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(Genuine questions here!) Is paying less interest an option? Either "refinancing" the debt at lower interest rates, or simply declaring that existing bonds wil

by rwmj 2y ago

(Genuine questions here!) Is paying less interest an option? Either "refinancing" the debt at lower interest rates, or simply declaring that existing bonds will be paid out at a lower rate? People will presumably still want to hold US Treasuries because of their other properties. Also Japan has a debt to GDP much, much greater than the US, and still seems to function fine as a country, so how do they do things differently?

ifwinterco 2y ago
The federal reserve can just buy the debt from the government using newly created central bank reserves, but this increases the money supply so in the long run it will cause inflation (eventually you end up with Weimar/Zimbabwe style hyperinflation, although that's a long way from where we are now). Japan has essentially been doing this (the mechanics are a bit more complicated, but the effect is essentially the same), and they've been able to get away with it because inflation has been low for the last three decades due to external factors such as globalisation. Now inflation is starting to rise even in Japan, so they may have some issues in the not too distant future.
- phartenfeller 2y ago
  Money growth and inflation has no direct connection. It can impact it but doesn't have to. In europe the inflation was caused by the supply chain crisis: https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230925_1~7ad8ef22e2.en.html https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230... Additionally some experts say that the inflation was bigger in Europe because the governments didn't do investments with new debt.
  - georgeplusplus 2y ago
    that’s the governments in the EU deflecting blame and not admitting they messed up telling people to stay home, in some countries up to a year, and then paying those people to stay home (literally money printing) that it had no direct influence on inflation or wasa primary driver of it. I mean you’d have to be completely stupid to believe that what they did had no impact on inflation.
    - ifwinterco 2y ago
      It's definitely controversial and in the short term it's probably dwarfed by other factors (velocity of money and external factors), but it stands to reason that if M1 increases by 300% while population remains roughly static and GDP increases by 50%, in the long run there will be inflation. If tripling the amount of base money has no effect then logically destroying 70% of the base money would also have no effect, but I never see people advocating that
  - _heimdall 2y ago
    The original definition of inflation was literally an increase in the money supply. Economists only changed the term to mean an increase in prices when they also latched onto the idea that they can print new money and inject it into the system without consequence.
    - okasaki 2y ago
      Why would it matter what the original definition was?
      - _heimdall 2y ago
        It seems relevant when the GP claim is that money growth and inflation have no connection. The definition was changed only because economists decided inflating the money supply was a brilliant economic policy and the old definition became inconvenient. When you realize they changed the definition only for better optics it's easier to question the underlying principles.
        roenxi 2y ago
        > The definition was changed only because economists decided inflating the money supply was a brilliant economic policy and the old definition became inconvenient. That probably isn't true, both because it isn't that obvious that the economists thought it was a good idea or that they were the ones who changed the definition. "Economists" don't have any power over anything and the consensus position seems to tend towards disagreement with government policy. Inflation is one of those topics where there seems to be a dearth of actual economic evidence bought to the conversation. The policy justification in the public discourse tends towards just-so stories.
        _heimdall 2y ago
        https://www.clevelandfed.org/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation https://www.clevelandfed.org/publications/economic-commentar... This is a good overview of the history of the term "inflation." Ideally people would specify which inflation they're referring to, like monetary Inflation or price inflation. Short of that though, until we started moving to full fiat currencies inflation without any qualifier was inflation of the money supply. After the move to fiat they repurposed the braod term to mean price inflation, presumably because monetary inflation isn't meaningful when your system is based entirely on manipulating the money supply.
  - roenxi 2y ago
    > In europe the inflation was caused by the supply chain crisis Then we'd expect to see deflation when the supply chain crisis is resolved - which seems unlikely but I suppose it cannot yet be ruled out. I doubt anyone will be held accountable if that deflation doesn't materialise though. It is an interesting question where CPI inflation is supposed to be coming from if not inflation in the money supply.
mindvirus 2y ago
Funny enough, the US government is in a large part in debt to... the US government. So for that part at least, it feels more like an accounting mechanism than anything.
- _heimdall 2y ago
  Its only an accounting mechanism rather than fraud because there's no one to enforce it. I've never understood how a government being so massively in debt to itself isn't seen as a joke proving that the whole thing is a sham. Its one thing when outside parties offer debt to a government, its effectively a show of faith in the government to pay its liabilitirs and still exist long enough to do so. Buy what does it even mean for a government to extend debt to itself?
  - david-gpu 2y ago
    > But what does it even mean for a government to extend debt to itself? You may be interested in reading about Modern Monetary Theory (MMT). I'm not an economist, but had a mild interest in macroeconomy some years ago and found MMT eye opening.
    - _heimdall 2y ago
      Oh I have read about it, I just fundamentally disagree with both MMT and Keynes. What I was trying to ask there is what does it mean for debt to exist when there is no relative risk? When a third party extends debt in good faith, it says something about their estimation of risk. When a government extends debt to itself it literally means nothing, if one party fails they both do. More importantly, there's no recourse if the debtor defaults. The debt there exists purely as smoke and mirrors, it is created only so they can claim money wasn't made out of thin air.
      - david-gpu 2y ago
        > When a government extends debt to itself it literally means nothing I get where you are coming from. If I'm not mistaken, and according to MMT, a government buying its own debt induces future inflation and a decrease to interest rates. All money nowadays is fiat (i.e. created out of thin air by a few actors), so it's not like any form of money creation and destruction means much more than changes to the inflation rate, interest rate and the derived swings to the economic cycle.
jobtemp 2y ago
Yes and no. You get the market rate for your highly fungible regulated market instrument. Investors are not emotional they can sell that shit and buy anything else from Silver to TSMC shares in a heartbeat. What makes it shit? Being a penny more expensive than the quant's model. They can borrow from the FED real cheap using QE. But the only free lunch is the big bang! Printing money causes inflation especially in asset prices and causes bubbles.

by rwmj 2y ago

ifwinterco 2y ago

The federal reserve can just buy the debt from the government using newly created central bank reserves, but this increases the money supply so in the long run it will cause inflation (eventually you end up with Weimar/Zimbabwe style hyperinflation, although that's a long way from where we are now). Japan has essentially been doing this (the mechanics are a bit more complicated, but the effect is essentially the same), and they've been able to get away with it because inflation has been low for the last three decades due to external factors such as globalisation. Now inflation is starting to rise even in Japan, so they may have some issues in the not too distant future.

phartenfeller 2y ago
Money growth and inflation has no direct connection. It can impact it but doesn't have to. In europe the inflation was caused by the supply chain crisis: https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230925_1~7ad8ef22e2.en.html https://www.ecb.europa.eu/press/key/date/2023/html/ecb.sp230... Additionally some experts say that the inflation was bigger in Europe because the governments didn't do investments with new debt.
- georgeplusplus 2y ago
  that’s the governments in the EU deflecting blame and not admitting they messed up telling people to stay home, in some countries up to a year, and then paying those people to stay home (literally money printing) that it had no direct influence on inflation or wasa primary driver of it. I mean you’d have to be completely stupid to believe that what they did had no impact on inflation.
  - ifwinterco 2y ago
    It's definitely controversial and in the short term it's probably dwarfed by other factors (velocity of money and external factors), but it stands to reason that if M1 increases by 300% while population remains roughly static and GDP increases by 50%, in the long run there will be inflation. If tripling the amount of base money has no effect then logically destroying 70% of the base money would also have no effect, but I never see people advocating that
- _heimdall 2y ago
  The original definition of inflation was literally an increase in the money supply. Economists only changed the term to mean an increase in prices when they also latched onto the idea that they can print new money and inject it into the system without consequence.
  - okasaki 2y ago
    Why would it matter what the original definition was?
    - _heimdall 2y ago
      It seems relevant when the GP claim is that money growth and inflation have no connection. The definition was changed only because economists decided inflating the money supply was a brilliant economic policy and the old definition became inconvenient. When you realize they changed the definition only for better optics it's easier to question the underlying principles.
      - roenxi 2y ago
        > The definition was changed only because economists decided inflating the money supply was a brilliant economic policy and the old definition became inconvenient. That probably isn't true, both because it isn't that obvious that the economists thought it was a good idea or that they were the ones who changed the definition. "Economists" don't have any power over anything and the consensus position seems to tend towards disagreement with government policy. Inflation is one of those topics where there seems to be a dearth of actual economic evidence bought to the conversation. The policy justification in the public discourse tends towards just-so stories.
        _heimdall 2y ago
        https://www.clevelandfed.org/publications/economic-commentary/1997/ec-19971015-on-the-origin-and-evolution-of-the-word-inflation https://www.clevelandfed.org/publications/economic-commentar... This is a good overview of the history of the term "inflation." Ideally people would specify which inflation they're referring to, like monetary Inflation or price inflation. Short of that though, until we started moving to full fiat currencies inflation without any qualifier was inflation of the money supply. After the move to fiat they repurposed the braod term to mean price inflation, presumably because monetary inflation isn't meaningful when your system is based entirely on manipulating the money supply.
- roenxi 2y ago
  > In europe the inflation was caused by the supply chain crisis Then we'd expect to see deflation when the supply chain crisis is resolved - which seems unlikely but I suppose it cannot yet be ruled out. I doubt anyone will be held accountable if that deflation doesn't materialise though. It is an interesting question where CPI inflation is supposed to be coming from if not inflation in the money supply.

mindvirus 2y ago

Funny enough, the US government is in a large part in debt to... the US government. So for that part at least, it feels more like an accounting mechanism than anything.

_heimdall 2y ago
Its only an accounting mechanism rather than fraud because there's no one to enforce it. I've never understood how a government being so massively in debt to itself isn't seen as a joke proving that the whole thing is a sham. Its one thing when outside parties offer debt to a government, its effectively a show of faith in the government to pay its liabilitirs and still exist long enough to do so. Buy what does it even mean for a government to extend debt to itself?
- david-gpu 2y ago
  > But what does it even mean for a government to extend debt to itself? You may be interested in reading about Modern Monetary Theory (MMT). I'm not an economist, but had a mild interest in macroeconomy some years ago and found MMT eye opening.
  - _heimdall 2y ago
    Oh I have read about it, I just fundamentally disagree with both MMT and Keynes. What I was trying to ask there is what does it mean for debt to exist when there is no relative risk? When a third party extends debt in good faith, it says something about their estimation of risk. When a government extends debt to itself it literally means nothing, if one party fails they both do. More importantly, there's no recourse if the debtor defaults. The debt there exists purely as smoke and mirrors, it is created only so they can claim money wasn't made out of thin air.
    - david-gpu 2y ago
      > When a government extends debt to itself it literally means nothing I get where you are coming from. If I'm not mistaken, and according to MMT, a government buying its own debt induces future inflation and a decrease to interest rates. All money nowadays is fiat (i.e. created out of thin air by a few actors), so it's not like any form of money creation and destruction means much more than changes to the inflation rate, interest rate and the derived swings to the economic cycle.

jobtemp 2y ago

Yes and no. You get the market rate for your highly fungible regulated market instrument. Investors are not emotional they can sell that shit and buy anything else from Silver to TSMC shares in a heartbeat. What makes it shit? Being a penny more expensive than the quant's model. They can borrow from the FED real cheap using QE. But the only free lunch is the big bang! Printing money causes inflation especially in asset prices and causes bubbles.