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Now that we have a new thread, 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 complete and thorough read before posting! NOTE: When providing a source, please provide a very brief summary on what it's about and what purpose it adds to the discussion. The supporting statement should clearly explain why the subject is relevant and needs to be discussed. Please follow this rule especially for tweets.
Your supporting statement should always come BEFORE you provide the source.If you have any questions, comments, concern, or feedback regarding the USPMT, then please use this thread: http://www.teamliquid.net/forum/website-feedback/510156-us-politics-thread |
United States43448 Posts
On June 06 2023 00:30 gobbledydook wrote:Show nested quote +On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest.
Do you though?
Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible.
Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller.
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On June 06 2023 00:35 KwarK wrote:Show nested quote +On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller.
That only works if the economy is growing faster than the interest rate though.
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United States43448 Posts
On June 06 2023 03:12 gobbledydook wrote:Show nested quote +On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though.
The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible.
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On June 06 2023 04:03 KwarK wrote:Show nested quote +On June 06 2023 03:12 gobbledydook wrote:On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though. The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible.
It sounds to me like the national debt might as well be described as infinity. Not only because I like being cynical and the debt is ever increasing, but because the concept of infinity and how it behaves in mathematics is similarly quirky. Say you have a number which is equal to 1.1 * infinity, and you increase that to 1.2 * infinity. Logically, I can (kinda) say 1.2 * infinity is bigger than 1.1 * infinity. But if you ask me what that means in tangible terms I can't make a distinction between them. They both still represent the concept of an ever-increasing quantity.
I don't know if there's a point I'm making, but infinity's weird and I like that.
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On June 06 2023 04:30 NewSunshine wrote:Show nested quote +On June 06 2023 04:03 KwarK wrote:On June 06 2023 03:12 gobbledydook wrote:On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though. The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible. It sounds to me like the national debt might as well be described as infinity. Not only because I like being cynical and the debt is ever increasing, but because the concept of infinity and how it behaves in mathematics is similarly quirky. Say you have a number which is equal to 1.1 * infinity, and you increase that to 1.2 * infinity. Logically, I can (kinda) say 1.2 * infinity is bigger than 1.1 * infinity. But if you ask me what that means in tangible terms I can't make a distinction between them. They both still represent the concept of an ever-increasing quantity. I don't know if there's a point I'm making, but infinity's weird and I like that.
As a maths teacher, i must disagree here. 1.2 * infinity is still the same infinity as 1.1*infinity, which is the same infinity as 1*infinity. You can prove that quite easily. For a visualization/motivation, google ""Hilbert Hotel".
There are infinities of different sizes, but you don't get them by just adding or multiplying stuff. You need to do something qualitatively different.
There are exactly as many natural numbers as there are whole numbers as there are even numbers as there are rational numbers. But there are more real numbers than that.
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I did say kinda, I've had enough exposure to infinity to know that, in those terms, it's the same thing, which is the extent of the comparison my brain made. I'm no maths teacher. Just an interesting thought I had.
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On June 06 2023 04:03 KwarK wrote:Show nested quote +On June 06 2023 03:12 gobbledydook wrote:On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though. The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible.
I wouldn't describe the US dollar as a promise. It is fundamentally a store of value, backed by the fact that a percentage of any economic value generated in the US is to be paid to the US government using this currency, i.e. tax.
If the US government is unable to pay the interest, it can print more money sure, but if the real economic output stays the same then the money is worth less compared to the economic output, and so we have inflation.
Inflation makes it so that when the US government wants to spend money to do stuff, it has to pay more dollars, so it has to borrow more money, thus incurring more interest, and you have this feedback loop.
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United States43448 Posts
On June 06 2023 12:02 gobbledydook wrote:Show nested quote +On June 06 2023 04:03 KwarK wrote:On June 06 2023 03:12 gobbledydook wrote:On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though. The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible. I wouldn't describe the US dollar as a promise. It is fundamentally a store of value, backed by the fact that a percentage of any economic value generated in the US is to be paid to the US government using this currency, i.e. tax. If the US government is unable to pay the interest, it can print more money sure, but if the real economic output stays the same then the money is worth less compared to the economic output, and so we have inflation. Inflation makes it so that when the US government wants to spend money to do stuff, it has to pay more dollars, so it has to borrow more money, thus incurring more interest, and you have this feedback loop.
What I meant by promise is that the US government promises to demand some Americans give it some dollars and therefore implicitly promises that you’ll be able to find some Americans who are eager for your dollars. It’s not known what you’ll ask them to do or how much or when but you’ll be able to get some amount of labour performed by some Americans at some point. It doesn’t represent anything tangible, or even a fixed amount of labour, just the idea that American labour exists and has value.
Paying interest isn’t necessarily increasing the amount of labour owed. The nominal number doesn’t have a direct real world conversion ratio. You can handwave “now I owe you 2% more” without ever answering the question of “2% more what”.
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You also have to keep in mind with the hyperinflation doomers that the rest of the world would experience (as we saw post covid) a heck of a lot more of the inflation than the US would in that scenario. Being the world reserve currency you have to be in a deficit as the world needs more dollars out there in order to conduct trade between themselves.
If the US really got into that apocalypse of hyperinflation you would see the nations and organizations that hold the loan notes looking to renegotiate their loan, ala Greece, long before they would just stand by and watch the global economy end. The world suffers far more from US default than the US does.
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On June 06 2023 12:25 KwarK wrote:Show nested quote +On June 06 2023 12:02 gobbledydook wrote:On June 06 2023 04:03 KwarK wrote:On June 06 2023 03:12 gobbledydook wrote:On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though. The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible. I wouldn't describe the US dollar as a promise. It is fundamentally a store of value, backed by the fact that a percentage of any economic value generated in the US is to be paid to the US government using this currency, i.e. tax. If the US government is unable to pay the interest, it can print more money sure, but if the real economic output stays the same then the money is worth less compared to the economic output, and so we have inflation. Inflation makes it so that when the US government wants to spend money to do stuff, it has to pay more dollars, so it has to borrow more money, thus incurring more interest, and you have this feedback loop. What I meant by promise is that the US government promises to demand some Americans give it some dollars and therefore implicitly promises that you’ll be able to find some Americans who are eager for your dollars. It’s not known what you’ll ask them to do or how much or when but you’ll be able to get some amount of labour performed by some Americans at some point. It doesn’t represent anything tangible, or even a fixed amount of labour, just the idea that American labour exists and has value. Paying interest isn’t necessarily increasing the amount of labour owed. The nominal number doesn’t have a direct real world conversion ratio. You can handwave “now I owe you 2% more” without ever answering the question of “2% more what”.
It is directly related though, because what debt is is essentially trading tomorrow’s labour for today’s. If you trade so much of tomorrow’s labour that you don’t have enough tomorrow, you have a problem.
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On June 06 2023 17:08 gobbledydook wrote:Show nested quote +On June 06 2023 12:25 KwarK wrote:On June 06 2023 12:02 gobbledydook wrote:On June 06 2023 04:03 KwarK wrote:On June 06 2023 03:12 gobbledydook wrote:On June 06 2023 00:35 KwarK wrote:On June 06 2023 00:30 gobbledydook wrote:On June 05 2023 21:34 Ryzel wrote:On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:
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Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for? The problem with debt is you have to pay interest, and it becomes a problem when you don't produce enough economic output to pay the interest. Do you though? Let’s say I owe you a favour. You don’t call in that favour for a few years and so now I owe you 3% more favour than before. What does that actually mean? At what point will I be unable to increase the size of the favour that I owe you because my favour mines have run dry? You can always pay the interest because, from the perspective of the treasury, you’re paying interest in something intangible. The real thing is what they subsequently do with that intangible. Dollar denominated debt is, from the perspective of the United States, not actually real. Dollar debt is tangible for an individual but not for a state that issues the dollar. When the US issues dollar debt it is issuing a claim on whatever amount of future US labour that will happen to represent at whatever time the other party chooses to demand some US labour. This is enforced by the ability of the US government to demand dollars from its people which forces them to earn dollars from whoever currently holds them including whoever just bought the debt. But the interest on the debt doesn’t necessarily represent an increased amount of labour owed, nor an increased burden. Inflation exceeding interest will, in real terms, decrease the obligation. Economic growth exceeding interest will mean that the obligation, as a percentage of the labour pool against which it has been written, has gotten smaller. That only works if the economy is growing faster than the interest rate though. The decreasing in proportionate terms part only applies if the economy grows faster than the interest. But the part about being unable to default on what is essentially a promise to deliver a promise is true. What the bond holder is demanding is dollars which to the US gov is a promise. Adding interest just means it’s a slightly bigger promise, it’s still wholly intangible. I wouldn't describe the US dollar as a promise. It is fundamentally a store of value, backed by the fact that a percentage of any economic value generated in the US is to be paid to the US government using this currency, i.e. tax. If the US government is unable to pay the interest, it can print more money sure, but if the real economic output stays the same then the money is worth less compared to the economic output, and so we have inflation. Inflation makes it so that when the US government wants to spend money to do stuff, it has to pay more dollars, so it has to borrow more money, thus incurring more interest, and you have this feedback loop. What I meant by promise is that the US government promises to demand some Americans give it some dollars and therefore implicitly promises that you’ll be able to find some Americans who are eager for your dollars. It’s not known what you’ll ask them to do or how much or when but you’ll be able to get some amount of labour performed by some Americans at some point. It doesn’t represent anything tangible, or even a fixed amount of labour, just the idea that American labour exists and has value. Paying interest isn’t necessarily increasing the amount of labour owed. The nominal number doesn’t have a direct real world conversion ratio. You can handwave “now I owe you 2% more” without ever answering the question of “2% more what”. It is directly related though, because what debt is is essentially trading tomorrow’s labour for today’s. If you trade so much of tomorrow’s labour that you don’t have enough tomorrow, you have a problem.
That may have been the truth decades ago and may be academically true but today thats not the only thing debt is in reality today. The fact that it is a storage of value, even temporary, is hugely valuable in itself and can be used by other nations. The Fed is never going to sell US dollars for other nations currencies striaght but it can do it through selling debt. China needs to keep its currency low to keep up its export based economy and the only way they can do that is through US debt.
Trying to simplify global finance is just not something realistically possible.
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I think people have an understandable core instinct to try to understand the idea of global debt. And I think its totally impossible and simply not the sort of thing that makes sense to be a democracy thing.
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On June 05 2023 21:34 Ryzel wrote:Show nested quote +On June 05 2023 15:48 RvB wrote:On June 05 2023 01:50 JimmiC wrote:On June 05 2023 00:49 RvB wrote:
It does not matter if it's technically a default or not. Yes you can print money but you willhave runaway inflation and you still lose access to financial markets for new bonds. There's no free lunch. Responding to concerns about national debt by saying that you can print money does not address the underlying issue that there are constraints to government borrowing. Yes but those constraints are very different from every other country in the world. They almost need a different word than debt because people think its like consumer debt and it operates completely differently. It works differently but also not as different as some try to make it out to be. National debt does not have to be paid back like a consumer loan but it can still become problematic. As you say when debt becomes problematic depends on the country and nobody really knows where the line is. Even so, by the time national debt spirals out of control there are only three ways to deal with it: taxation, cutting spending, or inflation. Inflation is not any less painfull than the other two. What exactly is the mechanic that would make paying back/controlling the national debt problematic? When the monetary value of the debt exceeds the global market value of the products/labor it can be cashed in for?
That is a good question but it is not entirely clear. There are countries that defaulted with debt to GDP ratios of around 20% while some other countries ran up debt in excess of 100% of GDP and still have no problems. What generally happens is that a country builds up large amounts of external debt (debt owed to foreigners) and then a shock happens. This can be an internal shock (banking crisis), but it usually an external shock like a recession in another important country or increasing interest rates due to tightening monetary policy. That shock then leads to a lack of trust and increasing interest rates leaving the country in financial distress.
Countries with mostly internal debt do not really default since they have more tools to deal with sovereign debt. For example, after ww2 the way countries dealt with high debt levels was a combination of financial repression and inflation. Financial repression is a catch-all term that allows governments to under pay domestic savers to the benefit of the government. This can range from interest caps on savings account to give an incentive to buy government debt to forcing institutions like pension funds to buy government debt. The social security trust fund being required to invest in US debt and regulation for banks incentivizing buying sovereign debt are good examples. Since there are no explicit tax increases or spending cuts it is a politically easier way to decrease sovereign debt but it is in effect a transfer of money from domestic savers to debtors and decreases the efficiency of capital allocation.
So for the US in particular I doubt we will see anything close to a default. More likely is that we see a combination of financial repression, inflation, and limited fiscal adjustments.
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What's the likelihood we get a serious Democratic Primary field? Robert Kennedy Jr is pulling decent numbers (18%~) and I couldn't tell you one thing I know about the guy besides his last name and being an anti-vaxxer. If Biden falls and breaks his hip he's probably the front-runner. It's not the worst gamble one could take unless they are a career politician looking to avoid the DNC's scorn. I could see a scenario in which a few more medium-name candidates announce and then a primary feels inevitable enough that a big name will not feel the pressure of having to thumb their nose at Biden/DNC by announcing. Then the dam breaks and we get a full blown primary.
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I think the likelihood of a serious Democratic primary is low, and that worries me. Even if Biden has an incumbent advantage, and even if he polls decently well against both Trump and DeSantis, I still think we ought to have a legitimate primary.
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An antivaxxer wont win the primary for the DNC. Polls are useless now.
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Norway28731 Posts
I'm seeing that Lyndon B. Johnson and Harry Truman both lost primaries while holding office. Aside from them, Gerald Ford, Jimmy Carter and George H. W. Bush were all subject to primary challenges, but held them off - only to then lose the general election.
So out of the previous 5 presidents to be subject to a primary challenge, none were reelected.
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On June 08 2023 20:05 Liquid`Drone wrote:
I'm seeing that Lyndon B. Johnson and Harry Truman both lost primaries while holding office. Aside from them, Gerald Ford, Jimmy Carter and George H. W. Bush were all subject to primary challenges, but held them off - only to then lose the general election.
So out of the previous 5 presidents to be subject to a primary challenge, none were reelected. Probably because a sitting President who looks good going into re-election won't face a challenge to begin with.
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Democratic primary is probably going to be a dud in a variety of ways but there are some wildcard possibilities.
One question is how much of a coronation for someone the majority of the party didn't even want to run Dem voters will stomach?
Democrats going all-in on an obviously antidemocratic primary side by side with campaigning against Trump destroying democracy is going to test people's mental and rhetorical gymnastics for sure though.
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Norway28731 Posts
On June 08 2023 20:18 Gorsameth wrote:Show nested quote +On June 08 2023 20:05 Liquid`Drone wrote:
I'm seeing that Lyndon B. Johnson and Harry Truman both lost primaries while holding office. Aside from them, Gerald Ford, Jimmy Carter and George H. W. Bush were all subject to primary challenges, but held them off - only to then lose the general election.
So out of the previous 5 presidents to be subject to a primary challenge, none were reelected. Probably because a sitting President who looks good going into re-election won't face a challenge to begin with.
I agree. There's basically always a reason for such a primary challenge happening.
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EPT
