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"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., J

"industry insiders were ringing the alarm bells" Just as today many economists are ringing the alarm bells: the governments public debt issues (both in U.S., Japan and many countries in the Eurozone) are going to end up very badly. Many central banks (including in the U.S.) have basically become bad banks. Anyone holding medium and long-term public government debt (like many insurance products) are basically bankrupt because governments are going to default. If you think 2008 was bad, wait until the house of cards collapse. It shall make 1929 look like a cute event. Some economists are predicting a worlwide GDP drop of as much as 25%. Of course economists that you see on Fox news and CNN like Krugman (sure, lets create a one trillion $ coin, it's a good idea: why not then create 16 of these and be done with our public debt?) either totally lost it or are playing the game that the state asked them to play: propaganda. Capitalism cannot work if the cost of printing money is zero (quantitative easing). Actually I don't think we're living in a capitalistic world. I think we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation. But the system has its limit. And who are you going to prosecute and hold responsible once everything collapses? The states are basically forcing everyone into buying their junk bonds. Do you really think anyone would buy government bonds seen the current situation? The people responsible for this are very very high up the chain. They're desperately trying to prevent the house of socialist cards from falling apart. "The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now. Of course they're going to pretend that it's not the states that created the state debt but "evil" capitalists. What a joke : (

antidaily 14y ago
Needs more paragraphs.
Nursie 14y ago
That's right, socialists are the ones to blame. Good citizen, you've been well trained to see socialist enemies hiding around every corner. We do not live in a socialist world. If you had any comprehension of what the word meant you would stop using it.
- sageikosa 14y ago
  World: socialist. (And in denial) Check! Just because we haven't obtained the socialist paradise, doesn't mean we aren't living under a socialist order. It's the means that define socialism, not achievement of the goals. The means are "social" control of the means of production; whether it is by direct seizure of the state, proletariat masses, or small anarcho-syndicalist communes; or indirect by legislation, regulation, licensing, taxation, the SEC, central banks or control of the value of currency and savings; doesn't matter. And the trend is towards more of that because the goals of most of these initiatives are the goals of distributing goods to (almost) everyone, so that when the private component fails, the social component will expand to rectify the situation.
  - Nursie 14y ago
    Seriously, you think that the ever-expanding wealth disparity in the entire western world is a symptom of a socialist planet? Get a grip. Just because you haven't obtained your Libertarian paradise (which AFAICT would be hell on earth and quickly devolve back to Feudalism) doesn't mean that the word and the political philosophy don't still have distinct meanings. Socialism is not an all encompassing term for 'anything a Libertarian disagrees with'.
    - sageikosa 14y ago
      Never said it was an all encompassing term, just an all encompassing practice. The term means social ownership of the means of production. If the political structure of a society wants to pretend regulation, licensing, permissions, incentive/punitive taxes, bail-outs, take-overs and nationalizations are not effectively the same thing as (at least partial) social ownership; that's society's business, not mine. I cannot understand the political philosophy of socialism any better than I can understand another's faith, nor do I try. Socialist agendas may not be marked as such on the packaging, but that doesn't mean the ingredients didn't come from the same farm. I have no great plan for society. I am of the mind that the "problem" of stable society is as insoluble as determining what the product prices should be in a marketless society. So, I also don't think anyone else socialist or otherwise has a great plan for society (visions perhaps, but nothing practically actionable), but I don't think that stops policymakers from tinkering when they can. I have no idea what a Libertarian paradise would be, and I have offered none. Since I have no power to stop the looming dissolution of social order, nor predict the exact time or nature of the chaos; I can only hope to eek out an existence somewhere. But I will continue to remind men such that they may listen, that it was not the pursuit of liberty that brought man's enslavement, but the pursuit of enslavement.
spot 14y ago
"that's where we're arriving now" you know, years ago the deficit scolds said the US would turn into Greece "within two years". they were wrong. they said inflation would spike. they were wrong. and here you go doing the same thing again. the US will never default on its debt. period. it's the law. they will just use inflation to pay it if they have to. more likely the economy will return to growth and a combination of forces will keep it under control. yes this is a tax on savings. act accordingly. it's not the end of the world, we have all kinds of taxes. this one exists for a good reason.
- niggler 14y ago
  > inflation would spike Inflation did spike but what happened was that the definition was redefined in a deceptive way. Look at cereal prices and volumes. Prices have spiked and the containers/volumes have shrunk, but that's not taken into account under measures that exclude food prices. Energy prices have spiked. Gold prices have been running for more than 12 years. It's not to say we are seeing hyperinflation, but the CPI and other measures have changed in such a way that it makes inflation appear low.
  - brown9-2 14y ago
    When people say that CPI doesn't show true inflation, what measure do they prefer to use instead?
    - kevinwmerritt 14y ago
      Here are some alternative CPI charts worth viewing: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
      - dmix 14y ago
        Shadowstats has been discredited so many times that not even libertarians (such as myself) would go near that as a reliable source.
gizmo 14y ago
Ug. So many misconceptions and conspiracy theories, where do I begin? 1. The US and the Eurozone are suffering from very different problems. The debt in the US is likely to stabilize at around 80% GDP (source: http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-wrong-2/ http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-...). European countries are in quite a bit of trouble, but it will most likely take the the form of a slow and painful recovery. Greece has already partially defaulted on its debt (and the world didn't end). 2. There is no reason to assume that many (American?) banks will collapse anytime soon. The realistic worst-case scenario is another multi-trillion dollar bailout at the expense of the taxpayer. 3. The trillion dollar coin idea was a legal gimmick to counter another legal gimmick (debt ceiling). Minting a trillion dollar coin is not substantially different from conventional methods of "printing money" (there are some differences: e.g. no interest is paid on currency). The trillion dollar coin wouldn't be used to pay off the public debt. Minting coins to pay off the public debt is a bad idea, and not a single economist seriously suggested doing that. To reiterate: the trillion dollar coin is a legal trick and has almost no impact on the actual economy. 4. The cost of printing money isn't zero in all situations. Which is why printing money can partially fix some financial problems, but not all of them. Printing money is a good idea for instance when there is a shortage of money in the economy (i.e. risk of deflation). Printing money is never a substitute for real economic activity. 5. Inflation certainly works like a tax. Those with money are hurt by inflation and those with net debt benefit from it. It also encourages investment, which is why most economists think a little inflation is a good thing. 6. US Government bonds are in very high demand. Hence the low interest rate on them. 7. Your crazy rants about how the US is a socialist state don't have any bearing on reality.
- AutoKorrect 14y ago
  'likely to stabilize'? Are you on crack? Congress & O can't even create & pass a budget. They talk about 'saving' a trillion dollars... over 10 years! Our armed forces are still deployed to 3rd-world cesspools that we have no business being in. Debt is going to go up and up until the balloon pops.
- mseebach 14y ago
  So, for your point 1, neither Krugman nor the CBPP report he links to claims that the debt will stabilise at 80%. It will arrive at 80% with a rising slope, not flatten like the "cuts" scenario. Also, good thing you didn't link to anything containing conspiracy theories: To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it.
deveac 14y ago
>"The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now. Ugh. I try my best not to be snarky on here, but here is the wiki explaining what socialism is: http://en.wikipedia.org/wiki/Socialism http://en.wikipedia.org/wiki/Socialism Don't worry, you don't have to read past the first sentence to reveal your complete and utter misunderstanding of the term. The trend, over the years, has been overwhelming in favor of private ownership of the economic means of production. You're going to need to come up with another word to decry what ails you policy wise if accuracy, not dogma, is your goal. PolySci 101. It ain't that difficult. Do I really need to GTFY on HN?
- davidw 14y ago
  > PolySci 101. It ain't that difficult. Do I really need to GTFY on HN? Best just to flag all political articles and rid them from the site, as they pretty much inevitably end up with discussions like this.
  - deveac 14y ago
    I'm sort of embarrassed that I even replied to it. Edit: The comment I mean. OP's article isn't overtly political in any way. It was incredibly interesting. Even just for the insight regarding the mechanisms of QA on a purely physical level. I never imagined underwriters jetting around the nation, going into box filled hotel rooms to get busy underwriting. Learn something new every day.
  - deleted 14y ago
    [deleted]
  - logn 14y ago
    But at the same time we vote up articles complaining that we as engineers should stop making cat video websites and focus on important problems. We flock to advice blogs to find good startup ideas that solve people's problems. This article is food for thought IMO. I'll take a 15 page article detailing inefficiencies/fraud in banks (of which many of us are employed in IT) over a 3 paragraph blog summarizing an 8 paragraph blog on weak typing.
BenoitEssiambre 14y ago
"governments are going to default.", "we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation" These are contradictory. Governments don't have to default if they inflate their debt away. Also, money is just pieces of paper or a number in a computer. You shouldn't keep most of your savings in money. Cash is just an agreed upon number meant to help with short term transactions. It's a tool for trading. You don't have real savings until you have something more err... real, like stocks or actual stuff. Inflation can't touch that. If you feel bonds don't offer a good enough return given inflation risks just don't buy bonds! No reason to panic. The world GDP won't drop 25% unless we run out of key natural resources or face some kind of catastrophe, things that would happen regardless of "socialism". Government debt matters but not in the way you seem to think.
- rthomas6 14y ago
  I think OP might feel better if they knew about inflation protected securities.
  - RickHull 14y ago
    When the issuer of those securities is the one defining the amount of inflation, that issuer has every reason to understate said amount, and the holder of the securities may still lose purchasing power. Consider e.g. Argentina's official inflation statistics versus 3rd party estimates. The difference is not explained by Argentina being a bunch of meanies but rather the system of incentives and particularly Public Choice Theory.
    - rthomas6 14y ago
      USA TIPS are inflation-adjusted according to a published standard (CPI-U). One can argue that the standard itself underestimates inflation (I would probably agree), but the securities really do adjust with measured inflation. If the inflation is understated, it's at least done in a defined way. So yes, I suppose the holder of the securities would still lose purchasing power, but not in a catastrophic way. TIPS are still a decent hedge against inflation.
snowwrestler 14y ago
I can't speak to the details of the various and diverse Europe problems, but in the U.S. the debt problem is primarily political. Tax receipts as a percentage of GDP are near historic lows, and GDP itself is inhibited because we are climbing out of a recession. In plain English--the government is taking a smaller piece of a smaller pie. No wonder our debt level has climbed. And yet U.S. Treasury bond rates are still extremely low--which indicates that people are still very eager to invest in them. Why? Because despite obvious problems to solve, the U.S. government is still more secure than other options. As long as that is true, we can continue to finance. So to talk about doom and gloom, you need to make a case for where all the money will go if it abandons the U.S. The typical candidates have been Europe or China. Well, Europe is in even worse shape, and China is heavily dependent on the U.S. for its own growth.
- aliston 14y ago
  The two largest holders of federal debt are the Fed and the Social Security trust. A big part of the reason interest rates are so low is because we're buying our own debt.
  - snowwrestler 14y ago
    Neither participates in the competitive bidding process that sets the interest rates. Social Security gets special bonds not available on the open market, and the Fed buys Treasuries from primary dealers at market rates (since the whole point is to inject money into the private economy).
    - aliston 14y ago
      It doesn't matter how the bonds are obtained by Social Security or the Fed -- no matter what it affects interest rates. If Social Security weren't buying government bonds (ok, not technically treasuries), that same debt would be issued as Treasuries or similar. Greater supply of treasuries means higher interest rates. If the Fed weren't buying treasuries in the open market, demand would decline and the market interest rate would go up. Primary dealer bids are influenced by the market rate for treasuries, so the interest rate on new debt would go up.
logn 14y ago
There's a difference between ringing alarm bells over economic trends and government actions that are fully public and extensively analyzed by the public, and ringing alarm bells about unacknowledged criminal behavior inside a public corporation that endangers the clients, investors, and economy. My only beef with these whistle-blowers is that they didn't contact law enforcement (at least per the article).
bjhoops1 14y ago
You forgot the link to a fake news article interviewing an "economist" predicting Massive Wealth Destruction and peddling a workbook detailing how you can survive the impending disaster.

antidaily 14y ago

Needs more paragraphs.

Nursie 14y ago

That's right, socialists are the ones to blame. Good citizen, you've been well trained to see socialist enemies hiding around every corner. We do not live in a socialist world. If you had any comprehension of what the word meant you would stop using it.

sageikosa 14y ago
World: socialist. (And in denial) Check! Just because we haven't obtained the socialist paradise, doesn't mean we aren't living under a socialist order. It's the means that define socialism, not achievement of the goals. The means are "social" control of the means of production; whether it is by direct seizure of the state, proletariat masses, or small anarcho-syndicalist communes; or indirect by legislation, regulation, licensing, taxation, the SEC, central banks or control of the value of currency and savings; doesn't matter. And the trend is towards more of that because the goals of most of these initiatives are the goals of distributing goods to (almost) everyone, so that when the private component fails, the social component will expand to rectify the situation.
- Nursie 14y ago
  Seriously, you think that the ever-expanding wealth disparity in the entire western world is a symptom of a socialist planet? Get a grip. Just because you haven't obtained your Libertarian paradise (which AFAICT would be hell on earth and quickly devolve back to Feudalism) doesn't mean that the word and the political philosophy don't still have distinct meanings. Socialism is not an all encompassing term for 'anything a Libertarian disagrees with'.
  - sageikosa 14y ago
    Never said it was an all encompassing term, just an all encompassing practice. The term means social ownership of the means of production. If the political structure of a society wants to pretend regulation, licensing, permissions, incentive/punitive taxes, bail-outs, take-overs and nationalizations are not effectively the same thing as (at least partial) social ownership; that's society's business, not mine. I cannot understand the political philosophy of socialism any better than I can understand another's faith, nor do I try. Socialist agendas may not be marked as such on the packaging, but that doesn't mean the ingredients didn't come from the same farm. I have no great plan for society. I am of the mind that the "problem" of stable society is as insoluble as determining what the product prices should be in a marketless society. So, I also don't think anyone else socialist or otherwise has a great plan for society (visions perhaps, but nothing practically actionable), but I don't think that stops policymakers from tinkering when they can. I have no idea what a Libertarian paradise would be, and I have offered none. Since I have no power to stop the looming dissolution of social order, nor predict the exact time or nature of the chaos; I can only hope to eek out an existence somewhere. But I will continue to remind men such that they may listen, that it was not the pursuit of liberty that brought man's enslavement, but the pursuit of enslavement.

spot 14y ago

"that's where we're arriving now" you know, years ago the deficit scolds said the US would turn into Greece "within two years". they were wrong. they said inflation would spike. they were wrong. and here you go doing the same thing again. the US will never default on its debt. period. it's the law. they will just use inflation to pay it if they have to. more likely the economy will return to growth and a combination of forces will keep it under control. yes this is a tax on savings. act accordingly. it's not the end of the world, we have all kinds of taxes. this one exists for a good reason.

niggler 14y ago
> inflation would spike Inflation did spike but what happened was that the definition was redefined in a deceptive way. Look at cereal prices and volumes. Prices have spiked and the containers/volumes have shrunk, but that's not taken into account under measures that exclude food prices. Energy prices have spiked. Gold prices have been running for more than 12 years. It's not to say we are seeing hyperinflation, but the CPI and other measures have changed in such a way that it makes inflation appear low.
- brown9-2 14y ago
  When people say that CPI doesn't show true inflation, what measure do they prefer to use instead?
  - kevinwmerritt 14y ago
    Here are some alternative CPI charts worth viewing: http://www.shadowstats.com/alternate_data/inflation-charts http://www.shadowstats.com/alternate_data/inflation-charts
    - dmix 14y ago
      Shadowstats has been discredited so many times that not even libertarians (such as myself) would go near that as a reliable source.

gizmo 14y ago

Ug. So many misconceptions and conspiracy theories, where do I begin? 1. The US and the Eurozone are suffering from very different problems. The debt in the US is likely to stabilize at around 80% GDP (source: http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-wrong-2/ http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-...). European countries are in quite a bit of trouble, but it will most likely take the the form of a slow and painful recovery. Greece has already partially defaulted on its debt (and the world didn't end). 2. There is no reason to assume that many (American?) banks will collapse anytime soon. The realistic worst-case scenario is another multi-trillion dollar bailout at the expense of the taxpayer. 3. The trillion dollar coin idea was a legal gimmick to counter another legal gimmick (debt ceiling). Minting a trillion dollar coin is not substantially different from conventional methods of "printing money" (there are some differences: e.g. no interest is paid on currency). The trillion dollar coin wouldn't be used to pay off the public debt. Minting coins to pay off the public debt is a bad idea, and not a single economist seriously suggested doing that. To reiterate: the trillion dollar coin is a legal trick and has almost no impact on the actual economy. 4. The cost of printing money isn't zero in all situations. Which is why printing money can partially fix some financial problems, but not all of them. Printing money is a good idea for instance when there is a shortage of money in the economy (i.e. risk of deflation). Printing money is never a substitute for real economic activity. 5. Inflation certainly works like a tax. Those with money are hurt by inflation and those with net debt benefit from it. It also encourages investment, which is why most economists think a little inflation is a good thing. 6. US Government bonds are in very high demand. Hence the low interest rate on them. 7. Your crazy rants about how the US is a socialist state don't have any bearing on reality.

AutoKorrect 14y ago
'likely to stabilize'? Are you on crack? Congress & O can't even create & pass a budget. They talk about 'saving' a trillion dollars... over 10 years! Our armed forces are still deployed to 3rd-world cesspools that we have no business being in. Debt is going to go up and up until the balloon pops.
mseebach 14y ago
So, for your point 1, neither Krugman nor the CBPP report he links to claims that the debt will stabilise at 80%. It will arrive at 80% with a rising slope, not flatten like the "cuts" scenario. Also, good thing you didn't link to anything containing conspiracy theories: To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it.

deveac 14y ago

>"The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now. Ugh. I try my best not to be snarky on here, but here is the wiki explaining what socialism is: http://en.wikipedia.org/wiki/Socialism http://en.wikipedia.org/wiki/Socialism Don't worry, you don't have to read past the first sentence to reveal your complete and utter misunderstanding of the term. The trend, over the years, has been overwhelming in favor of private ownership of the economic means of production. You're going to need to come up with another word to decry what ails you policy wise if accuracy, not dogma, is your goal. PolySci 101. It ain't that difficult. Do I really need to GTFY on HN?

davidw 14y ago
> PolySci 101. It ain't that difficult. Do I really need to GTFY on HN? Best just to flag all political articles and rid them from the site, as they pretty much inevitably end up with discussions like this.
- deveac 14y ago
  I'm sort of embarrassed that I even replied to it. Edit: The comment I mean. OP's article isn't overtly political in any way. It was incredibly interesting. Even just for the insight regarding the mechanisms of QA on a purely physical level. I never imagined underwriters jetting around the nation, going into box filled hotel rooms to get busy underwriting. Learn something new every day.
- deleted 14y ago
  [deleted]
- logn 14y ago
  But at the same time we vote up articles complaining that we as engineers should stop making cat video websites and focus on important problems. We flock to advice blogs to find good startup ideas that solve people's problems. This article is food for thought IMO. I'll take a 15 page article detailing inefficiencies/fraud in banks (of which many of us are employed in IT) over a 3 paragraph blog summarizing an 8 paragraph blog on weak typing.

BenoitEssiambre 14y ago

"governments are going to default.", "we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation" These are contradictory. Governments don't have to default if they inflate their debt away. Also, money is just pieces of paper or a number in a computer. You shouldn't keep most of your savings in money. Cash is just an agreed upon number meant to help with short term transactions. It's a tool for trading. You don't have real savings until you have something more err... real, like stocks or actual stuff. Inflation can't touch that. If you feel bonds don't offer a good enough return given inflation risks just don't buy bonds! No reason to panic. The world GDP won't drop 25% unless we run out of key natural resources or face some kind of catastrophe, things that would happen regardless of "socialism". Government debt matters but not in the way you seem to think.

rthomas6 14y ago
I think OP might feel better if they knew about inflation protected securities.
- RickHull 14y ago
  When the issuer of those securities is the one defining the amount of inflation, that issuer has every reason to understate said amount, and the holder of the securities may still lose purchasing power. Consider e.g. Argentina's official inflation statistics versus 3rd party estimates. The difference is not explained by Argentina being a bunch of meanies but rather the system of incentives and particularly Public Choice Theory.
  - rthomas6 14y ago
    USA TIPS are inflation-adjusted according to a published standard (CPI-U). One can argue that the standard itself underestimates inflation (I would probably agree), but the securities really do adjust with measured inflation. If the inflation is understated, it's at least done in a defined way. So yes, I suppose the holder of the securities would still lose purchasing power, but not in a catastrophic way. TIPS are still a decent hedge against inflation.

snowwrestler 14y ago

I can't speak to the details of the various and diverse Europe problems, but in the U.S. the debt problem is primarily political. Tax receipts as a percentage of GDP are near historic lows, and GDP itself is inhibited because we are climbing out of a recession. In plain English--the government is taking a smaller piece of a smaller pie. No wonder our debt level has climbed. And yet U.S. Treasury bond rates are still extremely low--which indicates that people are still very eager to invest in them. Why? Because despite obvious problems to solve, the U.S. government is still more secure than other options. As long as that is true, we can continue to finance. So to talk about doom and gloom, you need to make a case for where all the money will go if it abandons the U.S. The typical candidates have been Europe or China. Well, Europe is in even worse shape, and China is heavily dependent on the U.S. for its own growth.

aliston 14y ago
The two largest holders of federal debt are the Fed and the Social Security trust. A big part of the reason interest rates are so low is because we're buying our own debt.
- snowwrestler 14y ago
  Neither participates in the competitive bidding process that sets the interest rates. Social Security gets special bonds not available on the open market, and the Fed buys Treasuries from primary dealers at market rates (since the whole point is to inject money into the private economy).
  - aliston 14y ago
    It doesn't matter how the bonds are obtained by Social Security or the Fed -- no matter what it affects interest rates. If Social Security weren't buying government bonds (ok, not technically treasuries), that same debt would be issued as Treasuries or similar. Greater supply of treasuries means higher interest rates. If the Fed weren't buying treasuries in the open market, demand would decline and the market interest rate would go up. Primary dealer bids are influenced by the market rate for treasuries, so the interest rate on new debt would go up.

logn 14y ago

There's a difference between ringing alarm bells over economic trends and government actions that are fully public and extensively analyzed by the public, and ringing alarm bells about unacknowledged criminal behavior inside a public corporation that endangers the clients, investors, and economy. My only beef with these whistle-blowers is that they didn't contact law enforcement (at least per the article).

bjhoops1 14y ago

You forgot the link to a fake news article interviewing an "economist" predicting Massive Wealth Destruction and peddling a workbook detailing how you can survive the impending disaster.