3 ms·

If it didn’t happen then it can’t happen now?

by efavdb 1y ago

ajross 1y ago
Paying off the debt is cheaper (significantly so) than it was then, and we had no trouble then. So yes, if it didn't happen then it won't happen now, at least not for the same reason. You can construct a double/triple-failure situation, sure, but any argument of the form "We can't sustain this level of financing" is simply wrong by counterexample. We already did.
- boroboro4 1y ago
  No one guarantees current rates further down the road, that’s a tricky thing. There is some chance inflation will be keep increasing because of a lot of printed moneys in last decade or so, and then fed will be forced to increase rates even further which will make it much harder to pay federal debt, much harder than in 80s perhaps.
  - ajross 1y ago
    > There is some chance inflation will be keep increasing So what? Inflation is GOOD for the debt, which is dollar-valued and not inflation-indexed! If you inflate the currency by 20% the real value of the outstanding debt drops by 20%. That's always been the joke about federal borrowing, if we ever get in trouble we just print money to pay all the bonds and poof, no debt. Inflation being high makes borrowing cheaper, not more expensive. The discourse about the subject is cursed. Everyone projects their own (largely political) priors onto it, everyone thinks macroeconomics works like checkbooks. It's just one bad idea after another. (I think what you're trying to say is that interest rates being high makes borrowing expensive, and that high interest rates are a natural policy response to high inflation. But you have the causality backwards. In fact one reason borrowing doesn't care about inflation is that the fed moves the levers to keep the impact roughly constant.)
    - boroboro4 1y ago
      > Inflation is GOOD for the debt, which is dollar-valued and not inflation-indexed! If you inflate the currency by 20% the real value of the outstanding debt drops by 20%. Unfortunately GDP is also dollar-valued, so debt:gdp ratio wouldn't change with inflation. Inflation wouldn't only destroy debt (which is good) it will also destroy currency and to some extent the economy. In the very end it's part of FED mandate - to keep inflation in bay. > The discourse about the subject is cursed. I think macroeconomics is very complicated subject, with a lot of uncertainty of how things will unfold. Your initial claim was that servicing our debt was much harder in 80s, so it's actually not as bad (or at least not worse) these days. What I'm trying to say we can all of sudden end up in a world where interest rates are back to 80s levels, while debt:gdp ratio (which is the real amount of debt in a way) is way higher. And this would be much more complicated problem to solve. Or we would not, because it's hard to predict a) where inflation goes from now on and b) what will FED do in the same kind of scenario to 80s. But actually scratch it, it is already bigger problem than it was back then: US needs to refinance/issue $9.2 trillion of debt this year. Current USG 10Y is ~4.5%, current GDP is 27.72 trillions. Which means after this year we will add 0.015 to the interest/gdp ratio (assuming very low current cost of the debt which is being refinanced, from https://fred.stlouisfed.org/graph/?g=iEiV https://fred.stlouisfed.org/graph/?g=iEiV). It will bring us above the level in 80s this year! Just this year of debt will bring the cost of servicing the debt above than it was back then. That's where huge issue is, unfortunately. And unless rates will go down it will be getting worse and worse really fast.
      - ajross 1y ago
        > Unfortunately GDP is also dollar-valued It... what? Good grief. If I buy a candy bar for $1, it counts to the GDP as $1. If it inflates and I have to pay $1.20 for the next one, you're saying that the GDP magically knows to adjust the accounting for how much it used to cost?! No, this is ridiculous. GDP counts currency. The amount of bad economics being deployed in support of baldly political positions on HN is just astounding.
        boroboro4 1y ago

If it didn’t happen then it can’t happen now?

by efavdb 1y ago

If it didn’t happen then it can’t happen now?

Paying off the debt is cheaper (significantly so) than it was then, and we had no trouble then. So yes, if it didn't happen then it won't happen now, at least not for the same reason. You can construct a double/triple-failure situation, sure, but any argument of the form "We can't sustain this level of financing" is simply wrong by counterexample. We already did.

boroboro4 1y ago
No one guarantees current rates further down the road, that’s a tricky thing. There is some chance inflation will be keep increasing because of a lot of printed moneys in last decade or so, and then fed will be forced to increase rates even further which will make it much harder to pay federal debt, much harder than in 80s perhaps.
- ajross 1y ago
  > There is some chance inflation will be keep increasing So what? Inflation is GOOD for the debt, which is dollar-valued and not inflation-indexed! If you inflate the currency by 20% the real value of the outstanding debt drops by 20%. That's always been the joke about federal borrowing, if we ever get in trouble we just print money to pay all the bonds and poof, no debt. Inflation being high makes borrowing cheaper, not more expensive. The discourse about the subject is cursed. Everyone projects their own (largely political) priors onto it, everyone thinks macroeconomics works like checkbooks. It's just one bad idea after another. (I think what you're trying to say is that interest rates being high makes borrowing expensive, and that high interest rates are a natural policy response to high inflation. But you have the causality backwards. In fact one reason borrowing doesn't care about inflation is that the fed moves the levers to keep the impact roughly constant.)
  - boroboro4 1y ago
    > Inflation is GOOD for the debt, which is dollar-valued and not inflation-indexed! If you inflate the currency by 20% the real value of the outstanding debt drops by 20%. Unfortunately GDP is also dollar-valued, so debt:gdp ratio wouldn't change with inflation. Inflation wouldn't only destroy debt (which is good) it will also destroy currency and to some extent the economy. In the very end it's part of FED mandate - to keep inflation in bay. > The discourse about the subject is cursed. I think macroeconomics is very complicated subject, with a lot of uncertainty of how things will unfold. Your initial claim was that servicing our debt was much harder in 80s, so it's actually not as bad (or at least not worse) these days. What I'm trying to say we can all of sudden end up in a world where interest rates are back to 80s levels, while debt:gdp ratio (which is the real amount of debt in a way) is way higher. And this would be much more complicated problem to solve. Or we would not, because it's hard to predict a) where inflation goes from now on and b) what will FED do in the same kind of scenario to 80s. But actually scratch it, it is already bigger problem than it was back then: US needs to refinance/issue $9.2 trillion of debt this year. Current USG 10Y is ~4.5%, current GDP is 27.72 trillions. Which means after this year we will add 0.015 to the interest/gdp ratio (assuming very low current cost of the debt which is being refinanced, from https://fred.stlouisfed.org/graph/?g=iEiV https://fred.stlouisfed.org/graph/?g=iEiV). It will bring us above the level in 80s this year! Just this year of debt will bring the cost of servicing the debt above than it was back then. That's where huge issue is, unfortunately. And unless rates will go down it will be getting worse and worse really fast.
    - ajross 1y ago
      > Unfortunately GDP is also dollar-valued It... what? Good grief. If I buy a candy bar for $1, it counts to the GDP as $1. If it inflates and I have to pay $1.20 for the next one, you're saying that the GDP magically knows to adjust the accounting for how much it used to cost?! No, this is ridiculous. GDP counts currency. The amount of bad economics being deployed in support of baldly political positions on HN is just astounding.
      - boroboro4 1y ago