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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

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.
    - deleted 6y ago
      [deleted]
- gruez 6y ago
  Maybe not disrupted in their everyday lives, but it certainly leads to more concentration of wealth by the elites.
  - raducu 6y ago
    It absolutely does.
xxpor 6y ago
There were some responses on Twitter to this post that basically said every historical case of hyperinflation was due to behavior and governmental instability rather than pure economics of the supply of currency. I'm not sure how true that is, but it does seem odd that we don't really have a model for hyperinflation if it results directly from sovereign debt and money creation.
throw0101a 6y ago
> What happens to your currency in that process is debasement/hyperinflation. Japan may disagree with that assessment: * Interest rate: https://fred.stlouisfed.org/series/INTDSRJPM193N https://fred.stlouisfed.org/series/INTDSRJPM193N * Inflation: https://fred.stlouisfed.org/series/FPCPITOTLZGJPN https://fred.stlouisfed.org/series/FPCPITOTLZGJPN * YEN-USD: https://fred.stlouisfed.org/series/EXJPUS https://fred.stlouisfed.org/series/EXJPUS
- trident5000 6y ago
  Japan is in a category of its own. They have a declining population which followed a massive asset bubble that popped 30 years ago. https://fred.stlouisfed.org/series/POPTOTJPA647NWDB https://fred.stlouisfed.org/series/POPTOTJPA647NWDB
  - throw0101a 6y ago
    > Dean Baker goes after people who claim that Japan has suffered terribly from its debt burden, arguing that Japan has actually done pretty well. But he's wrong: Japan has done better than he says > Dean looks at GDP per capita. But Japan's aging population means that you really want to look at GDP per working-age adult. And by that measure Japan's growth has been essentially the same as America's […] > The truth is that these days Japan looks less like a cautionary tale than like a role model. Its performance only looks bad if you assume that the debt is a terrible problem, when all the evidence says that it isn't * https://twitter.com/paulkrugman/status/1215628645869420545 https://twitter.com/paulkrugman/status/1215628645869420545 25 years of <1% rates, huge 'money printing', and yet no inflation or currency debasement, and respectable per-worker GDP growth. Where's the problem?
    - trident5000 6y ago
      I have to admit Japan is an interesting case and brings up good counter points. Really wages need to go up to spark inflation on the ground floor for common items.
      - 6y ago
anticristi 6y ago
Small tangent: I tend to borrow all the money that is offered to me at 0% effective rate, e.g., when buying a new mobile phone. I would even go as far as to borrow all money that is offered to me at sub-inflation rates. Is this rational?
- trident5000 6y ago
  Yes this is rational behavior unless the payback schedule gets you in trouble or the rates shift.
- jedberg 6y ago
  Yes it's totally rational. I do the same thing. I had a school loan that was at a 0.1% interest rate. I could have paid it off with my savings, but my savings interest was more than that, so it made more sense not to pay it off. I was sad when it was finally paid off, because it meant I was no longer arbitraging the interest.
- throw0101a 6y ago
  When it comes to cars, what's often offered is 0% financing or some kind of cash back. It may actually be better to go with the cash back. Preet Banerjee made a 10 minute video laying out the math on why not going with 0% financing may be better: * https://www.youtube.com/watch?v=KGPu0jPryfU https://www.youtube.com/watch?v=KGPu0jPryfU
  - LudwigNagasena 6y ago
    > When it comes to cars, what's often offered is 0% financing or some kind of cash back. Well, that just means the financing is not 0%.
  - jedberg 6y ago
    That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset, ie. get a lease. Of course there are a lot of other factors, like how long you typically keep your car for. But if you're the kind of person who like a new car every 3-4 years, it's almost always better to just lease the car than to buy it. Especially if you have a schedule C business that you can write some of it off against.
XorNot 6y ago
The term hyperinflation needs to fall out of the lexicon. In every casual economic discussion it's the favorite apocalypse goto word for people, and every one seems to think it's right around the corner. It's not going to happen.
- Clewza313 6y ago
  Why not? Is there something that makes the US immune? Also, people fixate on the "hyper" part and assume the US is going to go full Zimbabwe/Venezuela where an egg costs a trillion dollars, but even sustained non-hyper inflation of 10% or 20%/year would wreak havoc on most people's retirement funds or mortgages.
  - XorNot 6y ago
    The highest rate of inflation the US ever hit was in the 1980 (https://www.usinflationcalculator.com/inflation/historical-inflation-rates/ https://www.usinflationcalculator.com/inflation/historical-i...) at 13%. The world did not end, and the rate was not sustained. This time period corresponds to high interest rates because it has to, but the value of loans was depreciating rapidly. Since then the Federal reserve has had a target inflation rate of 2% over time and if you look at the data they've hit it. So yes, the US has substantial protections against uncontrolled changes in the inflation rate - that's the Federal Reserves mission statement.
    - bdefore 6y ago
      The rate was not sustained because the books have been cooked. How the US measures has been periodically tweaked to keep the 2% story going. Using the early 1980's metric of inflation we've been at roughly 10% annually since the turn of the millennium: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
  - martinald 6y ago
    Wouldn't it be "good" for people's mortgages, especially if they've got a long term fixed rate?

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.
  - deleted 6y ago
    [deleted]
gruez 6y ago
Maybe not disrupted in their everyday lives, but it certainly leads to more concentration of wealth by the elites.
- raducu 6y ago
  It absolutely does.

xxpor 6y ago

There were some responses on Twitter to this post that basically said every historical case of hyperinflation was due to behavior and governmental instability rather than pure economics of the supply of currency. I'm not sure how true that is, but it does seem odd that we don't really have a model for hyperinflation if it results directly from sovereign debt and money creation.

throw0101a 6y ago

> What happens to your currency in that process is debasement/hyperinflation. Japan may disagree with that assessment: * Interest rate: https://fred.stlouisfed.org/series/INTDSRJPM193N https://fred.stlouisfed.org/series/INTDSRJPM193N * Inflation: https://fred.stlouisfed.org/series/FPCPITOTLZGJPN https://fred.stlouisfed.org/series/FPCPITOTLZGJPN * YEN-USD: https://fred.stlouisfed.org/series/EXJPUS https://fred.stlouisfed.org/series/EXJPUS

trident5000 6y ago
Japan is in a category of its own. They have a declining population which followed a massive asset bubble that popped 30 years ago. https://fred.stlouisfed.org/series/POPTOTJPA647NWDB https://fred.stlouisfed.org/series/POPTOTJPA647NWDB
- throw0101a 6y ago
  > Dean Baker goes after people who claim that Japan has suffered terribly from its debt burden, arguing that Japan has actually done pretty well. But he's wrong: Japan has done better than he says > Dean looks at GDP per capita. But Japan's aging population means that you really want to look at GDP per working-age adult. And by that measure Japan's growth has been essentially the same as America's […] > The truth is that these days Japan looks less like a cautionary tale than like a role model. Its performance only looks bad if you assume that the debt is a terrible problem, when all the evidence says that it isn't * https://twitter.com/paulkrugman/status/1215628645869420545 https://twitter.com/paulkrugman/status/1215628645869420545 25 years of <1% rates, huge 'money printing', and yet no inflation or currency debasement, and respectable per-worker GDP growth. Where's the problem?
  - trident5000 6y ago
    I have to admit Japan is an interesting case and brings up good counter points. Really wages need to go up to spark inflation on the ground floor for common items.
    - 6y ago

anticristi 6y ago

Small tangent: I tend to borrow all the money that is offered to me at 0% effective rate, e.g., when buying a new mobile phone. I would even go as far as to borrow all money that is offered to me at sub-inflation rates. Is this rational?

trident5000 6y ago
Yes this is rational behavior unless the payback schedule gets you in trouble or the rates shift.
jedberg 6y ago
Yes it's totally rational. I do the same thing. I had a school loan that was at a 0.1% interest rate. I could have paid it off with my savings, but my savings interest was more than that, so it made more sense not to pay it off. I was sad when it was finally paid off, because it meant I was no longer arbitraging the interest.
throw0101a 6y ago
When it comes to cars, what's often offered is 0% financing or some kind of cash back. It may actually be better to go with the cash back. Preet Banerjee made a 10 minute video laying out the math on why not going with 0% financing may be better: * https://www.youtube.com/watch?v=KGPu0jPryfU https://www.youtube.com/watch?v=KGPu0jPryfU
- LudwigNagasena 6y ago
  > When it comes to cars, what's often offered is 0% financing or some kind of cash back. Well, that just means the financing is not 0%.
- jedberg 6y ago
  That video was good, but I'm disappointed he didn't point out that it's usually better to rent a depreciating asset, ie. get a lease. Of course there are a lot of other factors, like how long you typically keep your car for. But if you're the kind of person who like a new car every 3-4 years, it's almost always better to just lease the car than to buy it. Especially if you have a schedule C business that you can write some of it off against.

XorNot 6y ago

The term hyperinflation needs to fall out of the lexicon. In every casual economic discussion it's the favorite apocalypse goto word for people, and every one seems to think it's right around the corner. It's not going to happen.

Clewza313 6y ago
Why not? Is there something that makes the US immune? Also, people fixate on the "hyper" part and assume the US is going to go full Zimbabwe/Venezuela where an egg costs a trillion dollars, but even sustained non-hyper inflation of 10% or 20%/year would wreak havoc on most people's retirement funds or mortgages.
- XorNot 6y ago
  The highest rate of inflation the US ever hit was in the 1980 (https://www.usinflationcalculator.com/inflation/historical-inflation-rates/ https://www.usinflationcalculator.com/inflation/historical-i...) at 13%. The world did not end, and the rate was not sustained. This time period corresponds to high interest rates because it has to, but the value of loans was depreciating rapidly. Since then the Federal reserve has had a target inflation rate of 2% over time and if you look at the data they've hit it. So yes, the US has substantial protections against uncontrolled changes in the inflation rate - that's the Federal Reserves mission statement.
  - bdefore 6y ago
    The rate was not sustained because the books have been cooked. How the US measures has been periodically tweaked to keep the 2% story going. Using the early 1980's metric of inflation we've been at roughly 10% annually since the turn of the millennium: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
- martinald 6y ago
  Wouldn't it be "good" for people's mortgages, especially if they've got a long term fixed rate?