9 ms·

Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. But, central bankers don't respond

by eddd 9y ago

Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. But, central bankers don't respond to voters, so basically they can do whatever servers the financial system and it stability. Of course I am joking, they simply have no idea what they are doing, since it is virtually impossible. I grew up in post communism country and I have cold sweat when I hear about price control. And somehow price of the money is centrally managed.

AnimalMuppet 9y ago
> Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. I'm not sure that either of those statements is true. It could be, in some situations in some countries. As a general statement? No, because most government borrowing is not borrowing from the central bank. > And somehow price of the money is centrally managed. Empirically, that has worked out rather well - far better than "centrally managed" would lead you to expect. In particular, it has dramatically cut the number of severe downturns (which used to occur whenever the price of money became too high).
- eddd 9y ago
  > No, because most government borrowing is not borrowing from the central bank. To be precise, it almost always against the constitution. The problem is, the amount of money the government can borrow is tied to the money supply. If FED raised rates a couple percent, US would bankrupt in a few days after. > Empirically, that has worked out rather well . That's arguable, since we don't know what would happen if we didn't intervene with artificial interest rates.
  - torstenvl 9y ago
    I'm reading your comment to mean that you think federal debt is unconstitutional. Is that your position? If so, do you have any support for that position?
    - eddd 9y ago
      https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp https://www.investopedia.com/articles/bonds/09/bond-market-i... Sorry to leave you with a link, bed time ;)
  - daxorid 9y ago
    > If FED raised rates a couple percent, US would bankrupt in a few days after. Setting aside the fact that the fed funds rate can only wag the short end of the yield curve, I'd like to point something out. If the coupon on ALL issued Treasury debt suddenly went to 10% overnight, then yes, we would be looking at possible solvency issues. But that's not how it works. The coupon the US pays to creditors is fixed until the maturity date of the bond. The average maturity on issued bonds and bills is 69 months. Meaning that open market yields would need to remain at (2*(10-current average yield))% for nearly six years in order to get to that point.
    - eddd 9y ago
      That's true. But Treasury issues bonds quite often, partially to cover interest on existing bonds. So, the day rates raise to high, treasury is insolvent.
dragonwriter 9y ago
> Fiscal policy depends mostly on monetary policy I think. Monetary policy might arguably set (and certainly effects) the outer bounds of fiscal policy, but it doesn't control fiscal policy.

by eddd 9y ago

AnimalMuppet 9y ago

> Fiscal policy depends mostly on monetary policy I think. The amount of money government can borrow is bound by central banks. I'm not sure that either of those statements is true. It could be, in some situations in some countries. As a general statement? No, because most government borrowing is not borrowing from the central bank. > And somehow price of the money is centrally managed. Empirically, that has worked out rather well - far better than "centrally managed" would lead you to expect. In particular, it has dramatically cut the number of severe downturns (which used to occur whenever the price of money became too high).

eddd 9y ago
> No, because most government borrowing is not borrowing from the central bank. To be precise, it almost always against the constitution. The problem is, the amount of money the government can borrow is tied to the money supply. If FED raised rates a couple percent, US would bankrupt in a few days after. > Empirically, that has worked out rather well . That's arguable, since we don't know what would happen if we didn't intervene with artificial interest rates.
- torstenvl 9y ago
  I'm reading your comment to mean that you think federal debt is unconstitutional. Is that your position? If so, do you have any support for that position?
  - eddd 9y ago
    https://www.investopedia.com/articles/bonds/09/bond-market-interest-rates.asp https://www.investopedia.com/articles/bonds/09/bond-market-i... Sorry to leave you with a link, bed time ;)
- daxorid 9y ago
  > If FED raised rates a couple percent, US would bankrupt in a few days after. Setting aside the fact that the fed funds rate can only wag the short end of the yield curve, I'd like to point something out. If the coupon on ALL issued Treasury debt suddenly went to 10% overnight, then yes, we would be looking at possible solvency issues. But that's not how it works. The coupon the US pays to creditors is fixed until the maturity date of the bond. The average maturity on issued bonds and bills is 69 months. Meaning that open market yields would need to remain at (2*(10-current average yield))% for nearly six years in order to get to that point.
  - eddd 9y ago
    That's true. But Treasury issues bonds quite often, partially to cover interest on existing bonds. So, the day rates raise to high, treasury is insolvent.

dragonwriter 9y ago

> Fiscal policy depends mostly on monetary policy I think. Monetary policy might arguably set (and certainly effects) the outer bounds of fiscal policy, but it doesn't control fiscal policy.