7 ms·

I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because i

by icyfox 4y ago

I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because it's denominated in USD and interest rates are historically low. From another NY Times opinion piece (in [1]). > And the new paradigm suggests both that public debt isn’t a major problem and that government borrowing for the right purposes is actually the responsible thing to do. > Here’s where it becomes crucial to realize that the world has changed: Interest rates are much lower than they were in the past, and all indications are that they’ll stay low for years to come. The phrase "for the right purposes" sounds like a scape goat for government spending. What is a right purpose? Morally speaking - almost anything. Economically speaking, I imagine only things that are likely to increase net GDP over the long haul. It seems clear to me that you can draw a pretty clear line between quantitate easing & government bailouts of companies during COVID to a sizable quantity of current inflation. Asset prices rose in the market, which bubbled down to housing, rent, and consumer products. Supply shocks for oil and trade commodities were part of the equation but only a part. From everything I've read on federal bank history, the more money that's in supply means the higher inflation - almost by definition. You can only issue so much debt out of nothing before dollars are fighting over the same core commodities. [1] https://www.nytimes.com/2020/12/03/opinion/biden-republicans-debt.html https://www.nytimes.com/2020/12/03/opinion/biden-republicans...

misiti3780 4y ago
- thebooktocome 4y ago
  One of the few things both sides can agree on.
- irrational 4y ago
  Is there a Wikipedia List of Charlatan article? I would have zero idea about Paul Krugman. Though, it’s not like I’m going to research the author of every article. What I really need is a browser extension that will do a background search for the author of any article I open and throw up an alert if there are concerns. Hmmm, sounds like we need a charlatan API the extension can hit up.
  - tootie 4y ago
    People hate Krugman mostly because he's the most widely read economist in the world. He's not 100% correct all the time but he's generally very sane and sober in his assessments and admits his mistakes. He is absolutely not a charlatan.
  - orange3xchicken 4y ago
    You probably couldn't find much evidence re Krugman + Charlatan, because he's not. He's an accomplished economist who's influential and respected among the academic community. He's won two of the most prestigious awards in economics (Nobel + John Bates Clark). He's had some peculiar arguments in the past, which were dumb imo, but nothing "Charlatan"... Science is hard and economics is unique. Krugman is known for doing post-mortems and admitting when his ideas are off. I also think that being recognized by the academic community and his peer economists is a reasonable signal that he's not an idiot. More recently he's been a bit more into hackish punditry and is prob. most famous among regular people for his somewhat abrasive nyt column. I think your idea about and API is not ideal. Is it enough to trust some randos on hacker news to identify Charlatans?
- dominotw 4y ago
  > He is a charlatan. How can that be. nobel prize and all.
  - chihuahua 4y ago
    I'm not saying Krugman is a charlatan, but answering the question "how can a Nobel prize winner be a charlatan." It's possible that someone wins a Nobel prize, and then maybe a decade or two later) turns into a charlatan. I think Linus Pauling could be an example: Two Nobel prizes, but later in life he was known for promoting crackpot theories about massive doses of Vitamin C being a miracle cure for cancer. Clinical studies failed to confirm this, and it is regarded as quackery.
- pyrophane 4y ago
  A charlatan? How so? He has a Nobel prize for his work in economics. He has been a professor of economics at multiple prestigious universities. Surely that makes him qualified to opine on economic policy, even when it is a bit outside of his specialization. Also, while he does share opinions about things outside of his area of expertise, I don't view him as claiming some unearned expertise in those areas.
  - morphle 4y ago
    Don’t let the Nobel prize fool you. Economics is not a science [1] Why Economics Is Not Yet a Science [2] But Economics Is Not an Experimental Science [3] [1] https://www.theguardian.com/commentisfree/2015/oct/11/nobel-prize-economics-not-science-hubris-disaster https://www.theguardian.com/commentisfree/2015/oct/11/nobel-... [2] https://www.taylorfrancis.com/chapters/edit/10.4324/9781315495972-9/economics-yet-science-alfred-eichner https://www.taylorfrancis.com/chapters/edit/10.4324/97813154... [3] https://www.aeaweb.org/articles?id=10.1257/jep.24.2.59 https://www.aeaweb.org/articles?id=10.1257/jep.24.2.59
  - xyzzyz 4y ago
    If you follow other economists, you’ll find that their opinion on Paul Krugman is rather low. This is mostly due to his extremely partisan career as NYT opinion pundit. A typical sentiment you’ll hear is something along the lines “I respect Krugman for his work on trade back in the eighties, but ever since he became a political commentator, he stopped being an economist, and mostly says what his political tribe wants to hear”. Contrast this to, for example, Larry Summers, who, while sharing probably most of his political views with Krugman, is, unlike Krugman, widely respected, due to his well known and repeated commitment to truth and integrity above political expediency. Krugman represents a failure mode typical to modern science. Science won its respect through its commitment to truth. This caused scientific credentials to be held in high esteem. Now, it is becoming more and more common for people with little personal integrity and commitment to truth to obtain these credentials and use them as a cudgel to push through some blatantly political and unscientific theories and views. One example of this is very popular recently within American and European central banking community push to quantify and mitigate risk of climate change to the stability of financial system: as much as climate change is a planetary scale problem our species have never faced before, it is not in any significant way a risk to the stability of financial systems. Nevertheless, banking regulators are all about this non stop for past few years. This is because they want to do something about climate change (as most people should!), and they have power over very important part of the global economy, so they pretend, using all their scientific credentials, that climate change is a risk to financial systems, purely so that they can claim that fighting it is within their mandate. This might be good from the perspective of utilitarian morality, but the problem with being utilitarian is that people quickly learn to ignore voices coming out of your mouth, because you have proven yourself to be a person who will lie to them with zero qualms if this happens to be expedient in any given moment. Given this, there should be no surprise that trust in experts and in institutions in developed world is at all times low. (As an additional example of how silly it is for central bankers and regulators to focus on “climate change risk to financial system”, note how they utterly and entirely missed other things that actually significantly impacted financial stability in real world: pandemic, war in Ukraine, or, for that matter, recent utterly predictable pension crisis in UK. If they failed to be prepared there, why would anyone believe that they can do a good job on the alleged climate change risk to financial stability? I certainly don’t, I only trust experts who have zero power to affect anything, and consequently zero incentive to push convienient falsehoods.)
JumpCrisscross 4y ago
> the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because it's denominated in USD MMT was never the prevailing theory. It has elements of truth to it, e.g. the limiter on American deficit spending is inflation. But deficits not mattering was always a fringe view.
- icyfox 4y ago
  In the government (and punditry / public discourse) it sure seems to be. Academic and financial circles only matter as much as they can sway the former to make policy.
  - bobthepanda 4y ago
    The last time the US debt did not rise was the Clinton Administration. At this point, the two party system means you pick between a party that does not care, and a party that pretends to. So far, nothing bad has happened either economically or to their electoral results.
    - boppo1 4y ago
      I'm 30 and most of the people I know who work full-time have no hope of owning a home. Healthcare costs are insane. Higher education costs are insane. Used car prices are insane. Having kids? Saving enough for retirement? What a laugh. The only cheap thing we've got is consumer electronic toys which haven't materially improved QoL in years. More young people than ever seem to be politically open to extremes like fascism or communism. There hasn't been a single-day-crash, but some bad things have definitely happened economically. We just hide it in "hedonic adjustments".
      - exclusiv 4y ago
        Anyone that works full-time has a high probability of owning a home, just not necessarily in their current city. Not saying that's a good thing, but supply constraints and build costs are here to stay for the major metros. Interest rates and remote work being indefinite should help with prices and create buying opportunities for some in larger cities. But it's better to play the real estate game by being pragmatic about what you can afford where (buy elsewhere and move, invest elsewhere before buying a primary, etc) and how to get to the next level instead of feeling entitled. I accepted the reality years ago and did 2 investment properties in other cities before buying my primary in the city I wanted to live in. It sucks to have to do that and take so long to buy a primary, but the game is about capital. And real estate is one of the few beautiful assets in a sea of bullshit you either 1) don't need or 2) doesn't provide any joy. I know a lot of people on here have contempt for real estate investing but if you aren't in it, IMO, you are depriving yourself and your family of the absolute easiest way to make money and build wealth. And there are plenty of places where you don't need a ton of cash to get started.
AdamJacobMuller 4y ago
> I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because it's denominated in USD and interest rates are historically low. 100% of the time when a country has issued 31T in debt, it has not failed to issue more.
- unyttigfjelltol 4y ago
  Yeah, key thing is flows not instruments at rest. The Fed is currently extracting currency from the market that otherwise was invested in debt, so the flows now are different than they have been at any time in recent memory. Thus the headline is a misdirection play. The $31T matters less than the fact that the buyer of last resort, who has been participating hugely in the market for decades, has judged it inadvisable to continue. This could have occurred at $3T or $300T. But it has occurred now, and this has serious implications for what the debt-issuers must do next.
deleted 4y ago
[deleted]
anm89 4y ago
I mean, they unequivocally can continue to issue debt. The question is more "what will the consequences be". And I think the answer is pretty clear that the consequences will be convex upwards while the payoffs will be convex downward to issuing that debt at higher ratio. We have a balance of trade deficit and our entire relative geopolitical position is based on the strength of the dollar. There of course could be consequences to us of high debt levels
muaytimbo 4y ago
one component you overlooked is the cheap cost of money, in the form of low interest rates, juicing the economy for the past decade+.
- phkahler 4y ago
  >> one component you overlooked is the cheap cost of money, in the form of low interest rates, juicing the economy for the past decade+. I've been wondering if "low interest rates" juice the economy, or if "lowering interest rates" does. The presumption seems to be the former, but I suspect a drop in rates will eventually lead to a new equilibrium. In other words, there isn't much long term correlation between interest rates (at a particular level) and growth.
  - muaytimbo 4y ago
    I think cheap money expands the economy unsustainably. When you can't make any interest by saving people look for higher ROI via investing. I think in those climates VC money comes cheap, finances unsustainable business models, those businesses employ people which now compete against established businesses for talent and wages rise. With higher wages comes competition for a limited supply of goods and voila, the cycle of inflation. At least that how I understand it, but I'm no economist.
nick__m 4y ago
Like you said the debt is denominated in USD, so the USA could repay all that money by minting a 31T$ coin. It would be devastating, the USD would become worthless, some economies would experience deflation while the USA would instantaneously experience hyperinflation. IMHO, the only reason that the US debt is not a major problem is that no country whant to see the whole economic system collapse so no one will want that debt repaid as long as the interest are paid on time. And in the eventually that the USA is unable to pay the interest on time, a deal will assuredly be brokered to avoid that catastrophic solution.
- Retric 4y ago
  The US wants to maintain positive inflation, and much of that debt is below the targeted inflation rate which offsets any concerns about the need to create 31$T in new money. Aka if they can pay back 31$T by borrowing 30$T inflation adjusted and then pay back that 30$T by borrowing etc, it’s just free money. The risk isn’t the need to come up with 31$T at some point the risk is people being unwilling to lend close to the inflation rate. The US economy is addicted to a subsidy from foreign borrowers, and that changing could be seriously problematic.
  - nick__m 4y ago
    Your right about the risk. But I would like to know how the interest would be paid if no one want to lend more money?
    - deleted 4y ago
      [deleted]
  - indemnity 4y ago
    https://www.statista.com/statistics/246420/major-foreign-holders-of-us-treasury-debt/ https://www.statista.com/statistics/246420/major-foreign-hol... Addicted might be son overstatement.
ETHisso2017 4y ago
> Interest rates are much lower than they were in the past, and all indications are that they’ll stay low for years to come. This does not seem to be true anymore.
- geysersam 4y ago
  But inflation is even higher.
hashmap 4y ago
If inflation is higher than the interest rate, you make money by taking out debt. Its a similar concept to how if you're wealthy enough you can issue margin indefinitely and you pay the interest with more margin, so you never actually pay it back or have to pay taxes. You can just do it forever and it never gets you in trouble.
xhrpost 4y ago
Lower interest rates are generally caused by loose monetary supply which has been the case up until the last several months. That looseness ultimately eats away at the middle class, they end up paying the "interest" in the form of reduced purchasing power. Those who have enough can invest in assets which gain value as a result of said loose policy. Those who cannot either find higher paying jobs or suffer the loss of standard of living.
geysersam 4y ago
Well you could argue that low interest rates means someone is going to borrow and spend money, regardless of what the government does. It's not the job of the government to prevent inflation, that's the job of the federal reserve.
jt2190 4y ago
> I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt… The “US” in your comment is more than one entity. There is no single body that can just make more debt unilaterally. In particular the spending is funded by selling Bonds, etc. to investors. Purchasers of those bonds include foreign countries, such as China.
sharemywin 4y ago
Full employment is a problem for inflation. China still in lockdown. the leisure & entertainment sector imploding during covid. all kinds of weather issues for crops and livestock. under investment in oil because of covid. Covid had a huge effect on the world and regardless of the various government responses they've all run into inflation issues.
jt2190 4y ago
> I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt… The “US” in your comment is more than one entity. There is no single body that can just make more debt unilaterally. Edit: To clarify, the “limit” to the debt is set by the market’s willingness to lend.
incomingpain 4y ago
>I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because it's denominated in USD and interest rates are historically low. This was true perhaps in the 1950s to 1970s or so. It's not true today and very very not true in the last couple years. Nixon's actions back in the 70s set the slippery slope that will result in the USA no longer being dominate as a reserve currency. What you are curious about is being a reserve currency. https://en.wikipedia.org/wiki/Reserve_currency#Global_currency_reserves https://en.wikipedia.org/wiki/Reserve_currency#Global_curren... The advantage of being the reserve currency is that you can indeed print significant money at low inflation because so many other countries are the ones who end up paying the cost. It's not necessarily unlimited, but when you have a dominant position it can be practically unlimited wherein being able to rebase on a new reserve perhaps gold or bitcoin would still be more costly than assuming the cost of holding USD. Which is why the euro was designed the way it is. They are effectively playing the long game. No single country controls the ability to print money and they have requirements which hurt countries who dont control their debt to gdp. Portugal, Italy, Greece, Spain are all in violation but they end up having to balance their budgets in the future. Greece can never print oodles of money to inflate their way out of their debt and deficit spending. Germany and france will NEVER allow that to happen. If Greece exits the EU it'll be their own demise with >50% poverty within years of that decision. The USA will inevitably vote themselves more money, as they currently have, and cause so much inflation than the reserve currency hurts all the others and eventually the euro will become #1. When that happens European union will become quite strong and the brits will be kicking themselves for brexit.
- boppo1 4y ago
  > The USA will inevitably vote themselves more money, as they currently have, and cause so much inflation than the reserve currency hurts all the others and eventually the euro will become #1. When that happens European union will become quite strong and the brits will be kicking themselves for brexit. Nah, us americans are too smart for all that. We'll just start a nice big war.
  - incomingpain 4y ago
caeril 4y ago
The US can borrow, print, and export as many dollars as it feels like because the world still settles contracts in dollars, and US Treasuries are still regarded as the gold standard for central bank reserves. A reminder that the US told the world go to fuck themselves (Nixon Shock) in 1971, and they never learned their lesson. When you take a look at the DXY in 2022, it's clear they never will. Which is fine with me, my global purchasing power is phenomenal at the cost of literally 7 billion people who love working much harder than I do, for my benefit. I couldn't be happier. Thanks, world.

by icyfox 4y ago

misiti3780 4y ago

thebooktocome 4y ago
One of the few things both sides can agree on.
irrational 4y ago
Is there a Wikipedia List of Charlatan article? I would have zero idea about Paul Krugman. Though, it’s not like I’m going to research the author of every article. What I really need is a browser extension that will do a background search for the author of any article I open and throw up an alert if there are concerns. Hmmm, sounds like we need a charlatan API the extension can hit up.
- tootie 4y ago
  People hate Krugman mostly because he's the most widely read economist in the world. He's not 100% correct all the time but he's generally very sane and sober in his assessments and admits his mistakes. He is absolutely not a charlatan.
- orange3xchicken 4y ago
  You probably couldn't find much evidence re Krugman + Charlatan, because he's not. He's an accomplished economist who's influential and respected among the academic community. He's won two of the most prestigious awards in economics (Nobel + John Bates Clark). He's had some peculiar arguments in the past, which were dumb imo, but nothing "Charlatan"... Science is hard and economics is unique. Krugman is known for doing post-mortems and admitting when his ideas are off. I also think that being recognized by the academic community and his peer economists is a reasonable signal that he's not an idiot. More recently he's been a bit more into hackish punditry and is prob. most famous among regular people for his somewhat abrasive nyt column. I think your idea about and API is not ideal. Is it enough to trust some randos on hacker news to identify Charlatans?
dominotw 4y ago
> He is a charlatan. How can that be. nobel prize and all.
- chihuahua 4y ago
  I'm not saying Krugman is a charlatan, but answering the question "how can a Nobel prize winner be a charlatan." It's possible that someone wins a Nobel prize, and then maybe a decade or two later) turns into a charlatan. I think Linus Pauling could be an example: Two Nobel prizes, but later in life he was known for promoting crackpot theories about massive doses of Vitamin C being a miracle cure for cancer. Clinical studies failed to confirm this, and it is regarded as quackery.
pyrophane 4y ago
A charlatan? How so? He has a Nobel prize for his work in economics. He has been a professor of economics at multiple prestigious universities. Surely that makes him qualified to opine on economic policy, even when it is a bit outside of his specialization. Also, while he does share opinions about things outside of his area of expertise, I don't view him as claiming some unearned expertise in those areas.
- morphle 4y ago
  Don’t let the Nobel prize fool you. Economics is not a science [1] Why Economics Is Not Yet a Science [2] But Economics Is Not an Experimental Science [3] [1] https://www.theguardian.com/commentisfree/2015/oct/11/nobel-prize-economics-not-science-hubris-disaster https://www.theguardian.com/commentisfree/2015/oct/11/nobel-... [2] https://www.taylorfrancis.com/chapters/edit/10.4324/9781315495972-9/economics-yet-science-alfred-eichner https://www.taylorfrancis.com/chapters/edit/10.4324/97813154... [3] https://www.aeaweb.org/articles?id=10.1257/jep.24.2.59 https://www.aeaweb.org/articles?id=10.1257/jep.24.2.59
- xyzzyz 4y ago
  If you follow other economists, you’ll find that their opinion on Paul Krugman is rather low. This is mostly due to his extremely partisan career as NYT opinion pundit. A typical sentiment you’ll hear is something along the lines “I respect Krugman for his work on trade back in the eighties, but ever since he became a political commentator, he stopped being an economist, and mostly says what his political tribe wants to hear”. Contrast this to, for example, Larry Summers, who, while sharing probably most of his political views with Krugman, is, unlike Krugman, widely respected, due to his well known and repeated commitment to truth and integrity above political expediency. Krugman represents a failure mode typical to modern science. Science won its respect through its commitment to truth. This caused scientific credentials to be held in high esteem. Now, it is becoming more and more common for people with little personal integrity and commitment to truth to obtain these credentials and use them as a cudgel to push through some blatantly political and unscientific theories and views. One example of this is very popular recently within American and European central banking community push to quantify and mitigate risk of climate change to the stability of financial system: as much as climate change is a planetary scale problem our species have never faced before, it is not in any significant way a risk to the stability of financial systems. Nevertheless, banking regulators are all about this non stop for past few years. This is because they want to do something about climate change (as most people should!), and they have power over very important part of the global economy, so they pretend, using all their scientific credentials, that climate change is a risk to financial systems, purely so that they can claim that fighting it is within their mandate. This might be good from the perspective of utilitarian morality, but the problem with being utilitarian is that people quickly learn to ignore voices coming out of your mouth, because you have proven yourself to be a person who will lie to them with zero qualms if this happens to be expedient in any given moment. Given this, there should be no surprise that trust in experts and in institutions in developed world is at all times low. (As an additional example of how silly it is for central bankers and regulators to focus on “climate change risk to financial system”, note how they utterly and entirely missed other things that actually significantly impacted financial stability in real world: pandemic, war in Ukraine, or, for that matter, recent utterly predictable pension crisis in UK. If they failed to be prepared there, why would anyone believe that they can do a good job on the alleged climate change risk to financial stability? I certainly don’t, I only trust experts who have zero power to affect anything, and consequently zero incentive to push convienient falsehoods.)

JumpCrisscross 4y ago

> the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because it's denominated in USD MMT was never the prevailing theory. It has elements of truth to it, e.g. the limiter on American deficit spending is inflation. But deficits not mattering was always a fringe view.

icyfox 4y ago
In the government (and punditry / public discourse) it sure seems to be. Academic and financial circles only matter as much as they can sway the former to make policy.
- bobthepanda 4y ago
  The last time the US debt did not rise was the Clinton Administration. At this point, the two party system means you pick between a party that does not care, and a party that pretends to. So far, nothing bad has happened either economically or to their electoral results.
  - boppo1 4y ago
    I'm 30 and most of the people I know who work full-time have no hope of owning a home. Healthcare costs are insane. Higher education costs are insane. Used car prices are insane. Having kids? Saving enough for retirement? What a laugh. The only cheap thing we've got is consumer electronic toys which haven't materially improved QoL in years. More young people than ever seem to be politically open to extremes like fascism or communism. There hasn't been a single-day-crash, but some bad things have definitely happened economically. We just hide it in "hedonic adjustments".
    - exclusiv 4y ago
      Anyone that works full-time has a high probability of owning a home, just not necessarily in their current city. Not saying that's a good thing, but supply constraints and build costs are here to stay for the major metros. Interest rates and remote work being indefinite should help with prices and create buying opportunities for some in larger cities. But it's better to play the real estate game by being pragmatic about what you can afford where (buy elsewhere and move, invest elsewhere before buying a primary, etc) and how to get to the next level instead of feeling entitled. I accepted the reality years ago and did 2 investment properties in other cities before buying my primary in the city I wanted to live in. It sucks to have to do that and take so long to buy a primary, but the game is about capital. And real estate is one of the few beautiful assets in a sea of bullshit you either 1) don't need or 2) doesn't provide any joy. I know a lot of people on here have contempt for real estate investing but if you aren't in it, IMO, you are depriving yourself and your family of the absolute easiest way to make money and build wealth. And there are plenty of places where you don't need a ton of cash to get started.

AdamJacobMuller 4y ago

unyttigfjelltol 4y ago
Yeah, key thing is flows not instruments at rest. The Fed is currently extracting currency from the market that otherwise was invested in debt, so the flows now are different than they have been at any time in recent memory. Thus the headline is a misdirection play. The $31T matters less than the fact that the buyer of last resort, who has been participating hugely in the market for decades, has judged it inadvisable to continue. This could have occurred at $3T or $300T. But it has occurred now, and this has serious implications for what the debt-issuers must do next.

deleted 4y ago

[deleted]

anm89 4y ago

I mean, they unequivocally can continue to issue debt. The question is more "what will the consequences be". And I think the answer is pretty clear that the consequences will be convex upwards while the payoffs will be convex downward to issuing that debt at higher ratio. We have a balance of trade deficit and our entire relative geopolitical position is based on the strength of the dollar. There of course could be consequences to us of high debt levels

muaytimbo 4y ago

one component you overlooked is the cheap cost of money, in the form of low interest rates, juicing the economy for the past decade+.

phkahler 4y ago
>> one component you overlooked is the cheap cost of money, in the form of low interest rates, juicing the economy for the past decade+. I've been wondering if "low interest rates" juice the economy, or if "lowering interest rates" does. The presumption seems to be the former, but I suspect a drop in rates will eventually lead to a new equilibrium. In other words, there isn't much long term correlation between interest rates (at a particular level) and growth.
- muaytimbo 4y ago
  I think cheap money expands the economy unsustainably. When you can't make any interest by saving people look for higher ROI via investing. I think in those climates VC money comes cheap, finances unsustainable business models, those businesses employ people which now compete against established businesses for talent and wages rise. With higher wages comes competition for a limited supply of goods and voila, the cycle of inflation. At least that how I understand it, but I'm no economist.

nick__m 4y ago

Like you said the debt is denominated in USD, so the USA could repay all that money by minting a 31T$ coin. It would be devastating, the USD would become worthless, some economies would experience deflation while the USA would instantaneously experience hyperinflation. IMHO, the only reason that the US debt is not a major problem is that no country whant to see the whole economic system collapse so no one will want that debt repaid as long as the interest are paid on time. And in the eventually that the USA is unable to pay the interest on time, a deal will assuredly be brokered to avoid that catastrophic solution.

Retric 4y ago
The US wants to maintain positive inflation, and much of that debt is below the targeted inflation rate which offsets any concerns about the need to create 31$T in new money. Aka if they can pay back 31$T by borrowing 30$T inflation adjusted and then pay back that 30$T by borrowing etc, it’s just free money. The risk isn’t the need to come up with 31$T at some point the risk is people being unwilling to lend close to the inflation rate. The US economy is addicted to a subsidy from foreign borrowers, and that changing could be seriously problematic.
- nick__m 4y ago
  Your right about the risk. But I would like to know how the interest would be paid if no one want to lend more money?
  - deleted 4y ago
    [deleted]
- indemnity 4y ago
  https://www.statista.com/statistics/246420/major-foreign-holders-of-us-treasury-debt/ https://www.statista.com/statistics/246420/major-foreign-hol... Addicted might be son overstatement.

ETHisso2017 4y ago

> Interest rates are much lower than they were in the past, and all indications are that they’ll stay low for years to come. This does not seem to be true anymore.

geysersam 4y ago
But inflation is even higher.

hashmap 4y ago

If inflation is higher than the interest rate, you make money by taking out debt. Its a similar concept to how if you're wealthy enough you can issue margin indefinitely and you pay the interest with more margin, so you never actually pay it back or have to pay taxes. You can just do it forever and it never gets you in trouble.

xhrpost 4y ago

Lower interest rates are generally caused by loose monetary supply which has been the case up until the last several months. That looseness ultimately eats away at the middle class, they end up paying the "interest" in the form of reduced purchasing power. Those who have enough can invest in assets which gain value as a result of said loose policy. Those who cannot either find higher paying jobs or suffer the loss of standard of living.

geysersam 4y ago

Well you could argue that low interest rates means someone is going to borrow and spend money, regardless of what the government does. It's not the job of the government to prevent inflation, that's the job of the federal reserve.

jt2190 4y ago

> I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt… The “US” in your comment is more than one entity. There is no single body that can just make more debt unilaterally. In particular the spending is funded by selling Bonds, etc. to investors. Purchasers of those bonds include foreign countries, such as China.

sharemywin 4y ago

Full employment is a problem for inflation. China still in lockdown. the leisure & entertainment sector imploding during covid. all kinds of weather issues for crops and livestock. under investment in oil because of covid. Covid had a huge effect on the world and regardless of the various government responses they've all run into inflation issues.

jt2190 4y ago

> I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt… The “US” in your comment is more than one entity. There is no single body that can just make more debt unilaterally. Edit: To clarify, the “limit” to the debt is set by the market’s willingness to lend.

incomingpain 4y ago

>I'd like to see some compelling evidence that supports the seemingly prevailing economic theory that the US can issue an unlimited amount of debt just because it's denominated in USD and interest rates are historically low. This was true perhaps in the 1950s to 1970s or so. It's not true today and very very not true in the last couple years. Nixon's actions back in the 70s set the slippery slope that will result in the USA no longer being dominate as a reserve currency. What you are curious about is being a reserve currency. https://en.wikipedia.org/wiki/Reserve_currency#Global_currency_reserves https://en.wikipedia.org/wiki/Reserve_currency#Global_curren... The advantage of being the reserve currency is that you can indeed print significant money at low inflation because so many other countries are the ones who end up paying the cost. It's not necessarily unlimited, but when you have a dominant position it can be practically unlimited wherein being able to rebase on a new reserve perhaps gold or bitcoin would still be more costly than assuming the cost of holding USD. Which is why the euro was designed the way it is. They are effectively playing the long game. No single country controls the ability to print money and they have requirements which hurt countries who dont control their debt to gdp. Portugal, Italy, Greece, Spain are all in violation but they end up having to balance their budgets in the future. Greece can never print oodles of money to inflate their way out of their debt and deficit spending. Germany and france will NEVER allow that to happen. If Greece exits the EU it'll be their own demise with >50% poverty within years of that decision. The USA will inevitably vote themselves more money, as they currently have, and cause so much inflation than the reserve currency hurts all the others and eventually the euro will become #1. When that happens European union will become quite strong and the brits will be kicking themselves for brexit.

boppo1 4y ago
> The USA will inevitably vote themselves more money, as they currently have, and cause so much inflation than the reserve currency hurts all the others and eventually the euro will become #1. When that happens European union will become quite strong and the brits will be kicking themselves for brexit. Nah, us americans are too smart for all that. We'll just start a nice big war.
- incomingpain 4y ago

caeril 4y ago

The US can borrow, print, and export as many dollars as it feels like because the world still settles contracts in dollars, and US Treasuries are still regarded as the gold standard for central bank reserves. A reminder that the US told the world go to fuck themselves (Nixon Shock) in 1971, and they never learned their lesson. When you take a look at the DXY in 2022, it's clear they never will. Which is fine with me, my global purchasing power is phenomenal at the cost of literally 7 billion people who love working much harder than I do, for my benefit. I couldn't be happier. Thanks, world.