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What is this garbage? Why would you say taxpayers are footing the bill?! They have nothing to do with each other.

lotsofpulp 4y ago
The US federal government explicitly and implicitly guarantees a huge portion of the mortgage market, keeping an interest rates lower than they would be. Explicitly via things like FHA/VA/Ginnie Mae loans since investors know the government will pay even if borrowers default, and implicitly by bailing out Fannie Mae/Freddie Mac in 2008, as well as the COVID bailouts (unemployment/PPP). All of these actions either accrue more debt for the federal government, which usually means higher taxes in the future, or increase money supply, which means reduced purchasing power for users of the currency, which also includes taxpayers. I write usually in the paragraph above because if the debt or issuance of new money results in commensurate economic growth, then it would not reduce purchasing power, but I am of the opinion that a large part of the economic growth equation is birthrates and proportion of working age population, which has been in decline for a long time. The effects were tempered due to automation/immigration and productivity enhancements in general, but I do not think that has been able to keep up with declines in birth rate for a while now.
- hnews_account_1 4y ago
  Ok so many things are like 90% correct here but missing the crucial 10%. Fannie and Freddie are not end holders of your mortgage. They sell it ahead and because they’re govt entities, they actually pay less for offloading that risk off their balance sheet than a typical bank would. As you say, they are guarantors. This means you as a taxpayer are on the hook only during events of default which happen once a decade if that. 2008 was a massive one off. Gnma loans are sub prime as you’d know but they’re also just guarantors. They’re not literally lending money. The cost of these guarantees is typically very very low compared to the size of the US govt. FNMA is like a $47 billion company. And that is with full conservatorship. It’ll likely expand in size as the public takes on more risk. But it’ll still be very small. Your second paragraph is also like 95% correct. I’m not sure what you mean by increased money supply in the future. Increasing debt is increased money supply in the present, not in the future. Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet. This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency. The last paragraph I understand but disagree with. Economic growth imo is driven by loose monetary policy and almost nothing else. Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced). But that’s just my opinion. It is likely someone has studied this but I’m too lazy to search and then find a study where I find immediate issues with the way it is structured right in the abstract.
  - lotsofpulp 4y ago
    >Increasing debt is increased money supply in the present, not in the future. I phrased that poorly. I should have written now and in the future (the future because I am assuming bailouts will happen regularly until a total collapse). When the government enables socialization of losses and privatization of profits, that lets people today realize a lot of the potential gains from the future. For example, land that costs x years of work can now cost 2x or 3x years of work. >Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet. I think there is a lessening of the domination, specifically with competition from China. >This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency. Yes, the US is still in a relatively good position, but what has occurred is a fracturing in the trajectories of the US population itself. If you are top 10%, life is awesome and looks okay going forward. Next 10%, you have a chance of moving into the top. Next 10%, you are treading water and with some luck might move up. Bottom 70% has stagnant futures or looking at declines (relative to their recent past). >Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced). Yes, but the distribution of gains from the ingenuity will be less equal.

The US federal government explicitly and implicitly guarantees a huge portion of the mortgage market, keeping an interest rates lower than they would be. Explicitly via things like FHA/VA/Ginnie Mae loans since investors know the government will pay even if borrowers default, and implicitly by bailing out Fannie Mae/Freddie Mac in 2008, as well as the COVID bailouts (unemployment/PPP). All of these actions either accrue more debt for the federal government, which usually means higher taxes in the future, or increase money supply, which means reduced purchasing power for users of the currency, which also includes taxpayers. I write usually in the paragraph above because if the debt or issuance of new money results in commensurate economic growth, then it would not reduce purchasing power, but I am of the opinion that a large part of the economic growth equation is birthrates and proportion of working age population, which has been in decline for a long time. The effects were tempered due to automation/immigration and productivity enhancements in general, but I do not think that has been able to keep up with declines in birth rate for a while now.

hnews_account_1 4y ago
Ok so many things are like 90% correct here but missing the crucial 10%. Fannie and Freddie are not end holders of your mortgage. They sell it ahead and because they’re govt entities, they actually pay less for offloading that risk off their balance sheet than a typical bank would. As you say, they are guarantors. This means you as a taxpayer are on the hook only during events of default which happen once a decade if that. 2008 was a massive one off. Gnma loans are sub prime as you’d know but they’re also just guarantors. They’re not literally lending money. The cost of these guarantees is typically very very low compared to the size of the US govt. FNMA is like a $47 billion company. And that is with full conservatorship. It’ll likely expand in size as the public takes on more risk. But it’ll still be very small. Your second paragraph is also like 95% correct. I’m not sure what you mean by increased money supply in the future. Increasing debt is increased money supply in the present, not in the future. Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet. This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency. The last paragraph I understand but disagree with. Economic growth imo is driven by loose monetary policy and almost nothing else. Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced). But that’s just my opinion. It is likely someone has studied this but I’m too lazy to search and then find a study where I find immediate issues with the way it is structured right in the abstract.
- lotsofpulp 4y ago
  >Increasing debt is increased money supply in the present, not in the future. I phrased that poorly. I should have written now and in the future (the future because I am assuming bailouts will happen regularly until a total collapse). When the government enables socialization of losses and privatization of profits, that lets people today realize a lot of the potential gains from the future. For example, land that costs x years of work can now cost 2x or 3x years of work. >Econ 101 would tell you it means reduced purchasing power but that doesn’t account for how much the US dominates the world. There are several untapped sources of low labor and costs around the planet. I think there is a lessening of the domination, specifically with competition from China. >This is currently a non issue unless we suffer a double whammy of continuous high rates and the discarding of the $$$ as the worlds leading exchange currency. Yes, the US is still in a relatively good position, but what has occurred is a fracturing in the trajectories of the US population itself. If you are top 10%, life is awesome and looks okay going forward. Next 10%, you have a chance of moving into the top. Next 10%, you are treading water and with some luck might move up. Bottom 70% has stagnant futures or looking at declines (relative to their recent past). >Human ingenuity or labor capital continues to be as high as it ever was in the highest echelons of research, finance, industry etc (compared to the revenue being produced). Yes, but the distribution of gains from the ingenuity will be less equal.