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"As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot
by rsync 6y ago
"As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot."
Can we - all of us - graduate a bit in our sophistication here ?
I agree with your statement and don't need any of this explained to me - there is, in fact, a too-simplistic, oft-made analog to personal, household finances. People would do well to understand what governments (particularly sovereign issuers borrowing in their own currency) can do that they, in their household, cannot.
Yet at the same time, I grow tired of the pedantic scolding of the "dummies" that don't understand modern finance.
I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance.
I hope to never be vindicated in this hunch ...
- enraged_camel 6y ago>> I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance. On what exactly do you base this hunch? Because it hasn’t held true, ever.
- rsync 6y ago"... because it hasn’t held true, ever ..." Argentina has given us two examples of it just in the last 20 years. Not a perfect example as the Argentine debt was not denominated in a currency they could print ... I would further point to the "Nixon Shock" as an example where a country (the US) that can borrow in its own currency was forced by (global) economic realities to undertake what some would label a "soft default". I am on my way to lunch and am limited by what comes to mind in just this fleeting moment - I beg your pardon for my dearth of examples. [1] https://en.wikipedia.org/wiki/Nixon_shock https://en.wikipedia.org/wiki/Nixon_shock [2] https://www.livemint.com/Money/57inMm5EbLi1soOnOrMk1J/Did-the-US-default-in-1971.html https://www.livemint.com/Money/57inMm5EbLi1soOnOrMk1J/Did-th...
- jnwatson 6y agoBoth situations demonstrate almost the opposite of your point. The Nixon shock was abandoning of gold as a base currency. Your household cannot abandon your base currency. If Activision-Blizzard borrowed its debt in World of Warcraft gold, they would never be in default. The same applies to countries that print their own currency.
- rsync 6y agoLike I said - a hunch. I hope we can indulge one another with such things here.
- deleted 6y ago[deleted]
- samsonradu 6y agoI share the same hunch. I believe that in the very long run (many decades) the growing debt cripples the the government, hurting its productivity along with trust on its proper functioning. (Japan, Italy are around here) Growing debt is not a good sign even for governments, unless the money goes fully into investments for the future. Many times though it goes into liabilities. Eventually, currency gets hurt and global capital moves on, leading to its failure. There is always competition, other govs might be doing things a little better.