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To bet on Hyperinflation you don’t only need to bet the rapid devaluing of currencies, but also bet that the government would do nothing to stop it. Which seems

by gpt5 5y ago

To bet on Hyperinflation you don’t only need to bet the rapid devaluing of currencies, but also bet that the government would do nothing to stop it. Which seems ridiculous to me given how easy it is (raising interest rate)

JanisL 5y ago
With debt to GDP at such high ratios raising interest rates has some challenges, why do you think this is easy to deal with?
- shrimpx 5y ago
  Curious, why do you think it’s difficult to raise interest rates when debt is high?
  - IG_Semmelweiss 5y ago
    Simple. As your interest increases, sondo your payments as a % of taxes At some point, if interest payments are too big of a slice off total spend, investors will start believeing the debt will never be repaid... And thus monetise debt instead.
  - shnp 5y ago
    Debt levels being high means that a significant portion of the revenue is there to service the interest payments and the remaining is not enough to cover all other expenses. Therefore you either raise more debt, or default.
  - JanisL 5y ago
    At the moment we have a monetary system that's a debt based monetary system. In practice this means that many people are operating under the assumption that someone's liability is someone else's asset, I think this assumption is rather systemic at the moment. Beyond a certain level of indebtedness a rise in interest rates triggers off a chain of defaults and that can cause a situation of credit contagion. An uncontrolled credit contagion event could very conceivably destroy the financial system. Much power is currently held by creditors and they will likely try to fight any attempts to change policy in such a way that reduces their power. Here's a much more long form article that talks about the dynamics in play: https://desogames.substack.com/p/the-problem-is-too-big https://desogames.substack.com/p/the-problem-is-too-big
    - shnp 5y ago
      Also, no president or congress wants to be at the helm of a ‘self inflicted’ recession. Every politian just kicks the can down the road.
    - shrimpx 5y ago
      Thanks, and thanks for the linked newsletter. I’ll read it. I’m curious to learn how the current situation compares to the 80s when rates were pushed to 15% to stop inflation.
- dragonwriter 5y ago
  > With debt to GDP at such high ratios raising interest rates has some challenges No, it doesn't. I mean, it would have political problems if Congress had to do it, but that's literally why we have an independent central bank managing monetary policy, so decisions that would be difficult given fiscal policy preferences aren’t difficult to make. > why do you think this is easy to deal with? Because it is.
shrimpx 5y ago
The us did it in the late 80s. 15% interest rates!
dfadsadsf 5y ago
Some argue that current US debt level blocks country from meaningfully increasing interest rates as it will balloon interest payments which are paid (in reality) by printing money. I am also not confident than US politicians are smarter than ones in Venezuela
- gpt5 5y ago
  That’s not how it works. Increasing the interest rate will not increase the existing debt cost. The problem is that we are issuing new debt to pay off the old debt, and that new debt is using the new interest rate.
shnp 5y ago
Government revenue needs to come from somewhere, and inflation is a type of tax. By the time hyperinflation is possible, the federal government will have two choices, keep interest rates low and keep borrowing, or to default.
- Ma8ee 5y ago
  How does inflation increase government revenue?
  - shnp 5y ago
    Print and spend dollars at value ‘A’, right after the money gets in circulation, value decreases to ‘B’, the spread between ‘A’ and ‘B’ acts like a tax on all cash. This results in an increase in tax amounts (not actual value) because of price increases, making revenue numbers go higher, making it easier to pay off old debts It benefits those who holds the most debt, and is horrible on anyone who is on fixed income. Presumably capital gains will still be taxed, which means that inflation + tax can wipe out any income from gains.
    - Ma8ee 5y ago
      You mean printing money is bad? But that is not in general what causes inflation. Inflation in itself can not be considered a tax.
eruleman 5y ago
Raising interest rates won't be easy — up to 30% of the federal budget could be spent servicing the debt. From Drunkenmiller's interview in May of this year: "[Drunkenmiller] projects that if yields on the ten-year Treasury rise to the projected level of 4.9%, the government would be spending close to 30% of GDP each year simply paying back interest expense (compared to 2% last year) unless it monetizes the debt, which experts think is unlikely and Druckenmiller believes would have “horrible implications” for the U.S. dollar." [0] The Fed has less actions available than you expect. Either the Fed lets inflation run hot, or the Fed raises interest rates to combat inflation, wiping out discretionary programs from the federal budget. [0] https://www.forbes.com/sites/jonathanponciano/2021/05/11/billionaire-investor-druckenmiller-blasts-feds-radical-stimulus-policy-warns-it-risks-stock-bubble-blowing-up/?sh=529bbbd22fe8 https://www.forbes.com/sites/jonathanponciano/2021/05/11/bil...
drcode 5y ago
The last two years make me think the government is quite capable of "doing nothing to stop" bad things from happening. It is no longer ridiculous- I mean, they're working on trillions of dollars of economic stimulus as we speak, in the middle of an inflationary economy. You don't think that that will add fuel to the fire?

by gpt5 5y ago

JanisL 5y ago

With debt to GDP at such high ratios raising interest rates has some challenges, why do you think this is easy to deal with?

shrimpx 5y ago
Curious, why do you think it’s difficult to raise interest rates when debt is high?
- IG_Semmelweiss 5y ago
  Simple. As your interest increases, sondo your payments as a % of taxes At some point, if interest payments are too big of a slice off total spend, investors will start believeing the debt will never be repaid... And thus monetise debt instead.
- shnp 5y ago
  Debt levels being high means that a significant portion of the revenue is there to service the interest payments and the remaining is not enough to cover all other expenses. Therefore you either raise more debt, or default.
- JanisL 5y ago
  At the moment we have a monetary system that's a debt based monetary system. In practice this means that many people are operating under the assumption that someone's liability is someone else's asset, I think this assumption is rather systemic at the moment. Beyond a certain level of indebtedness a rise in interest rates triggers off a chain of defaults and that can cause a situation of credit contagion. An uncontrolled credit contagion event could very conceivably destroy the financial system. Much power is currently held by creditors and they will likely try to fight any attempts to change policy in such a way that reduces their power. Here's a much more long form article that talks about the dynamics in play: https://desogames.substack.com/p/the-problem-is-too-big https://desogames.substack.com/p/the-problem-is-too-big
  - shnp 5y ago
    Also, no president or congress wants to be at the helm of a ‘self inflicted’ recession. Every politian just kicks the can down the road.
  - shrimpx 5y ago
    Thanks, and thanks for the linked newsletter. I’ll read it. I’m curious to learn how the current situation compares to the 80s when rates were pushed to 15% to stop inflation.
dragonwriter 5y ago
> With debt to GDP at such high ratios raising interest rates has some challenges No, it doesn't. I mean, it would have political problems if Congress had to do it, but that's literally why we have an independent central bank managing monetary policy, so decisions that would be difficult given fiscal policy preferences aren’t difficult to make. > why do you think this is easy to deal with? Because it is.

shrimpx 5y ago

The us did it in the late 80s. 15% interest rates!

dfadsadsf 5y ago

Some argue that current US debt level blocks country from meaningfully increasing interest rates as it will balloon interest payments which are paid (in reality) by printing money. I am also not confident than US politicians are smarter than ones in Venezuela

gpt5 5y ago
That’s not how it works. Increasing the interest rate will not increase the existing debt cost. The problem is that we are issuing new debt to pay off the old debt, and that new debt is using the new interest rate.

shnp 5y ago

Government revenue needs to come from somewhere, and inflation is a type of tax. By the time hyperinflation is possible, the federal government will have two choices, keep interest rates low and keep borrowing, or to default.

Ma8ee 5y ago
How does inflation increase government revenue?
- shnp 5y ago
  Print and spend dollars at value ‘A’, right after the money gets in circulation, value decreases to ‘B’, the spread between ‘A’ and ‘B’ acts like a tax on all cash. This results in an increase in tax amounts (not actual value) because of price increases, making revenue numbers go higher, making it easier to pay off old debts It benefits those who holds the most debt, and is horrible on anyone who is on fixed income. Presumably capital gains will still be taxed, which means that inflation + tax can wipe out any income from gains.
  - Ma8ee 5y ago
    You mean printing money is bad? But that is not in general what causes inflation. Inflation in itself can not be considered a tax.

eruleman 5y ago

Raising interest rates won't be easy — up to 30% of the federal budget could be spent servicing the debt. From Drunkenmiller's interview in May of this year: "[Drunkenmiller] projects that if yields on the ten-year Treasury rise to the projected level of 4.9%, the government would be spending close to 30% of GDP each year simply paying back interest expense (compared to 2% last year) unless it monetizes the debt, which experts think is unlikely and Druckenmiller believes would have “horrible implications” for the U.S. dollar." [0] The Fed has less actions available than you expect. Either the Fed lets inflation run hot, or the Fed raises interest rates to combat inflation, wiping out discretionary programs from the federal budget. [0] https://www.forbes.com/sites/jonathanponciano/2021/05/11/billionaire-investor-druckenmiller-blasts-feds-radical-stimulus-policy-warns-it-risks-stock-bubble-blowing-up/?sh=529bbbd22fe8 https://www.forbes.com/sites/jonathanponciano/2021/05/11/bil...

drcode 5y ago

The last two years make me think the government is quite capable of "doing nothing to stop" bad things from happening. It is no longer ridiculous- I mean, they're working on trillions of dollars of economic stimulus as we speak, in the middle of an inflationary economy. You don't think that that will add fuel to the fire?