My father runs his own small business. My father employs me. My father likes what Bush has done to the economy. If taxes get raised, my father won’t be able to afford to pay me. I would lose my job. If it weren’t for Bush, I might not have a job. That’s why I will be voting Republican come next fall 
While I’m glad you are happy, saying Republican fiscal policy supports nepotism isn’t exactly a campain slogan.
So, if taxes get raised, even your own father won’t be able to justify keeping your useless ass on the payroll?
I think Harry S Truman was describing you when he said “show me a one handed economist.”
Ok, I’m with you that rolling over the 30 year bond now at 4%, which was issued at 18 or 20% 30 years ago is net net an improvement. Nonetheless, there is still interest payments to make, and being a zero sum game, government receipts that go to fund interest can not be used more productively elsewhere. Productive in an economic sense as in the ROI is greater than the opportunity cost. You also agreed in a previous reply that interest payments are not productive (not to put words in your mouth or anything :)).
Second, if in the above scenario with inflationary pressures, dollar dropping and interest rates shooting up, just what do you think will happen if the US government starts issuing bonds like sub prime lenders a few years ago? Would you agree that this would excacerbate (SP?) all three factors?
Third, if in 30 years the US government is indeed paying off today’s debt with a gumball, it’s probably not a country we want to live in. Eg, high inflation and a weak dollar for 30 years isn’t in our best interest.
Agreed. Although should add a predictable rate of benign inflation aka the needed low level of inflation that you mentioned earlier. However, this point is a direct contradiction with flooding the market with Treasuries, as this will cause the dollar to weaken.
This assumes the markets are dumb. Anybody with a bloomberg can figure out the NPV. In fact its factored in more or less to traded prices, which are probably the most liquid in the world and therefore most reflect “true value.” I do have a question, IIRC the vast majority of US treasury holders are corporates foreign institutions, or foreign governments, then the 28% tax bracket doesn’t hold. At least this was the case the year I spent on the fixed income instutional sales desk in Hong Kong. Biggest clients for treasuries by far were Bank of China, HKMA, GSIC, etc. If you reduce the individual taxable effect to an accurate level, I expect you’ll find the US goverment doesn’t keep up with inflation. Am I missing a point?
Yeah, basically. I’m still learning the business, so I have a ways to go before I start making my father a significant amount of money. I barely bring in enough for him to consider me worth the office space my fat ass takes up 
As long as my wallet and stomach are full TODAY, I really couldn’t give a shit about the rest of the American economy.
Please explain the circumstances when having no debt would be bad for the US economy? Let’s leave out the basic macro economic tool arguement, as I think everyone can agree that government debt combined with interest rates can be a useful tool to control the money supply. Second question is what level of government debt is optimal?
Bolstering the currency does not necessarily follow. Either increasing the money supply and/or allowing inflation to increase over time *devalues * the currency. Decreasing money supply and/or decreasing inflation tends to *bolster * the currency over time. Not trying to be pendantic, but one must be precise when discussing economic terms or the conclusions become meaningless.
Final question, if you think gold is going to appreciate significantly over the next 3 years? Why? Is it because supply has decreased, demand for hard assets will increase, the dollar will devalue significantly, etc? Is the US government debt level going to help drive the gold price up or down?
I would. But we’re not there yet. Inflation is normal, rates are low and demand is high. The environment supports issuance.
Nonsense. (I like that word.) My example posits merely historic inflation, and is not dependant upon currency weakness.
So what? From your perspective as a holder of dollars you want the dollar to be strong, the stronger the better. This isn’t necessarily a good thing from a governmental perspective. The dollar can be too strong. When that happens nobody in the rest of the world can afford to buy our shit. Sometimes the dollar needs a beat down.
These things are really all relative. If you’re trying to solve the equation and come up with a goldilocks economy, all these variables relate to each other and are interconnected. Usually if one thing is really good it represents an imbalance that’s causing you grief on the other side.
No. It assumes the markets are a discounting mechanism. What they primarily discount are sentiment and risk.
Than why would anybody pay par for a 30 year T at 4.75%
Hmmm. I know present value, future value and all that. “True value” is just a hardware store. Where can I find “true value” on my Quotron? It would make my job a lot easier.
Or in qualified plans and such. Correct.
It’s still only 1.6% or so presently. Foreign investment isn’t necessarily a bad thing. More often than not it’s desirable.
Why leave that out? It’s a good argument. If you consider the full ramifications of the tool, you’ll likely agree that it’s very powerful. Consider the circumstances in which the government would have no debt and imagine the underlying economic environment. I can think of one case in which it means we have a very strong economy, and two or three where we are up shits creek.
I’m not hedging by saying this, but there is no magic number. It’s one factor in many.
There are both times when either are appropriate. Sometimes the Fed will need to ease to encourage borrowing, other times it will need to tighten to discourage it. Both effect the relaive value of the US currency versus other denominations.
Inflation and supply will drive the price up.
Nonsense. 
Quotron was bought out by Citigroup in 1986, and by the early 1990’s was found only in a museum. Quotron’s may have featured big in Michael Lewis’ Liars Poker, but that was published close to 15 years ago. (BTW, I used to work for one of the Fat Men.) The fact you’ve got a functioning Quotron machine tells me where your economic information comes from. A couple of cites:
Quotron Said To Yield on Bid
SPECIAL TO THE NEW YORK TIMES
Published: May 23, 1986
Quotron Systems Inc., the target of an unsolicited $680 million tender offer by Citicorp, has indicated it will not oppose the bid, despite its rejection of an identical offer last month.
"Half of the deficit resulted from a write-down of the ill-fated Quotron acquisition. By now, the Wall Street firms were ripping out their Quotron machines and replacing them with the box of choice, the Bloomberg terminal. By 1992, just a handful of firms still used the Quotron."
Short answer, they don’t. Look it up on your Quotron or you could try Bloomberg where the 30 year T with a 4.750 coupon is trading at 99-03. That messes up your NPV calculation and government “profit”. From Bloomberg: 30-Year 4.750 02/15/2037 99-03+ / 4.81 0-00 / .000 05/04
Now, are you prepared to actually debate US economics and make some calls about what Bush has done to our economy or continue to prevaricate? Choose to be Truman’s one handed economist or multi armed Vishnu.
My answer to the OP is that Bush’s economic policies can best be summed up by his father’s phrase: voodoo economics.
We just call it a “quotron,” just like they still give you the “quotron” symbols. It’s not a genuine quotron. It has a weird name like “Universal Trusted Appliance.” We still call it a quotron.
It was, as I said, a back of the envelope calculation. You’re still wrong, though. As far as the Gov is concerned, it doesn’t matter where they trade after they are issued. It’s the issue price that matters from that perspective, and I beleieve (though I’d have to check) the thirty year is always issued at par.
I’ve been ready.
I’m sure that’s a nice sound bite.
Frank, if you’re going to engage in badinage with another poster, throw in some smileys to show you’re kidding, otherwise it looks like you’re insulting posters in GD. (And if that was a serious response and not a smart-assed reply, then don’t do it again, here.)
gladtobeblazed, you might want to reconsider your posting style in Great Debates. Most of youre posts have come across as mean spirited or foolish or as attempts to disrupt the conversation. We tolerate a certain amount of smart-assed by-play, but you have not established a reputation for being able to hold up your end of a serious discussion and nearly all of your current contributions have been little more than short, hand-waving calls for attention. There are plenty of opportunites for smart-assed cheap shots in the BBQ Pit. If that is the only type of post you enjoy submitting, then I strongly suggest you keep your contributions to that Forum.
[ /Moderating ]
Nonsense 
Treasuries including the 30 year are determined by auction, and only coincidentally issued at face value aka par value. In other words, Uncle Sugar takes in the auction price but pays out the face value at maturity.
From Treasury Direct: The price and yield of a Treasury bond are determined at auction. The price may be greater than, less than, or equal to the face value of the bond. For more on the price of a Treasury bond, see Treasury Bonds: Rates and Terms.
The most recent 30 year bond auction results can be found here.
30-YEAR BOND 02-15-2007 02-15-2037 coupon = 4.750 yield =4.812 auction price of the bond = 99.020970 (eg not equal to 100)
I forgot myself. My apologies, to you and to gladtobeblazed.
It’s a good word, isn’t it?
I stand corrected on whether they are issued at par. It must be the bills that I’m thinking of.
Anyway, your point is moot (“moot” is another word I like.)
The thirty year bond issued at 99 with a 4.75% coupon is going to effect the cost to the government by what? 6 basis points?
It’s still a gumball at maturity.
Tomndeb
Since Frank called names, can we each call him one? Once? Please?
Scylla, China Guy, assuming you guys get Barron’s, take a look at page 17, right-hand panel, on Mr. T’s outlook for gold.
No, it doesn’t change my opinion. Pretty entertaining, though.
Of course, you can. . .
in the Pit same as always.
To the OP, Bush’s economic policies will fester and negatively overhang the US economy for years if not decades. Massive and increasing government debt spending combined with reduced taxes is a bad thing. It’s pretty simple: to pay for the debt, in the future the US government must either raise revenue (eg taxes if the economy doesn’t grow faster than the debt) or continue to increase the debt. Higher government debt over the long term results in lower growth and GDP.
Government debt[ol]
[/ol] in 2000 = USD5.7 Trillion and 2006 = USD8.5 Trillion, with USD400 Billion interest payment in FY06. A Trillion here, a Trillion there, pretty soon it’s real money.
Apologies **Scylla ** in advance if supposed to make individual quotes instead of lumping them together in no particular order. Not trying to cherry pick quotes either, but trying to get your stated view in one place. You can either explain and debate your economic view or pendantically pick apart my calls.
I think we agree that:
- Consensus view that a limited amount of government debt is a good thing for enabling government macro economic levers.
- Consensus view that “normal” or “benign” inflation (predictable and steady rate in the ballpark range of 2-5%) is a good thing.
- Consensus view that a stable currency is a good thing.
- Consensus view that government debt interest payments are not productive.
Scylla, in a nutshell, you’re saying that increasing long term debt is no problemo but at the same time that in 30 years bonds will be worth little in real terms and gold will rise dramatically. Is that your call? This is a serious contradiction with a stable currency and normal inflation.
Do you actually want to *explain * your scenarios where the US is better off and worse off with zero debt?
How about government bonds in practice are a tax, especially in a rising interest rate market like we are in? Keep in mind that majority of the debt is held either by foreign governments and non-taxable individual accounts. Assertation that the 28% individual tax that the US government “makes back” on the bonds is far too high in aggregate. You seem to imply that government long term debt has no opportunity cost, and stated that interest debt payments are not productive. Care to elaborate?
Already explained how government debt as fiscal policy does not necessarily bolster the currency. Go back to the interest rate parity theorem. Increasing the money supply and rising inflation results in a weaker currency, and vice versa. The ascertation as written only has “bolster” rather than reflecting the 2 way nature of currency. Given increasing debt levels, what is that going to do to the dollar, interest rates and ability to issue long term debt in the future?
Explain your view of strong gold appreciation with government debt levels and normal inflation? How is this not a contradiction?
sorry, don’t subscribe to Barron’s. In a nutshell, what’s the view?
Sell. Seems that when Mr. T’s career gets better, it’s bearish for gold. Also, it seems he’s given up on the heavy gold chains.
The OP was asking what the effects were so far not the future effects. Your guesses are just that, and more like general assertions than reasoned arguments. You say it will do this… this… this… But you don’t say why.
Per item 4, I haven’t said they were and I haven’t said they weren’t. With few exceptions, I think they are not.
I gave a concrete example of what it will cost the government to pay off a current 30 year bond in the current environment. It’s 40 some cents on the dollar. If inflation goes a little higher it’s even less.
Like I said, the current debt is no problem. It’s more like a tax.
[quote]
Do you actually want to *explain * your scenarios where the US is better off and worse off with zero debt?
Sure. The government prints money, and pays off all its debt as it comes do, and just prints more for whatever needs it has. The currency collapses due to hyperinflation but in the process we are debt free. That’s one.
The government struggles to pay off its debt without new issuance and without creating hyperinflation by becoming maximally efficient in its spending. The huge demand for treasuries both domestic and abroad faces a shrinking pool from which to select until finally the last bond matures. All that money is forced to go elsewhere to seek a riskless return. The marketplace abhors a vaccum. Seeing an opportunity, some other country works hard to create such devices… in their own terms.
Those new devices replace the treasury as the benchmark riskless return and the dollar as the currency of choice, and the dollar is replaced, by a stronger investable currency as we are condemned to stagnation and devaluation.
Our debt is one of the things that makes our currency strong. People can invest in it and get a riskless return in a benchmark currency.
We lose that, we hurt the dollar. That’s two. Enough?
You already made this argument and I responded that the carrying cost is only 1% and change, and that depreciates with inflation. Even not allowing for that last part that same thirty year bond only costs the government 90 cents on the dollar to maturity. It’s still a 10% tax. Allowing for that last it probably comes in around 75 cents or so.
Gumballs.
The opportunity cost/risk is on the buyer’s side, not the Treasuries side. Unless you think rates are headed lower. Do you?
Yes. You’ve stated exceptions. The current situation is not one of them.
And, as I’ve mentioned, a currency can be too strong, so this is not necessarily a bad thing.
You lost me. I don’t understand what you are trying to say.
We’re not in a truly efficient market, you know. I think gold is simply undepriced intrinsically, and the CPI is lagging the current environment due to a couple of oddball factors.
I do expect inflation to go up and the dollar to weaken in the short to intermediate term, just not disastrously. I’m playing 14 month ARNs to the spot price, 3 to 1, capped at 15. I got the J curve holding me back this summer on them, which gives me the chance to pick them up on the aftermarket below initricis. Just give me a return to last year’s high as the oversold situation normalizes and those ARNs will be close enough to the cap to pop.