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No one knows how much the government can borrow

• signalfish 6y ago
  Directly related is "Modern Monetary Theory" or MMT. Here's a 24 minute explainer from NPR, Planet Money. https://www.npr.org/2021/01/20/958854717/modern-monetary-theory-classic https://www.npr.org/2021/01/20/958854717/modern-monetary-the... And a brief explainer from The Conversation https://theconversation.com/modern-monetary-theory-the-rise-of-economists-who-say-huge-government-debt-is-not-a-problem-141495 https://theconversation.com/modern-monetary-theory-the-rise-... Also known by its detractors as "Magic Money Tree." One of those detractors is of course the Adam Smith Institute. https://www.adamsmith.org/research/the-magic-money-tree-the-case-against-modern-monetary-theory https://www.adamsmith.org/research/the-magic-money-tree-the-... I thought I remembered Freakonomics doing a fairly in-depth discussion on this, but I can't find it. Maybe I mis-remember.
  • mikewarot 6y ago
    It's not really an economic question, it's one of politics, intimidation, and a global empire. The "magic money tree" is backed by the full force of the United States. Heads of state who have suggested alternatives found themselves confronted with a sweeping range of responses, starting with bribes, then coercion, sanctions, and if those fail, hiding in a hole from US forces. There's nothing magic, nor mysterious about it. We're the only ones (right now) with the system in place to hold the rest of the world hostage. When those in charge press their luck too far, or if by accident they let an idiot run the place for 4 years, that grip on things could loosen, and eventually our position could collapse. When that happens, we'll be forced to use money from someone else's "magic money tree". Having to export hard currency instead of magic money, would cause prices on all things imported to double or worse in a few years or less. The only real question is how many % of the value of the dollar when spent as an export is real, and how much is the "global reserve currency" status. I suspect it used to be %20 real, and lately it's more like 50% as our leaders fumble the ball too much for the rest of the world's liking.
    • AnimalMuppet 6y ago
      Does MMT work if you're not the reserve currency? (Honest question; I don't know enough about the theory to say.) But it is really an economic question. What will be the results if you run your economy this way? What will be the results if you do so as the reserve currency, and what will be the results if you do so when you're not?
      • sdenton4 6y ago
        MMT works so long as you've got the ability to conjure your own money. (Eg, not on the Euro, or a currency pegged to another currency.) The idea is that you create money to pay for things, and then pull back excess money through taxes. (As opposed to pulling in money through taxes, using it to pay for things, and whining that you don't have enough.) So it 'works' as long as you have your own independent national currency. Another mind flip: the scarce resource isn't money - it can always be generated - but labor. Inflation starts when there's a labor shortage, because up to that point you can just employ more people to meet demands.
        • spurgu 6y ago
          Another mind flip: the scarce resource isn't labor - but energy. Edit: A gallon of oil is equivalent to roughly 400 hours of human labor. Manual work is nothing compared to the energy contained in fossil fuels (or external energy sources in general). An argument could be made that the economy is in decline due to this, that the sources of fossil fuels are getting more expensive. Most of the cheap sources have been used up already. There is still a lot of oil left, but it's a lot more expensive (offshore, fracking) to extract than it used to, and it's getting worse.
          • platz 6y ago
            Mark Blyth on MMT: https://youtu.be/2ONGvkAoOI0?t=1550 https://youtu.be/2ONGvkAoOI0?t=1550 - it only applies to the US - depends on having a hegemonic currency (i.e. everyone else earns in your currency and has to convert it, so that you can run a deficit and others supply the capital to fill it) - contingent on control of the house, senate, and presidency, for about 3 terms in a row, to do all the things you want to do (in the MMT program) - though sure, we could spend more on stuff we care about; we're not at "capacity" yet. - you've already got a bond market in the US... why do do we need to re-invent everything in the world when the bond market allows you to already do it? - hardly any other country actually sets their own monetary policy because the dollar is so dominant. When the fed goes up or down, it's effect is global. - since every country has to import, if you print a lot of money, you'll get inflation through exchange rates & the import channel Haven't listened to this one yet: https://youtu.be/NfKiW0Gfn04 https://youtu.be/NfKiW0Gfn04
  • lukifer 6y ago
    I've been deep diving on MMT lately (per Rohan Gray, Stephanie Kelton, and L. Randall Wray); while I'm not entirely convinced, one thing that's surprised me is that it's less prescriptive than is oft assumed from its elevator pitch, and is much more focused on accurately describing what states do already. The claim is not that we can starting printing money willy-nilly without consequences; it's that we do that already, and we can be smarter about it if we're honest about that fact. A couple other interesting outgrowths from that premise: - the Federal Jobs Guarantee concept, which in addition to any positive externalities of putting the under-employed to work, also pegs the value of the dollar to labor (@$15/hr, $1=4min), while also providing a negotiating BATNA for the working class with their private employers. - Because money is printed into existence, rather than an empty ritual of collecting revenue before spending it, taxation exists only for money to exit the system, reducing inflation and creating demand for dollars; tax payments aren't used to pay for anything, and are effectively burned. Kelton also makes an interesting point: rather than taxes being a "necessary evil" policy to pay for some other good, they can actually be reconstrued as positive goods in and of themselves: to price externalities (pollution tax) or discourage behavior (sin tax), etc. The strongest argument against MMT, regardless of its theoretical merits, is simply the practical one: that Congress already perpetrates vast quantities of graft and fiscal short-sightedness, and it's unwise to trust such a transparently corrupt and dysfunctional institution with additional leeway for limitless spending.
    • Gibbon1 6y ago
      > rather than taxes being a "necessary evil" policy to pay for some other good, they can actually be reconstrued as positive goods in and of themselves: to price externalities (pollution tax) or discourage behavior (sin tax), etc. You can think of the very high marginal income taxes prior to Reagan, even higher prior to JFK as 'sin taxes'. People opposed to high marginal tax rates like to point out that those high taxes didn't produce more revenue. But MMT thoery would tell you revenue was never the point. The point was to discourage people with the power to divert money into their own pockets from doing so.
• newacct583 6y ago
  I try to post this everywhere people want to start yelling about federal debt (which correlates much more closely to the thing the government wants to borrow for than the actual size of the debt): Interest as Percent of Gross Domestic Product (essentially: how much money do we need to pay for our spending habits): https://fred.stlouisfed.org/series/FYOIGDA188S https://fred.stlouisfed.org/series/FYOIGDA188S We are nowhere near the peaks that we saw in the 80's and early 90's. All those 30-year bonds issued at the start of the Reagan revolution matured and were paid off, no one seemed to notice, and none of the rhetoric seems to have changed at all. This just isn't a problem in the modern economy. Interest rates have been sitting at or very near GDP growth for four decades now, which means that money is as close to "free" as it is possible to get (that is, if the US borrows $4 and spends it, it sees a $4 increase in GDP). That doesn't mean that serious argument about sustainable spending can't be made in good faith, but it does mean that almost all arguments of the form "we can't afford it" are not. This is triply so if the argument includes a credit card metaphor.
  • deleted 6y ago
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  • trident5000 6y ago
    Buddy, the interest as a percent of gdp matches the 80's and 90's because rates are near 0%. Real yields are negative in europe. Its not even close to the same situation. "Interest rates have been sitting at or very near GDP growth for four decades now" thats short-sighted and not really true: https://fred.stlouisfed.org/series/fedfunds https://fred.stlouisfed.org/series/fedfunds Theres no free lunch, you don't get to just print unlimited money and have no consequences.
    • pessimizer 6y ago
      > Theres no free lunch, you don't get to just print unlimited money and have no consequences. I think you're arguing the opposite. We are printing money, yet inflation stays stubbornly low. We borrow money, but don't have to offer any interest; in fact, in some circumstances people pay us to loan us money. That's the definition of a free lunch.
• kukx 6y ago
  Some counter perspective laid out by Peter Schiff, while I do not agree with everything said, I find it valuable and entertaining: https://www.youtube.com/watch?v=M6k0QEnYpSQ https://www.youtube.com/watch?v=M6k0QEnYpSQ
  • throw0101a 6y ago
    The same Peter Schiff calling for runaway inflation in 2008-2009? > He has that exactly right: the central dispute is between those who see depressions as the result of inadequate demand, implying that inflation will fall and that printing money does nothing unless it boosts employment, and those who see depressions as the result of maladapation of resources or something — anyway, something on the supply side — who predict that running the printing presses will lead to runaway inflation. > How could you test those rival views? Why, how about having a huge slump, to which central banks respond with aggressive monetary expansion? And that is, of course, the test we’ve just run. And everywhere you look, inflation is low, verging on deflation. > So we’ve just run the Schiff test — and his brand of economics, by his own criteria, loses with flying colors. And that goes for just about all anti-Keynesian doctrines: we ran as close to a clean experiment as you’re ever going to get, and the answer is no. * https://krugman.blogs.nytimes.com/2014/11/22/the-wisdom-of-peter-schiff/ https://krugman.blogs.nytimes.com/2014/11/22/the-wisdom-of-p...
    • kukx 6y ago
      He predicted the financial crisis. And predicting is hard, especially, if you have a "creative" government. The underlying problem was postponed, not fixed, and it got bigger in the mean time. I do not agree with him on everything, but he has many apt observations and convincing explanations. And at least he looks at fundamental mechanisms, which I like to interpret as a hard reality. I believe we now live in a soft reality, where the sweet falsehoods are preached to and believed by masses.
      • throw0101a 6y ago
        The technical explanation why, when rates are zero, and you 'print money', inflation does not (or at least in all our current experiences has not) appear(ed): * https://en.wikipedia.org/wiki/Liquidity_trap https://en.wikipedia.org/wiki/Liquidity_trap It's what Keynesians (like Krugman) generally follow, and they've been right to date. Krugman for one has been writing about this since (at least) 1998 when Japan entered this situation: * https://www.brookings.edu/bpea-articles/its-baaack-japans-slump-and-the-return-of-the-liquidity-trap/ https://www.brookings.edu/bpea-articles/its-baaack-japans-sl... * Same paper: https://www.princeton.edu/~pkrugman/japans_trap.pdf https://www.princeton.edu/~pkrugman/japans_trap.pdf The paper is probably still relevant today, especially since more places are hitting zero. Krugman has made better predictions than some trillion dollar asset managers: * https://www.businessinsider.com/this-was-the-bill-gross-blunder-that-led-to-his-downfall-2014-10 https://www.businessinsider.com/this-was-the-bill-gross-blun... * https://www.salon.com/2014/10/03/paul_krugman_schools_the_deficit_maniacs_who_keep_“getting_it_wrong”/ https://www.salon.com/2014/10/03/paul_krugman_schools_the_de... * https://delong.typepad.com/delong_long_form/2014/10/pimco-how-to-lose-lots-of-money-and-still-influence-people-the-honest-broker-for-the-week-of-october-10-2014.html https://delong.typepad.com/delong_long_form/2014/10/pimco-ho... I started reading Krugman's weblog around 2009, and AFAICT, everyone who bet/predicted against Keynesian economics in the intervening years has generally been wrong (or at least more-wrong, even if K hasn't been spot-on).
• trident5000 6y ago
  The answer is you can borrow unlimited debt if you pin interest rates at 0% (though eventually you will lose control at the back end of the yield curve without heavy govt intervention). What happens to your currency in that process is debasement/hyperinflation.
  • raducu 6y ago
    > What happens to your currency in that process is debasement/hyperinflation. Not if the vast majority of population lives paycheck to paycheck and food and basic necessities production are not disrupted. In that/our case, you simply get the inflation of the assets the "elites" who have disposable income choose to spend that disposable income("investing" in real-estate, bitcoin).
    • Armisael16 6y ago
      That’s only accurate if paychecks and food adjust at the same rate. You’re pretty screwed if your wage is set at the beginning of the year but bread is ticking up every week.
    • trident5000 6y ago
      The savings rate is a whole other issue. Strictly on the value proposition of the dollar and discussing economics, the savings of common folks in any amount cannot be invested into production assets meaningfully with real yields as prices rise = they are worthless. Meanwhile homes, auto, healthcare, education, all rise and what you are holding has less purchasing power. Inflation is very real even if the price of specific items like your socks are not rising substantially. Also CPI is a basket created by the fed to sell bonds, it has no other purpose.
      • XorNot 6y ago
        How are homes having less purchasing power? The rise in real estate prices in western democracies has been a global phenomenon, and everywhere it's happened the problem is exactly because the value of homes is rising disproportionate to everything else - that's not inflation! If you own a house, you are materially increasing your wealth by a lot because if you could liquidate that asset (and a bunch of people can because they have two or more) then the amount of raw stuff you can buy with the proceeds has gone up and up.
• dharma1 6y ago
  As long as much of the world’s trade is settled in US dollars, there is a demand for them, and some demand for US treasuries. The merry-go-round of the Fed increasing the money supply and buying US government debt with the newly created money can keep going for a while, but it will lead to a steady decline in the value of the dollar vs other currencies and some official inflation over time, as the cost of imported goods rises. And there is already high inflation in other areas not measured in official inflation. The other component of inflation is increasing wages, but I don’t see that happening soon. In terms of government debt - while the nominal value of US government debt rises, some of it is also somewhat eroded as the real value of the dollar decreases. So it looks like the plan is to monetise the debt, at least somewhat. I am not sure if paying the government debt back over time through increased taxes is on the agenda - I doubt it. There is a trend of increasing de-dollarisation of world trade, which can already be seen in trade between countries like Russia and China moving to using their own currencies and the euro for a larger portion of trade. I think in the future more world trade will be settled with some type of bancor type basket of currencies where USD is one component, rather than the only component.
  • xxpor 6y ago
    Folks like to talk about what really keeps the world at peace (relatively speaking compared to pre-ww2), and while I think nukes are a large part of it, another huge part is dollar based settlement and the absolute devestating sanctoning power the US derives from it. That isn't to say sanctions are morally pure: they exact a huge cost on the regular people who live in the countries subject to them. However, they're still probably better than being bombed. The more things that are not settled in dollars means the reduced effectiveness of sanctions and the higher likelyhood conflicts will escalate into hot wars. On the other hand, the US not being able to dictate to everyone else is probably a good thing itself, so I'm not sure on net what the best outcome is.
    • cercatrova 6y ago
      Pax Americana is the term you're looking for.
    • 6y ago
• drtillberg 6y ago
  > Remember that some people thought that government borrowing ... facilitated by quantitative easing (Fed bond-buying) ... was going to lead to substantial inflation. But it didn’t. Every time someone says "but where's the inflation" I sigh. Look at literally any financial asset, SP500, stocks, real estate, even bond values (the inverse of interest rates). There is your inflation. Maybe we like asset inflation, maybe we don't, but that's where it is. When the author claimed to be unable to find it, I stopped reading.
  • deleted 6y ago
    [deleted]
  • titzer 6y ago
    "Official" inflation is based on the CPI, consumer price index, which is based on a basket of goods, not including CoL things like housing. edit: I stand corrected. It does include housing, but this "Owners' equivalent rent of residences" counts the cost of a Mortgage, which of course is majorly impacted by interest rates. It doesn't include the value of the housing market directly, though. Does anyone actually think that the housing market is counted correctly? It is clearly outpacing inflation by a lot: https://dqydj.com/historical-home-prices/ https://dqydj.com/historical-home-prices/
    • trident5000 6y ago
      CPI is a convenient basket for the fed to sell bonds ideally at a positive yield. Thats why things are left out.
      • throw0101a 6y ago
        > for the fed to sell bonds The Fed does not sell bonds, the US government (through the Department of Treasury) does. They are independent of each other. (Then-President) Trump got lots of flack for going after US Fed Chairman Powell due to the desire to keep this independence as clear-cut as possible: * https://thehill.com/policy/finance/450283-powell-asserts-fed-independence-as-trump-blasts-central-bank https://thehill.com/policy/finance/450283-powell-asserts-fed...
• amelius 6y ago
  If you owe the bank $100, that's your problem. If you owe the bank $1000 billion, that's the bank's problem.
  • anm89 6y ago
    That metaphor works better for huge businesses. There's really no bank here(yes I'm well aware of central banks, but that's not really how bank is being used here from a balance sheet solvency perspective). It's more like if you issue currency and owe trillions, that's the currency and the currency issuers problem.
    • manquer 6y ago
      It still applies. The US as a country is so large economically , it is quite bad for the world to let the US default on loans or the economy collapse, compared to say Venezuela or Argentina.
  • treeman79 6y ago
    Some of these banks have nukes. Oh and they can form a 100 million man army.
• anm89 6y ago
  We don't actually know what would happen if I went and cursed my boss out on monday morning and asked for a raise. The data simply isn't there! Therefor we should conclude this is a reasonable course of action. Do we know every specific outcome in the complex system of our world and economy from elevating debt to 200 or 500 or 1000% of GDP? Of course not. That doesn't mean we cannot predict most of the core mechanics of what will play out.
• jldugger 6y ago
  Seems like they can easily borrow 100 billion in one shot. Tendered Accepted Primary Dealer $77,850,000,000 $10,790,550,000 Direct Bidder $6,350,000,000 $2,009,150,000 Indirect Bidder $20,935,350,000 $12,193,340,000 Total Competitive $105,135,350,000 $24,993,040,000 https://www.treasurydirect.gov/instit/annceresult/press/preanre/2021/A_20210121_3.pdf https://www.treasurydirect.gov/instit/annceresult/press/prea...
  • trident5000 6y ago
    Because institutions like pension funds are mandated to buy them.
• njarboe 6y ago
  Ray Dailo has been thinking about this idea for most of his life. He has had the resources and status to access any scholar on the topic he would like. Smart and motivated to understand the answer, he has written a book about this topic that is coming out soon, but is also available in full on-line for free[1]. I'm half-way through and it is very good so far. [1]https://www.principles.com/the-changing-world-order/#introduction https://www.principles.com/the-changing-world-order/#introdu...
  • throw0101a 6y ago
    > He has had the resources and status to access any scholar on the topic he would like. So did Bill Gross of PIMCO, one of the largest fixed-income (bond) management firms in the world (AUM: $1.9T): * https://en.wikipedia.org/wiki/PIMCO https://en.wikipedia.org/wiki/PIMCO He bet that interest rates would rise in 2011 after QE(2). Keynesian macroeconomists like Krugman said they wouldn't. Krugam was right: * https://www.businessinsider.com/this-was-the-bill-gross-blunder-that-led-to-his-downfall-2014-10 https://www.businessinsider.com/this-was-the-bill-gross-blun... * https://www.salon.com/2014/10/03/paul_krugman_schools_the_deficit_maniacs_who_keep_“getting_it_wrong”/ https://www.salon.com/2014/10/03/paul_krugman_schools_the_de... * https://delong.typepad.com/delong_long_form/2014/10/pimco-how-to-lose-lots-of-money-and-still-influence-people-the-honest-broker-for-the-week-of-october-10-2014.html https://delong.typepad.com/delong_long_form/2014/10/pimco-ho... Be careful about experts in one field trying to expound in an unrelated field. (I have found Dalio's writing to be interesting though.)
    • hntrader 6y ago
      A fixed income fund manager is a domain expert in this area, even though he was wrong about this prediction. Their full time job is largely to understand and anticipate Central Bank policy.
      • ashtonkem 6y ago
        My time in finance has led me to believe that traders and investors are far more prone to groupthink than they’re willing to admit to. “Hedge fund manager predicted inflation after QE and was wrong” is very low on my list of things that surprise me.
• howeyc 6y ago
  This misconception needs to die. The government doesn't borrow money. The government doesn't need your money. The government prints money. They could stop accepting taxes tomorrow and still be able to keep spending. They print the money. Treasuries exist as an accounting fantasy for people to believe the government needs to borrow, they don't. Any treasuries outstanding today basically just represent dollars to be printed in the future. What matters is amount of dollars in circulation and velocity of money. Inflation.
  • CryptoGhost 6y ago
    Your point is accurate that true borrowing isn't really an apt description since they just alter the effective supply of money but technically they do need to borrow because they don't have complete control of the Federal Reserve. Granted congress could change that if they wanted to if the Fed angers them enough. But exactly how such a drama would play out is complicated.
  • mamon 6y ago
    Another misconception that has to die is that governments can get away with printing money indefinitely. The concept itself is not new: Roman Empire also did the same, shortly before its fall. Soviet block countries did that before 1989. Venezuela and Zimbabwe also did it. See the common theme here?
    • netsharc 6y ago
      The difference between the smaller countries and the USA is, the dollar is basically the world's currency now. The world can afford to let Venezuela fail, but if the USA fails, the whole world goes down with it, so IMO they'll happily "lend" the USA more money. With the Roman Empire, I'm guessing other problems caused it to fall; it didn't fall because of money printing, but it was printing money because it was falling.
      • AnimalMuppet 6y ago
        But printing dollars like they're toilet paper might lead to the US no longer being the reserve currency. That isn't a divine right. It isn't a once-and-forever thing. We can lose it.
• fallingfrog 6y ago
  Nobody knows, but we’re about to find out..
• anticristi 6y ago
  I can't help feeling that the question is ill-posed. It's not "how much", but "why" that matters. Think about it: Would you borrow $10,000 to a friend who opens a dentist with a solid business plan? Probably yes. Would you borrow $1000 to a friend to cover an existing debt? Probably not, or, if you are very generous, you would gift them the money. If a government can demonstrate that it borrows money to invest in the economy and increase future taxes -- e.g., by building infrastructure, educating the population, researching top-notch tech -- by all means, borrow more! However, if all the government does is increase social welfare that it already struggles to afford or satisfy the luxury of a dictator, then stop borrowing now!
  • sesuximo 6y ago
    government does both, but you cannot specify what your loan pays for
    • jjk166 6y ago
      If someone loans you money to start a business and you blow it gambling, you're going to have a hard time getting them to give you another loan. The government can say it's taking on debt responsibly, but if there are no subsequent economic improvements eventually their credit rating will fall.
      • toomuchtodo 6y ago
        You don’t have to be faster than the bear, just faster than your slowest friend. The entire first world is headed towards Japanification.
        • jjk166 6y ago
          That analogy only works if lenders can only stop giving loans to one nation at a time. In reality, rates can be raised for any combination of nations simultaneously. It's not like the DRC looks like a good investment just because its not as bad as Venezuela.
  • 6y ago
• rubyn00bie 6y ago
  I'd really like to point out this: > Hyperinflation is so incredibly destructive that you’d think macroeconomists would spend a lot of time studying the phenomenon, figuring out when and why it happens. Especially because the answer to the question of hyperinflation is also the answer to the question of how much the government can borrow. An understanding of hyperinflation would give us a flashlight to shine down the infinite corridor, so we could avoid the pit. ... is pretty ignorant. You have an unrealistic fear of hyperinflation propagated by your ideals; to the point, you think it's important or relevant in situations where it's not. Perhaps, and this is just a thought here, if no one educated on the matter seems to give a shit about it there might be a reason. The US deficit is by and large a bogey-man most people love to wax on but hate to learn about... unless you like the scientific method but even then it is mostly depressing. To me, the whole things sounds like a rant telling physicists, "you haven't studied enough planets like Jupiter, and without Jupiter, I cannot explain Earth. Please explain Jupiter!" Here's the real shit, that's boring, but true: Hyperinflation is no risk to the US economy at present. We are the world's piggy-bank, the wealthiest piggies in the world love the US, because we're the only nation on the planet who has always let's them have it back. The USA has never frozen the dollar. This puts the US an unbelievable economic advantage that nearly all of its citizens fail to realize. Think about it: 1. The US dollar is the defacto (for now) global currency. 2. It's really hard to default when your debt is in your own currency. See link below: https://finance.yahoo.com/news/warren-buffett-explains-the-simple-reason-why-the-us-will-never-default-on-its-debt-185105213.html https://finance.yahoo.com/news/warren-buffett-explains-the-s... The USA can quite literally print money and get away with it almost indefinitely. Yep, that's the rub. We can 100% print money. Nope, instead of printing it [1] to invest in our infrastructure, citizens, and planet we share-- we piss it away. We piss it away handing out tax cuts to the rich. We piss it away blowing shit up in deserts fighting other nation's equivalent of rednecks. We piss it away funding racist police and prison systems. We piss it away every day; that's why it's called the "trickle down." In another 50 or a 100 years, when other nations are financially larger, more stable, and many, many, trillions of dollars of risk could be safely diversified anywhere else... then yes, the US could be at risk because it may not be able to issue debt in its own currency. [1] Most everyone doesn't understand extremely large numbers and when one looks at the quantities over a certain size they all muddle together. It takes a lot of effort and reading to be able to look at billions, hundreds of billions, and trillions to make sense of and not fear those numbers. That's why people are able to fear things that would literally help them; the numbers are "all the same to them" and thus they're all equally bad or misunderstood.
• underseacables 6y ago
  Without a debt ceiling I presume it’s until no one will loan it any further money.
  • mr_toad 6y ago
    If you look at other countries (or individuals) that get into trouble with debt this doesn’t usually happen until it’s much too late.
  • epistasis 6y ago
    When you own the money printing press like the US does, you don't have to get other people to loan you money. It's a quirk that we use "debt" in the form of T-bills instead of printing more dollars. The t-bills get used and exchanged like money anyway. They do let the US have some control over the interest rates used in the rest of the economy, so it's not a useless quirk, but it's important to understand that US debt is nothing at all like personal debt, and it's probably defective to use the same word.
• beezle 6y ago
  Title somewhat misleading as the actual question asked in the post was 'safely borrow.' The more abstract question of 'how much' is of course infinite when there exists a compliant central bank that will 'buy' the debt and issue currency in return. The real world value of that currency would be expected to approach zero, in the limit. TANSTAAFL
  • deleted 6y ago
    [deleted]
• jennyyang 6y ago
  The only time people care is when they care. And you can't predict when that will happen. It's like a flock of birds flying in the air, you can't figure out which individual bird caused the first change in direction, but it quickly spreads across the entire flock. The other fallacy is that inflation is here, it's just not being measured by the Federal Reserve properly. There is crazy inflation in things like house prices and assets like stocks. Look at the vast income inequality that has occurred in the last 15 years. Whoever is invested in stocks and housing market has made money. Everyone else is basically forgotten or left by the wayside.
  • roenxi 6y ago
    > The other fallacy is that inflation is here, it's just not being measured by the Federal Reserve properly. Another theory is a 0% inflation rate doesn't mean 0% inflation. It means inflation is close to the rate that goods/services are getting cheaper naturally as technology & market organisation improves.
    • pmiller2 6y ago
      That assumes that goods and services are getting cheaper, which isn't the case for several key necessities. In particular, housing, education, and medical care have risen far faster than inflation for the past 40+ years.
  • notyourwork 6y ago
    Are house prices inflation or appreciation? It may be unfounded but is an increase in value always inflation? (Serious question, not disagreeing with your statement.)
    • nicoburns 6y ago
      Given that a large part of the increase is due to the availability of low-interest mortgages, the description as inflation seems reasonable.
    • dboreham 6y ago
• leoplct 6y ago
  We will see Money Velocity when global lockdown (semi-lockdown) will ends. Until then I guess there is not much risk of inflation.
• AtlasBarfed 6y ago
  Economists handwringing about deficit spending? Wait, that only happens when... Oh right, a Democrat is POTUS. "Right" on time. I know this'll be immolated as being "political", but the article is also being sneakily political. The subject may be legitimate. The timing... is not.
  • epistasis 6y ago
    If you read the article, I don't think you'll find much hand wringing at all. The author doesn't name MMT, but talks about the key question whose answer let's us use MMT unsuccessfully in the economy. (For the record I think MMT is the right way to think of US dollars and US spending.)
• wonder_er 6y ago
  For a hilarious and sharp rap-battle comparison of Keynes vs. Hayek (which... is basically the framework for all competing conversations on this topic) check out: Just a reminder - this is a rap-battle music video about economic policy. This is why the internet is amazing: Fear the Boom and Bust: Keynes vs. Hayek - The Original Economics Rap Battle!(Youtube)[0] [0]: https://www.youtube.com/watch?v=d0nERTFo-Sk https://www.youtube.com/watch?v=d0nERTFo-Sk
• hd4 6y ago
  in the way that the 1st enlightenment lead to the separation of church and state, crypto is the 2nd enlightenment that will lead to the separation of state and money.
• lend000 6y ago
  This really is one of the most interesting and consequential economic questions of our time. And I do imagine we will get an answer, because there is no political will to cut spending anymore. The reason that all this stimulus hasn't affected measured inflation all that much is because the mechanism of monetary policy tends to be top-heavy, creating low interest rates which obviously benefits the rich more than the poor (people with high credit who tend to borrow larger sums more frequently). The rich channel this wealth into assets like real estate and equities, which are underrepresented in the CPI, in my opinion. There should be more of a "Volume Weighted" approach to balancing where large sums of the global economic market cap are sitting. And since the rich can apparently just hold wealth in index funds indefinitely and cash out what they need for expenses (don't worry, if a pandemic freezes the economy, the Fed will rescue your position and create a new bull market!), few of those dollars creep into the economy. The "buy, hold, and never sell the entire market" philosophy creates economic distortion that enables this type of policy, and is incentivized by lower long term capital gains tax rates. So by using this regressive, but fast acting, method of money printing, we can stave off hyperinflation and prolonged bear markets at the expense of increased income inequality. A more progressive, but slower acting way to finance government spending is to print a universal stimulus check, tax it, and spend the tax. We do both, but lean heavier toward the open market operations approach. The hidden variable, not mentioned in this post: social security. Social security, which is due to become insolvent sometime in the next two decades, will have consequences like the progressive stimulus checks, but on a much greater scale, if the Fed starts printing money to finance it. This is where the "everything bubble" will convert into plain old inflation, when millions of everyday people are getting and spending cash that was printed out of thin air, assuming there isn't some sort of reckoning before that.
  • jackcosgrove 6y ago
    You are correct that QE printed money while keeping inflation in check by using financial institutions as conduits of the new money. The new money mostly ended up inflating assets which aren't necessary to survive. (Rents inflated some, but house prices more.) However the recent stimulus payments have been more like direct payments to people. We are already seeing this shift from asset inflation to staples inflation, but yes when SS exhausts its savings the Fed will top up the difference with new money and we will see monetary inflation of staples.
• mars4rp 6y ago
  After 4 years, we are hearing about debt again.
  • disgruntledphd2 6y ago
    Anyone would think there was a Democratic president in the WH or something!
• goodcanadian 6y ago
  I would suggest reading This Time Is Different: Eight Centuries of Financial Folly by Carmen M. Reinhart and Kenneth Rogoff. It is quite academic, but it comes the closest to answering this question that I have ever seen.
  • disgruntledphd2 6y ago
    Do you mean the authors who found their purported relationship due to errors in their Excel spreadsheets? That being said, even if I have issues with their policy prescriptions, I've heard good things about the book.
• m0llusk 6y ago
  let's find out
• kyrieeschaton 6y ago
  You can consider "hyperinflation" as a consensus that the government is lying about the value of its currency. How does a consensus develop that someone is lying? It's a complex process, and doesn't have a neatly aggregatable answer. This is incidentally why Sargent considers the end of hyperinflation to be coincident with a regime change - a liar cannot become credible nearly as easily as he can be replaced.
• spoonjim 6y ago
  A democracy can only function if people believe that they have shared interests with the majority of the people in the society. A democracy that can deficit spend can only function if they believe not only that, but that they have shared interests with the majority of the future members of the society. I don’t think either assumption holds for the United States right now.
• webwielder2 6y ago
  Democrats massively deficit spend to save the economy because Republican policy tends to lead to economic peril, but Republicans oppose it, except when they are in power, during which they massively deficit spend not as a necessary evil but to cut taxes for the wealthy. It’s head spinning.
• alexmingoia 6y ago
  It’s quite simple: Anyone can borrow as much as someone is willing to lend. That said, the government doesn’t borrow money. They create it.
  • chii 6y ago
    They _can_ create it. But they mostly borrow (via bonds like treasury bonds), rather than create. Only those countries' gov't who can't borrow at a low enough rate would create - such as venezuela.
    • alexmingoia 6y ago
      Treasury bonds are bought with USD. Where does USD come? The government prints it. Borrowing doesn’t fund the government, the printing press does. At the bottom of the tower of USD is printing money. ~80% of treasuries are held domestically, and the foreign buyers purchase it with USD that came from the treasury.
      • mr_toad 6y ago
        They could opt to pay for it out of tax revenues. Or they can issue new bonds to repay old bonds. They can print money, but the optics are bad. The loss of confidence in the value of the dollar is as much a cause of hyperinflation as the actual money supply. Loss of confidence in the value of the dollar can rapidly increase the velocity of money, which means that less money supply is needed. This causes more inflation, which further weakens confidence, increasing the velocity further, causing prices to spiral out of control.
        • alexmingoia 6y ago
          It’s all printed money. Taxes are paid in USD. USD comes from... the government creating it from nothing. Tax revenue is old printed money. Bonds are future printed money. All government revenue is money they created.
          • 6y ago
• cs702 6y ago
  There's persuasive evidence that high levels of government and private sector borrowing tend to precede Bad Stuff™. The World Bank published a detailed report about precisely this topic on December 2019, right before the pandemic, at https://www.worldbank.org/en/research/publication/waves-of-debt https://www.worldbank.org/en/research/publication/waves-of-d... -- here's the first paragraph of that report, summarizing the findings: "The global economy has experienced four waves of debt accumulation over the past fifty years. The first three debt waves ended with financial crises in many emerging and developing economies. The latest, since 2010, has already witnessed the largest, fastest and most broad-based increase in debt in these economies. Their total debt has risen by 54 percentage points of GDP to a historic peak of almost 170 percent of GDP in 2018." That was written right before the pandemic. Since then, governments and businesses have borrowed aggressively. It's safe to say that globally, we are in uncharted territory. As to what happens next, your guess is as good as mine.
• paraschopra 6y ago
  If anyone’s interested, I recently explored this theme in my essay “How money works” https://invertedpassion.com/how-money-works/ https://invertedpassion.com/how-money-works/
  • rojeee 6y ago
    I had a read of your essay. You should read “what is money?” by Alfred Mitchell-Innes. Some key things: The “double coincidence of wants” stylised by Adam smith is most likely nonsense. Do we really believe that people didn’t trade if they didn’t have what each other wanted? What would really happen is that one would be in debt to the other and that debt would be repaid at some point in the future. It was only until recent times eg 1900s US that Gold and silver became a “medium of exchange”. That experiment has of course ended because it didn’t work particularly well -> deflation. In the past governments set some amount of precious metal as the unit of account but the issued coins were usually made of something else and were of different weights and sizes even for the same denomination of coin. The coins had a nominal value which was always greater then the intrinsic value of the coin (otherwise if the nominal value was the same or less than intrinsic value then people would melt the coins into bullion). These coins were an acknowledgement of indebtedness of the government. They held value because people needed to use them to pay taxes. Banks did not evolve from “gold warehouses”. Instead banks always have been and continue to be market makers for IOUs or debt/credit.
• idiotclock 6y ago
  The author of this substack essay doesn't understand how things work
• phendrenad2 6y ago
  I think that this is a strange and anachronistic way to think of the problem. It's not "how much can government borrow without heading into a "Danger Zone"". It's "what are the effects of government debt?". We can't even agree on that (probably because, as the article mentions, it hasn't been studied much).
  • logicchains 6y ago
    >it hasn't been studied much This isn't true. There's quite a lot of literature on it; even my basic macro textbook in university noted a correlation between government debt above a certain level and reduced GDP growth. https://www.mercatus.org/publications/government-spending/debt-and-growth-decade-studies https://www.mercatus.org/publications/government-spending/de... describes it: "A large majority of studies on the debt-growth relationship find a threshold somewhere between 75 and 100 percent of GDP. More importantly, every study except two finds a negative relationship between high levels of government debt and economic growth. This is true even for studies that find no common threshold. The empirical evidence overwhelmingly supports the view that a large amount of government debt has a negative impact on economic growth potential, and in many cases that impact gets more pronounced as debt increases."
  • epistasis 6y ago
    Since the US government can print money to purchase treasury bills, and since treasury bills are bought and sold and traded, and since these treasury bills are in such high demand that interest rates have been negative for an entire year, I don't think "debt" is the right term for this. Our "debt" is actually the money supply of the world. It's people's savings, and nations put their savings into treasury bills so that they can easily trade with the US. So the government really doesn't have debt, it's just money supply. When we buy a bunch of stuff in the world, and when more countries want to buy our stuff, we want more T-bills out there so that it's easier for us to transact. T-bills are dollar bills that have the side effect of setting interest rates foe banks. We should just call it M4 or something, or maybe bring back the M3 category for money supply and include T-bills in it. We have fiat currency, so we should govern like we do, instead of pretending we don't. When we label part of the money supply as "debt", we misunderstand it because it's not debt as any other entity, such as a business, understands it. One thing is that I wish that this article would at least better examine demand-pull versus cost-push inflation. Very very different situations, very different causes and fixes for the same phenomenon. Too much "debt" could result in demand-pull inflation, but not cost push inflation.
• eunos 6y ago
  Is it probable that inflation doesn't occur in spite of mass QE because the inflations are exported, mainly to manufacturing exporting countries like Southeast and East Asia? You get cheap electronics and products in return.
• georgeplusplus 6y ago
  the US dollar has been losing value relative to other currencies though since covid happened on the order of about 20% so far. I believe the inflation that the 2008 crisis was supposed to bring was curtailed by the promise that the Feds QE would be temporary. However 12 years later, it has turned out to be untrue. Also, China was a big buyer of treasuries in 2008 as opposed to now.. Today, The fed essentially is buying its own debt through Blackrock (which I didn’t see the article mention) Bottom line is the idea of how much a gov can borrow is hand wavy and arcane because ultimately the currency is backed by pure faith. the US Dollar will cease to have value when people stop taking it. Maybe it’s not studied more because It’s better to stop the things that will lead to that devastating point before it happens and things like buying up your own debt and handing out checks that don’t cause any economic production cause that faith to be pushed further and further to that limit.
• neilwilson 6y ago
  Of course we do. We can borrow as much as people want to save in the currency of issue. Because the two are identical by accounting identity And there is no need at all to pay people to do that. They will do it naturally for lots of reasons, insurance, status or just good old fashioned mercantilism. States borrow in the same way your bank borrows when you pay money into your checking account. It's a function of the way the accounting works, not a statement of moral virtue.
• chewz 6y ago
  Future is infinite so there is no limit on borrowing from the future....
• imtringued 6y ago
  Debt is exists to increase efficiency in a certain situation. Namely when there is idle production capacity because of a lack of resources and simultaneously an excess of resources because production capacity has been fully utilized somewhere else. Person A needs a computer, electricity and access to the internet to run his software company. Person B manufactures computers. If you want to maximize economic efficiency then person B has to give his resources to person A. But why would person B do that in the first place? Of course, to make money. So person B will charge person A but person A can pay at a later time, when he has a stable income. That's debt. What about electricity and internet? Instead of making a deal with every person directly you can increase efficiency of debt by denoting it in the money needed to buy the product or service. Person B lends you $2000 and sells his product for $1000. You spend $1000 and get a computer. As long as person A earns enough money to pay for the computer and the electricity and internet person A consumes then person B will be better off. As long as person B has spare computers he can keep lending them out in the form of dollars. If person B doesn't have enough computers for everyone he will instead allocate his computers to the highest bidder. Now introduce person C who does the same thing as person A but promises to give 20% more money than he borrowed. Person B wants the highest possible return for the loan and thus lends the money to C but he also would lend to A if he had enough spare computers. Now lets take the macroscopic perspective. The government is a giant borrower. It can borrow resources that exist in the economy, but only if they actually exist. One very valuable resource is labor. If there is unemployment you can borrow until all the labor is actively used. Once you have reached full employment any money you borrow and spend on labor will directly translate into inflation. Mild inflation of 2% is necessary to have a well functioning economy. What does inflation do? The free market is basically a continuous auction that allocates resources to the highest bidders. If there is lots of demand for labor then inflation will go up. The question is whether the labor is spent on economically useful work. Private borrowers tend to use the borrowed money carefully and with the intention to turn a profit so if inflation goes up slightly too much (think of 5%) then they will just allocate their workers to the most efficient use. This is basically solving the problem of too much bad debt automatically. However, what if you are insane and keep borrowing money despite hitting 2% inflation goals? If you are debt ridden Germany after WW1 then you are forced to spend the borrowed money on war reparations. Meaning, lots of people will start working on undoing the damage the war has caused. The problem with that is that working for the government can end up being so "profitable" compared to private industries that those industries get neglected. This can be a very big deal if that private industry is the agriculture sector. Summary? You can borrow and print money as long as you spend it wisely and hit your 2% inflation target.
• csense 6y ago
  We're in the midst of inflation right now. The inflation's just concentrated in financial markets: Stocks, bonds, and (some) real estate markets.