JFC.
Deficits do not matter, they have never mattered, and they will never matter in the future. I can only hope that Biden acts accordingly.
WTF kind of disingenuous response is this? Jonathan Chance used the past tense and you respond in the present tense? I’m sure JC is aware that we’re probably falling into recession now, but his point was that the deficit was ballooning before, when Trump didn’t have a recession to deal with. Maybe this will help.
Sure would be nice to have all those billions of tax dollars that Trump’s tax cut removed from federal coffers.
No shit. There was absolutely no reason for the last round of tax cuts. Remember they were done in the back room with absolutely ZERO input from Democrats. Big corporations looted the treasury and used it, not to buy equipment or hire, but to buy back their own stock. Cutting taxes while the economy is humming is the height of stupidity, like eating all the seed corn after a good harvest. Yes, we’re fighting a newborn recession/depression, but cutting taxes will not do a damn thing to help it.
Then why isnt Moscow Mitch and Trump raising them now?
Socsec is a easy fix- take away the cap on taxing, while not increasing the cap on benefits. And that is mostly painless.
Increase the taxes on the rich, Taxable income of $200K or more. Note that is TAXABLE INCOME, not what you earn. Often your TI is half of your gross.
OP, are you coming back?
The US debt/GDP at the end of 2019 was 106% and is expected to go to 110%. Cite.
Japan’s debt/GDP is at 238% and is expected to go to 255%. Cite.
Japan bond yields are about 0.30% at 25 year maturities, and negative until the 7 year point.
I’m not suggesting we follow Japan’s path in terms of debt to GDP, but it really doesn’t seem like Biden needs to shoot his first term in the foot by raising taxes, unless the economy is really booming.
I’ve been at work, sorry. Still a few more hours to go. But I’ll reply here.
One reason Japan’s debt situation isn’t that precarious is because it is almost all internally held debt (by the nation’s own citizens), which is considered more stable than external debt (owed to foreign nations/lenders.) America’s debt is more diverse, and hence more risky.
Can you provide a cite for this?
It’s more like… “The other party said that boat leaks would kill us all, but didn’t hesitate to make a few of their own leaks when they gained power. So maybe they’re lying about this like they lie about everything else.”
Look, yes, the value of money is a vaguely agreed upon belief. Fine. Congratulations, you’ve just discovered super basic economics and theory of money.
But you’re making the argument - that I pointed out above - that water runs downhill and will never find a bottom.
Extremely simplistic scenario:
We have a national income of $1000.
We have a national spending level of $1100.
We need to borrow $100 per year.
We send that out for T-Bills at 3%. They are purchased.
Barring something outside the system occurring - growth, war, whatever - this is stable…for a while.
But now we have a national spending level of $1103.
Issues:
This comes with opportunity cost. Things we can’t do with that extra $3. Doesn’t sound like much but right now the interest on the national debt - the sum total of deficits - is about $479B (that’s going to be higher now, of course, but those are the numbers a dug out of Pew Research.
So that’s $479B that isn’t in people’s wallets nor spent on things the government might want to spend it on. According to ‘Where Does the Money Go’ the 2015 discretionary spending - everything not debt or entitlements - came to $1.11T. Absent the military spending - which I’d bet you’d cut but give me this one - the entire rest of the discretionary budget was $442.89B.
So if we weren’t spending that money on interest we could, literally, more than double the money spent on Education, Healthcare, Transportation, Science, the Arts, Food and Agriculture, new Energy Development, the VA (doesn’t count as defense), foreign aid, diplomacy, Housing and Development.
Next issue:
We borrow ever greater sums of money to finance the debt. Great. But recall, we’re borrowing it. You seem to be assuming that we will always be able to borrow. But that only continues so long as lenders believe they will be paid back. So far that has always been the case. But it needn’t continue forever.
When it comes - and it will come - that we need to persuade lenders to finance our debt interest rates will rise quickly and that $479B figure, above, will rapidly climb by tens or hundreds of billions of dollars. Since the debt is denominated in dollars the only way to deal with that will be to either raise taxes - which no one wants - or inflate the currency and pay off the debt in devalued dollars.
Which will be terrible for everyone but less so for holders of stocks and mutual funds. If you have $50,000 in the bank and inflation spikes to say, 20% after a year your bank account is worth $40,000. If your savings are in stocks and mutual funds (not bonds) they can inflate in value (after the depression) to maintain their apparent value. Guess who owns most of the stocks and bonds? About 45% of Americans don’t, last I heard. No savings or brokerage accounts, no 401k or pensions. They’ll be screwed.
Remember this basic fact: When you repeat ‘Deficits don’t matter’ you’re repeating something that Dick Cheney said. And Cheney is clearly an evil, self-centered man with little to no regard for everyday people. Don’t be like Dick.
Or we could just print more money.
I’m not a finance professional, and I accept that there are negatives to debt and deficit. In my personal finances, I very carefully avoid debt when at all possible. But I’m unconvinced national finances follow the same rules, especially when there seems to be zero political incentive to reduce the deficit. But we’ll see. I think beating Republicans is more important then reducing the deficit, in general.
I looked it up and it looks like 70% of US debt is held domestically and 90% of Japanese debt is. Is it your claim that this 20% difference means that Japan can issue more than twice as much as a percent of GDP than the US without having a credit crisis, but the US is heading towards one?
While you’re answering that, can you provide a cite for historical examples of countries that issue debt in their own currency, where they control their own currency, have faced this problem?
I haven’t spent the time looking into this but I think we can just borrow it from ourselves. As opposed to simply printing money we pay it back on a schedule and reduce the money supply by the amount paid back. We don’t even have to charge interest because we have good credit with ourselves.
I’m not sure that works, but I don’t see that much difference in how we do it now borrowing from others. I know banks will squawk about reducing the money supply but I think it prevents the inflationary effect of simply printing money.
Maybe someone will point out the flaw in that reasoning.
I would just point out here that currently the interest rate on a 10-year T-bill is 0.62%. In terms of interest rates, there is no better time than now to take on debt.
I don’t think it’s news to anyone that paying interest sucks. We borrowed the money, we realized the benefit, now we’re faced with what feels like a wasteful chore of throwing money down a black hole. But we can’t forget how we were facing disaster and were so grateful to get that cash at the time And again, interest rates are currently low and will likely go lower.
Presumably, interest rates will rise to compensate for erosion of cash holdings. But you’re right, inflation undermines cash savings, dollar-denominated debt, and wages.
quote]If your savings are in stocks and mutual funds (not bonds) they can inflate in value (after the depression) to maintain their apparent value.
[/quote]
So that’s great! I want my money in instruments that inflate in value. That’s incentive to pull that cash out of the mattress and put it into the economy or some productive investment. Frankly it would be healthy to have a few points of inflation up on the board.
People with no holdings should be unaffected by inflation. They will get paid bigger wages and they’ll have bigger bills to pay. They have nothing to lose but their debts, and let’s be frank, we have a big problem with all sorts of debt peonage in the US. Inflation also does a good job on tamping down wages of people who have been getting automatic raises for years and are overpaid relative to their contributions; it allows firms to reallocate their compensation to younger, more productive workers.
This is the time to take on debt and print money. This is what we need to do in crises. Obviously there are fine points to tweak, and some restraint to be shown, but this is the right thing to do.
They don’t matter now because Republicans are in power. If Biden is elected, Republicans will consider deficits to be an existential crisis again.
Argh!
Printing money IS inflation. That’s exactly what inflation is! Inflation is the difference between population/economic growth and expansion of money supply. Why is this so hard? If the money supply expands faster than economic activity expands things end up costing more and hurting everyday people.
This is classic short-term thinking. It’s like CEOs not worrying about anything beyond beating next quarter’s earnings expectations. You win in the short term but lose in the long.
And beating Republicans has nothing to do with this. It’s postulating that Biden has to raise taxes after Trump is already beaten.
You’re correct that your personal finances are not the same as national finances. You are not sovereign and can’t create money to get yourself out of debt. That’s a good thing. But it doesn’t mean there’s no consequences to nation-states doing so. Those consequences tend to be higher interest rates and less flexibility to deal with crises like the great recession or the current dislocations? Eventually the ability to cope becomes so lessened that major crises would simply be impossible. Imagine Katrina with no real federal response. Or no stimulus right now. Banks would be foreclosing left and right already.
That, my friend, is an enormous presumption and one not borne out by fact. Interest rates are never commensurate with inflation. Interest rates are always higher than inflation and the rise proportionate to risk. Why lend at all if you’re going to be paid back in devalued dollars?
Well, that’s true. Except in this scenario prices are rising quicker than your pay (see above) so you’ll quickly be faced with a situation where you’ll find it harder to save money. Pay - as we’ve found out over the last 40 years - does not keep pace with inflation, particularly in certain high-demand areas like healthcare, college education and so forth.
Fun fact: I went to a school in the Appalachians for four years in the 80s. Total cost: $22,000 rack rate. My oldest is going to a different small school in the Appalachians: $48,000 rack rate per year. or $192,000 for four years. General inflation since 1989 SHOULD make that $45,794.50 but, because not all sectors inflate at the same rate, there we are.
Here, we get interesting. As described above, inflation isn’t a ‘get out of jail free’. If inflation wasn’t a net negative we wouldn’t worry about it. Yes, in an expanding economy requires a certain level of inefficiency that allows for inflation. But to say that people’s pay would keep up with inflation is to simply deny the facts on the ground.
Here’s something I pulled out of a book. Since 1975 we’d had periods of high inflation and low inflation. According to your theory, above, that should work out OK because inflation will rise both prices and costs and everything balances out.
1975 New House AVG: $48,000
Adjusted to 2015 dollars: $209,417
Actual cost of New House AVG: $270,000
1975 New Car AVG: $3,800
Adjusted to 2015 dollars: $16,578
Actual cost of New Car AVG: $31,252
1975 Median Income: $12.686
Adjusted to 2015 dollars: $55,347
Actual 2015 Median Income: $51,759
Oh, look at that! Even though we’ve had both high and low inflation cost of homes and cars went up while income went down. Huh, sure sucks to be those people. Oh, wait, that’s us. I was 8 in 1975 and since then real wages have gone backwards or stayed flat for the vast majority of Americans. Your thesis doesn’t hold up in the face of evidence.
Well, now. Perhaps the elderly could go out on ice floes as well. We could shut down social security as well. That’s certainly a drain on the national economy. Ditto Medicare. If they haven’t saved enough to pay for their own healthcare they can die and ‘reduce the surplus population’.
You’re not wrong that - in a low interest rate environment - adding debt can be the right move to make. But as my original thesis up there stated - to make that work you have to be willing to stop taking on debt in a higher interest rate environment. And my thesis is that it will never happen given the incentives currently at work in elected officials.
Nit: Presidents don’t levy federal taxes on Americans (except tariffs) - Congress does.
None that I know of, but again, the Yahoo Finance article states that Social Security, Medicare, and other programs are slated to run short of money by 2023-2028. You can’t fix that without raising revenue steeply.
This is because inflation as a flat % is oversimplifying: It works OK for comparing one year to the next. But it gives weird results over decades. Inflation is calculated with a basket of goods and services. We are comparing the price of a quart of milk, a bread, a movie ticket, a gallon of gas (made up on the spot) in 1975 and 1976. Great! We can calculate that the inflation is 3% and the avg. increase in pay was 4%. This is a useful calculation in 1977.
But now we remove the bread and the movie from our inflation basket and add an iPhone, a Big Mac and a broadband subscription. Great if you want to compare 2017 with 2018; those are the things people spend their money on. Not so great if you want to compare 2017 with 1976.
There is no way to go from 1975 dollars to 2015 dollars directly because the value of a 1975 dollar is defined completely different than the value of a 2015 dollar, even the weighing factor of goods and services that remained (like milk and bread) are completely different. With your 2015 salary you can buy an absolute shitton of 1975 staples, you can rent 3 1975 houses – they’re the ones labelled “condemmed” --you can buy more processing power than the whole of NASA had in 1975 for ~200 "2015"dollars, 10.000 2015 dollars will buy a 2nd hand car that blows anything built in 1975 out of the water in terms of performance, reliability, comfort, luxury, safety and any other metric you can think of. I mean to show that the comparison of “1975 New Car AVG:” with a “2015 New Car AVG” is utterly useless. a 1975 car was expected to last maybe 5 years or 100k miles. A 2015 car is expected to last 2-3 times that.
No. Interest rates vascillate depending on how central bankers are trying to influence it. In 1979 they weren’t higher than inflation. We’re about to enter another such period.
You offer an interest rate that compensates for it. (Or, edge case, you’re a retailer like a car company that needs to move inventory in a hurry).
This is a political problem. Funny coincidence that you mentioned the exact 2 areas that wouldn’t have needed to inflate if they were socialized to some extent like other western countries.
You’re right, wages broadly haven’t kept up with inflation. This is an indictment of our economic system in which a CEO makes 300x the pay of the lowest paid worker and is working hard to make this ratio more lopsided. Again, this is not a monetary problem, this is a political problem, as evidence by the fact that many other countries don’t have this problem.
:rolleyes: Please cut the hysteria. Nobody is suggesting sending Grandma to a Viking funeral (except maybe Tucker Carlson and Ben Shapiro). Certainly not me.
I am pointing out that elderly workers get welfare in the form of automatic raises that continue long past commensurate raises in their productivity. They get paid more than younger workers for doing the same job. Inflation helps tamp down that form of misallocation so everyone’s wages is more in line with their productivity.
I suggest a robust safety net with universal healthcare, UBI, and retirement benefits that phase in before the age of 60. Capitalism’s solution is to work these people until they’re 70 before they’re eligible for any retirement benefits. Still think I’m the insensitive bastard?
This was really a cavalcade of false choices, misinformation, and fundamental attribution error. Let’s do better next time.