7 ms·

Hardly willy nilly. It is in accordance with the Keynesian economics school of thought. It's simply that the Chicago school of thought is getting out of fashion

by yokaze 6y ago

Hardly willy nilly. It is in accordance with the Keynesian economics school of thought. It's simply that the Chicago school of thought is getting out of fashion. Also, debt is currently cheap to get, so for the government not to invest would be rather unrational. And that is ignoring the downside on the income of a tanking economy.

jariel 6y ago
"It is in accordance with the Keynesian economics school of thought" This is the magic money language of every 'debt doesn't matter' politician. First - this is not about 'business cycle' it's a meta-cycle and it's possible the money will literally never get paid back. Second - it's not just debt, it's tinkering with the monetary system itself. The Fed, since 2008 has been sitting on Trillions of garbage assets (bundled home loans) bought at 'face value' though they were underwater when purchased. This is a pretty direct attack on the integrity of the institution. Your dollars were backed by Gold, then The US Governments Ability to Pay Their Debt, then 'Toxic Loans' - and it's only going to get worse. Canada is throwing in 'a billion here, a billion there' with COVID spending, including a $1B shout out to the PM's favorite charity. It doesn't sound like a low when $250B is blown otherwise. The amount of spending, the terms (see: EU's deal released just yesterday) are fairly unprecedented and it's going to take generations to sort out. Both Canada and Germany in the 1990's had to undergo major restructuring, in Canada, due to excessive spending previously & facing serious credit ratings problems. Thankfully, their timing was perfect as the global situation was good. Spain is contemplating 'permanent UBI' - which they can't remotely afford. The difference between 'now' and '80 years ago' is that the future of Western nations entailed considerable growth and renewal, now, this is not the case. There's nothing to indicate there will be any way to reliably repay the debt. So - we are resorting to ugly new measures, which are changing the nature of what 'money' actually means. This is not 'Keynes' - it's a secular realignment of the entire system.
- imtringued 6y ago
  I can't follow your comment. Really, the central banks have been trying to raise inflation for decades now but they did so with highly ineffective means. Now that governments found an effective way of increasing inflation to the expected target everyone is suddenly scared of governments abusing this power even though this is what was intended to happen for more than a decade. People were actively looking forward to this.
  - zby 6y ago
    Yeah - I think the ideal agreed was about 2%, but maybe that was just the monetarists who prefered it around 2%, I am not sure what other schools propose, maybe 4% is Keynesian? But the point is that what everyone tried to have inflation in a controlled way. The idea was that central banks can do that, but apparently that did not work well enough. Now we are back to letting governments control inflation - and the historical precedent is that this easily leads to hiperinflation.
    - Proven 6y ago
      Government-created (this includes central bank-created) inflation is a form of theft from savers and laborers. Ideally there'd be none from that source. Theft executed in a controlled way shouldn't be viewed as ideal. As per the interview there is no doubt whatsoever what the intent is: create inflation higher than yield on government debt (which presumably includes the rate of inflation, perceived risk and other factors) and rob the bondholders (also known as savers, which includes workers with retirement plans or other savings). Before we muse on what inflation rates may be optimal, perhaps we should wonder about the morality and legality of institutionalized theft at scale. If I stole 2% of your savings you'd probably want me in jail. The government and central bank aims to steal 2% every year and statists wonder if 4% or 1% may be better.
  - raxxorrax 6y ago
    Depends on your country I guess, but those that didn't seem to be far more successful with their budgets. It would also mean that the practice of not increasing wages can continue. If you ask businesses to increase wages by 4% every year, I think the "new" economic model will quickly fall out of fashion again. edit: And you basically argue that the economic strategy of Spain or Italy is superior to that of nordic countries, which is questionable in my opinion. Maybe it is "popular" because some countries have large amounts of debt?
  - raducu 6y ago
    Central banks have experience with past crisis, banks (should)have their true and tested criteria to hand out debt, people and corporations do not meet those criteria, hence the banks did not hand out more debt. You can make the argument that banks used those central banks loans to finance/arbitrage dodgy financial schemes. But the answer is to stop enabling banks to do those things, not to give money creation control to politicians who have absolutely no financial knowledge. Politicians should just spend the tax money they have, or to take more debt themselves if public debt is serviceable, not to mess with the criteria banks have to hand out more debt. We have strict Central Banks laws and autonomy precisely so politicians won't make disastrous financial decisions according to their ineptitude. Politicians messing with money creation is a recipe for disaster since ancient times.
- neilwilson 6y ago
  I would strongly recommend getting a copy of "The Deficit Myth" by Stephanie Kelton. It's a useful primer on how modern money systems work and will help you get past the word "debt". Essentially whenever you see that word substitute "private wealth" and look at it from the other side of the balance sheet.
Proven 6y ago
LOL. There's no "fashion" in economics. HN has its fair share of statists who due to their left-leaning values tend to be Keynesians (or worse, such as Magic Money Tree fans). There's no need to consider how economics actually works, because it's just a matter of choice and not right or wrong. For example Austrian economics is out of question because it favors minimal government spending, which doesn't play well with HN's Big Government fans. Why consider it when it's clearly a wrong choice? > Also, debt is currently cheap to get, so for the government not to invest would be rather unrational. Have you thought that one person's debt might be another person's asset? And did it occur to you that the cheaper it is for governments to borrow, the more they steal from all who own that debt (including, but not limited to, your retirement fund)? > And that is ignoring the downside on the income of a tanking economy. Who says that "government investments" generate more income compared to investments made by private investors who invest their own money in things they usually understand pretty well? I doubt you'd invest your money in a renewable energy fund managed by AOC. But here you are calling for exactly that because it's not your money. It's not hers either and that's how anyone who thinks can figure out how much income growth those investments can generate (none). Do you not remember how this investment went? https://en.wikipedia.org/wiki/Solyndra#Government_support https://en.wikipedia.org/wiki/Solyndra#Government_support What will happen is wealth destruction, malinvestment on a scale unseen in genrations. Wealth will be stolen from those who invest and grow it and wasted on unproductive investments that consume, rather than increase, wealth. Coast-to-cast Solyndras if Biden wins. Less worse, but still bad, if Trump wins.
raducu 6y ago
God, I'm so tired of hearing this: "debt is currently cheap to get, so for the government not to invest would be rather unrational". Debt is cheap BECAUSE we had a financial crisis, BECAUSE we let people who shouldn't have indebted themselves indebt themselves. There will be grave consequences an suffering in enabling inept people and corporations take on more debt.
- deleted 6y ago
  [deleted]
- neilwilson 6y ago
  You can only borrow if you have collateral to discount against. The question is whether the bankers know how to do their job properly and can assess collateral.
  - raducu 6y ago
    But isn't collateral a tried an tested measure of knowing if you are actually able to repay your debt? Who would know better than the bankers, politicians?
    - neilwilson 6y ago
      Lending stops when people run out of collateral. It's not the interest rate that determines what people can borrow. It's how much collateral they have. The financial collapse was due to bankers failing to assess collateral with sufficient haircut.
      - raducu 6y ago
        Could you explain your last phrase more concretely? In my country mortgage loans stop when people don't have the downpayment of 5%-15% of the mortgage or when they have already indebted themselves for more than 45% of their income. Other loan types are also capped when you debt level exceeds a certain threshold of your income. This all seems reasonable to me. It also seems reasonable that banks would not issue more debt to people when their collateral value drops in market values, such as housing market bubble bursts.

by yokaze 6y ago

jariel 6y ago

"It is in accordance with the Keynesian economics school of thought" This is the magic money language of every 'debt doesn't matter' politician. First - this is not about 'business cycle' it's a meta-cycle and it's possible the money will literally never get paid back. Second - it's not just debt, it's tinkering with the monetary system itself. The Fed, since 2008 has been sitting on Trillions of garbage assets (bundled home loans) bought at 'face value' though they were underwater when purchased. This is a pretty direct attack on the integrity of the institution. Your dollars were backed by Gold, then The US Governments Ability to Pay Their Debt, then 'Toxic Loans' - and it's only going to get worse. Canada is throwing in 'a billion here, a billion there' with COVID spending, including a $1B shout out to the PM's favorite charity. It doesn't sound like a low when $250B is blown otherwise. The amount of spending, the terms (see: EU's deal released just yesterday) are fairly unprecedented and it's going to take generations to sort out. Both Canada and Germany in the 1990's had to undergo major restructuring, in Canada, due to excessive spending previously & facing serious credit ratings problems. Thankfully, their timing was perfect as the global situation was good. Spain is contemplating 'permanent UBI' - which they can't remotely afford. The difference between 'now' and '80 years ago' is that the future of Western nations entailed considerable growth and renewal, now, this is not the case. There's nothing to indicate there will be any way to reliably repay the debt. So - we are resorting to ugly new measures, which are changing the nature of what 'money' actually means. This is not 'Keynes' - it's a secular realignment of the entire system.

imtringued 6y ago
I can't follow your comment. Really, the central banks have been trying to raise inflation for decades now but they did so with highly ineffective means. Now that governments found an effective way of increasing inflation to the expected target everyone is suddenly scared of governments abusing this power even though this is what was intended to happen for more than a decade. People were actively looking forward to this.
- zby 6y ago
  Yeah - I think the ideal agreed was about 2%, but maybe that was just the monetarists who prefered it around 2%, I am not sure what other schools propose, maybe 4% is Keynesian? But the point is that what everyone tried to have inflation in a controlled way. The idea was that central banks can do that, but apparently that did not work well enough. Now we are back to letting governments control inflation - and the historical precedent is that this easily leads to hiperinflation.
  - Proven 6y ago
    Government-created (this includes central bank-created) inflation is a form of theft from savers and laborers. Ideally there'd be none from that source. Theft executed in a controlled way shouldn't be viewed as ideal. As per the interview there is no doubt whatsoever what the intent is: create inflation higher than yield on government debt (which presumably includes the rate of inflation, perceived risk and other factors) and rob the bondholders (also known as savers, which includes workers with retirement plans or other savings). Before we muse on what inflation rates may be optimal, perhaps we should wonder about the morality and legality of institutionalized theft at scale. If I stole 2% of your savings you'd probably want me in jail. The government and central bank aims to steal 2% every year and statists wonder if 4% or 1% may be better.
- raxxorrax 6y ago
  Depends on your country I guess, but those that didn't seem to be far more successful with their budgets. It would also mean that the practice of not increasing wages can continue. If you ask businesses to increase wages by 4% every year, I think the "new" economic model will quickly fall out of fashion again. edit: And you basically argue that the economic strategy of Spain or Italy is superior to that of nordic countries, which is questionable in my opinion. Maybe it is "popular" because some countries have large amounts of debt?
- raducu 6y ago
  Central banks have experience with past crisis, banks (should)have their true and tested criteria to hand out debt, people and corporations do not meet those criteria, hence the banks did not hand out more debt. You can make the argument that banks used those central banks loans to finance/arbitrage dodgy financial schemes. But the answer is to stop enabling banks to do those things, not to give money creation control to politicians who have absolutely no financial knowledge. Politicians should just spend the tax money they have, or to take more debt themselves if public debt is serviceable, not to mess with the criteria banks have to hand out more debt. We have strict Central Banks laws and autonomy precisely so politicians won't make disastrous financial decisions according to their ineptitude. Politicians messing with money creation is a recipe for disaster since ancient times.
neilwilson 6y ago
I would strongly recommend getting a copy of "The Deficit Myth" by Stephanie Kelton. It's a useful primer on how modern money systems work and will help you get past the word "debt". Essentially whenever you see that word substitute "private wealth" and look at it from the other side of the balance sheet.

Proven 6y ago

LOL. There's no "fashion" in economics. HN has its fair share of statists who due to their left-leaning values tend to be Keynesians (or worse, such as Magic Money Tree fans). There's no need to consider how economics actually works, because it's just a matter of choice and not right or wrong. For example Austrian economics is out of question because it favors minimal government spending, which doesn't play well with HN's Big Government fans. Why consider it when it's clearly a wrong choice? > Also, debt is currently cheap to get, so for the government not to invest would be rather unrational. Have you thought that one person's debt might be another person's asset? And did it occur to you that the cheaper it is for governments to borrow, the more they steal from all who own that debt (including, but not limited to, your retirement fund)? > And that is ignoring the downside on the income of a tanking economy. Who says that "government investments" generate more income compared to investments made by private investors who invest their own money in things they usually understand pretty well? I doubt you'd invest your money in a renewable energy fund managed by AOC. But here you are calling for exactly that because it's not your money. It's not hers either and that's how anyone who thinks can figure out how much income growth those investments can generate (none). Do you not remember how this investment went? https://en.wikipedia.org/wiki/Solyndra#Government_support https://en.wikipedia.org/wiki/Solyndra#Government_support What will happen is wealth destruction, malinvestment on a scale unseen in genrations. Wealth will be stolen from those who invest and grow it and wasted on unproductive investments that consume, rather than increase, wealth. Coast-to-cast Solyndras if Biden wins. Less worse, but still bad, if Trump wins.

raducu 6y ago

God, I'm so tired of hearing this: "debt is currently cheap to get, so for the government not to invest would be rather unrational". Debt is cheap BECAUSE we had a financial crisis, BECAUSE we let people who shouldn't have indebted themselves indebt themselves. There will be grave consequences an suffering in enabling inept people and corporations take on more debt.

deleted 6y ago
[deleted]
neilwilson 6y ago
You can only borrow if you have collateral to discount against. The question is whether the bankers know how to do their job properly and can assess collateral.
- raducu 6y ago
  But isn't collateral a tried an tested measure of knowing if you are actually able to repay your debt? Who would know better than the bankers, politicians?
  - neilwilson 6y ago
    Lending stops when people run out of collateral. It's not the interest rate that determines what people can borrow. It's how much collateral they have. The financial collapse was due to bankers failing to assess collateral with sufficient haircut.
    - raducu 6y ago
      Could you explain your last phrase more concretely? In my country mortgage loans stop when people don't have the downpayment of 5%-15% of the mortgage or when they have already indebted themselves for more than 45% of their income. Other loan types are also capped when you debt level exceeds a certain threshold of your income. This all seems reasonable to me. It also seems reasonable that banks would not issue more debt to people when their collateral value drops in market values, such as housing market bubble bursts.