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Read the rules in the OP before posting, please.In order to ensure that this thread continues to meet TL standards and follows the proper guidelines, we will be enforcing the rules in the OP more strictly. Be sure to give them a re-read to refresh your memory! The vast majority of you are contributing in a healthy way, keep it up! NOTE: When providing a source, explain why you feel it is relevant and what purpose it adds to the discussion if it's not obvious. Also take note that unsubstantiated tweets/posts meant only to rekindle old arguments can result in a mod action. |
On November 22 2012 06:49 Nikk wrote:Show nested quote +On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. Show nested quote +On November 22 2012 06:37 jdseemoreglass wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to. Yes, and also, no one is going to loan money to someone with "infinite" debt lmao. These things seem obvious, but apparently they need explaining. -_- Show nested quote +On November 22 2012 06:43 jdseemoreglass wrote:
Why do you say we aren't even close to those levels? We've already had our credit rating downgraded by S&P.
The trouble on the debt front is far from imaginary. The trouble that could ensue after the fiscal cliff will certainly not be imaginary either.
Inflation also skews the signals set by price mechanisms, which introduces various forms of inefficiency into a market. What do you mean by "no one is going to loan money to someone with infinite debt"? We are talking about the US government and not a user of the currency aren't we? The government will always be able to sell bonds if needed. There is absolutely no conceivable way that this isn't the case. And on that note, we don't have to even sell bonds. That is a policy decision that is made to encourage savings. The credit rating downgrade has nothing to do with the debt or deficit levels. It was specifically political, as mentioned above.
The government has to borrow money from someone. Who are they going to sell bonds to if people lose trust? At some point the interest from the debt will not be able to be paid, and that means missed payments, which means we can't pay our debt, which means people won't be willing to lend us more money, which means we can't have infinite debt...
As far as inflation goes, if the US abused the power of inflation the dollar would no longer be the world reserve currency. People would simply switch to something else, and then no one would accept payments in dollars. The dollars themselves would become worthless eventually.
You live in a fantasy world if you think infinite debt or infinite inflation is a possibility.
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Nikk
United States63 Posts
On November 22 2012 06:53 Souma wrote:Show nested quote +On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. Well I was assuming you were talking about debt in general, which includes foreign-held debt, and not just local debt. But uh, I would also think there's some threshold where the dollar could be too devalued but I have nothing on that.
Foreign held debt is also in dollars. We aren't borrowing a foreign currency. Foreign countries exchange dollars (which they gain from our trade deficit) for bonds (which are the exact same thing except pay interest).
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2nd Worst City in CA8938 Posts
On November 22 2012 06:57 Nikk wrote:Show nested quote +On November 22 2012 06:53 Souma wrote:On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. Well I was assuming you were talking about debt in general, which includes foreign-held debt, and not just local debt. But uh, I would also think there's some threshold where the dollar could be too devalued but I have nothing on that. Foreign held debt is also in dollars. We aren't borrowing a foreign currency. Foreign countries exchange dollars (which they gain from our trade deficit) for bonds (which are the exact same thing except pay interest).
Yeah, but there's a point in which the dollar could become too devalued and that would signal to foreign countries that buying U.S. debt is not in their best interests (it is, afterall, an investment). We're not even close to that point yet, but since we're dealing with hypotheticals I would assume that is why we can't have infinite debt.
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Cayman Islands24199 Posts
uh, when the debt is denominated in dollars the interest can always be paid. you might have trouble selling bonds but the short term absorption rate is always the limit and not the long term debt amount. this is particularly true in today's world and the u.s.'s position in it.
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Nikk
United States63 Posts
On November 22 2012 06:55 jdseemoreglass wrote:Show nested quote +On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. On November 22 2012 06:37 jdseemoreglass wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to. Yes, and also, no one is going to loan money to someone with "infinite" debt lmao. These things seem obvious, but apparently they need explaining. -_- On November 22 2012 06:43 jdseemoreglass wrote:
Why do you say we aren't even close to those levels? We've already had our credit rating downgraded by S&P.
The trouble on the debt front is far from imaginary. The trouble that could ensue after the fiscal cliff will certainly not be imaginary either.
Inflation also skews the signals set by price mechanisms, which introduces various forms of inefficiency into a market. What do you mean by "no one is going to loan money to someone with infinite debt"? We are talking about the US government and not a user of the currency aren't we? The government will always be able to sell bonds if needed. There is absolutely no conceivable way that this isn't the case. And on that note, we don't have to even sell bonds. That is a policy decision that is made to encourage savings. The credit rating downgrade has nothing to do with the debt or deficit levels. It was specifically political, as mentioned above. The government has to borrow money from someone. Who are they going to sell bonds to if people lose trust? At some point the interest from the debt will not be able to be paid, and that means missed payments, which means we can't pay our debt, which means people won't be willing to lend us more money, which means we can't have infinite debt...
This is simply not true. First of all, we don't "have" to borrow money from anyone. The US government is the issuer of the currency. Bonds aren't actually "borrowing" anything, they are exchanging money from a non-interest bearing account at the fed into an interest bearing account at the fed, which again, is a policy decision made to encourage savings as well as to help the fed reach its overnight interest rate target (which is 0 or near 0 currently). Secondly, it is law that certain banks will buy bonds, this isn't an issue of trust.
Finally, we are absolutely no where near any kind of situation that has resulted in hyperinflation. Our money isn't tied to gold and our debt is in dollars.
Edit: In case it wasn't clear, saying that "at some point the interest from the debt will not be able to be paid" makes no sense at all. We can always pay interest on dollar debt. Always, without exception. There is no possible circumstance where this isn't the case. Why do you say otherwise?
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What is the dollar now tied to? How does one value it? Obviously not the gold standard, maybe units of labour, like for every 20 dollars debt is about an hour of the average americans labor?
If its not tied to something, corrections will happen when you realize you are holding monopoly money and try to tie it to something of value. That is what the right is terrified of when talking about deficits being harmful.
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On November 22 2012 07:08 Nikk wrote:Show nested quote +On November 22 2012 06:55 jdseemoreglass wrote:On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. On November 22 2012 06:37 jdseemoreglass wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to. Yes, and also, no one is going to loan money to someone with "infinite" debt lmao. These things seem obvious, but apparently they need explaining. -_- On November 22 2012 06:43 jdseemoreglass wrote:
Why do you say we aren't even close to those levels? We've already had our credit rating downgraded by S&P.
The trouble on the debt front is far from imaginary. The trouble that could ensue after the fiscal cliff will certainly not be imaginary either.
Inflation also skews the signals set by price mechanisms, which introduces various forms of inefficiency into a market. What do you mean by "no one is going to loan money to someone with infinite debt"? We are talking about the US government and not a user of the currency aren't we? The government will always be able to sell bonds if needed. There is absolutely no conceivable way that this isn't the case. And on that note, we don't have to even sell bonds. That is a policy decision that is made to encourage savings. The credit rating downgrade has nothing to do with the debt or deficit levels. It was specifically political, as mentioned above. The government has to borrow money from someone. Who are they going to sell bonds to if people lose trust? At some point the interest from the debt will not be able to be paid, and that means missed payments, which means we can't pay our debt, which means people won't be willing to lend us more money, which means we can't have infinite debt... This is simply not true. First of all, we don't "have" to borrow money from anyone. The US government is the issuer of the currency. Bonds aren't actually "borrowing" anything, they are exchanging money from a non-interest bearing account at the fed into an interest bearing account at the fed, which again, is a policy decision made to encourage savings as well as to help the fed reach its overnight interest rate target (which is 0 or near 0 currently). Secondly, it is law that certain banks will buy bonds, this isn't an issue of trust. Finally, we are absolutely no where near any kind of situation that has resulted in hyperinflation. Our money isn't tied to gold and our debt is in dollars. Edit: In case it wasn't clear, saying that "at some point the interest from the debt will not be able to be paid" makes no sense at all. We can always pay interest on dollar debt. Always, without exception. There is no possible circumstance where this isn't the case. Why do you say otherwise?
The Treasury borrows money from the credit markets - not the Federal reserve.
If the Fed chose to finance the Treasury that would reduce its ability to engage in effective monetary policy.
Edit: Responding to your edit: At some point interest payments would become so large that the entire economic system would become a farce - imagine paying half your salary in taxes just so that the government could pay its creditors. If you are a creditor it would be cool, but if not then long live the revolution.
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On November 22 2012 05:52 jdseemoreglass wrote:Show nested quote +On November 22 2012 05:29 Souma wrote:Hillary scores a cease-fire in Gaza. This woman works magic. I, for one, thought it would be impossible for an immediate cease-fire after the bombing of the bus in Tel Aviv. The Obama Administration won't be the same without her I imagine. If Susan Rice weathers the storm then I imagine she'll take the reigns, otherwise it's likely to be John Kerry, who is a shoo-in for both Secretary of Defense and State. What's next, Hillary?  Hillary achieved the ceasefire, even though the deal was largely brokered by the Egyptian government and was decided before she arrived to announce it. Anyway, it's not much of a ceasefire when you have rocket attacks just hours after the truce. I think we will come to realize that the "ceasefire" is simply a chance for Hamas to regroup before it attacks again. Show nested quote +On November 22 2012 05:37 sam!zdat wrote:On November 22 2012 05:30 jdseemoreglass wrote:
It should be considered wrong to repeatedly take money from people who haven't even been born yet, we are hurting our own children and grandchildren. And yet I distinctly remember you taking a rather hardline "damn the torpedoes" attitude towards environmentalism... Depends on what kind of environmentalism we are talking about here. I'm in favor of environmental policies if they have clear and worthwhile positive externalities. But trying to stop global warming by slowing carbon emission growth will have no positive externalities.
See, if you bring personal opinions that contradict the general opinion, anyone can justify anything. I can just say "I don't think overspending will hurt our children", therefore I don't find it wrong that we do it.
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Nikk
United States63 Posts
On November 22 2012 07:16 JonnyBNoHo wrote:Show nested quote +On November 22 2012 07:08 Nikk wrote:On November 22 2012 06:55 jdseemoreglass wrote:On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. On November 22 2012 06:37 jdseemoreglass wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to. Yes, and also, no one is going to loan money to someone with "infinite" debt lmao. These things seem obvious, but apparently they need explaining. -_- On November 22 2012 06:43 jdseemoreglass wrote:
Why do you say we aren't even close to those levels? We've already had our credit rating downgraded by S&P.
The trouble on the debt front is far from imaginary. The trouble that could ensue after the fiscal cliff will certainly not be imaginary either.
Inflation also skews the signals set by price mechanisms, which introduces various forms of inefficiency into a market. What do you mean by "no one is going to loan money to someone with infinite debt"? We are talking about the US government and not a user of the currency aren't we? The government will always be able to sell bonds if needed. There is absolutely no conceivable way that this isn't the case. And on that note, we don't have to even sell bonds. That is a policy decision that is made to encourage savings. The credit rating downgrade has nothing to do with the debt or deficit levels. It was specifically political, as mentioned above. The government has to borrow money from someone. Who are they going to sell bonds to if people lose trust? At some point the interest from the debt will not be able to be paid, and that means missed payments, which means we can't pay our debt, which means people won't be willing to lend us more money, which means we can't have infinite debt... This is simply not true. First of all, we don't "have" to borrow money from anyone. The US government is the issuer of the currency. Bonds aren't actually "borrowing" anything, they are exchanging money from a non-interest bearing account at the fed into an interest bearing account at the fed, which again, is a policy decision made to encourage savings as well as to help the fed reach its overnight interest rate target (which is 0 or near 0 currently). Secondly, it is law that certain banks will buy bonds, this isn't an issue of trust. Finally, we are absolutely no where near any kind of situation that has resulted in hyperinflation. Our money isn't tied to gold and our debt is in dollars. Edit: In case it wasn't clear, saying that "at some point the interest from the debt will not be able to be paid" makes no sense at all. We can always pay interest on dollar debt. Always, without exception. There is no possible circumstance where this isn't the case. Why do you say otherwise? The Treasury borrows money from the credit markets - not the Federal reserve. If the Fed chose to finance the Treasury that would reduce its ability to engage in effective monetary policy. Edit: Responding to your edit: At some point interest payments would become so large that the entire economic system would become a farce - imagine paying half your salary in taxes just so that the government could pay its creditors. If you are a creditor it would be cool, but if not then long live the revolution.
The US government sets the interest rate. The fed and the treasury both sell bonds to drain excess reserves from the banking system and reach their interest rate target. This is part of monetary policy, not the fiscal operations of the state. This is the point that I think most people are missing.
Taxes don't "pay" for anything, they just exist to redistribute wealth and control inflation. Every dollar the government spends is a dollar created in the economy. Every dollar the government taxes is a dollar destroyed in the economy. It seems to me clearly necessary that to avoid deflation (the worst possible thing along the lines of hyperinflation) and facilitate private savings we should always be in deficit and always be creating more dollars.
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Cayman Islands24199 Posts
the tax rate is a separate policy concern apart from debt level. you don't raise taxes to pay the debt, you just print or type in the dolla and inflate away the debt.
political pressure from the debt will prob raise the tax rate, but it won't actually help with paying the debt. growing the economy does.
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On November 22 2012 07:34 Nikk wrote:Show nested quote +On November 22 2012 07:16 JonnyBNoHo wrote:On November 22 2012 07:08 Nikk wrote:On November 22 2012 06:55 jdseemoreglass wrote:On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. On November 22 2012 06:37 jdseemoreglass wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to. Yes, and also, no one is going to loan money to someone with "infinite" debt lmao. These things seem obvious, but apparently they need explaining. -_- On November 22 2012 06:43 jdseemoreglass wrote:
Why do you say we aren't even close to those levels? We've already had our credit rating downgraded by S&P.
The trouble on the debt front is far from imaginary. The trouble that could ensue after the fiscal cliff will certainly not be imaginary either.
Inflation also skews the signals set by price mechanisms, which introduces various forms of inefficiency into a market. What do you mean by "no one is going to loan money to someone with infinite debt"? We are talking about the US government and not a user of the currency aren't we? The government will always be able to sell bonds if needed. There is absolutely no conceivable way that this isn't the case. And on that note, we don't have to even sell bonds. That is a policy decision that is made to encourage savings. The credit rating downgrade has nothing to do with the debt or deficit levels. It was specifically political, as mentioned above. The government has to borrow money from someone. Who are they going to sell bonds to if people lose trust? At some point the interest from the debt will not be able to be paid, and that means missed payments, which means we can't pay our debt, which means people won't be willing to lend us more money, which means we can't have infinite debt... This is simply not true. First of all, we don't "have" to borrow money from anyone. The US government is the issuer of the currency. Bonds aren't actually "borrowing" anything, they are exchanging money from a non-interest bearing account at the fed into an interest bearing account at the fed, which again, is a policy decision made to encourage savings as well as to help the fed reach its overnight interest rate target (which is 0 or near 0 currently). Secondly, it is law that certain banks will buy bonds, this isn't an issue of trust. Finally, we are absolutely no where near any kind of situation that has resulted in hyperinflation. Our money isn't tied to gold and our debt is in dollars. Edit: In case it wasn't clear, saying that "at some point the interest from the debt will not be able to be paid" makes no sense at all. We can always pay interest on dollar debt. Always, without exception. There is no possible circumstance where this isn't the case. Why do you say otherwise? The Treasury borrows money from the credit markets - not the Federal reserve. If the Fed chose to finance the Treasury that would reduce its ability to engage in effective monetary policy. Edit: Responding to your edit: At some point interest payments would become so large that the entire economic system would become a farce - imagine paying half your salary in taxes just so that the government could pay its creditors. If you are a creditor it would be cool, but if not then long live the revolution. The US government sets the interest rate. The fed and the treasury both sell bonds to drain excess reserves from the banking system and reach their interest rate target. This is part of monetary policy, not the fiscal operations of the state. This is the point that I think most people are missing. Taxes don't "pay" for anything, they just exist to redistribute wealth and control inflation. Every dollar the government spends is a dollar created in the economy. Every dollar the government taxes is a dollar destroyed in the economy. It seems to me clearly necessary that to avoid deflation (the worst possible thing along the lines of hyperinflation) and facilitate private savings we should always be in deficit and always be creating more dollars.
The US government does NOT set the interest rate. The Federal Reserve (not the government) sets a target for interest rates and then engages in open market operations (buys or sells bonds) in order to achieve the target.
Taxes pay for what the government does. That which taxes do not pay for are covered by debt issuance from the Treasury (not the Fed).
The Federal Government and the Federal Reserve are separate. The Federal Government can run either a surplus or a deficit and the Federal Reserve can still buy bonds to create more money.
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On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question.
I think the interests rates will probably become a bit higher than zero in real terms before they start to become burdensome, however. We actually CAN let the debt expand indefinitely if the rate at which it expands is commensurate with the overall rate at which the economy expands.
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2nd Worst City in CA8938 Posts
On November 22 2012 07:48 HunterX11 wrote:Show nested quote +On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. I think the interests rates will probably become a bit higher than zero in real terms before they start to become burdensome, however. We actually CAN let the debt expand indefinitely if the rate at which it expands is commensurate with the overall rate at which the economy expands.
Indeed. We can't, however, just let the debt explode and say, "We're just going to print money to offset it," which is what I believe they're talking about. The U.S. is not exactly indefinitely self-sustainable so the role of the dollar in global markets is important, but there is an argument to be made that the dollar is currently overvalued.
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Cayman Islands24199 Posts
MMT is not about arbitrary debt level. just more fiscal policy space.
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Nikk
United States63 Posts
Saying that the fed is not part of the US government is "technically" correct but disingenuous at best. Other arms of government cannot "overrule" the fed but that doesn't change the fact it acts as the central bank of the US and its leaders are appointed by the president and confirmed by the senate. Its "separate" from the government in the fact that its suppose to be apolitical.
Funding deficits with bond sales (or taxes for that matter) is a self imposed limitation and not fundamentally necessary. The government does all spending (including interest payments) by simply crediting reserve accounts.
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On November 22 2012 07:16 JonnyBNoHo wrote:Show nested quote +On November 22 2012 07:08 Nikk wrote:On November 22 2012 06:55 jdseemoreglass wrote:On November 22 2012 06:49 Nikk wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to.
btw I'm not addressing the current debt issue, I'm mainly responding to the "Why shouldn't we let debt expand infinitely?" question. Why do interest rates become too big of a burden? The US can never become insolvent as the debt is in dollars. On November 22 2012 06:37 jdseemoreglass wrote:On November 22 2012 06:34 Souma wrote:
At some point the interest rates just become too big of a burden. And, for obvious reasons, the U.S. can't just print as much money as it wanted to. Yes, and also, no one is going to loan money to someone with "infinite" debt lmao. These things seem obvious, but apparently they need explaining. -_- On November 22 2012 06:43 jdseemoreglass wrote:
Why do you say we aren't even close to those levels? We've already had our credit rating downgraded by S&P.
The trouble on the debt front is far from imaginary. The trouble that could ensue after the fiscal cliff will certainly not be imaginary either.
Inflation also skews the signals set by price mechanisms, which introduces various forms of inefficiency into a market. What do you mean by "no one is going to loan money to someone with infinite debt"? We are talking about the US government and not a user of the currency aren't we? The government will always be able to sell bonds if needed. There is absolutely no conceivable way that this isn't the case. And on that note, we don't have to even sell bonds. That is a policy decision that is made to encourage savings. The credit rating downgrade has nothing to do with the debt or deficit levels. It was specifically political, as mentioned above. The government has to borrow money from someone. Who are they going to sell bonds to if people lose trust? At some point the interest from the debt will not be able to be paid, and that means missed payments, which means we can't pay our debt, which means people won't be willing to lend us more money, which means we can't have infinite debt... This is simply not true. First of all, we don't "have" to borrow money from anyone. The US government is the issuer of the currency. Bonds aren't actually "borrowing" anything, they are exchanging money from a non-interest bearing account at the fed into an interest bearing account at the fed, which again, is a policy decision made to encourage savings as well as to help the fed reach its overnight interest rate target (which is 0 or near 0 currently). Secondly, it is law that certain banks will buy bonds, this isn't an issue of trust. Finally, we are absolutely no where near any kind of situation that has resulted in hyperinflation. Our money isn't tied to gold and our debt is in dollars. Edit: In case it wasn't clear, saying that "at some point the interest from the debt will not be able to be paid" makes no sense at all. We can always pay interest on dollar debt. Always, without exception. There is no possible circumstance where this isn't the case. Why do you say otherwise? The Treasury borrows money from the credit markets - not the Federal reserve. If the Fed chose to finance the Treasury that would reduce its ability to engage in effective monetary policy. Edit: Responding to your edit: At some point interest payments would become so large that the entire economic system would become a farce - imagine paying half your salary in taxes just so that the government could pay its creditors. If you are a creditor it would be cool, but if not then long live the revolution.
The Fed buys bonds through the credit markets. All it basically does is create a middle man and prevent the Fed from discouraging private purchases of U.S. debt. It's a tool to determine market confidence in government spending, if only politicians would listen...
On November 22 2012 07:15 Wolfstan wrote:
What is the dollar now tied to? How does one value it? Obviously not the gold standard, maybe units of labour, like for every 20 dollars debt is about an hour of the average americans labor?
If its not tied to something, corrections will happen when you realize you are holding monopoly money and try to tie it to something of value. That is what the right is terrified of when talking about deficits being harmful.
It essentially already is Monopoly money. However, the "social contract" prevents it from being seen as such. As long as people have faith that their money can be exchanged for what they want and need, the strength of the dollar (and other major currencies) will remain. Believe it or not, gold and silver are essentially Monopoly money as well, it's just the government can't manipulate the supply (as easily).
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Nikk
United States63 Posts
On November 21 2012 22:26 Zaros wrote:Show nested quote +On November 21 2012 22:01 Nikk wrote:On November 21 2012 21:46 p4NDemik wrote:
It's also easy to pitch because it is a relevant concern. Not so relevant that holding the debt limit hostage was the reasonable approach to getting it done, but relevant enough to push for reform now, while we are in a reform-mindset post recession and post 2007-2008 financial crisis. This comes back to my original question. Why is deficit reduction a relevant concern? If anything, shouldn't we increase deficit spending during a recession or in times of high unemployment? Depends on your economic point of view, if you are a Keynesian then you would increase spending if you could without having the markets increasing your interest rates. If you believe in someone like Hayek then you wouldn't increase spending because you would believe it only makes things worse.
Why does someone who believes in Hayek (or Hayek himself) feel this way? Isn't it just neoliberal ideology on the role of government and not for economic reasons that reflect the reality of our current system?
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On November 22 2012 09:31 Nikk wrote:Show nested quote +On November 21 2012 22:26 Zaros wrote:On November 21 2012 22:01 Nikk wrote:On November 21 2012 21:46 p4NDemik wrote:
It's also easy to pitch because it is a relevant concern. Not so relevant that holding the debt limit hostage was the reasonable approach to getting it done, but relevant enough to push for reform now, while we are in a reform-mindset post recession and post 2007-2008 financial crisis. This comes back to my original question. Why is deficit reduction a relevant concern? If anything, shouldn't we increase deficit spending during a recession or in times of high unemployment? Depends on your economic point of view, if you are a Keynesian then you would increase spending if you could without having the markets increasing your interest rates. If you believe in someone like Hayek then you wouldn't increase spending because you would believe it only makes things worse. Why does someone who believes in Hayek (or Hayek himself) feel this way? Isn't it just neoliberal ideology on the role of government and not for economic reasons that reflect the reality of our current system?
Because Austrian Neoliberal economic theory throws out deductive market measuring tools, basically the meat and potatoes of Keynesian thought, and replaces them with strange axiomatic assumptions in regards to individual agency and collective market movement. In other words, Austrians oversimplify concepts like demand, supply, inflation, and preference because they believe that Keynesian complexity associated with said concepts is obfuscatory. Their "evidence" tends to be cursory indictments of the genesis of economic crises such as the current fiscal cliff or the past housing bubble; however, as is accepted by most economic thinkers, the reasons why these problems arise are not always clear, even with hindsight, rendering most Austrian conclusions far too unequivocal. Furthermore, Austrians tend to point at vague forecasts of future economic problems without doing the footwork needed to sufficiently establish a basis for their brand of causality. "Our grandchildren will pay for our greed." is perhaps the best example of this sort of reasoning. In any case, I think certain Austrian modalities of thinking can be quite useful when applied to Keynesian theory; anything more expansive than that begins to fall apart.
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On November 22 2012 09:04 Nikk wrote:
Saying that the fed is not part of the US government is "technically" correct but disingenuous at best. Other arms of government cannot "overrule" the fed but that doesn't change the fact it acts as the central bank of the US and its leaders are appointed by the president and confirmed by the senate. Its "separate" from the government in the fact that its suppose to be apolitical.
Funding deficits with bond sales (or taxes for that matter) is a self imposed limitation and not fundamentally necessary. The government does all spending (including interest payments) by simply crediting reserve accounts.
To clarify - my point was not that the Fed is separate from the government but that Fed operations are separate form the government.
The treasury can issue $1T of debt and the Fed can buy zero of it. Or all of it. Or some of it. Or it can sell some on top of that. Whatever it feels is appropriate.
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EPT
