5 ms·

I don’t get your point. You have a qualm with how he referenced debt, but anyway you slice it, The US has a debt problem. After corona, the USA now has a debt t

I don’t get your point. You have a qualm with how he referenced debt, but anyway you slice it, The US has a debt problem. After corona, the USA now has a debt to GDP ratio over 100%. If you want to talk about household debt to income the USA is literally taking on more debt than they produce. That’s even with the modest way GDP is calculated which some economists think it’s even worse than reported. So hate the newsletter but the awareness is still important and your dismissive comment stifles conversation.

annexrichmond 6y ago
Debt is not the whole picture. You have to take interest rates into account as well when making comparisons. For example, let’s say interest rates were 0%. Of course you’d expect debt to increase and that’s not necessarily a bad thing. I just bought a house and took advantage of lower interest rates and now in debt — so what?
- vmception 6y ago
  you have to pay interest and principal every interval failure to have enough resources to pay either is the problem, the problem being default, there not being enough resources to pay it off the market no longer tolerating your currency as exchangeable
  - rsj_hn 6y ago
    > you have to pay interest and principal every interval So this is another red flag. An individual has to repay principle -- e.g. repay a loan. But a sector of the economy does not repay a loan. A sector of the economy, in aggregate just rolls over loans as new home buyers take out new loans while home sellers retire old loans, for households as a whole, it does not make sense to talk of the total debt level as being "repaid". It would be a silly anthropomorphism to ask "When will the household sector finally pay down its mortgage debt?" The only way that would happen is if households stopped buying houses. So let's not apply anthropomorphisms to an analysis of sectoral debt to GDP ratios. If you have statistic that a percentage of actual households have too high debt service costs versus historical data, let's hear that argument instead of Z.1 ratios. When we are talking about sectors of the economy, all that matters is whether the interest costs are too burdensome. An increase in the interest rate might make interest payments more uncomfortable and cause the sector to reduce its debt to a more appropriate level. That is rational, right? Then so is increasing the debt level when rates fall.
    - vmception 6y ago
      Yes that’s all part of the same discussion. Was your magic word really interest costs being too burdensome? Because it was unsaid everything is a red flag? That’s ridiculous, drop the pedantic mess, the discussion of debt amount is an indicator of watching or being alarmed about how debt costs will be serviced. It’s saying: “that particular potential weakness that could lurk in any sector was not something we studied, but since that’s what always happens let’s pay attention to the abstraction and not assume that we’ve gotten it sustainable this time for the first time in history“
  - imtringued 6y ago
    The problem is that the market is tolerating the currency too much.
    - throwaway210222 6y ago
      The market hates other currencies (typically their own currencies) even more. People like me.
jfengel 6y ago
Debt and GDP are measured with different units. Debt is an absolute number of dollars. GDP is dollars-per-year. So debt-to-GDP ratio does not produce a number. It produces a figure measured in time. So it's not "100%". It's "more than one year". That is, we're not creating debt faster than we're producing value. We have accumulated more debt than we can repay in one year. That's interesting, but it's not the kind of exponential crisis that "over 100%" sounds like. The US has a debt, but it's not clear that it has a debt problem. That's what GP's post was about. By more meaningful metrics, the debt may be entirely reasonable, and in keeping with a productive economy. We should keep an eye on it, but it's not automatically a crisis because it passed a level that's less meaningful than meets the eye.
- georgeplusplus 6y ago
  I know what a rate is. It’s true we don’t know how much debt is too much but apparently it’s enough to spook the bond markets. rising interest rates in treasury yield have been caused by the bond market as a response in part to this figure increasing to much too fast. Rising yields is bad news for debt holders. Or just ask any family about the increases in their food bill some reporting 20%, but hey! The CPI looks great. My point being the real word is telling a different story than what these metrics do. True head in the sand logic to think otherwise.
scsilver 6y ago
The US doesnt have a debt problem, the US's creditors have a debt problem, while the rest of the world has an even worse debt problem.

annexrichmond 6y ago

Debt is not the whole picture. You have to take interest rates into account as well when making comparisons. For example, let’s say interest rates were 0%. Of course you’d expect debt to increase and that’s not necessarily a bad thing. I just bought a house and took advantage of lower interest rates and now in debt — so what?

vmception 6y ago
you have to pay interest and principal every interval failure to have enough resources to pay either is the problem, the problem being default, there not being enough resources to pay it off the market no longer tolerating your currency as exchangeable
- rsj_hn 6y ago
  > you have to pay interest and principal every interval So this is another red flag. An individual has to repay principle -- e.g. repay a loan. But a sector of the economy does not repay a loan. A sector of the economy, in aggregate just rolls over loans as new home buyers take out new loans while home sellers retire old loans, for households as a whole, it does not make sense to talk of the total debt level as being "repaid". It would be a silly anthropomorphism to ask "When will the household sector finally pay down its mortgage debt?" The only way that would happen is if households stopped buying houses. So let's not apply anthropomorphisms to an analysis of sectoral debt to GDP ratios. If you have statistic that a percentage of actual households have too high debt service costs versus historical data, let's hear that argument instead of Z.1 ratios. When we are talking about sectors of the economy, all that matters is whether the interest costs are too burdensome. An increase in the interest rate might make interest payments more uncomfortable and cause the sector to reduce its debt to a more appropriate level. That is rational, right? Then so is increasing the debt level when rates fall.
  - vmception 6y ago
    Yes that’s all part of the same discussion. Was your magic word really interest costs being too burdensome? Because it was unsaid everything is a red flag? That’s ridiculous, drop the pedantic mess, the discussion of debt amount is an indicator of watching or being alarmed about how debt costs will be serviced. It’s saying: “that particular potential weakness that could lurk in any sector was not something we studied, but since that’s what always happens let’s pay attention to the abstraction and not assume that we’ve gotten it sustainable this time for the first time in history“
- imtringued 6y ago
  The problem is that the market is tolerating the currency too much.
  - throwaway210222 6y ago
    The market hates other currencies (typically their own currencies) even more. People like me.

jfengel 6y ago

Debt and GDP are measured with different units. Debt is an absolute number of dollars. GDP is dollars-per-year. So debt-to-GDP ratio does not produce a number. It produces a figure measured in time. So it's not "100%". It's "more than one year". That is, we're not creating debt faster than we're producing value. We have accumulated more debt than we can repay in one year. That's interesting, but it's not the kind of exponential crisis that "over 100%" sounds like. The US has a debt, but it's not clear that it has a debt problem. That's what GP's post was about. By more meaningful metrics, the debt may be entirely reasonable, and in keeping with a productive economy. We should keep an eye on it, but it's not automatically a crisis because it passed a level that's less meaningful than meets the eye.

georgeplusplus 6y ago
I know what a rate is. It’s true we don’t know how much debt is too much but apparently it’s enough to spook the bond markets. rising interest rates in treasury yield have been caused by the bond market as a response in part to this figure increasing to much too fast. Rising yields is bad news for debt holders. Or just ask any family about the increases in their food bill some reporting 20%, but hey! The CPI looks great. My point being the real word is telling a different story than what these metrics do. True head in the sand logic to think otherwise.

scsilver 6y ago

The US doesnt have a debt problem, the US's creditors have a debt problem, while the rest of the world has an even worse debt problem.