I have always been a real hardcore deficit nazi. My answer has always been to suck it up keep the deficit down even if it means suffereing for a few years. Suddenly through no concious choice of my own I finaly have said fuck it. Just print as much money as you need do whatever you need to do to give me one more day. I feel like we have gone beyond the tipping point. Please tell me we have some kind of hope!
We have some kind of hope.
You’re welcome.
Ah, you are becoming more Honey Badger like…
Can someone explain to me what terrible thing is supposed to happen (I’m assuming hyperinflation or something similar) and why it hasn’t happened already?
Well, it goes like this:
The US has a debt of $16.7 trillion. This is just over 100% of GDP, or Gross Domestic Product, the total “income” America produces, so to speak. (That isn’t technically correct, but whatever, it is good enough for comparison purposes.) It hasn’t been this high since 1947, which was a couple of years into paying off our WWII debts.
So, believing our debt is now greater than our income, all sorts of bad things are supposed to happen. Like a couple of years ago when my debt exceeded my income and I had to file bankruptcy. The thinking is that America will go bankrupt, our dollars will be worthless, mass hysteria, Mad Max on our streets, gangs of cats raping dogs, etc.
However, the approximate net worth of the United States is in the vicinity of $200 trillion. So if we’re still going by that whole income/debt thing, sure, it’s like a person who makes $30,000 a year being in debt by $32,000… while having a net worth of $400,000. Oh, and while owning about $27,000 in other people’s debts.
The real issue comes in paying the interest on that debt. Fiscal Year 2013 projected about 7% of the federal budget would be spent on interest payments on the debt. Keep in mind that we are basically at historical lows for interest payments. If those figures were go to up massively, say like if we defaulted due to a shutdown and our credit rating was nuked (as some Republicans thought would be a great idea :rolleyes:), or if there was a period of relatively high inflation, then that number would become very problematic.
The problem I see is that current Republican dogma would never allow us to run a surplus and pay down the debt, no matter how much they may scream about it’s very existence. They would see any surplus as proof that we’re overpaying taxes and demand immediate tax cuts, likely putting is back in a deficit situation (the whole fallacious ‘Starve the Beast’ mindset).
I can’t help but think that we are printing dollars and trying to cause inflation for the purpose of devalueing the debt. So far I have not noticed any bad inflation but when and if things pick up it could take off quickly.
Damn it, I sure hope so. I have a mortgage and I’d love to see my outstanding balance inflated down to something smaller.
Remember, low inflation benefits creditors and people on fixed incomes. High inflation benefits debtors and working stiffs.
Yes, runaway hyper-inflation is bad for everyone. But most people in America would benefit from higher inflation than we have now.
First of all, it’s meaningless to say that “our debt is greater than our income”, since the two are measured in different units. Debt is measured in dollars, while income is measured in dollars per some unit of time. Yeah, our debt is approximately equal to the income we make in a year, but it’s only 10% of the income we make in a decade, or a dozen times more than the income we make in a month. There’s no reason one of those statements should be any more or less frightening than any of the others.
If you want to compare like to like, then you need to consider the rate of change of the debt with time, or the deficit. The current US deficit is approximately $755 billion, which is only about 5% of our GDP. Doesn’t sound so scary now, does it?
And it’s really not logical to think that we’re deliberately causing inflation when there isn’t actually any inflation to be seen. Once you start seeing it happening, then look for the cause.
Thanks, Chimera and Chronos. Useful info, there.
Nothing bad is going to happen because of the deficit. The US has run a deficit for almost every year it’s been in existence. Since the government is in charge of creating dollars - literally - it can create any amount of dollars it wants - and has in past few years has created of a couple trillion of them.
And that’s a good thing. It is the difference, some economists would say, between a bad recession and utter financial collapse.
Btw, the deficit is shrinking quickly. It was at almost 2 trillion few years ago and is about $700 now (2013).
You’re all on fixed incomes, to some degree. How hard will you have to fight to get that pay rise, just to cover the increased cost of living?
Budget deficits during times of economic prosperity tap into the pool of savings and tend to crowd out investment. When the economy is weak however, higher budget deficits stimulate the economy. Economics textbooks note that countercyclical fiscal policy (high deficits during recessions, surpluses or smaller deficits during expansions) tend to stabilize the economy.
During expansions I have been a fiscal hawk. But not now, not during the 2001 recession, not during the 1992 recession. Remember: countercyclical. Deficit reduction in 2013 due to the sequester has acted like a millstone on the economy. We should be borrowing money and fixing bridges while interest rates are low. Paradoxically yes: spending like drunken sailors at the proper time can be a good thing.
Core inflation is at 1.2% at the moment, lower than it has been for many years. Folk economics says that loose monetary policy and high budget deficits lead to hyperinflation. Folk economics is wrong: we have had both and inflation declined following the 2007-2008 financial crisis, consistent with textbook economics.
Well, the macroeconomic models that have held up the best in the recession (IL-SM and textbook Keynesian) have some very interesting things to say both about inflationary policy and the deficit during our recession, to the point where I can confidently say that your entire viewpoint, especially the whole “we have gone beyond the tipping point” bit, is completely wrong. Essentially, there is no real fiscal mechanism for a country that borrows in its own currency to go bankrupt. It could theoretically lead to financial problems further down the line if people stop buying our bonds, but there’s no sign that this is ever likely to happen, and indeed seeing as the entire world economy is heavily reliant on the US Dollar being a stable investment (to the point that many people have been buying bonds despite the fact that short-term interest rates were lower than inflation, essentialy guaranteeing a loss - they valued the guaranteed loss over their own currency). However, given that we print our own money, even a major debtor like China dropping our bonds would not be a bad thing. Hell, just look at Japan - 220% of GDP, noticeably smaller and less important than the USA, and they’re still fine.
Actually there was an article in the Times today saying that many economists believe that a 2% inflation rate would be beneficial. It does reduce the impact of debt, but it also encourages spending since cash loses value more rapidly. Businesses can raise prices immediately but only give raises once a year, so they can collect extra money also.
I know that some people freak that we’d immediately go into hyperinflation, but the Fed has plenty of room to increase interest rates and cool things down. And they are the same people forecasting disaster next year from the deficit for the past five years or so.
I lived through and even did salary administration back when inflation was very high, and it is not so hard. Prices and thus income are rising fast. In fact there is an advantage. When raises average 1% you can’t distinguish stars and losers. When they go up by 8% on average a 1% raise sends a strong message, and good people get what my old boss called a whopper.
In the article Rogoff called for 6% core inflation. That was bracing.
It’s fun to read the NYT as a barometer of elite thinking. We’re getting a new Fed Chair who just happens to be married to an economist (with a Nobel, as it happens) who has written a paper on the problems with inflation in the 1-2% range. Krugman has been ranting about this for a few years now: the stars are finally beginning to come into alignment.
Voyager - from the point of view of a salary administrator, what’s the optimal rate of inflation? It’s definitely not zero, right? What about the guy planning capital investment? Higher inflation is more volatile -and volatile inflation is the problem, right?
ETA NYT link: http://www.nytimes.com/2013/10/27/business/economy/in-fed-and-out-many-now-think-inflation-helps.html
NYT inflation chart 1970- now Inflation Falls - Graphic - NYTimes.com
3-4% would put us back to ~1986-1993.
True but only for a small period of time.
High inflation would benefit you with regards to your mortgage as you say but only because your mortgage was made during low inflation. If inflation was 20% then mortgage rates would be like 30% for new ones. You only benefit because your mortgage rate is around 5%.
Thank you, Mr. President. This concludes the press conference.
Regards,
Sho-damned
Name change or whoosh?