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>> sovereign debt burden So all the entities that want to hold the debt (social security administration, mutual funds, pension funds etc) where should they go

>> sovereign debt burden So all the entities that want to hold the debt (social security administration, mutual funds, pension funds etc) where should they go instead? Riskier assets is what you're saying right? Is that a great idea?

whimsicalism 1y ago
I'm not giving investment advice, just commenting that our current fiscal trajectory has become completely unsustainable & dangerous and very few people seem to be seriously discussing it. Probably the closest US bond equivalent would be debt from well-run Asian countries. I would avoid fixed-income dollar denominated assets.
- CraigJPerry 1y ago
  >> completely unsustainable in what way? as a sovereign currency issuer, the US can't ever be made to default or can it? What definition of unsustainable fits? What event could cause public debt growth to reach some kind of insurmountable maximum? It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outstanding public debt could be executed tomorrow without collecting another penny in taxes. I wouldn't recommend it, but it could be done.
  - whimsicalism 1y ago
    Leveraging your power as "sovereign currency issuer" means monetizing the debt, aka inflating away the debt, which is disastrous in terms of what it does to purchasing power but also in terms of creditor confidence. Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.
    - CraigJPerry 1y ago
      There's so much to unpack here. I think the first thing to agree is that we don't need a model when we can just look directly at the law. This goes in the bin: >> recommend learning traditional macro It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions. So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws. Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference. With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in? Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy) Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?) So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this. The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.
      - whimsicalism 1y ago
        > Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy) Yes, it comes in at the 'fair market bids' part. When yields spike, the mechanism still “works” legally, but the government’s interest costs and financial stability risks explode in real terms. The “law” doesn’t immunize you from inflation, balance sheet stress, or a collapsing yield curve. The Fed can’t conjure real resources; it can only reprice claims on them. Monetizing debt isn’t free. Ask the U.K. gilt market in 2022 how far “sovereign currency issuer” logic got them before the Bank of England had to step in. The government isn't immune from market forces.
marbro 1y ago
All investors should choose gold over the dollar because paper money is always debased. Organizations like Apple, Microsoft, and Google bought government bonds 10 years ago when the price of gold was $1100 and have watched their investments erode while gold has increased to $4000.
- karmakurtisaani 1y ago
  Do you also give forward looking investment advice, or strictly limit to looking what would have worked 10 years ago?
- AnimalMuppet 1y ago
  I see this kind of idea a lot, and it's wrong. The surface way it's wrong is that investors could have invested in Nvidia 10 years ago instead of gold. Because they didn't, their investments "eroded" even more. The deeper way it's wrong is that people who say this almost always have the unstated premise that gold is "real" money, that every price should be measured against it. That premise is false. When gold was allowed to float in terms of the US dollar, it went up to $200, then dropped down to $100. When it dropped to $100, the dollar didn't become worth twice as much. Or, to use a more recent example, there has not been a factor of 4 inflation over the last 10 years. So gold is not a fixed measuring stick, against which all other things are measured.

whimsicalism 1y ago

I'm not giving investment advice, just commenting that our current fiscal trajectory has become completely unsustainable & dangerous and very few people seem to be seriously discussing it. Probably the closest US bond equivalent would be debt from well-run Asian countries. I would avoid fixed-income dollar denominated assets.

CraigJPerry 1y ago
>> completely unsustainable in what way? as a sovereign currency issuer, the US can't ever be made to default or can it? What definition of unsustainable fits? What event could cause public debt growth to reach some kind of insurmountable maximum? It's not like private debt, when you run out of money, that is the end of the road. There is no such limit for a sovereign currency issuer. The complete settlement of outstanding public debt could be executed tomorrow without collecting another penny in taxes. I wouldn't recommend it, but it could be done.
- whimsicalism 1y ago
  Leveraging your power as "sovereign currency issuer" means monetizing the debt, aka inflating away the debt, which is disastrous in terms of what it does to purchasing power but also in terms of creditor confidence. Please, Stephanie Kelton didn't discover some secret hack to get money for free - I would recommend learning traditional macro before going on the MMT train.
  - CraigJPerry 1y ago
    There's so much to unpack here. I think the first thing to agree is that we don't need a model when we can just look directly at the law. This goes in the bin: >> recommend learning traditional macro It obscures what is legally required to happen and it completely ignores entire aspects of the financial system through a series of absurd assumptions. So rather than rely on any models, be they orthodox or heterodox, let's instead only refer to the actual operations of the actors involved. They are bound by the same laws. Let me nail this one further home - there are different economic models, they're interchangeable based on beliefs and assumptions (not based on observable facts), but whatever happens all the actors have to comply with the law as it exists today. Let's just use that directly as our frame of reference. With that given, when you say creditor confidence, at which step in the process of sovereign debt issuance does creditor confidence come in? Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy) Is it when the Fed conducts repurchase agreement operations with the primary dealers (this is the bit where the fed ensures the primary dealers have sufficient reserves to participate in those treasury auctions - in what other market does the seller give you the money to bid on the auction?) So far the process is just a legally mandated mechanism that everyone must serve their part. We could entirely elect not to do any of this. The specific question that brings the whole house of cards down: where does creditor confidence come in? You can't answer from an economic school of thought, they all? ignore the reality of how these transactions are executed.
    - whimsicalism 1y ago
      > Is it when the select panel banks, the primary dealers are legally obligated to make fair market bids for every issuance? (there aren't many other markets where the buyer legally obligated to buy) Yes, it comes in at the 'fair market bids' part. When yields spike, the mechanism still “works” legally, but the government’s interest costs and financial stability risks explode in real terms. The “law” doesn’t immunize you from inflation, balance sheet stress, or a collapsing yield curve. The Fed can’t conjure real resources; it can only reprice claims on them. Monetizing debt isn’t free. Ask the U.K. gilt market in 2022 how far “sovereign currency issuer” logic got them before the Bank of England had to step in. The government isn't immune from market forces.

marbro 1y ago

All investors should choose gold over the dollar because paper money is always debased. Organizations like Apple, Microsoft, and Google bought government bonds 10 years ago when the price of gold was $1100 and have watched their investments erode while gold has increased to $4000.

karmakurtisaani 1y ago
Do you also give forward looking investment advice, or strictly limit to looking what would have worked 10 years ago?
AnimalMuppet 1y ago
I see this kind of idea a lot, and it's wrong. The surface way it's wrong is that investors could have invested in Nvidia 10 years ago instead of gold. Because they didn't, their investments "eroded" even more. The deeper way it's wrong is that people who say this almost always have the unstated premise that gold is "real" money, that every price should be measured against it. That premise is false. When gold was allowed to float in terms of the US dollar, it went up to $200, then dropped down to $100. When it dropped to $100, the dollar didn't become worth twice as much. Or, to use a more recent example, there has not been a factor of 4 inflation over the last 10 years. So gold is not a fixed measuring stick, against which all other things are measured.