deficit problem there despite the boom in development. The elephant in the room is the military spending and adventures. It would be cheaper for the USA to trade with the world on fair terms rather than have to borrow lots of money to have bases and battleships everywhere.
  - devereaux 9y ago
    > because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts Agreed. Easy money has caused investment in many projects - including mal-investment in projects that would otherwise never have been started, over-investment in sectors that can't deliver as much as they promise. Said differently, the market is so hot that even turkeys can fly. When the market cools down, chicken will have a softer landing than turkeys, but only birds will stay in the air. A correction is due, but it is not clear to me that the crypto bubble will fare better or worse than the stock market or anything else. QE money will have inflated the market bubble. Private investor with more money than wits will have inflated the crypto bubble. Both will crash. The big question is, which one is the turkey, which one is the chicken. Back to my first question: I wonder if the people who call crypto a bubble factor in the seignorage. In the current environment, it may be a "rational" bubble not worse than the alternatives.
  - Laforet 9y ago
    >As for China, no deficit problem there despite the boom in development. You are giving them too much optimism. The state budget is healthy only because the national government collect a disproportionate amount of tax revenue* and leave the local governments to fend for themselves, and indeed many of them have been funded entirely on debt for years now the property boom have mostly died down and took land grant money with it. *Last year 25 provinces ended up receiving more transfer payments than the taxes collected, in other words only the remaining 9 costal provinces are (sort of) without deficit. With a looming demographic crash China is not any better off than the US.
tryptophan 9y ago
Not really - What I assume you are thinking about is the Fed buying the treasuries(with their money printing skills) that are issued in their QE program. However QE is winding down, and a larger and larger % of that borrowed money comes from private investors using their own money. While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over.
- analyst74 9y ago
  > While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over. That is hard to say, fed is planning to wind down QE, but it's also trying to hit a certain interest rate, when those two objective collide, i.e. interest rate going up too fast, it'll be interesting to see what happens then.
- nerfhammer 9y ago
  https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL the fed hasn't increased its bond holdings in 4 years. treasury debt has obviously increased over the same time period. so, yes, this debt is not just financed by printing money, despite whatever they're saying on youtube these days.
- jganetsk 9y ago
  Yes really. It's called modern money theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-... The US federal government pays for things by crediting bank accounts (hence money creation). The fact that the federal government also issues Treasury securities is a political constraint, not strictly required from a technical standpoint. The Federal Reserve then uses Treasures as a reserve drain when they are trying to hit their overnight interest rate targets.
  - tryptophan 9y ago
    The way I understand it is that the fed has to(maybe not in law, but in practice) sell securities to accomplish its mandate of maintaining a stable currency. If they did not then it would cause lots of inflation. Is that correct?
mikeash 9y ago
How so? I thought the Treasury sold bonds on the open market to finance the deficit.
- jganetsk 9y ago
  It's a widely held misconception that the government needs to finance its spending. It doesn't. It just spends money into existence. Treasuries are a political constraint, not a technical one. Please read about Modern Money Theory. https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-... https://www.youtube.com/watch?v=TDL4c8fMODk https://www.youtube.com/watch?v=TDL4c8fMODk

The word "borrow" is not entirely accurate. Exactly what happens when the US federal government has a deficit is complicated, but it's closer to issuing new money than it is to taking out a loan.

devereaux 9y ago

coinmarketcap says: Market Cap: $398,126,739,977 so about 0.4 trillions for all crypto - everything and the kitchensync included. This article says that this year alone, the government is borrowing 1 trillion. I wonder if people who say crypto is a bubble are factoring in seignorage, especially in this order of magnitude.

tehlike 9y ago
:) how much of that money is used for transacting/buying/selling goods - that is why it is a bubble.
Theodores 9y ago
So if there are 50 million people with anything from $10 to 0.4 trillion in crypto, I reckon that it is on average at the lower end of that scale, the ponzi schemes, freely printed 'Tethers' and 'valuation' boosting that figure up into some absurd number. Plus you always have the guy who mined his first bitcoins on a 386DX 66MHz machine with a maths co-processor and Hercules graphics card, however, he saved his bitcoins onto a 3" Sony drive that is not compatible with modern day 3 1/2" drives. The main market has had a bit of a tough time, the crypto side show is nothing. However it is a bubble. The bigger bubble in the economy is because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts. Where else do you put your money when banks are no more useful than hiding hard currency under the mattress? Meanwhile a large part of the world does not have access to printing presses and cannot just print money, as per the USA. These places have to buy dollars before they can buy oil. Yet these other places seem to balance their books. For instance, the Russians, despite the childish sanctions from America are managing to balance the books and not live in deficit. As for China, no deficit problem there despite the boom in development. The elephant in the room is the military spending and adventures. It would be cheaper for the USA to trade with the world on fair terms rather than have to borrow lots of money to have bases and battleships everywhere.
- devereaux 9y ago
  > because of the quantitative easing that has gone on since 2008, this money has caused bubbles of its own, e.g. the crypto lark is a by-product of sorts Agreed. Easy money has caused investment in many projects - including mal-investment in projects that would otherwise never have been started, over-investment in sectors that can't deliver as much as they promise. Said differently, the market is so hot that even turkeys can fly. When the market cools down, chicken will have a softer landing than turkeys, but only birds will stay in the air. A correction is due, but it is not clear to me that the crypto bubble will fare better or worse than the stock market or anything else. QE money will have inflated the market bubble. Private investor with more money than wits will have inflated the crypto bubble. Both will crash. The big question is, which one is the turkey, which one is the chicken. Back to my first question: I wonder if the people who call crypto a bubble factor in the seignorage. In the current environment, it may be a "rational" bubble not worse than the alternatives.
- Laforet 9y ago
  >As for China, no deficit problem there despite the boom in development. You are giving them too much optimism. The state budget is healthy only because the national government collect a disproportionate amount of tax revenue* and leave the local governments to fend for themselves, and indeed many of them have been funded entirely on debt for years now the property boom have mostly died down and took land grant money with it. *Last year 25 provinces ended up receiving more transfer payments than the taxes collected, in other words only the remaining 9 costal provinces are (sort of) without deficit. With a looming demographic crash China is not any better off than the US.

tryptophan 9y ago

Not really - What I assume you are thinking about is the Fed buying the treasuries(with their money printing skills) that are issued in their QE program. However QE is winding down, and a larger and larger % of that borrowed money comes from private investors using their own money. While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over.

analyst74 9y ago
> While after the recession the fed was responsible for buying more than half of the treasuries for years, those days are over. That is hard to say, fed is planning to wind down QE, but it's also trying to hit a certain interest rate, when those two objective collide, i.e. interest rate going up too fast, it'll be interesting to see what happens then.
nerfhammer 9y ago
https://fred.stlouisfed.org/series/WALCL https://fred.stlouisfed.org/series/WALCL the fed hasn't increased its bond holdings in 4 years. treasury debt has obviously increased over the same time period. so, yes, this debt is not just financed by printing money, despite whatever they're saying on youtube these days.
jganetsk 9y ago
Yes really. It's called modern money theory. https://www.youtube.com/watch?v=TDL4c8fMODk https://www.youtube.com/watch?v=TDL4c8fMODk https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-... The US federal government pays for things by crediting bank accounts (hence money creation). The fact that the federal government also issues Treasury securities is a political constraint, not strictly required from a technical standpoint. The Federal Reserve then uses Treasures as a reserve drain when they are trying to hit their overnight interest rate targets.
- tryptophan 9y ago
  The way I understand it is that the fed has to(maybe not in law, but in practice) sell securities to accomplish its mandate of maintaining a stable currency. If they did not then it would cause lots of inflation. Is that correct?

mikeash 9y ago

How so? I thought the Treasury sold bonds on the open market to finance the deficit.

jganetsk 9y ago
It's a widely held misconception that the government needs to finance its spending. It doesn't. It just spends money into existence. Treasuries are a political constraint, not a technical one. Please read about Modern Money Theory. https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-trump.html https://www.nytimes.com/2017/10/05/opinion/deficit-tax-cuts-... https://www.youtube.com/watch?v=TDL4c8fMODk https://www.youtube.com/watch?v=TDL4c8fMODk