Or simply print more money to pay it back. It’s a risk they are taking.
Well, it’s not risk free, at least long term. There’s a reason I diversify financially in multiple countries and multiple ways. Land here, building there, gold here. Heck, I’ve got a condo in Singapore that I’ve never seen, but rented out for 25 years.
I don’t have an answer to most of your questions, but that one is easy. That makes the ~17 trillion in debt outstanding worth a lot less, really quickly. So it’s no big deal. In fact it’s good – IF AND ONLY IF — the budget itself it under control and no new borrowing is needed.
Now, if you still have all those entitlements out there and borrowing is needed, the economy becomes like Greece.
Well, we have two non-native English speakers (Chinese and Israeli) trying to talk to each other in English.
Thank you for not being offended – but to clarify, I did not mean it was “OK” for American politicians to screw China. I meant the politicians would not pay a political price for screwing China, in that there are hard feelings against China because of trade issues. In fact, they could probably get some voters by screwing China.
Well, crypto will not completely replace fiat for a while - the transaction costs have to really, really go down for that to happen, so far it’s more akin to digital gold for the moment and it seems that there is a significant overlap between crypto and gold investors.
But the US is potentially fucked - Nixon gambled that the US will be able to hold on to its preeminent political, military, economic and manufacturing position - as it seems to not be the case then it’s a slow stagnation accompanied by a messy Imperial retreat.
Here’s a highly irresponsible one, although I’m a day late, it’s already listed on major exchanges and exploded - ICON (ICX), dubbed the “Korean Ethereum”, you can (probably) still turn a quick buck on it due to the “Korean crpyto craze”
I remember learning in econ that a stable, growing, healthy economy would experience roughly 2% inflation in the absence of any monetary policy.
I’ve always been a little confused about lowering the interbank lending rate to increase lending (quantitative easing) in order to kick start economic activity and prevent deflation. It seems like the only lever that central banks have. Some have even gone with “negative” interbank rates (charging banks to store cash rather than paying interest).
What if a lack of liquidity isn’t the cause of the deflation and slow growth? What does the central bank do then?
Well the Euro, Yuan etc… are all fiat as well. A fiat currency wouldn’t be such a liability if we didn’t have perma-deficits and an ever growing debt. Hence the debt thread.
Yeah I’m aware. We just had to baseline everything off T Bills with all of our calculations. “How much did the investment earn in excess of the ‘risk free’ return of treasuries?”
In fairness, US Debt is special in that it is paid back with US dollars. So there is no realistic fear of a true default (as you can always print more). This is distinct from most other countries’ debt that has to be backed by something else (i.e., US dollars, Euros, gold). So it is less risky, assuming the USA financial system has not collapsed.
As a historical aside, this was mostly Alexander Hamilton’s idea.
Interestingly, after the Napoleonic Wars, the Brits played fair-and-square and actually reduced their national debt from around 200% GDP to 30% as well as the laboriously readhered to the gold standard.
I’m getting a rapid education on this because I was talked into being on the board of a pretty large energy-lending bank (couple billion in deposits).
The other “lever” the government has (which is related to the Fed, but not exactly) is altering the reserve and loan criteria of banks.
So, for example, let’s say the bank regs say the bank has to keep 50% of its deposits in cash and can only lend out 50%. Well, if they lower the reserve rate (put in place to stop runs) to 10%, banks have a lot more money to lend.
That’s another “lever.”
Same with the level of risk allowed – instead of 20% down, require only 10%. Etc.
Actually, during the successive Basel Accords (I, II, III and soon IV) the US side always fought tooth-and-nail for as low capital requirements for banks as possible.
Again that just increases liquidity. If liquidity was always the problem with slow growth then surely the world would have solved it by now. It’s almost like the system is designed to create bubbles… too much liquidity and not enough positive NPV projects for businesses just drives asset prices up.
I am not sure anyone was contending anything about reserve (or capital) requirements other than to note lowering them was a method for increasing velocity.
How is a specific banking accord relevant to a generalized discussion regarding what mechanisms are in place to increase spending/velocity aside from inter-bank interest rates?
In general the thread is about the national debt of the US and if it matters. I think if it affects how we negotiate with other countries, it’s relevant.
That makes much more than your original post, and what I said.
Your “Actually” is what is throwing me off.
It seems what you meant to write was "Yes, an example of governments increasing velocity by decreasing capitalization requirements is the Basel Accord, where the US fought . . . . "
My mistake, should have elaborated that a bit more - my original point was that through three last four US administrations there was a constant push for lowering capital requirements and increased consumer spending, as the availability of cheap credit (and cheap consumer goods) was supposed to offset real wage stagnation for consumer.
It’s all fun and games until the financial crisis hits…
