You’re convoluting the interest rate parity theorem. If the dollar declines vis-à-vis foreign currency, then equilibrium can occur without rates going up. One either gets more dollars in FX ***or ***a higher interest rate, but ***both ***are not required for equilibrium.
You might want to have your cat educate you that the US government can just print more dollars. As long as the US remains the global de facto fiat currency, US sovereign debt the only liquid long term bond market and the only safe haven of size, then printing more greenbacks works just fine. Granted, there can come a point when US economic woes and debt levels might start to impact USD as the global fiat currency, but we are far far away from that scenario. In fact, if the US is at any real risk of losing fiat status, then all the rating agencies will be falling over themselves to dump A ratings.
You really have no idea what you’re talking about do you? But hey, at least you tried to say something that sounded intelligent, so just that is an improvement I guess.
First, when people make statements like the one I did, it is generally with the unspoken qualifier of ceteris paribus - other things being equal.
Second, let’s look at what interest rate parity actually means as opposed to what you think it means. From Investopedia:
If you read the example there, which of course you won’t, that has nothing to do with what I’m talking about since I’m positing the fact that USD declines relative to other currencies and you are simply assuming the problem away by saying that it isn’t a problem – exactly the sort of circular reasoning I’ve come to expect from you.
I don’t know how one can argue with: Congress, mostly the GOP, has managed to take the US’s credit rating hostage in their continuing quest to make the government inoperable.
We shouldn’t even have a debt ceiling, its silly to have some artificial goalpost that is easily pushed back with little debate except when one side wants to use it to club the other side. It doesn’t help, it can only hurt us. I think its very likely that we get taken to the brink and beyond and our credit rating gets lowered again because of assholes like Ted Cruz. Somebody send that shithead back to 7th grade social studies class and teach him how the government works
It’s this impreciseness of language that makes me wary of your statements.
(regarding the first bolded) - Bond rates vary with… what price? One would assume you’re referring to interest rates in response to Martin Hyde but that would be a circuitous statement - that bond rates vary with bond rates. So then you must have jumped to a second definition - the fed rate, which is a different definition of interest rate than Martin originally used. Anyway, I don’t particularly want to make assumptions. So you see, the lack of familiarity/preciseness with the jargon detracts from credibility. It’s confusing as to whether you’re talking about interest rates set by the fed or the yield rates of the bond relative to purchasing power. 2 different rates that would warrant 2 different answers.
The conventional order of operations of monetary policy goes: The US is losing purchasing power (inflation). In response, the US raises fed interest rates. A higher interest rate coupled with a decrease of purchasing power lowers the demand as well as prospective yield of bonds. Then the yield rates drop. So one use of the interest rate makes it rise. Another has it dropping. It’s talking out of both sides of the proverbial mouth.
This is of course, a basic summary of monetary policy and intended as merely an example of how different wordings can result in different results. Other factors can/do come into play.
(regarding the second bolded) - The dollar amount on the bond is the dollar amount that’s paid. The purchasing power of whatever dollar amount printed on the bill may increase/decrease and that’s what the bond market operates on, but as for as payouts are concerned the US doesn’t have to pay any more or less. You said it yourself, that the bonds are dollar equivalents. Turning around and saying that more dollars have to be paid to make up the value difference is at face value, a contradiction. An argument can be made about real dollars vs nominal dollars but again… issues of purchasing power, not actual pieces of green. Also again, an impreciseness of language that is at least confusing, at most incorrect.
ALL of which is one massive tangent to the original post, what would it matter if the bonds/bills get a credit downgrade.
There was nothing imprecise about it to someone that has the foggiest, and I do mean FOGGIEST understanding of the financial markets.
Actually no they don’t. The price of debt instrument ALWAYS varies with the interest rate for instruments of similar quality CETERIS PARIBUS. If you don’t understand what that term of art means I suggest you LOOK IT UP. I assume you know how to use Google. The so-called ‘fed-rate’ has nothing to do with it. That is the rate at which the fed loans to member banks. And how you worked purchasing power in there I have no fucking idea but I think it’s amusing that you have gone from shy question asker to wannbe economist.
That is just gibberish. I can’t wait for you to give any kind of citation AND to try to explain it anyway that even approaches cogency.
It is nothing of the sort. Monetary policy is actually both very simple on a conceptual level and enormously complex on a practical level.
OMG, have you never heard of Forex? Please look it up and then tell me why you have no clue. Hint: There is a difference between buying something at Walmart in Reston, Va. vs. Tokyo or Shanghai.
As I said, I restated the issue in post 29. If you won’t follow the bouncing ball, you can’t play anymore so go home.
Well again, it’s not really the credit rating. The debt ceiling problems are an example of actually holding government operations hostage–something far worse than what (proven failures) like Moody’s, S&P and Fitch say about our Treasury securities. A downgrade would be nothing compared to not paying all Federal employees, not sending benefit checks etc.
However, the idea that we don’t need a debt ceiling doesn’t actually make sense, the fact that you espouse the idea suggests you do not understand the Constitution. The Constitution provides that the President cannot put the United States one cent further in debt without Congressional approval. The debt ceiling is just pre-approved debt, sort of like a “credit card” (this is the best “personal finance” equivalent I can think of.) Congress has approved the limit on that “credit card” so it’s a-okay, but there is no valid constitutional or even logical argument that the President should be able to put us as far into debt as he wants with no restrictions–it’s so obviously a bad idea it was written into the Constitution as something Congress has to approve.
The alternative to the debt ceiling, wasn’t the President getting whatever he wants (which seems to be what many believe), but rather it was Congress literally approving every bond sale as often as necessary. This was workable in the 19th century, but probably has serious practical problems in an era with as much bond auctioning as we have now to float operations.
Some would argue the President should always be allowed to raise debt to satisfy spending, but that’s actually questionable as well. A budget is based on projections, and if there is an unforeseen surge in expenses (for example if certain benefits soar in claimants) or a drop in revenue (recession or etc pushes down tax collections) it’s hard to argue Congress should not be involved in deciding how to resolve the issue.
Now to the heart of your point, when Option A is raise the debt ceiling and Option B is default and cause serious problems, Option A is the only viable choice. This is true to the point that even threatening not to raise the debt ceiling is generally a bad thing–I’ve repeatedly maintained on this issue the time for Republicans to draw a line in the sand with the White House is when they actually pass appropriations bills or budgets (back when we actually passed budgets instead of CRs.)
Precisely, but since so many seem to be ignoring my restatement in post 29, let me restate it yet again:
I guess you forgot that Congress is the one that holds the purse strings and has to approve all budgets to begin with. So you have no proved you also know nothing about how our govt works either. The SDMB comedy show just keeps getting better and better.
Congress can always come in and cut those programs can’t they? It’s not like they’re helpless children . . . oh, wait . . .
Uh, they can both be serious issues, when did I say I was only concerned with one and not the other? :dubious:
Or it shows I understand it perfectly and simply prefer things to be different. You know, as in, change the law to eliminate the debt ceiling?
Hey, I’m as impressed as the next guy that you seem to know a lot about 19th century bond markets but nobody’s saying things have to work the same way.
Congress is hardly involved simply by virtue of having a debt ceiling, otherwise we wouldn’t be having this debate yet again on what we’re going to be doing about this impending disaster; they’ll just budget for whatever specific things they feel like budgeting. Nothing you say (about surging expenses or drops in revenue) need be impacted by a debt ceiling. It only is because we have one. If we didn’t, we’d still have the same overspending, under-taxing problems we’d have before, only now people can’t take an artificially rising ceiling and use that as a scapegoat for America’s ills
They could be, yes. But I’m arguing that the credit rating, as given by the major ratings agencies, is mostly an irrelevant part of this discussion. So I don’t believe they are both serious issues, I believe one of them is.
So let’s clarify, you want Congressional approval for every bond auction, or you want Presidential unlimited power to take out debt for the country? Or do you propose something else, if so, what? Do you propose the Gephardt rule, which links raises to the debt ceiling with budgets passing? (That’s a fine rule, but isn’t the same as what you’re saying–no debt ceiling.)
I’ll be interested to hear how you construct a policy in which we have no debt ceiling and yet the President can’t just run up debt as much as he sees fit (which actually would effectively destroy legislative power of the purse and turn us into country borderline dictatorial in the powers we grant our executive.)
The 20th century history of U.S. debt instruments actually (not the bond market as a whole), the debt ceiling is not that old.
Congress doesn’t actually pass budgets any longer. A debt ceiling has nothing to do with our revenue shortfalls, on that point you are correct–I never said anything different.
**Yogsosoth: **Looks like Marty is pretending to ignore both my posts and the facts but that’s par for the course for people who don’t like to have reality intrude on their, ahem ‘thinking.’
Anyway, looks like he only wants to dance with you. Try to remember to put him back in his cage when you’re finished playing with him though.
Not sure why I bother. Here’s your direct quote and I’ll assume you meant ceteris paribus: But beyond that, because bonds are dollar equivalents and the interest is PAID in dollars, if the value of the dollar declines because of our govt’s incompetence, then more dollars have to be paid to make up for that and the only way that happens is with a higher interest rate."
As for more dollars being paid out, Uncle Sugar can also simply print more dollars as the global fiat currency. Admittedly, at some point, the interest rates will usually go up as a result of monetary incontinence. However, qualitative easing has gone on for how many years and rates haven’t gone up. This is merely one example where you state something as a truth but the fact is much more complicated.
Again, it is really simple. FX adjusts via weakness in the currency and/or an increase in the interest rate. Usually via a combination of the two driven by the market.
As an aside, like many things in life, there are also advantages and disadvantages to have a weakening currency. You paint that was black and white. Not to put words in your mouth, but you’re probably in the camp that thinks China has their currency artificially undervalued (thus implying that the dollar is overvalued).
And the hits keep coming – but at least you’ve gotten good at parroting me. Yes, ceteris paribus, which is exactly what I said. Thanks for at least quoting me correctly, although I see you have trouble using the quote button. That requires an IQ of what, at least 50 or 60 I’d imagine. Sorry that I keep over estimating your abilities.
That’s quantitative easing you idiot not qualitative easing. Sweet Jesus on a popsicle stick you really have no clue at all and have never read a fucking financial publication in your life have you? I think YOU are the one that needs you bow out since every time you post something you only succeed in further embarrassing yourself – but obviously that’s no longer a consideration for you is it?
I’m fine with the president having unlimited power to borrow money. I’m also fine with a set formula that ties debt ceilings to some kind of economic equation such as inflation, GDP percentage, whatever. Whatever you may think of those plans, know that I think the current system where idiotic lawmakers who are only in for themselves and have proven to give exactly zero fucks about the economy except as a bludgeon to use against their political rivals is WORSE, much much worse. Until the GOP grows up and breaks out of their dickhead cocoons, the current system is worse than either of the plans I’ve proposed.
I’m honestly not so sure that Congress, oh let’s face it, that the whining children running the GOP, can be trusted with that kind of power. I’d rather take the chance of giving that power unilaterally to the president and no, I don’t think it will turn us into a dictatorship. Maybe you can explain how being the CIC of the entire military, being able to nominate cronies to federal positions, and, as our last president did, line-item vetoing bills at leisure, torturing people in unmarked black sites did NOT turn us into a dictatorship, but somehow giving him the power to appropriate money would
I remember when Congress tried to give the President (Clinton, wasn’t it?) the equivalent of a line-item veto, and the Supreme Court said nope. I don’t recall GWB ever using the power. More info?
deltasigma: um, maybe if you spent less time calling rude names, and a little more time explaining your views as clearly as possible, you’d have better luck. I don’t know anything about economics; I have no idea if you’re right or wrong. But the way you are debating is not convincing. If there is an honest difference of opinion, then that needs to be made clear. But it is not at all believable that Martin Hyde “… really have no clue at all and have never read a fucking financial publication in your life…” I know it’s the Pit and all, but you’re not carrying the audience along when you talk to him that way.
Seriously? Maybe if you had leveled that criticism to the people who had attempted to do the same to me at the beginning you would have credibility with me but unfortunately that wasn’t the case and therefore you don’t.
Furthermore, since you seem to be yet another person who has never read any of my financial posts, of which there are many (I just linked to one thread for example - hint, hint), I’ll tell you that normally I do precisely as you suggest. If you don’t believe me, spend some time reading that thread and see for yourself - or, you know, just continue to issue baseless criticisms like everyone else and I’ll treat you the same. Your call.
deltasigma: Thing is, I wanted to believe the way you do. I, too, came in here remembering that the Congressional gridlock over the debt ceiling had led to a downgrade in the U.S. credit rating, and that had led to higher bond prices, or a higher cost on the interest on the National Debt, or whatnot. That’s what I had thought. You seem to be defending that position too.
You’re just being really nasty, and that isn’t the way academic debates should be conducted. You’re alienating your base!
And if you’ve been following this thread you would know that it long ago ceased to be anything resembling a debate. Should that change, so will my behavior.
edit: But obviously MH and CG have no credibility or bona fides left at this point so I will need to see that change in the form of new participants who demonstrate they understand the issues presented since I have no intention of rehashing them for a twentieth time. I also have no patience for disingenuous twerps like pancakes.
Your problem appears to be that the Republican controlled House won’t just do whatever the Democrat in the White House and the Democrats in the Senate want. I’ll concede they have been unreasonable on many issues, but at the same time they are a legitimate part of government. You seem to focus on the specific process tool they’re using instead of the core problem: we have divided government and have not found meaningful ways to compromise.
It is worth repeating: the debt ceiling is an addition to Presidential power, the President would be more limited in his actions without it (since the Constitution does not provide for what you propose–it must be regarded as an unrealistic fantasy proposal.) But all the same, let’s say we didn’t have a constitution and the President had the power you suggest, unless the House GOP was far more willing to compromise nothing would change.
The House GOP uses the debt ceiling because they can, if your system existed they’d just hold us hostage more during debates over continuing resolutions or whatever. The only way to stop the House GOP from “holding government hostage” is to actually remove all power of the purse from congress. Recognizing that, do you seriously think one branch of government should have all executive powers and be allowed to craft budgets on their own, set tax rates on their own, and basically be wholly unaccountable to the legislative branch? :dubious:
What you actually proposed, although I suspect you did not realize it, would be either no change at all (because the Congress would just hold things hostage during the CR process instead of the debt ceiling process–and the President cannot legally operate government agencies without appropriations) or you were implying the President should have unilateral budgeting power. If you don’t think that would turn us into a dictatorship, I suggest you read the history of the British system of government and how the power of the purse is basically how, over centuries, Parliament actually turned into a democratic body. An executive with no checks on his power cannot be trusted not to become a tyrant.
While the British PM has few day to day checks on his power, he can be pushed out of office basically at any time if he loses support in Parliament, so he is restrained from becoming a tyrant. Our President is protected with a guaranteed set term and a very high bar for his removal.
Also, as another poster mentioned President Bush did not use the line item veto. President Clinton did, and he was the only President to use the tool as the Line Item Veto Act was passed during his term in office and struck down by the SCOTUS not too long afterward.
However if you look at your list of complaints, I’ll not all of those are executive actions, appropriating and providing for the raising of money has always been a legislative action. So it is actually materially different to say, “the President has full power to appropriate money” than it is for the President to operate CIA “black sites.” That may seem ridiculous on the face of it, until one recognizes our system of checks and balances has as one of the key checks on the Presidency that the President cannot act basically except for where Congress has provided him with laws allowing his actions (except in limited areas like his role within the military and his role negotiating with foreign leaders etc), and the President cannot spend a cent of money until it has been appropriate by Congress, and he can’t even raise revenue without legislation providing for tax rates and etc. That is by far, the single biggest power Congress has–power of the purse, and it is why no President in history has been able to just ignore Congress. Take that power away and it would be why no President in history gave Congress the time of day.
