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Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politica

Articles like this are killing us, because they reinforce a false analogy that the federal government is like a business or a home. This is killing us politically. Its a shame. This is the way modern monetary systems work (sovereign fiat money). Its healthy and totally normal. Federal debt is not debt that private citizens are liable for. A treasury security is like a CD, or savings account. Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here. When a treasury security expires or is redeemed, they merely changes numbers in a spreadsheet. 99% of the time those "funds" are moved back into a new treasury security. There will always be demand for interest bearing risk free government debt. go read http://neweconomicperspectives.org/ http://neweconomicperspectives.org/ its all there.

JumpCrisscross 8y ago
> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fiscal policy (i.e. not including the Federal Reserve's debt, which technically includes every dollar bill) has real consequences in constraining the government's taxing and spending power without tripping up inflation.
- bubbleRefuge 8y ago
  No . But you are getting there. Yes fiscal policy is the lever that determines the amount ( quantity) of money ( or demand ) driving the economy . Monetary policy is interest rates or the price of money. And ,there is mounting evidence that hight interest rates actually have the opposite of the intended effect . That is, that higher interest rates lead to higher net income to the private sector which is a bit inflationary.
  - lrajlich 8y ago
    > higher interest rates lead to higher net income to the private sector which is a bit inflationary. There a paper for this? low interest rates tend to be associated with poor economic conditions, in the extreme liquidity trap or secular stagnation, so this conclusion makes sense though the causal effect is the opposite of what is suggested by your comment... As an example, interest rates (ex fed funds) were really low during the great depression!
- damptowel 8y ago
  Government debt isn’t “debt” in the classical sense. Let me suggest an analogy: a bank lends you a loan at intrest, but no expiry date. You can pay back the loan at any point in the future. Not only that, the bank has no ways of enforcing you to pay it back through legal action. On top of that, you are infinitely credit worthy, you can get as much loans as you want, including loans to cover existing loans. Would you consider this a “debt”. The answer is that it’s nothing like a debt in any meaningful sense of the term, it is merely a label used because of accounting convention. Could you “print”* an amount of money several times the world GDP and get inflation? That depends whether te money is circulated at all. Inflation is not a function of the money stock, it happens when sellers collectively mark up their price above current market rate. This is easier to do with rising expectations of higher return. The money stock is not some magical denominator on top of a real goods numerator. *(it’s really just incrementing a number in a database, zero production cost, so print is another misnomer)
  - nybble41 8y ago
    Forget the currency aspect, which is nothing but a distraction. What matters is the balance between production and consumption. Without debt one must first produce goods before one can consume. Individuals can get around this by taking out loans, borrowing the opportunity for consumption in the present from someone else with a positive balance. For society as a whole, however, there is no avoiding it: goods which have not yet been produced by someone are not available to be consumed. Introducing new currency in order to fund consumption disrupts the balance, since there is no production to offset the consumption. The result is that society becomes poorer; capital is consumed without replacement, productivity falls, and goods become less affordable. (By this I refer not not only to rising prices, but to prices rising faster than wages, a increase in the cost of goods even after adjusting for the change in money supply.) > Inflation is not a function of the money stock, it happens when sellers collectively mark up their price above current market rate. The term "inflation" has multiple definitions. Yours is popular in political circles but is not very useful as an economic indicator because it conflates ordinary changes in prices due to supply and demand of goods and available production capacity with changes due to shifts in the money supply. The general increase in prices which results from consumption of capital is nothing like the change in prices which accompanies a deliberate increase in the supply of money. The former is a useful economic indicator which suggests a need for more saving and prudent investment, while the latter offers nothing but noise and tends to encourage malinvestment and waste.
whb07 8y ago
I agree with this statement: "There will always be demand for interest bearing risk free government debt". Now go ask investors how they feel about Greek/Argentinian/Venezuelan etc bonds. A country is just a large collection of people and can be thought of as a giant person. They aren't magical creatures / objects. If a country has no steady job and loves wasting money no one will lend it money. Same applies to a business and a person. If you hold that to be true, then there can definitely be a limit at which point a person will loan money (buy bonds) from a country. Now the question for the U.S is where is that limit, and if we hit it how painful will it be to get back into "healthy" shape. Just like a 400 lb person being told its time to lose weight or they will die of heart attack/diabetes maybe its better to start eating right and exercising BEFORE you get to that point in life.
- cheald 8y ago
  One might suggest that Greek/Argentinian/Venezuelan bonds aren't risk-free. :) It's true that the US Govt could print its way out of nominal debt, but there are market constraints on how aggressively it may do so if we want the system to keep working, because stable inflation is a key component in the demand for government bonds. Once inflation stops being stable, your government's ability to issue new bonds is in trouble, because buyers demand higher yields to encapsulate the risk of that uncertainty. I'm of the opinion that reality is somewhere in the middle - US government debt isn't the same as household debt, but it's not meaningless, either, and I think it does everyone a disservice when we discuss it as being characteristic of either extreme.
  - JumpCrisscross 8y ago
    > there are market constraints on how aggressively it may do so if we want the system to keep working Part of which involves discussing deficit and debt.
lrajlich 8y ago
> There will always be demand for interest bearing risk free government debt. This is really naive. Question is always at what price? I could argue there is always a demand for the common stock of a company in bankruptcy, just at a really poor price :-). More pertinent, Late 70s US bond market saw a huge decline in the value of government bonds... Though they were never defaulted upon, holding them was not exactly risk free. Fluctuations in price of "risk free" govt bonds can bankrupt traders/investors, eg, LTCM.

JumpCrisscross 8y ago

> Since the Federal Government Complex ( including the Federal Reserve Bank) can issue currency to infinity, there is no problem here You just broke central bank independence, and with it the political independence of monetary policy. Historically, that leads to rampant inflation. The federal debt isn't like household debt. But it can't be printed into infinity. The U.S. government's debt incurred as a result of fiscal policy (i.e. not including the Federal Reserve's debt, which technically includes every dollar bill) has real consequences in constraining the government's taxing and spending power without tripping up inflation.

bubbleRefuge 8y ago
No . But you are getting there. Yes fiscal policy is the lever that determines the amount ( quantity) of money ( or demand ) driving the economy . Monetary policy is interest rates or the price of money. And ,there is mounting evidence that hight interest rates actually have the opposite of the intended effect . That is, that higher interest rates lead to higher net income to the private sector which is a bit inflationary.
- lrajlich 8y ago
  > higher interest rates lead to higher net income to the private sector which is a bit inflationary. There a paper for this? low interest rates tend to be associated with poor economic conditions, in the extreme liquidity trap or secular stagnation, so this conclusion makes sense though the causal effect is the opposite of what is suggested by your comment... As an example, interest rates (ex fed funds) were really low during the great depression!
damptowel 8y ago
Government debt isn’t “debt” in the classical sense. Let me suggest an analogy: a bank lends you a loan at intrest, but no expiry date. You can pay back the loan at any point in the future. Not only that, the bank has no ways of enforcing you to pay it back through legal action. On top of that, you are infinitely credit worthy, you can get as much loans as you want, including loans to cover existing loans. Would you consider this a “debt”. The answer is that it’s nothing like a debt in any meaningful sense of the term, it is merely a label used because of accounting convention. Could you “print”* an amount of money several times the world GDP and get inflation? That depends whether te money is circulated at all. Inflation is not a function of the money stock, it happens when sellers collectively mark up their price above current market rate. This is easier to do with rising expectations of higher return. The money stock is not some magical denominator on top of a real goods numerator. *(it’s really just incrementing a number in a database, zero production cost, so print is another misnomer)
- nybble41 8y ago
  Forget the currency aspect, which is nothing but a distraction. What matters is the balance between production and consumption. Without debt one must first produce goods before one can consume. Individuals can get around this by taking out loans, borrowing the opportunity for consumption in the present from someone else with a positive balance. For society as a whole, however, there is no avoiding it: goods which have not yet been produced by someone are not available to be consumed. Introducing new currency in order to fund consumption disrupts the balance, since there is no production to offset the consumption. The result is that society becomes poorer; capital is consumed without replacement, productivity falls, and goods become less affordable. (By this I refer not not only to rising prices, but to prices rising faster than wages, a increase in the cost of goods even after adjusting for the change in money supply.) > Inflation is not a function of the money stock, it happens when sellers collectively mark up their price above current market rate. The term "inflation" has multiple definitions. Yours is popular in political circles but is not very useful as an economic indicator because it conflates ordinary changes in prices due to supply and demand of goods and available production capacity with changes due to shifts in the money supply. The general increase in prices which results from consumption of capital is nothing like the change in prices which accompanies a deliberate increase in the supply of money. The former is a useful economic indicator which suggests a need for more saving and prudent investment, while the latter offers nothing but noise and tends to encourage malinvestment and waste.

whb07 8y ago

I agree with this statement: "There will always be demand for interest bearing risk free government debt". Now go ask investors how they feel about Greek/Argentinian/Venezuelan etc bonds. A country is just a large collection of people and can be thought of as a giant person. They aren't magical creatures / objects. If a country has no steady job and loves wasting money no one will lend it money. Same applies to a business and a person. If you hold that to be true, then there can definitely be a limit at which point a person will loan money (buy bonds) from a country. Now the question for the U.S is where is that limit, and if we hit it how painful will it be to get back into "healthy" shape. Just like a 400 lb person being told its time to lose weight or they will die of heart attack/diabetes maybe its better to start eating right and exercising BEFORE you get to that point in life.

cheald 8y ago
One might suggest that Greek/Argentinian/Venezuelan bonds aren't risk-free. :) It's true that the US Govt could print its way out of nominal debt, but there are market constraints on how aggressively it may do so if we want the system to keep working, because stable inflation is a key component in the demand for government bonds. Once inflation stops being stable, your government's ability to issue new bonds is in trouble, because buyers demand higher yields to encapsulate the risk of that uncertainty. I'm of the opinion that reality is somewhere in the middle - US government debt isn't the same as household debt, but it's not meaningless, either, and I think it does everyone a disservice when we discuss it as being characteristic of either extreme.
- JumpCrisscross 8y ago
  > there are market constraints on how aggressively it may do so if we want the system to keep working Part of which involves discussing deficit and debt.

lrajlich 8y ago

> There will always be demand for interest bearing risk free government debt. This is really naive. Question is always at what price? I could argue there is always a demand for the common stock of a company in bankruptcy, just at a really poor price :-). More pertinent, Late 70s US bond market saw a huge decline in the value of government bonds... Though they were never defaulted upon, holding them was not exactly risk free. Fluctuations in price of "risk free" govt bonds can bankrupt traders/investors, eg, LTCM.