What's wrong with US national debt?

[Hygro]

I believe monetary neutrality holds in the long run.

High aggregate demand, and the inflation it brings, does provide you with "the good life" but only in the short run before higher inflation expectations are "built in". The good life comes from stable aggregate demand, and more importantly, increasing aggregate supply.

I think I've identified the broader issue here. You're assuming Y*. You're assuming we're always at Y*. Stop assuming we're at Y*

For those of you spectating, Y* is Y-star or Y-prime, it means equilibrium.

Already dubious that Y* is even a thing because equilibrium is a bit of a dodgy macroeconomic concept. But just assuming it means full employment, which it's meant to, we already know that it doesn't get there and stay there on its own. This is the lynchpin of why macroeconomics even exists: microeconomic equilibrium models don't scale up to the macroeconomy. Primarily because business as a rule underinvests.

The problem here is that the model you're using holds constant virtually everything, starting us at Y*, so a bump in employment driving inflation is the same as a bump in inflation driving employment, which is unsustainable and really just a temporary distortion.

But that's a bit of switcharoo, because holding all things constant, we're able to dodge causation. But if we have unemployed people now, and unemployed capital now, and we employ those people, that drives real gains. If we overshot, which means that we're throwing more money at folks than is needed to get that employment, then some of those gains will not be real gains, merely nominal gains. But there will still be real gains, because the difference between employing them and not employing them is a real difference.

The point being that we can worry "oh no inflation will steal my wages" but that inflation will only negate a fraction of the surplus wages that caused the unemployment in the first place.

See the difference there? That's pretty important.

Earlier you said "The number of years we've been genuinely running up against full employment in the last century is probably like 8, mostly during world-war time." If you're defining "full employment" as the non-accelerating inflation rate of unemployment then you must think NAIRU is really low.

I think NAIRU is generally poorly calculated as most inflation spikes in this country has been supply side and yet aren't often treated as such. The inflation we were seeing just before the crash was not being brought on by the 4.5% unemployment (4.5% consisting of part time jobs and low wages should have been the tip off. Worst. recovery. ever.) but that oil prices via speculation were reaching 70s levels and it was hitting the mainstream economy fast.

But I also think that NAIRU is, in addition to being obviously moving target based on supply price shocks etc is also a function of a lot of variables that we have some control over. And while it's not in the literature AFAIK because my ideas are not literature yet but it seems wealth/income equality is probably a major driver.

Yes, the scenarios did have a supply shock that triggered them. My point is when Zimbabwe reached a peak of over 79,600,000,000% inflation per month it was demand-driven, and aggregate demand growth in the 11 or 12 digits didn't wipe out unemployment.

Of course it didn't, because you can't spend past supply limits. But you can play at the margins. Hyperinflation is counter productive but say it theoretically wasn't--that it was just vastly marginally diminished in effectiveness--that meant that Zimbabwe was not solving the supply shock unemployment but shoring up the margins. So if 20% (made up) unemployment was full employment due to farm appropriations, hyperinflationary spending is used to drive unemployment down to 20% from 20.04%, just to make sure enough people were eating so that the party had a few more votes come election. But, the flip side is that not driving spending increases in the face of a supply shock may have had unemployment at 24%, which is legitimately a lot higher.

Remember, the hyperinflation is the result of a political move to prevent the economy from losing output best as possible. People don't like to move backward in life. Governments know this, or they don't succeed in being governments. But that's different than going forward.

You've misinterpreted. I only mean that fiscal policy is irrelevant for managing aggregate demand. I see the goal of "2-6% inflation and 3% unemployment + real rising wage levels" as being a matter of managing aggregate demand. I don't know how fiscal policy would lower the "natural" unemployment rate although if that's possible I'm all for it.

Fiscal policy can change the natural rate because fiscal policy can change the fundamental nature of our economy, but let's pretend it can't.

That's still a far leap from saying fiscal policy is irrelevant for managing aggregate demand. That's gotta be the weirdest thing I've read in a long while. Honestly the only people I know who write that kind of stuff are people who deny aggregate demand even exists. Those people are crazy man, don't be one of them! (I jest I jest!)

Remember, this branch of discussion stems from is your claim of monetary offset in the way you claimed it. But monetary policy is far weaker than fiscal policy even without the zero lower bound limitation. We didn't win WW2 by cutting interest rates. Government bought war machines with cash. (BTW, peep this: very likely if we keep using IS-MP (IS-LM) next generation we're going to set the MP curve horizontal--aka that all interest rates follow liquidity trap logic to a large degree. That will be an exciting day in the field.)

And monetary policy is a choice, the same as how fiscal policy is a choice. And when MP fails to work, FP is an obvious answer. This brings us back to the point of the topic, which is asking what's wrong with the debt. The debt is the political reason that we don't use our economic policy solutions to our economic problems.

The central banks are forced to raise their interest rates during the peak of a business cycle because demand for credit is rising and if they don't raise rates aggregate demand will get too high. Likewise they're forced to lower rates at the trough of a business cycle or else they would make things worse. So it's the business cycle that's driving interest rates. If the Fed finds they need low interest rate targets, it's a legacy of money being too tight in the past, and vice versa.

That's almost the theory. We haven't done (almost the) it since Volcker though, Greenspan was no better. But central banks are not forced to raise interest rates, they choose to raise interest rates. And if they're really trying to hold back aggregate demand doesn't that makes them the bad guys? Like I said, trying to pop bubbles by raising interest rates is a rookie mistake, it does loads of harm to the real economy that isn't a matter of popping the bubble but a matter of stifling actual demand first which in turn pops the bubble which is just a terrible terrible way of doing it.

Let's remember this part came from your stating that there's not "just one interest rate". Ping pong is fun but let's keep it on the board. Maybe we can consolidate?

Where did I say that the central bank could boost aggregate demand by buying treasury bonds from the treasury but not by buying them from banks who bought them from the treasury...? If we were truly in a "liquidity trap" then the government could continue issuing bonds even when no one is willing to lend to the government without causing inflation, up to the point where we're no longer in a liquidity trap.

I know, it seems crazy once it's put that way. That's why I was asking you to explain it. Here's what you said.

If the system stopped working, and the Federal Reserve started buying all the bonds that private individuals aren't willing to buy from the government, the increase in aggregate demand would lead to high inflation. This would violate the dual mandate the Federal Reserve is supposed to follow. If the government desires price stability, then it has to accept that there are limits on how much money it can spend.

You said two possible things: either spending leads to aggregate demand increases which leads to inflation, or spending without swapping cash for better cash (bonds) and then back to cash leads to inflation. Maybe you meant something else? But then if so, where's the inflation from cutting the middle man?







*****

I don't get this either. Maybe it was when dollars were backed by heavy metals. But now dollars are heavy metals. Which means they have arbitrary value all of their own, based entirely on confidence. Biggest main differences are dollars are easier to transport since their physical manifestation is less cumbersome and the treasury can mine them in an entirely more controllable format?

Treasuries are the heavy metals, because they're the dollars that are fully insured. Actually that makes them better than gold because gold is the one based on confidence in gold. Dollars are based on something, however, and that's taxation. Taxation creates demand for dollars.

You'll have a hard time convincing people that "Every dollar they own is a debt instrument of the US of A". What's it a debt promise of? They'll give you a new dollar bill if you give them an old one?

Bit of a sleight of hand there, you turned debt instrument into debt promise. It's why "debt" is such a misleading term in macroeconomics. It just means that on the macroeconomic ledger, every dollar that's a private sector asset is a government sector liability. Double entry bookkeeping. That's all this is--everything has to sum to 0.

 

[Farm Boy]

Treasuries are the heavy metals, because they're the dollars that are fully insured. Actually that makes them better than gold because gold is the one based on confidence in gold. Dollars are based on something, however, and that's taxation. Taxation creates demand for dollars.

Dollars are worth what people think they're worth. If treasuries are the "heavy metals" backing dollars then dollars are backed by dollars with interest paid in dollars. Which still means their value is because their value is.

I still don't like the trickle-down methodology.

 

[Hygro]

Dollars are worth what people think they're worth. If treasuries are the "heavy metals" backing dollars then dollars are backed by dollars with interest paid in dollars. Which still means their value is because their value is.

I still don't like the trickle-down methodology.

But what people think dollars are worth isn't particularly arbitrary. The government spends a certain amount of money into existence. The government (in theory, that's us) then says that a percent of earnings are to be taxed, but only in the currency issued by the government. If the tax is sufficient and the spending is more or less enough to meet the needs of the economy, then the whole of the economy becomes counted and traded at values congruent with the logic of the money supply. April 15. It's how the system works.

What this means is: our currency isn't a house of cards. It's more like an arch. Strong, but requires all the pieces. But no reason to laden it with precious metals unless you want it to look pretty.

 

[Farm Boy]

Games of naked confidence aren't arbitrary. I agree. Does confidence require trickle-down methodology? Is that the only tool? The only brick for your arch, persay? Cuz I think that one might be made of poo instead of something pretty. And people are happier with pretty arches than ones that smell. And they'll vote to spend time around good aesthetics instead of voting for vacationing near a man operating a fertilizer spreader.

 

[Hygro]

"Is trickle down the only tool?" For what, running a fiat economy? What are you even defining as trickle down? I don't even know what you are talking about anymore. Since when have I ever argued for a trickle down economy policy?

 

[Farm Boy]

Treasuries vs "helicopter money(if I learned that term properly trying to read the 1/3 links I could understand/access(that does mean essentially print and spend to those who consume, right?))" If that dude you linked doesn't care which one brings currency into the system, quantitative easing or helicopter money, why should the people increase supply through trickle-down from the banking system instead of increasing supply directly into labor/consumption? The government gets to buy things either way, no?

 

[Hygro]

I think you have the idea but I want to clarify something just in case.

There might be some confusion because Krugman is comparing direct spending with QE, not with direct spending and bond-sale offsets. QE is the opposite of a bond-sale offset except without changes in government spending, hence why there's no net change (save interest differences).

When the treasury issues treasuries it's doing so after the government has issued new money directly. Aka "the government gets to buy things".

So new money is issued directly either way, it's just one way corresponds with people who are saving cash to convert that into saving bonds. The advantage of issuing bonds is that then the central bank can actually solve problems faster and more fine-tuned than our Congress can when it can buy and sell treasuries on the open market.

The disadvantage is that when net new government spending comes in the form of tax breaks for the rich who turn around and use those tax breaks for buying the bonds that "pay" for those tax breaks, then we're just giving rich folks free interest bearing high powered money.

That doesn't do anyone any good. But having a cash + bonds system doesn't create the policy that abuses it. The same system can be used for the benefit of the people as a whole, without any fundamental changes. What is required is that we change our policies. The best way for that to happen is for people to understand what the system actually is and how it actually works. This means clarifying emotionally charged words that have different meanings. Like debt. Also, "secular". It means a different thing in economics.

BTW most literature doesn't consider bonds high powered money by technicality, but it fits all definitions and is treated by the very writers of that literature treat it as such. I think it's a combination of laziness and politics. So it's high powered money.

 

[Farm Boy]

So if we're spending things, and we both agree that we need to spend on things, and if money is wealth, and we both agree that a key component of wealth is who has relatively more than others instead of raw numbers all around, why should I favor spending on things in a way that rewards based on people already having more money relative to other people? I'm starting to feel touched in the head, like maybe you've answered this, but I just don't see it. Why spend things in such a way as to necessitate paying people, who already have relative wealth, interest on that spending? Is there no better tool? Kinda sorta like my understanding that the purpose of an inheritance tax isn't necessarily being a good tool for raising revenue for the government, it's a tool to knock relative wealth accumulation through generations down a peg. The purpose isn't necessarily what it appears to be at first glace, like bonds helping keep the rich, well, rich. They don't need the help. That's what I have a massive problem with and I don't accept that in the big wide world of smart people and over-important green slips of paper there isn't a better way of doing it even if I'm not the one smart enough to come up with it.

 

[Cutlass]

That's why it takes so much work, and why you have to be flexible. If a stable agricultural commodities market is in the best interest of everyone, but direct payment subsidies are vastly unpopular with issue-uneducated urbanites, then you kill those and accomplish things differently. Maybe you move those funds to crop insurance to try and achieve the desirable stability with another tool. Maybe you couple agricultural supports with the linked issue of food security by the end consumer and you pass the funding with the food stamp program attached. Maybe the flavor of the original policy gets changed. Maybe, if you are lucky, that might even be a good thing. Then it'll start all over again. The dedicated zero-sum warfare will lead some camps to start up their campaign to either discredit crop insurance, or separate food stamps from the funding, and other camps will start trying to insert enough loopholes that most of the funding winds up funneling to the largest and most stable agri-operations. Isn't this how just about every single contentious issue works all the time?

The problem with an issue like this one is that it is immediate to you, because it is your life. But only about 2% of the country are farmers. So the issue is not that big to most of the voters. That leaves you with a place where you have to explain an issue that is central to you to people for which it doesn't, apparently, matter.

When Congress is working, that is handled by logrolling and favor trading. When Congress is not working, you're lucky if you're not one of the groups thrown under the bus.

Great explanations in this thread of when debt isn't a problem and why. Made things much clearer to me.

I wonder, though, could someone explain in simple terms when debt would be a problem and why?

When all the money is spent on coke and hookers. Like was true with the Bush tax cuts.

 

[potatokiosk]

I think I've identified the broader issue here. You're assuming Y*. You're assuming we're always at Y*. Stop assuming we're at Y*

For those of you spectating, Y* is Y-star or Y-prime, it means equilibrium.

Already dubious that Y* is even a thing because equilibrium is a bit of a dodgy macroeconomic concept. But just assuming it means full employment, which it's meant to, we already know that it doesn't get there and stay there on its own. This is the lynchpin of why macroeconomics even exists: microeconomic equilibrium models don't scale up to the macroeconomy. Primarily because business as a rule underinvests.

I think it’s reasonable to assume that in the long run, actual output is strongly correlated with potential output. Output falls short of potential output because in the short run wages are sticky. Where’s the evidence that wages are sticky in the long run? If that’s not the case, then the correlation between output and potential output in the long run isn’t contingent on the government constantly taking measures to close the gap.

I’m not sure what you mean by “business as a rule underinvests”. Are you saying businesses tend to be risk averse and don’t always make investments with a positive expected value? Why would this prevent us from reaching full employment?

The problem here is that the model you're using holds constant virtually everything, starting us at Y*, so a bump in employment driving inflation is the same as a bump in inflation driving employment, which is unsustainable and really just a temporary distortion.

But that's a bit of switcharoo, because holding all things constant, we're able to dodge causation. But if we have unemployed people now, and unemployed capital now, and we employ those people, that drives real gains. If we overshot, which means that we're throwing more money at folks than is needed to get that employment, then some of those gains will not be real gains, merely nominal gains. But there will still be real gains, because the difference between employing them and not employing them is a real difference.

The point being that we can worry "oh no inflation will steal my wages" but that inflation will only negate a fraction of the surplus wages that caused the unemployment in the first place.

See the difference there? That's pretty important.

Yes, in the short run you can bring unemployed resources into employment by increasing aggregate demand.

I think NAIRU is generally poorly calculated as most inflation spikes in this country has been supply side and yet aren't often treated as such. The inflation we were seeing just before the crash was not being brought on by the 4.5% unemployment (4.5% consisting of part time jobs and low wages should have been the tip off. Worst. recovery. ever.) but that oil prices via speculation were reaching 70s levels and it was hitting the mainstream economy fast.

But I also think that NAIRU is, in addition to being obviously moving target based on supply price shocks etc is also a function of a lot of variables that we have some control over. And while it's not in the literature AFAIK because my ideas are not literature yet but it seems wealth/income equality is probably a major driver.

In what ways do you think income inequality creates unemployment?

Of course it didn't, because you can't spend past supply limits. But you can play at the margins. Hyperinflation is counter productive but say it theoretically wasn't--that it was just vastly marginally diminished in effectiveness--that meant that Zimbabwe was not solving the supply shock unemployment but shoring up the margins. So if 20% (made up) unemployment was full employment due to farm appropriations, hyperinflationary spending is used to drive unemployment down to 20% from 20.04%, just to make sure enough people were eating so that the party had a few more votes come election. But, the flip side is that not driving spending increases in the face of a supply shock may have had unemployment at 24%, which is legitimately a lot higher.

Remember, the hyperinflation is the result of a political move to prevent the economy from losing output best as possible. People don't like to move backward in life. Governments know this, or they don't succeed in being governments. But that's different than going forward.

If you assume away all of the supply-side negative effects of inflation then hyperinflation does lead to slightly lower unemployment. However, I think it’s reasonable to say that the various “shoe-leather” and “menu” costs of inflation can, in effect, function as a negative supply shock and the breakdown in the economy from hyperinflation could make unemployment even worse. Maybe the politicians responsible for hyperinflation thought the alternative would lead to higher unemployment, but they weren’t necessarily right.

Fiscal policy can change the natural rate because fiscal policy can change the fundamental nature of our economy, but let's pretend it can't.

That's still a far leap from saying fiscal policy is irrelevant for managing aggregate demand. That's gotta be the weirdest thing I've read in a long while. Honestly the only people I know who write that kind of stuff are people who deny aggregate demand even exists. Those people are crazy man, don't be one of them! (I jest I jest!)

Generally, the policy lags for fiscal policy are going to be worse than the policy lag for monetary policy, unless you’re talking about automatic stabilizers…?

Remember, this branch of discussion stems from is your claim of monetary offset in the way you claimed it. But monetary policy is far weaker than fiscal policy even without the zero lower bound limitation. We didn't win WW2 by cutting interest rates. Government bought war machines with cash. (BTW, peep this: very likely if we keep using IS-MP (IS-LM) next generation we're going to set the MP curve horizontal--aka that all interest rates follow liquidity trap logic to a large degree. That will be an exciting day in the field.)

And monetary policy is a choice, the same as how fiscal policy is a choice. And when MP fails to work, FP is an obvious answer. This brings us back to the point of the topic, which is asking what's wrong with the debt. The debt is the political reason that we don't use our economic policy solutions to our economic problems.

Monetary policy doesn’t win wars- of course not. But I think the decision to devalue the dollar relative to gold was the most effective measure in combatting the Great Depression. Also, it wouldn’t surprise me if the next generation decides to treat all situations like liquidity traps, but that’s because people have a tendency to fight the last war.

That's almost the theory. We haven't done (almost the) it since Volcker though, Greenspan was no better. But central banks are not forced to raise interest rates, they choose to raise interest rates. And if they're really trying to hold back aggregate demand doesn't that makes them the bad guys? Like I said, trying to pop bubbles by raising interest rates is a rookie mistake, it does loads of harm to the real economy that isn't a matter of popping the bubble but a matter of stifling actual demand first which in turn pops the bubble which is just a terrible terrible way of doing it.

Let's remember this part came from your stating that there's not "just one interest rate". Ping pong is fun but let's keep it on the board. Maybe we can consolidate?

Is it really a “choice” when the alternatives are much worse? That’s like saying “work or starve” or “give me your wallet or I’ll shoot you” is a choice. The only choice central banks have is to either set the correct targets, or set the wrong targets and get results that are much worse. And no, central banks shouldn’t be in the business of trying to pop “bubbles”, at least not if the efficient market hypothesis holds water.

I know, it seems crazy once it's put that way. That's why I was asking you to explain it. Here's what you said.

You said two possible things: either spending leads to aggregate demand increases which leads to inflation, or spending without swapping cash for better cash (bonds) and then back to cash leads to inflation. Maybe you meant something else? But then if so, where's the inflation from cutting the middle man?

My statement was made based on the assumption that we’re not in a “liquidity trap”. We’re usually not, and if the central bank did its job correctly it’s possible we never would be. When we’re not in a liquidity trap, increasing the money supply increases aggregate demand whether it happens when the Fed buys treasuries from a middle man or from the Fed paying for bonds to finance deficit spending that the public is no longer willing to finance. The amount of revenue the government can actually raise from seigniorage without a large increase in inflation is pretty small, which is why it’s important for the government to not borrow so much money that people think it will never be paid back without resorting to hyperinflation.

 

[Hygro]

According to Krugman all we need to get out of a "liquidity trap" is a credible promise of higher inflation:
http://www.princeton.edu/~pkrugman/japans_trap.pdf
There's no need for a ballooning national debt to stimulate the economy if the central bank is actually doing its job.

We drove growth for 30 years by steadily decreasing interest rates and now we're at zero.

A higher inflation level just lowers real interest rates giving the central bank room to play. I wrote an undergrad report on in a couple years ago with my math done by our very own Integral, and if we knocked inflation up to 6% we could basically drop interest rates enough to get us back to acceptable levels of employment.

Until the next crisis that is.

The central bank "actually doing its job" is pretty limited. And if you're not down with raising inflation expectations then you are not down with them using their few tools to "actually do their job".

So what central bank technique would you suggest to stimulate the economy that avoids debt?

Great explanations in this thread of when debt isn't a problem and why. Made things much clearer to me.

I wonder, though, could someone explain in simple terms when debt would be a problem and why?

I think Farm Boy's concern with who holds the debt as it pertains to entrenching class differences is the one solid argument against it.

I think the class differences don't depend on their owning the debt though, that's mere icing, but he has a point. It's become one more inequity.

My 2 cents. What's wrong with US national debt? the US Government is too big. It's trying to fund too many things. There is plenty to cut from the federal budget. Some people (special interest groups mainly) would be upset and some politicians would lose elections, but it would be in the best interest of the country and down the line, the rest of the world.

1) How big is too big?
2) What things would you cut from the federal government?

3) If you cut government to your preferred size, and the debt remains, is it still a problem?
3b) If so, why?

See, the thing is, every dollar the government spends goes straight to the private sector. This is an accounting fact. It's also figuratively true. Running surpluses therefore is the opposite. Tax surpluses come from the private sector. Running surpluses shrinks the private sector.

So if we're spending things, and we both agree that we need to spend on things, and if money is wealth, and we both agree that a key component of wealth is who has relatively more than others instead of raw numbers all around, why should I favor spending on things in a way that rewards based on people already having more money relative to other people? I'm starting to feel touched in the head, like maybe you've answered this, but I just don't see it. Why spend things in such a way as to necessitate paying people, who already have relative wealth, interest on that spending? Is there no better tool? Kinda sorta like my understanding that the purpose of an inheritance tax isn't necessarily being a good tool for raising revenue for the government, it's a tool to knock relative wealth accumulation through generations down a peg. The purpose isn't necessarily what it appears to be at first glace, like bonds helping keep the rich, well, rich. They don't need the help. That's what I have a massive problem with and I don't accept that in the big wide world of smart people and over-important green slips of paper there isn't a better way of doing it even if I'm not the one smart enough to come up with it.

There is, and if people don't fear deficits, but find unnecessary the deleterium of epic exponential inequality, we might start electing the politicians who will direct the new money to the right places. And once so, imagine if instead of a rare few saving lots of money, most of us are saving a fair amount, then we can be the ones to buy treasuries instead. Then it's our labor earning the dividends of the US economy.

 

[potatokiosk]

We drove growth for 30 years by steadily decreasing interest rates and now we're at zero.

A higher inflation level just lowers real interest rates giving the central bank room to play. I wrote an undergrad report on in a couple years ago with my math done by our very own Integral, and if we knocked inflation up to 6% we could basically drop interest rates enough to get us back to acceptable levels of employment.

Until the next crisis that is.

The central bank "actually doing its job" is pretty limited. And if you're not down with raising inflation expectations then you are not down with them using their few tools to "actually do their job".

So what central bank technique would you suggest to stimulate the economy that avoids debt?

You seem to be supposing that real interest rates are the sole means by which monetary policy can increase aggregate demand. But this isn't the case and interest rates are a horrible indicator of the stance of monetary policy. A monetary expansion can just as easily lead to higher interest rates rather than lower interest rates.

 

[Hygro]

You seem to be supposing that real interest rates are the sole means by which monetary policy can increase aggregate demand. But this isn't the case and interest rates are a horrible indicator of the stance of monetary policy. A monetary expansion can just as easily lead to higher interest rates rather than lower interest rates.

It's the primary tool. What mechanism of monetary expansion do you have in mind?

 

[Farm Boy]

And once so, imagine if instead of a rare few saving lots of money, most of us are saving a fair amount, then we can be the ones to buy treasuries instead. Then it's our labor earning the dividends of the US economy.

Even if participation is wider spread this would still be the opposite of a progressive tax, it would be a progressive subsidy. Which is just asinine in principle. Like regressive or consumption based taxes.

 

[potatokiosk]

It's the primary tool. What mechanism of monetary expansion do you have in mind?

Just because they set interest rate targets does not mean that lower interest rates are the mechanism by which expansion occurs. A central bank could just as well increase the money supply by targeting something else like an exchange rate. If they did so, it wouldn't make international trade the sole or primary mechanism of economic expansion.

 

[Hygro]

Even if participation is wider spread this would still be the opposite of a progressive tax, it would be a progressive subsidy. Which is just asinine in principle. Like regressive or consumption based taxes.

I assume you mean the higher up the ladder you go the greater the subsidy. Maybe we don't need bonds at all. But then we don't have ways to save dollars safely without them. And we wouldn't have a mechanism for endowment and 401k funds to safely preserve capital.

Maybe we shouldn't even have those and we should have perfectly public schools and bigger pensions for all. But since we don't, getting rid of treasuries doesn't seem like the best option. Maybe you have another take?

Just because they set interest rate targets does not mean that lower interest rates are the mechanism by which expansion occurs. A central bank could just as well increase the money supply by targeting something else like an exchange rate. If they did so, it wouldn't make international trade the sole or primary mechanism of economic expansion.

Begger thy neighbor, eh? That's a zero sum game. You said monetary expansion, not trading our stuff for their currencies (or I suppose buy back our own currency until all the foreign debt is repurchased, which is a limited prospect). How about actual dollar expansion policies. Got any in mind? I know some really radical ways the Fed can boost AD but most of those involve just giving out money to people.

I haven't forgotten the longer post, but the last one took me over an hour so I need a minute yadadamean.

 

[Farm Boy]

I assume you mean the higher up the ladder you go the greater the subsidy. Maybe we don't need bonds at all. But then we don't have ways to save dollars safely without them. And we wouldn't have a mechanism for endowment and 401k funds to safely preserve capital.

Maybe we shouldn't even have those and we should have perfectly public schools and bigger pensions for all. But since we don't, getting rid of treasuries doesn't seem like the best option. Maybe you have another take?

I see no moral reason to assume we need to be rewarding sitting on cash. Inflation should be the cost of sitting on cash. And no, I don't care if it's a "sympathetic" wealthy party sitting on cash in the form of an endowment or a 401k. Capital should not be as "sticky" as it is. Bear in mind, I'm not advocating bashing in capital with massively punishing taxes(though I think they're probably too low for median Americans, and definitely too low the farther up the ladder you go): merely suggesting that inflation is a good rate at which to let it decay.

 

[Cutlass]

I think it should be noted that hyperinflation is not an accident, it is a policy. So people talking about falling into a hyperinflation don't understand the terms that they are using.

 

[Azale]

Sorry if this is removed from the flow of the current conversation, but how does this effect the ability of the US to continue to roll over its debt? The idea being that with another trustworthy international currency to choose from, countries will diversify away from the dollar and our debt will become more onerous.

I personally think the euro was a bigger challenge (who can slight the commitment to currency orthodoxy of the ECB?), but I'm seeing some "sky is falling" commentary on the horizon.

What do you think Mr. Hygro?

 

[Flying Pig]

I think it should be noted that hyperinflation is not an accident, it is a policy. So people talking about falling into a hyperinflation don't understand the terms that they are using.

I'm not sure I understand that. Are you arguing that the crises of Zimbabwe and Weimar Germany were intentional?