I just did the math and it's only gone up 15% over the previous year which seems extremely reasonable given the circumstances. It's much less than I thought it would be.
I think one important difference is how (comparing to QE) much fiat money went into the economy directly through Covid aid and other items. Does anyone have the data?
I’m no economist so I don’t claim to fully understand everything involved here. But one thing worth pointing out is that, when talking about the world as a whole, increasing debt can be the sign of positive developments. People are going to be more willing to lend money for longer time horizons in a society that’s more stable and secure. You don’t take a 25 year loan to build a shopping center in the middle of a civil war.
Good point, but this type of math always puzzles me.
We owe ourselves 356% of what we produce every year? We don't owe this money to some foreign planet with a death-star pointing at us. So at what point should we be concerned? What is the worst that can happen? We don't get our own money back from ourselves?
The worst thing can happen is rich people get even more rich, poor people become more poor, then the recession starts, then poor people overthrow the government and set up some destructive authoritarian regime, and then China will conquer the western world.
Countries are not households, and the world as a whole is not a household either. Heuristics that work for individual households fail when applied to countries or the world.
Debt hysteria is promoted by lenders, who will go to extremes to try to ensure they are repaid. Even if their actions cause a general depression that impoverishes themselves as well as borrowers.
>Countries are not households, and the world as a whole is not a household either. Heuristics that work for individual households fail when applied to countries or the world.
Actually, this is wrong. If you can borrow money and spend the money in a way that you will get more money in the future then you can take on an infinite amount of debt. This applies to households, small businesses, large businesses and governments.
Households get into trouble because debt can be used to overspend on consumer goods. Nigeria is in this situation. Oil exports made importing food very cheap. Now that oil is worth less they suffer from a trade deficit and the government has to borrow foreign currency so that companies can import food. Inflation is the expected result because you have exceeded the production capacity of your economy.
The ideal choice would be to invest the borrowed money into agriculture and eliminate the deficit.
it's a future you (i.e., decendents) who pays back the debt. The expectation is that they can, because of the investment _you're_ making right now by using this debt. Future productivity is expected to grow.
Now, whether this is actually the case remains to be seen...
Not true for gov debt. Its complicated. But its an infinite cycle of issuing new treasury securities to 'fund' the accounts to service existing debt. Those funds are then spend back into the economy and then used to purchase new treasuries again.
The reality of it shows up when you zoom in: overall during the pandemic richer people got richer and poorer people got poorer.
The "world" doesn't owe the "world" that amount, it's people in already tight situations owing that to people in pretty comfortable ones. The ones borrowing to get by are paying more money than what they borrowed to people who already had money to lend out.
What we'll see is yet another rise in inequality, yet another wave of the bigger businesses surviving over the smaller ones, and more debates within each government regarding how much intervention is wanted to try and save people from the consequences of those inequalities.
This headline number includes private sector debt, such as small business loans and mortgages.
I can assure you that the comfortably rich are not getting richer by loaning money to the average person to buy houses and cars with 2.5% interest rates, while inflation is arguably significantly higher than that number.
The rich get richer in this scenario because low interest rates increase the buying power for everyone, which means they can buy more expensive houses or pay less for the mortgage on the house they already own, which in turn means they can buy more things from Amazon, which means Amazon does more business, which means the stock price goes up, and so on.
The populist narrative likes to simplify complex economic topics into rich versus poor narratives as if this was a zero-sum game, but it’s not. I’m not sure how your final points about inequality relate to increasing total global debt, but it’s obvious that this isn’t as simple as funneling money from the poor to the rich.
You can call it populist if you want, it's just mechanically true. For money to be lent out it's coming from somewhere where the money is existing or the risk can be handled, and in both of those cases where money exists or risk can be handled you're typically looking at richer rather than poorer. If you're a shareholder, you are more able to afford risk than if you're just throwing your money at paying the bills. If you're in that situation and borrowing from a bank, the bank's shareholders mechanically are benefiting from your activity. You're borrowing to get by and people who have a better cushion are doing better for it, I don't see what's so shameful to point out.
Your explanation doesn't explain anything away but to try and put some sort of weird blame on poorer people for borrowing, it's just as usual of a narrative as the populist thing to be infantilizing poorer people. There's however a pretty big difference between borrowing at your limit or sometimes beyond because you're trying to get through a pandemic or have a place to live, and borrowing at high risk because you're playing with huge sums and can in fact afford the loss. The latter as a group made more money during the pandemic from any possible source you could look at, the former as a group lost money and jobs. I won't insult you by throwing Oxfam reports at the situation, especially since you might be keen on calling it populist too and calling it a day.
> For money to be lent out it's coming from somewhere where the money is existing
Not true. Governments around the world are just using money that doesn't exists, an example is the new economic rescue package. This kind of money, is great to made rich people richer.
That's the whole discussion around money itself, isn't it. As soon as you do something other than exchange an apple for a goat (and even then, really), you're potentially creating money in one person's eye and not in the others. While I understand your point about the money not existing, if you're making it happen in the system you're putting something of yourself in the system to convert to money. In governments' case it is their "reputation" and ability to operate in the world, as shown with the Greece situation in the recent past.
Ultimately it just wasn't in bills but it was indeed paid in the government's loss of abilities (as well as the price to the population) and made money in other places where it was due. And that exactly what governments do when they deal with currency: any adjustment isn't creating energy out of nothingness, it's just that the layers of our system make it pretty hard to figure just where the debt is paid and it ultimately ends up being paid by those least able to see it coming & to avoid it. Not to hammer the point again, but those people tend to be again on the end of the spectrum that has "poorer" written on it.
That just makes the actual value come from people that need to buy real assets or non-invested money. In both cases it mostly comes out of the common man and makes rich people richer. But it's not as bad as a total market failure. This system sucks.
The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population.
Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on.
Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank.
> The latter as a group made more money during the pandemic from any possible source you could look at
Stock prices are up because we literally stimulated the economy by giving the average person free money to spend and subsidizing their jobs. The headlines comparing net worth of wealthy people at the lowest point of the pandemic to the highest point are outrage porn. They didn’t make money by funneling it out of the poor and into their bank accounts.
> The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population.
How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. It is obviously a zero sum game. Over last year my FAANG friends had their stocks increase by insane amounts which they sold and bought second homes, beach houses, ski condos. I am not a FAANG employee or owner or TSLA stock, we want to buy a house but we are priced out of most places. We have to move away from our family to the farthest suburbs to even be in the competition.
Efficiency improvements and technology make the economy non-zero-sum. It's a trope to say that most of us live lives of a comfort that no Roman emperor could afford, but it's still true, and not because we have more wealth. Every year lots of things get cheaper compared to the money we make, and lots of new things are invented that replace much more expensive alternatives. We used to bring blocks of ice into the cities from the north (inside ships wrapped in hay I think) to act as refrigerators, for goodness sake.
That said lots of markets are close to zero-sum on a near-term basis. Real estate in very scarce locations is a good example for sure.
That's one way the economy is not zero-sum, but not the most important way. The most basic example of positive-sum economic activity is that if I have something that is worthless to me but valuable to you, and you have something that is worthless to you but valuable to me, we can create value simply by exchanging these two items. No goods were created or destroyed, yet both of us received more value than we lost from our own points of view, and thus net economic value was created by the exchange.
Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.
Working with the idea that value is current and future utility to people:
Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value.
However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears.
Feels to me like most value is probably created intentionally this way.
On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.
> I think there's not that much value created on average simply due to transacting.
I think if you stopped the transacting then the value of the property would deteriorate; the value that a given owner places on the property is variable and in the end must always go to zero when the owner dies. So transacting increases the value compared to not transacting but there are other factors in play with the opposite effect, resulting in little net change in value over time.
>Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.
It's net negative when the buying party is misinformed and cannot afford the financing for the property he just bought. That's how we got the 2008 crash.
Yes, fraudulent transactions where the buying party is deliberately misinformed are not voluntary, and even in the case of voluntary transactions it is possible for either party or both parties to be wrong about their expectation of receiving a net positive value from the trade.
Those who are routinely wrong in their expectations tend not to accumulate wealth, and thus make up a smaller proportion of economic activity over time—unless there is some external force at work transferring wealth from those who make good economic decisions to those who do not, thus increasing the economic influence of bad decision-makers.
> > The economy isn’t a zero-sum game. We’re not simply distributing finite amounts of wealth among the population.
> How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich.
If you define "get rich" as "own land" or "own water" or "own property in desirable place X" then yes, you can see it as zero-sum.
But if you define "get rich" as "accumulate money", then the economy it is not zero-sum. And one of the ways it is not zero-sum is fractional reserve banking. This allows the banks (who arguably are the originators of most of the loans being discussed here) to literally "create money out of thin air". For a bank to underwrite a loan to someone for $20,000 for a car, they don't have to wait for grandma's saving account to accumulate $20,000 in order to have the funds to make that loan. They only need (example) $2,000 to be "savings" in grandma's savings account in order to be able to underwrite a $20,000 loan to the person wanting to buy the car. The $18,000 difference was simply created by fiat out of thin air.
Which is how, if one defines "get rich" as "accumulate money", the economy is not zero-sum. In order for person X to gain 10,000 more dollars, person Y does not have to give up any dollars (unlike with land/water/housing/etc.).
what is owning water? I don't want to own water. I want to live in place where there is no water shortages. What is your plan to survive without 'owning water' ?
Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation. Now far fewer people do. (Well more absolute people, but fewer relative people) This improvement is mostly because so much more of everything is produced. Redistributing everything from the richest people of 100 years ago without producing more would leave the average modern person quite poor indeed.
> Once upon a time, everyone in the entire world lived in dire poverty on the brink of starvation.
Untrue. The world has always had problems, even today, but it's ridiculous to think that everything was bad (before capitalism, isn't that what you meant?). That is propaganda you are repeating out without even noticing.
Go study history before making absolute claims like that.
I've read plenty of history, thank you very much. I didn't say everything was bad, I said everyone lived in poverty and regularly worried about starving to death, which is objectively true for most people through most of history. (At least, they lived in what we now consider poverty.)
Until sometime in the last few hundred years, the vast majority of human effort was spent on trying to make sure there was enough food, and famine was far more common than it is today.
The fact that life was so hard does not mean that people didn't find meaning in it or that it was bad by any means, but what's ridiculous to me is to suggest that there is a finite amount of wealth in the world when very obviously there is more today than there was yesterday and who knows how much more than there was a thousand years ago.
> There are only limited amounts of land to own, water to drink, desirable places to live ect.
It's important to note that the third of these is not like the first two.
Yes, the Earth is a planet of finite size and there are only a finite amount of acres of land and molecules of H20 on the planet. Note that the actual land used by humans, and the actual H20 used by humans, are both much smaller than the total that is available. And the H20 gets recycled anyway. But yes, there are finite limits to both set by the Earth's finite size and the physical characteristics of humans.
"Desirable places to live", however, is subjective. Different people have different desires. And we have the ability to create different places to live that satisfy different people's desires. In other words, "desirable places to live" is not a finite, limited resource; we can create more.
Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.
> .... In other words, "desirable places to live" is not a finite, limited resource; we can create more.
> Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.
Agreed. Another thing many people miss is that money isn't wealth: its simply the measuring stick or common language/protocol we collectively use to measure the wealth or value people create through their work.
Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.
> Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.
Can't upvote this enough. If only most people grasped this and saw through the smoke screens that politicians and financial institutions put up to disguise what is really going on.
The only thing I would add to this is that, in addition to the distortion effect you describe, creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.
> creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.
I'm not sure it's as simple as that. Creating more money reduces the value of money that already exists. It helps those who are heavily indebted (including the government) by reducing the real cost of those debts and hurts anybody with a large amount of net worth saved in cash. Both rich and poor people gain a lift from this debt-reduction effect; rich because they use leverage to purchase income-producing assets, and the poor because it erodes the cost of any consumer debt they have. The savers are losers, regardless of net worth.
> Creating more money reduces the value of money that already exists.
Yes, which is why all the people who don't get any of the newly created money lose wealth. They have the same amount of money as before, but it's worth less.
Where does the wealth they lose go? To the people who did get the newly created money. In other words, it's a wealth transfer from whoever doesn't get the newly created money, to whoever does. Usually the latter are banks and financial institutions, i.e., the rich.
> It helps those who are heavily indebted
As long as debts are denominated in dollars, yes, the real cost of the debt is reduced. But the people who don't get any newly created money also lose buying power, and the latter loss is not fully compensated for by the reduction in the real cost of their debt.
To see why, consider a simple example: I have $1000 in monthly income, $200 of which goes to pay off debt. The government creates some more money but I don't get any of it. The dollars I have to spend on debt each month stays the same, $200, but it now represents less real cost than before, so yes, the real cost of my debt has gone down. But the dollars I have left over for everything else also stays the same: it was $800 before and it's $800 after. But the $800 now buys me less than it did before, so in real terms I am still worse off.
> The savers are losers, regardless of net worth
Assuming they don't get any of the newly created money, yes.
>There are only limited amounts of land to own, water to drink, desirable places to live ect.
I would agree if we had runaway population growth. However, we get to be wealthy simply because our population growth is going down. The amount of resources accessible to the average person is roughly staying the same or increasing. Urbanization and failure to build more housing is what is causing issues in the housing market. It's not about the availability of resources but rather their perceived value and low interest rates and job opportunities make the perceived value go up.
What's zero sum isn't the economy because productivity improvements happen all the time. What's zero sum is the access to fresh money. There is an inherent imbalance in the financial markets that favors large corporations. The money is arriving in their hands and thus the hands of their owners first, at the expense of those who get the money far later, the workers. This is why Biden wants a stimulus package. He's trying to make it fair for both sides.
This zero sum saying needs to die, it doesn't say anything useful. What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)), because total value is not constant over time as we value human creation in a system of human beings. However at any fixed t, the total value is a constant and the sum adds up, hence why it's called a sum in the first place.
Saying that the function isn't flat doesn't give us ANY useful information about the finer distribution of wealth, studies do. And those studies keep on pointing out a world where the inequality gaps are getting wider and deeper. This is exactly back to my first comment, and somehow that was populist to point that out to you.
> What you MEAN to say is that it is not zero sum when you look along the time variable (as in sum(t+1) != sum(t)),
I think they were saying that it's not zero-sum with respect to policy rather than time. Most ideas of wealth redistribution would have disastrous effects on the economy. There's a reason why even the most progressive countries primarily fund their social programs with income taxes and VATs rather than capital gains or wealth taxes.
Pretty much every functional nation is fundamentally reliant on a healthy, competitive, tax-paying and stable private sector.
In order for this to exist, you need people to trust that their capital is well protected and handled in a fair manner. "Fair", when talking about the global economic perspective, is a cost/benefit analysis taking account of your tax burden.
Private investment is a way of putting your money at risk in exchange for a potential reward. Wealth redistribution at scale implies that you massively reduce or eliminate the rewards associated with your capital. This is a big problem as it drastically affects the incentives to put your money at risk (i.e. in a private company). This will absolutely tank the private economy, which, as mentioned, is the backbone of a modern country. No one will want to hold capital in your country or invest it in your country because it's going to be redistributed.
This is why even the most "socialist" countries from the uninformed American perspective actually have very low wealth and corporate taxes: they recognize that encouraging the private economy is fundamental to the stable function of a modern country. (Instead, they heavily tax income, which has much less economic side effects)
The obvious problem with your stance is that it doesn't even consider whether the investment is productive or not, just that people get richer. You don't want people to put their existing wealth into unproductive uses and still earn more money off of that than by investing it productively. Not to mention all the economic losses caused by underemployment.
The idea of infinite supply side stimulus when the demand side is anemic simply makes no sense unless you love increasing wealth inequality. You need multiple tools in your toolbox.
This looks like it's intended to be high level rather than practical. There isn't so much rent income such that it would offset income tax in a meaningful way.
>Most ideas of wealth redistribution would have disastrous effects on the economy.
I don't see it. How does increasing capital gains taxes and decreasing dividend taxes cause disastrous effects on the economy? If anything the low capital gains taxes incentivize bubbles by making it easier to make money off of selling to a greater fool than to simply let the company earn money and pay the profit out as a dividend.
Tesla's market cap is going to overtake Apple. If the value of the stock was based on (future) dividends people would stop trying to hype up the stock because it went up and instead just invest based on actual and future business activity. I consider a $100 billion market cap for Tesla to be fair but optimistic. The current market cap is just illogical. Once batteries have turned into a commodity, Tesla will no longer be able to justify its valuation.
I'm not well versed, but I don't think your assumption is accurate. At time t, the sum value of all money depends on who is holding it. It seems to me that $1M isn't the same to everyone - if I'm dying unless I get a surgery paid for by that money, its worth more to me (I am willing to pay more over time to access the money now) than to Bill Gates.
Or a business. Give $1M today to the right business and it'll be worth more than if you give it to your local neighborhood MLM. While the change in value is realized over time, the net present value of the money varies depending on those future deltas.
Am I way off here? What I'm trying to say is that current value is derived from future value, so the sum of money at time t is dependent on how today's money is distributed and grows in the future.
But that's.. literally what money is. 1 dollar is a dollar to every person aware of a dollar.
What you're talking about is what the PROMISE of a dollar right now in some hands can be, in which case you're not solely putting value on the dollar bill in my hand but on the value created by my person in your belief - which is where people get to disagree and think whatever they want. And be right and win big, or be wrong and lose big, and anything in between.
It doesn't change the fact that whether the promise is mine or some other person's, when you give us a dollar it's a dollar to either of us. What we're making of it is the added value from human contribution at t+1 (and on and on).
> total value is not constant over time as we value human creation in a system of human beings
> However at any fixed t, the total value is a constant
This doesn't make sense. This as opposed to the total value at any fixed time t being... not a constant? What does that even mean? If f(1) = 2, then is f "constant" at 1 or not? What would a not-a-constant value for f(1) be in that case? Infinity/Dirac delta?
If something is a function of time and no other variable, from a simplified model, it is constant at a constant time. If you've ever dealt with physics I'm sure you've encountered functions of (t,x,y,z) for one, which do not guarantee being constant for a constant value of time. That's the point I'm making: the value depends on time going forward, and the growth is the associated growth of human added value as time goes, being measured by what we use as currency.
I don't get it (and it's not because my math is lacking). You're saying total GDP is only a function of time? Meaning there are other things one might think it may be a function of, but it actually isn't? Like what exactly? Isn't it a function of all the products and services in the world? Meaning that at any two points in time, the same products and services result in the same GDP?
I'm saying that when the person mentions it's not a zero sum game, their modelling the system in the simplest sense is one of a function of time. That's a model for discussion and that's fine, because obviously everything depends on everything else to a degree and we're not getting anywhere if we don't simplify reality down to models. And your "products and services" can be modelled as functions of time which leads right back to the same discussion.
What I'm saying is that when we keep on using the idea that this isn't "zero-sum" we implicitly carry the mindset that "money that I have isn't money that you don't have", that "it's not because I have this money that you don't" - but at that exact instant it's mechanically the case that me having this money is the actual barrier to you having it. The "zero sum" comment is a misleading way to talk about creation of value over time, because all it hints at is the idea that money somewhere isn't money taken from elsewhere simply because new value gets created as time goes. But it doesn't give any fact about money distribution at even a fixed time and even less so as a function of time. It's not a useful saying at all, because it only states "in the simple modelling of value(t), we have value(t+1) != value(t)", that's literally ALL it states but the heavy lifting is what it tries to imply.
Stock prices are up because they are being artificially inflated! Quantitative easing gives money to banks, which lend cheaply to companies, which buy-back all their stock, keeping themselves inflated! It's a legalised scam it's what it is.
>Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on.
High interest rates make sure that only the most productive businesses get access to capital. This is a very important inflation moderator in an overheating economy. Right now the economy is far from overheating which is why interest rates are low.
>Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank.
They aren't. The theory behind low interest rates is that there are infinite investment opportunities and thus having access to cheaper loans will cause entrepreneurs to start more businesses and thus employ more people. Once unemployment is down any additional loan will cause any additional dollar to contribute to a decrease in purchasing power of the dollar because you have reached the maximum production capacity of the country. If you want to run your country at maximum production capacity demand has to just barely exceed supply. This is one reason why 2% inflation is a policy goal.
In practice nobody is spending the cheap money on sensible investments with a reasonable expectation of a return based on productive work. It's because small businesses have a hard time getting a loan in the first place. A small drop in interest rates isn't enough to compensate for the increased default rate of a startup. What happens is that big companies and rich individuals essentially have a monopoly on cheap credit and they use it for dumb stuff like buying stocks or Bitcoin.
Money lent out does not exist until lent out. Money for mortgages is created by the bank. That’s why they can do such low interest rates. They don’t even need to have the money to lend to you. They are legally allowed to just make it up and then charge interest on it.
You are not getting it - there is no real money.
All money in bank accounts is debt or fake money, all 99% of the economy.
The only 'real' money is cash and central bank reserves.
Banks create money, thats their role in the economy. Thats what banking license is for. You don't need banking licence to lend out money you already have.
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Money creation in the modern economy - Bank of England
It's the same point over and over again. A bank can give out a loan because it is operating in a place where the government (a.k.a people) give it a place to operate, in a system of currency regulated by governments, and ultimately has to answer to governments when it runs into the limits of its smoke screens.
What this inevitably means is that when it fucks up and doesn't juggle fast enough or people all change their expectations (like if everybody wants to suddenly pull money out of their accounts), then the money that doesn't exist has to end up existing one way or another - and governments foot the bill directly and/or indirectly.
In less "agitated" times, that "fake" money being created is a direct measure of the value that banks are agreeing to see in the people they loan the money out to (and in fact they see a higher value over the exact same horizon of time and at any given value of t, otherwise they wouldn't loan the money out unless regulations force them to).
In both cases, money that circulates at any moment in time is money that exists in the system (yes it's a tautology), with money that exists at t+1 being paid one way or another by the system. If everybody takes out their money right now and that's more than what the banks have, governments step in and the impact over the financial system is the value of money itself falling, with the cost being that everybody having relied on money now has less value out of it.
It's not because it's not using the term "dollar" that it isn't a cost, just like on the other end of the system where we bet on humans creating value the humans in question aren't magically producing fully-formed dollar bills. Both ends of the system aren't formulated in dollars in and of themselves, because dollars are only the medium to 'illustrate' or represent the value, not the value itself. Ceci n'est pas une pipe, etc.
The provlem with your concept it that the ratio of 'real' money to 'fake' money is actually zero.
There are only three kinds of money: central bank reserves, which you can't get access to, cash, and commercial money, what you are calling 'fake money'
So if everyone tried to take out the money in cash, yes, there is simply less cash than 'digital money', so its impossible.
But there is no 'real money' except cash that you as an ibdividual has ever had your hands on.
The system, as designed, cannot work without banks. So its unfair to call banks 'smoke and mirrors' - you would have to redesigns the whole economy to get rid of them
If the ratio of real money to fake money is zero, there's either infinite fake money or no real money. That's already either 100% off or an infinity off from your previous message.
By the way, you're the one who called it fake money in your message, I responded to that.
The cash that I have had in my hands is as true as whatever field in a database at a bank, in that whichever we refer to either way the bank will agree to make use of it equally and if it doesn't or can't it won't discriminate either in its inability to use the value. In both cases, when shit hits the fan and the value that banks bet on needs to be present and isn't, the system as a whole pays the cost of that. Printing new bills to put in the banks vault does create the "money" as in bill but not as in value.
I don't even understand what you're trying to argue here, quite frankly. I have no problem with the social constructs of money and the fact that banks through loans are a vessel for humans to inject value into the system, so I don't see what conversation we're having here.
It's a very, very small amount because every loan will end up in someone else's account, and then be available to create new money at that ratio again, and again, and again....
> 2.5% interest rates, while inflation is arguably significantly higher than that number.
Inflation in the US isn't, even arguably, significantly higher than 2.5% per annum, and anyplace it is, interest rates are substantially higher.
And don't “but asset price inflation”; that's not relevant, since that's just the rate at which people invested in assets can get richer, not a price deflator that helps gauge how rich someone with a given nominal $ amount of wealth is.
A guy like Bezos basically doubled his net worth in a matter of just a couple of years for the simple reason that the US decided to flood the market with money, money which made its way into the stock-market, among other few places (like real estate or corporate bonds). Amazon does more business compared to a couple of years ago, but their share price wouldn’t have been the same without the US taking in more debt.
This seems like an unfair take. There are thousands of publicly corporations but the flooded money didnt go equally to all of them. They didnt even end up equally on a cap-weighted basis. Instead, they ended up disproportionately into select industries and disproportionately into select companies?
As you note, money printing is a big part the tide went up. But why did Amazon go up even more than the tide? I think it is more complex than just printed money. It is partly aligned incentives, incentivized workers, ruthless execution, focus, internal investment, and i'm sure you can think of some bad reasons also.
But what about Exxon, CVS, Verizon, Goldman Sachs, and Allstate? All these companies had access to the same capital, yet not all did as well as Amazon, et al. Goldman Sachs, theoretically, even has access to the Fed Discount window (hence, access to even more capital than FAANG)
At some point we do need to acknowledge better execution, more aligned incentives, etc.
One particular thing to note, many of the non-FAANG companies treat their employees terribly, especially engineers. Comp is nothing compared to FAANG, and yet they expect cheery engineers and other "low level workers" who give it their all and bring success to the company. And perhaps the formula doesnt work, which is good, because all workers should share in the success of their efforts.
> The rich get richer in this scenario because low interest rates increase the buying power for everyone, which means they can buy more expensive houses or pay less for the mortgage on the house they already own, which in turn means they can buy more things from Amazon, which means Amazon does more business, which means the stock price goes up, and so on.
Oh, so everyone is getting richer! Whew, Thanks, I was worried for a second.
> which means they can buy more expensive houses or pay less for the mortgage on the house they already own, which in turn means they can buy more things from Amazon, which means Amazon does more business, which means the stock price goes up, and so on.
Do they do this? I was under the impression that they stashed it offshore and sat on it. I'd like to see what "the rich" are actually spending their money on and how it drives any economic levers.
> The populist narrative likes to simplify complex economic topics into rich versus poor narratives as if this was a zero-sum game.
There are multiple populist narratives. At least equally popular is simplifying into the narrative where the non-zero sum aspects make up for any number of other problems (cf Regan's trickle down stories).
I guess it's hard to simplify complex things without losing important information.
Except very very little of our credit is 2.5% interest. Maybe home loans,and car loans. A huge proportion is 6-ish% student loans. A large proportion of credit out there is 25% or more, credit card debt.
> I can assure you that the comfortably rich are not getting richer by loaning money to the average person to buy houses and cars
Isn't this precisely the idea of securities backed by subprime loans? As long as you're not stuck holding the bag you can generate a lot of wealth. The interest rate just determines how quickly you'll need to cash out; conceivably you might even prefer a lower interest rate to avoid raising significant attention.
The comfortably rich are getting richer because they are closer to the money spigot.
They get to spend the money right now, before the inevitable asset inflation that occurs when 2T gets printed.
By the time you -- YOU, the regular person -- see the money that was pumped in 10 months ago, in the form of your salary, it is already too late. Your salary does not give you any actual increase in any concrete thing, because inflation has already occurred.
If, somehow, that money that was printed goes into actually useful things, like RnD, infrastructure, or education, then perhaps your salary could buy more things because the economy would be more productive. But it can't because it's not... instead, dog walking apps are worth a billion dollars.
I wish governments had put the damn money into useful things. It's absolutely shameful that this hasn't resulted in better internet connectivity in USA for example.
Well, in the case of the US government, the FED printed about 3 trillion dollars, 2/3 of which went to buying our own governments debt (US treasury securities), and the other 1/3 was basically all mortgage backed securities and the people selling those to the FED probably turned around and bought US treasuries.
The federal governments deficit last year was about 4 trillion so the FED basically directly and indirectly financed 3/4 of our own federal governments deficit spending most of which went towards the CARES act which mainly gave cash to citizens directly through stimulus checks and increased unemployment payouts and indirectly by paying employee wages to keep people employed. It also helped fund state budgets, hospitals and operation warp speed which has speed up the moderna vaccine. Overall, I think the those were some pretty damn good investments for a pandemic induced recession.
> overall during the pandemic richer people got richer
No, I can tell you lots of rich people lost a lot during the pandemic. Especially in the affected industries (events, airlines etc). Unless by rich you mean Jeff and Elon, this statement isn't generally true though it is true for some.
Poor people largely aren't in debt. It's that rich people use massive amounts of artificially cheap debt to their advantage - and people without debt and assets pay for the bill - because the Federal government keeps devaluing their earnings and savings to pay for the party.
>68% of personal debt is mortgage debt. Another ~10% is auto loan debt [1]. Most home owners aren't considered poor. A (largely) disproportionate share of poor people don't own cars, don't have access to credit, and also didn't go to college.
The idea that poor people could hold a large percentage of debt is - in itself - paradoxical / ridiculous. In order to have debt, you need something to service the debt with. Otherwise, you're bankrupt.
The major caveat here is student debt - anyone can load up on student debt regardless of ability to service - and there's no way out of the debt. You can't file bankruptcy.
It basically is. If you give someone money to the point where they cant pay the debt back and you never discharge the debt then you were actually just buying the ability to enslave that person. After all, you aren't in it for the money, you're in it for the debt relationship.
Sure they are. Almost everyone does, to the point it is really hard to compete if you don't make some magic debt too. They transfer money from country X to country Y, then a company owned by themselves build them a new warehouse for more money than the local branch have left and voilà, they are now in debt to themselves and don't pay taxes because of it while they get richer because they were already profitable. The richer the company the more they likely do this.
Literally every company takes on large amounts of leverage (debt) because they can likely produce more value with the $ than the interest payments on the debt. Just because you have the cash doesn't mean it makes sense to not take on debt.
People without both debt and assets aren't paying anything.
Poor people are in debt. They have student loans, medical debt, housing debt, etc.; there are people who owe on houses that they've been long evicted from. Inflation reduces that debt, which is why the fed believes its only mission is to hold inflation down.
People with savings, and who own debt are the people who suffer from inflation. Or would, if there were any. Instead we just have an explosion in price of what rich people already own, like real estate.
Producer prices as well. An acquaintance of mine runs a box factory. His paper suppliers have hiked prices twice since November, and naturally he's going to be passing this (and more) on to his customers.
> People without both debt and assets aren't paying anything.
Poor people without debt still pay because their buying power continually diminishes. Their $100 saved today isn't worth as much the next year.
Poor people without assets still pay. They are forced to pay rent to those who have assets. The rent will be priced to cover the debt of the asset owner.
> People with savings, and who own debt are the people who suffer from inflation.
People with savings most typically invest it. The higher the inflation, the riskier the investments they will take to ensure their savings don't dwindle away.
Most debt is mortgage debt - and virtually all of that belongs to non-poor people.
For the last 50 years, home prices have tracked or exceeded CPI. When home prices appreciate, you get leveraged equity on your home. You are unquestionably benefiting enormously from inflation.
Sure - if you took out personal loans to go to Cancun for the weekend, you're not doing any better. But >68% of all personal debt is mortgage debt. The majority of debt is backed by assets which are inflating. The majority of people in debt (and especially companies) are benefiting enormously.
Further - even if you did have an unsecured personal loan or an auto loan or even student debt - you can refinance to artificially cheaper rates - so you are still benefiting.
> The "world" doesn't owe the "world" that amount, it's people in already tight situations owing that to people in pretty comfortable ones.
This is wrong. Most people in tight situations around the world don't even have access to banking or debt.
I imagine most of this is sovereign or corporate debt, and financialized debt, like obligations incurred by instruments such as shorts, or taken out to perform leveraged trading.
"The private sector’s debt has tripled since 1950. This makes it the driving force behind global debt. Another change since the global financial crisis has been the rise in private debt in emerging markets, led by China, overtaking advanced economies. At the other end of the spectrum, private debt has remained very low in low-income developing countries.
Global public debt, on the other hand, has experienced a reversal of sorts. After a steady decline up to the mid-1970s, public debt has gone up since, with advanced economies at the helm and, of late, followed by emerging and low-income developing countries."
-> Public debt is debt that we all deal with, and it might come as a surprise to you but a majority of people aren't actually rich
What I'm trying to say here is that you can play on the technicality of the amount of people under poverty thresholds not being in debt because they can't even access debt, but it's not really changing anything about the people who ARE in debt being in significant amounts people who might not have the shoulders to take it on but are trying to get by and doing so as a requirement to get by.
No doubt that there is an increased burden on the lower-middle class, but when I phrase it that way, it should make clear why your take refers to an insignificant part of the equation.
Nor am I suggesting that the lower class won't bear the brunt of this problem. They will eventually bear the brunt of the global debt issue in a different way - through prices that outpace pay increases.
The problem is cause by the government. How do you think stock market so much past year? The US government and other governments printed so much money that no where to go (remember, we are still locked down). With internet at or near zero, do you think people put their money in the bank?
The majority of this figure is not credit card and mortgage debt. It is government debt in the form of bonds, bought by central banks. Multiple first world countries have turned the money printer up to full throttle during pandemic, and that has caused the debt:GDP ratio to sky rocket.
> The ones borrowing to get by are paying more money than what they borrowed to people who already had money to lend out.
If you are in the Western hemisphere, the interest rates are low (or negative) and the outlook of inflation is bleak. So it's more like the other way around.
This is the logical conclusion of central planning in the currency market - where supply can be infinite and is controlled by monopoly, as opposed to currency bound to a real asset, or otherwise can’t be created from nothing such as bitcoin.
Inflation hits those who have a salary, as their purchasing power sinks. The rich earn their income from owning capital, not from contracts where they trade hours per dollars.
For the most part people take on leverage because they think they can get more value out of the money than the interest they'll owe on the debt.
That's not how people in poverty view or use debt. But we are talking about global debt holdings. When zoomed out to the global scale, the VAST majority of debt is owed by large scale entities and it is pretty incoherent to describe that as a transfer from the wealthy to the poor.
> For the most part people take on leverage because they think they can get more value out of the money than the interest they'll owe on the debt.
Yes, the idea is that you expect to invest the money into something productive. At low interest rates the bar for "productive" is really, really low. Most companies just play around with stock buy backs.
> We don't owe this money to some foreign planet with a death-star pointing at us
One, not all that debt is termed to one year. And two, it’s an internal transmission mechanism.
If two people produce $50 a year, and one owes the other $100 in four years and the other owes the one $100 in five years, that’s a perfectly fine 200% debt to annual production ratio. For years 1, 2, 3 and 5, their positions will be equal. In year 4, there will be inequality. If one or the other defaults, that inequality would persist even though aggregate indebtedness went down.
Most of money today is from issued loans. The worst that happens is like the fears in 2008, where the loans (or the assets bought for those loans) are worth a lot less, and hence a lot of money will be as well.
Read Stephanie Kelton’s book “The Deficit Myth” for an elaboration on your questions. It’s a non-technical introduction to Modern Monetary Theory. Spoiler: you are correct, the rules are different for nations that control their sovereign currencies (eg the UK, Canada, Japan, the US, China, etc., but not EU countries).
Thank you. I always try to call out a fellow MMT'ers. Amazing how far this has come. Mossler said he thought it would take a hundred years to get to the point that the framework could be used pro-actively to create policy on a grand scale. Although, small scale stuff did come to fruition such as the Bush stimulus checks of 2007(i think) which I believe was MMT inspired.
She has truly brought MMT to the mainstream. She's why I supported Bernie Sanders ( and I am a former republican) who is clueless about MMT and thinks we have to tax the rich to fund Federal programs. Allot of people don't know this, but MMT intellectuals have said we don't need federal income tax at all. State taxes are enought to maintain demand for the currency. This from left leaning/progressive economists.
I wish more people understood what is explained in that book.
It's almost impossible to have a rational discussion about this subjects when most people (including the writer of the article, I'm afraid) don't understand the difference between private debt and the public debt of a country with its own currency.
I read similar critics in other sites but right now I don't remember exactly where as to share the links. The arguments were similar. The article is balanced and well thought. You could search for other sites in the web, but I'd suggest you not to discard this one only for the headlines of other articles.
What's the worst thing that can happen? Full employment and the subsequent rise in private industry and economic growth and 2% inflation?
When you have a gold backed currency there is a "guarantee" that each dollar can be exchanged for physical gold. When you have a fiat currency it is backed by nothing, except the existence of an economy that exchanges your dollars for physical goods and services. If you can create money and spend it in a way that preserves this contract you unlock economic growth.
Everyone cannot be repaid at the same time. So there is a risk of a scenario where many lenders get scared and try to get their loans repaid and stop making new loans.
If that happens is becomes much more difficult for people to buy a house, car, college tuition, construction loan. That could cause a recession which causes businesses to do layoffs and spend less because they are worried about future income.
This article is about total global debt, which includes the private sector. Many of the comments here have misinterpreted this as government-only debt, which is not correct.
Only about 1/3 of the debt is government debt right now (a little under $100 trillion globally).
If you look up where your federal tax dollars go, there is a significant line item for servicing debt. Those interest payments go to holders of the government debt, which range from US citizens to foreign countries. You can find charts and estimates of who holds that debt if you want to understand where it goes.
The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online.
"Those interest payments go to holders of the government debt, which range from US citizens to foreign countries."
... and also the fed[1] which, currently, holds more than 10% of the US debt[2].
"The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online."
Perhaps - but it is getting more true all the time. In the case of the ECB it is getting more true all the time in the absence of any oversight, transparency, adherence to constitutional law or democratic processes[3].
Let me explain. The PUBLIC SECTOR is in debt. It won’t be able to continue borrowing on the same terms unless it prints more money (leading to inflation unless done during a crunch of the money supply due to defaulting private sector loans etc).
Even before this pandemic, by cutting taxes the US Government got larger deficits under Trump (after Bush’s $1.5T a year deficit, Obama era got it down to $500B only, and then Trump’s and Republican budgets ran it up again.) The public sector deficits add up to the debts.
The northern cities - forget about it, they can’t even print their own money, and they shus down their businesses - they are screwed.
Now, everything is relative, so US sovereign debt instruments compete against, say, China’s in the open marketplace. But, there are alternatives to US treasuries - like Bitcoin and cryptos and gold etc.
If banks start to keep those as reserves, then the public sector and central banks will have decreasing power unless they FORCE the banks to have higher reserve requirements of base money that they print.
Btw in the USA, the vast majority of dollars is issued by banks (to businesses whose cashflows back this money supply, so bailing out businesses is a priority for the economy).
People are taking all that fiat money being sent by the government created by banks and plowing it into assets, which the government doesn’t have laws to seize, dilute the value of, etc.
One's debt is other's asset. In my understanding, such large ratio of debt to GDP means that the world's economic system is highly interconnected without enough slack in it, which increases risks of avalanche effects. Meaning that someone's failure to service his debt with increasing probability will cause a ripple effect of bankruptcies throughout the system.
Note that this view does not include the existence of the money printing press, which currently runs at full throttle. In theory it would mean destruction of the debt via inflation (i.e. debt yield will be smaller than inflation), thus preventing the avalanche effect, but this approach is by no means a free lunch.
But is inflation a realistic debt-reducing tool in the modern economy? Inflation rates are very low, particularly when considering the debt load. We could quite simply increase the target inflation rate from 2% to 4% inflation, but this would only affect the servicing of the current loans, and the next round to refinancing will correspondingly increase the borrowing rates.
There's still the matter of principal. The US government, for instance, could absolve itself of almost all debt liability by going into high-inflation mode, erasing the burden of most T-bills. Again though, this is a one-shot thing. It could eliminate most of the current debt, but would do nothing about the deficits. As long as large deficits remain (and are politically intractable), it doesn't seem workable in any meaningful sense.
The working quantity of cash out there is also fairly small. The entire point of a bank is that it minimizes the cash in the system by balancing deposits against loans. That means that changing the cash supply will affect the price levels more violently than what would otherwise be expected. That just means that there's less cushion to absorb large amounts of new cash that government issues, again, kind of reducing the benefit of "free" money.
> But is inflation a realistic debt-reducing tool in the modern economy?
Yes, when you consider that we don't need actual CPI inflation in order to reduce the debt. Economic growth works just as well. In hard terms, we can inflate money so the debt is smaller. We could also all get richer so the debt is proportionally smaller.
Pro-growth policies like the strengthened safety net we in the US are experimenting with as pandemic response could have the impact of increasing overall growth to make debts more easily serviceable.
what burden of T-Bills ? T-Bills are a private sector asset(a good thing) and a public sector liability which doesn't matter since the treasury can just issue new T-Bills
in order to 'fund' debt service ad-infinitum. Never ever has funding(i.e. US treasury account balances) prevented government spending from occurring in the modern era. I think we spend 6 Trillion in 2020 on stimulus programs, etc. Where do you think that money came from ?
The Federal government pays interest on T-bills with tax revenue. I don't understand why people give me resistance on this. The higher the debt is, the higher the interest payments are.
Taken to its logical extreme, why bother collecting taxes at all? Just pay for all government spending with this magic money machine.
> The Federal government pays interest on T-bills with tax revenue.
Generally, no, it pays the interest on T-Bills (or any other marginal increase in spending) with additional borrowing.
> I don't understand why people give me resistance on this.
Because it's mostly false.
> The higher the debt is, the higher the interest payments are.
Ceteris paribus, yes, but that doesn't support your other claim.
> Taken to its logical extreme, why bother collecting taxes at all?
MMT adherents will tell you “for the monetary impacts of withdrawing the amount of funds, and the distribution of funds, collected by the taxes from circulation”.
You comments have prompted me to start reading the book The Deficit Myth.
I am looking into this because people I respect are saying things that surprise me. I abjectly disagree with your sentiments and the core points of the book, so far. I'm looking to see if this book will change my mind.
It's hard to even pin down what MMT is saying. What I'm saying is that our national debt is productivity borrowed from our future, from our children, used for today. This translates into real investment, because I fully expect that our debt crowds out physical investment, like renewable energy or nuclear power plants in favor of plants with lower capital but higher operating costs. It's entirely possible to borrow from our children in terms of physical allocation of assets. While the debt is just some numbers in computers, it changes the way we allocate real productive resources.
I fully agree that we can, and should, step on the inflation pedal more. If our deficit were fully paid for by printing money, then I would not have a problem with it. I would hardly even consider it a deficit. This is miles away from reality. Issuing T-bills is not the same as issuing cash, and this book I'm reading (and commentators like you) are reckless with the distinction.
I also agree with the book's claim that we should increase taxes. This appears to be the opposite of what the MMT headline argument is, which is that deficits don't matter.
Yes, it is. There is nothing magic about modern economy, increase supply of something more than there is demand for it and eventually it will lose its relative value. Many argue that real yield of T-bills is already negative. This is why the Fed has to buy them itself (thus effectively it prints money out of thin air), since there is not enough domestic or foreign investors which are willing to invest into them on such conditions.
I think we don't see big inflation (relative to the amount of the injected money) for two reasons:
- Slow velocity of money due to the effects of the pandemic. It's a temporary effect and we already see raises of oil and steel prices.
- Money distribution. The Fed (and the US government in general) policy mostly benefits the rich. Thus we do see inflation of real estate and financial assets (including cryptocurrencies). It works well for now (well, let's forget about the moral aspect of such policy for now), but such capital is very mobile and it can migrate to other jurisdictions very fast on the very first signs of danger, thus aggravating the situation which has caused this migration even further.
A bigger factor from which the "magic" comes in my opinion is the reserve status of the dollar, highly disproportionate to the global share of the US economy. There are signs that this status gradually being lost, which in 10-20 years probably will lead to big tectonic shifts in the global economy. I think that in 20-30 years, the US economy will be far more "normal" than currently, i.e. it will not be able to exploit the reserve status anymore.
> Inflation rates are very low, particularly when considering the debt load. We could quite simply increase the target inflation rate from 2% to 4% inflation.
You probably mean CPI, not inflation. Inflation is really only loosely correlated if at all with the price of goods that consumers actually buy. Things like hedonic quality adjustments leave CPI largely up to whims of the regulators.
No, that isn’t what it’s doing. All it’s doing is saying that we aren’t going to announce a 99.99% deflation in hard drives because now they are measured in TB instead of MB in the 90s, and things of that nature. In a platonic ideal the CPI aims to measure an unchanging basket of goods, but when this becomes impossible in reality something needs to be done.
> The trouble is CPI is not generated in a transparent enough manner to prove your or my assertion.
It's obviously a complicated domain, but I think it is dishonest to say that it is transparency issue. It's not like BLS keeps adjustment methodologies secret.
Methodologies sure, I can pull up some of the formulas they use. The dataset on the other hand, that is secret. A independent party cannot calculate CPI and end up at the same result as BLS. For something as important as inflation, and for this to be considered remotely scientific, the results need to be repeatable by independent parties.
PCE is another indicator that tracks consumer prices and although its not identical the price moves are highly correlated.
I've seen many comments dismiss the CPI as if it was somehow broken. The real problem is that the CPI is correct and that there is no inflation. Stock gains are either driven by a bubble or simply through unfair government policies or both at the same time.
2% inflation is a policy goal, not some trickery to mess with debts. Debt is one way to drive inflation to the 2% goal. As long as there are productive investments it would be foolish to just let your money sit around instead of investing it. Unfortunately central bank money isn't driving any investments, just a stock market bubble.
You say "we" and "our", but both you and the article assume the world is one whole; looking a bit further, it's countries that are indebted to one another.
Now, I'm no economist or anything so this is all armchair stuff and bits I've picked up over the year.
One concern: Being indebted means favors. China could offer to waive some of the US's debts in return for a favor, e.g. Chinese companies having more of a presence in the US (or the other way around). The US owes China nearly 1 trillion, Japan 1.2 trillion. (https://howmuch.net/articles/foreign-holders-of-us-debt-2020)
Another concern: Credit worthiness / rating. Currently, the US is looking very good and they have a AAA credit rating with various organizations that measure it (http://www.worldgovernmentbonds.com/credit-rating/united-sta...). But, if the US fails to pay interest and down payments because they're too deep in debt or their GDP drops for whatever reason, these companies may opt to lower the credit rating (which actually happened in 2011: https://www.bbc.com/news/world-us-canada-14428930). A lower credit rating means that they will have to pay higher interest rates, and that requests for loans may actually be rejected. If the US depends on loan to e.g. pay for government employees (and they do, given that the US's expenses are higher than their income: https://en.wikipedia.org/wiki/United_States_federal_budget, revenue is $3.5T, expenses are $4.4T, so they're borrowing $900B from somewhere to make ends meet).
Mind you, I get the impression most countries have a budget deficit and compensate by taking out loans: https://en.wikipedia.org/wiki/List_of_countries_by_governmen... has a good chart. The US tops the list though, in terms of deficit. The countries that aren't running a deficit - only ten of them - are pretty small countries, who I think may not have the same credit rating as others.
TL;DR I have no clue what is going on or what I'm talking about. It's a big borrowing circlejerk that is probably self-balancing.
It's unknowable how Germany would have developed without the 1923 hyperinflation, but my guess is it would have muddled along as a semi stable democracy, instead of what happened.
Printing money don't lead to hyperinflation unless you also can't sell anything (either because you don't produce or because nobody is buying).
Again, since i don't know why people believe that (even orthodox economists agree on that): printing money alone don't cause inflation to run away. It can cause a big inflation and make people who have money in the bank/ on the side loose a lot, sure. No hyperinflation, not alone at least.
Hyperinflation have confounding factors, one being being unable to sell (Venezuela, Zimbabwe) another being unable to produce enough (Weimar republic in 23). Also my country not invading the Weimar republic for fun and giggles would have helped much more against Nazi propaganda than preventing hyperinflation. Hyperinflation did not cause a famine in Germany. Lack of food caused a famine in Germany, and also in Austria, Poland, USSR, probably Greece and Ottoman Empire (i'm mostly focused in Northern europe history so if someone that extensively studied this area during this time period can correct me, i'd like that, i know a lot of people studied the rise and fall of the Ottomans). Because its what a lack of food does.
Incidentally, my late grandfather was born in august 23 and he was told this was the first good harvest year since 1914. I have to look into it but the French government probably decided to store excess grain to refurbish the depleted stocks, and did not help their neighbors much.
Anyway, printing money does not cause hyperinflation. This is a usefull myth for the masses since printing money reduce "our" asset size (mine too, i'm rich now!).
My understanding is that the mortgage crisis of 2007 is an example of something like this going bad. Technically it was just Americans owing money to other Americans right? But I think how these things go bad is something like:
- Some loans start to default. Either randomly, or because the easy availability of credit encourages riskier projects.
- Conservative lenders get spooked and exit. Credit becomes a bit scarcer.
- This repeats in a cycle. Each round wipes out more businesses. At first it's mostly the obviously risky ones, but increasingly it's normal business with unlucky timing.
- People start to see the writing on the wall, credit markets lock up, and panic sets in. Major corporations find themselves unable to make payroll. Ordinary financial stuff like currency exchanges stop working, while everyone scrambles to figure out which intermediary banks might be insolvent.
This isn't my field, so I should be clear that I'm making stuff up based on podcasts I've listened to :) The way I understand it is that things like MBS's and CDS's were the low-level details of that specific crisis, which we might not expect to happen again in exactly the same way. But the high-level picture was that the failure of major institutions had ripple effects that both 1) directly caused other institutions to fail and 2) indirectly created a lot of uncertainty about who might fail next. Importantly, (2) can cause more failures, by freezing up the markets that a lot of businesses depend on for everyday transactions. This cycle between (1) and (2) can be a general effect, that we might expect to see again in future crises, regardless of what specific low-level details set it off.
The 2007 mortgage crisis had many causes, but much of it comes back to bad debt being issued to people who couldn’t afford it, then the debt was repackaged into instruments that deliberately obscured the risk with good debt ratings.
At the time, real estate investing felt like Bitcoin or GameStop today: Everywhere you turned, it felt like everyone else was getting hilariously rich by investing in it and anyone who wasn’t speculating in real estate was going to be left out. Dinner party and online forum conversation was all about how real estate prices could only go up and how we were going to be destroyed by inflation if we didn’t put all of our money into real estate, the real store of value.
The difference was that anyone could walk into a bank and get a huge mortgage without much scrutiny. As strange as it sounds, lenders would give you a mortgage based on “stated income” without verifying paystubs or even checking if you had a job.
I remember realizing the frenzy was out of control when an unemployed acquaintance suddenly moved into a large new house and was talking about building her real estate rental empire. If money was free and house prices only go up, the only way to lose was to not play, right?
As we all know, it turns out house prices can go down and debt really does have to be paid back.
Low interest rates alone won’t cause this cycle to repeat without similar Mia pricing of risk, but it certainly increases the probability of bubbles popping as quickly as they inflated.
FWIW, the finance world seems keenly aware of the bubble-like nature of our current situation this time around, contrary to what I saw during the 2008 era.
Housing prices have gone up in response to demand, which spiked because of the pandemic -- in other words, new information entered the system (a pandemic can turn a desirable city into an undesirable place to live) and the market worked exactly as it should. It may be that suburban housing is more valuable because we are going to be dealing with pandemic-related messes for many years.
The repayment of the debt for each year is usually by law a required set aside in budgeting before the rest of the revenue can be allocated. If there is less and less left for annual operation costs because we keep increasing our debt reliance, that will hurt people who rely on public services. If the laws are changed to make timely repayment on these bonds and treasuries optional, that will affect their credit rating, and the cost of borrowing, which means we have to pay more each year to get the same debt financing. It's not a good place to be.
Yes, just trying to point out the flaw in the "velocity of money" idea as it relates to debt.
Multiple layers of lending on a single dollar is building a house of cards. When everything works out you get a nice house. When one of the legs fails the whole house comes tumbling down. This is not a good way to build an economy.
Debt is a promise. A promise you make is based on expectations about the future, including promises that others have made to you. The more promises we make to each other, the more likely we are to be in a chain where somebody cannot keep their promise, which means that we are vulnerable to a cascade of failed promises. When such promises pervade the economy, once we see that they have been broken, we have to reorganize ourselves. This happens by closing businesses, by liquidating assets, switching jobs and eating cat food because the pension is now worthless.
In financial terms, such cascades are typically mopped up by central banks through dilution of the money supply and/or taxpayer financed bailouts.
Long story short: more debt means more risk of a financial crisis.
p.s. I think it is not helpful to use terms such as "our own", "ourselves" when trying to understand these issues.
> The more promises we make to each other, the more likely we are to be in a chain where somebody cannot keep their promise, which means that we are vulnerable to a cascade of failed promises.
You can think of a promise as an edge between nodes in a graph. A failure cascade occurs when removing a single edge causes many nodes to become unreachable.
Whether adding edges increases that change depends entirely on the topology of the graph. A long linear chain increases the risk. (But you have to implicitly create new nodes—new lenders—in order to maintain that topology while adding edges.)
But if you just add edges without increasing nodes, the result is that the graph becomes more connected and thus more resilient to edge loss. In other words, if you owe me $100 and don't pay, I'm out $100. But if five people owe me $20 and one doesn't pay, I still get $80 back.
> We don't owe this money to some foreign planet with a death-star pointing at us
It's borrowed from the future. Literally, we owe the money to our future selves, like in human race.
To oversimplify it, we expect that the productivity (ie. the amounts of material possessions and services that are available to humanity as a whole) will grow in a geometric rate.
Those future money are an instrument on how this growth is to be directed, basically relying on the wisdom of the crowds to determine investment strategies. The opposite - direct planning of growth - was vastly tested (in communist countries) but it didn't go anywhere.
"We" do not owe "ourselves." Governments, businesses, and individuals owe other individuals, banks, and governments.
What is the worst that can happen? A government defaults on its debts, and then cannot secure the loans needed for some other very important work. Large numbers of defaults will cause interest rates to rise, and everyone suffers as a result. The "contagion" effect is also possible: a bank sees too many defaults from its clients, and then finds itself unable to repay its own loans, triggering more defaults elsewhere.
If the obvious answer is, "Can't we just forgive the debt," the answer is, "Sure, but we need to be careful." Forgiving all debt would break the markets, because it would remove the negative consequences of investing in bad ideas. Sometimes a business has to be allowed to fail. So the better answer is that central banks would have to buy some of the bad debt, just enough to prevent a cascade of defaults and other worst-case scenarios, but leave creditors holding enough bad debt to feel some "pain" when the defaults happen (in some cases, allowing creditors to fail entirely -- as long as it is not too many too quickly).
The best way to think of it is 356% inflation that will hit us slowly.
I'm this case because the printed money is going to people with lower income it can be thought of as wealth transfer from richer people to poorer people. Poor people get printed cash, wealth people lose more due to inflation. Most of us as software engineers should be losing money if our wealth is stored as cash.
Not any different than taking yearly rent, multiplying by 30 and see if it is 4 times yearly salary. At least with a house you will have something after 30 years. In ten years.. your mortgage will be the same (property taxes won't be) Rent will for sure be higher after 10 years in the same place. But there are benefits to both renting and owning
It's quite possible this ends in a global depression that's worse than what we had in 2008, maybe even worse than what we had in the 1930s.
There are a lot of states that are not very solvent: states collapsing financially is also a possibility. Very bad for the people who live there, and sometimes their neighbors.
Debt is the other side of savings. Some fraction of this debt is the current savings of people older than you. As the last boomers retire over the next 5 years and start to draw down their savings instead of accumulating, we'll see how it all shakes out. "Keep government hands off my medicare!" protest signs are only the start.
What is the worst that can happen? We don't get our own money back from ourselves?
Our future selves find that the cupboard is bare because our present selves squandered it all. Printing money now is a gamble that the real economy of goods and services will expand at that rate over the long term. It’s not by any means certain that it will.
Countries (governments) have to service the debt, that is pay interest on it. More money into that, means less money into regular spending (infrastructure etc). This in turn may mean austerity.
Basically a circle jerk where people borrowing money and not paying it back, business taking loans on leverage they don’t actually have and going bust.
Banks defaulting and no way to payout their customers in that branch because they lent it out.
When you have a bank account your money moves, your bank give you iou and they gamble / invest or lend out mortgages which go bad as much or more then good.
>>As long as it’s serviceable, the amount of outstanding debt is kind of meaningless.
Serviceable now or serviceable forever? its not the same thing, and its the kind of thinking that convinces someone who just got a small bump in pay to go out and lease a new $800/month car because they can affords the payments today, or buy an expensive house at the top of the market, because in their opinion house prices only go up, and their job will only ever pay more - neither of those things are always true, and when the conditions change, they can change fast and have a huge domino effect.
Corporations and governments are responsible for nearly all the debt, via bond issuance. Most bonds have a fixed coupon, not adjustable rates.
When a household can sell bonds to investors, then you can logically compare household debt vs corporate/government debt. I know I can’t issue bonds, nobody will buy them! Also, one persons debt is another person’s asset.
Yea, some consumers make bad purchasing decisions, that has nothing to do with the ability of corporations and governments to service bond interest payments.
This is a good example of how one dimensional thinking won't get you very far. Let's add a dimension and see what happens. We'll divide "we" into "usurers" (U) and "exploited" (E) where the former are defined to receive net positive interest income and the latter are defined as those who bear that net negative cost. By definition we know these sets of persons must exist and together with nonparticipants in the ledger game, who we can ignore, they are exhaustive. Now if membership in U and E is randomly distributed and ergodic then an argument can be made that there is no cause for concern and the system is basically "fair." On the other hand if membership in U is restricted to a tiny and mostly hereditary minority one can see why members of E might not be quite so pleased with the arrangement. Which of these scenarios more closely approximates reality and who the typical members of U and E are is something folks should draw their own conclusions on.
What else happens when you borrow from yourself on a smaller scale, or someone else borrows from you? You take stock of what you have available and anticipate coming in and evaluate what kind of pain you’d experience on default.
Taking the national debt example, that’s asking: can I reasonably and safely bet on four years of comparable value generation?
When you need to worry is if anything you’re extending debt that you can’t say that about.
if person A owes 10 dollars to B, B owes 10 to C and C owes 10 to A, there's a total of a $30 debt that can be paid off with a single $10.
A lot of countries and companies have a lot of debt, but at the same time they're also often owed. So, from those numbers alone it's impossible to know what the actual situation is.
>>We owe ourselves 356% of what we produce every year?
Ourselves is a strange thing to say, the whole world isn't exactly one country. When you have visa restriction preventing movements, and wars for resources. We are not one entity.
No country is going to forgive defaults on money borrowed from it.
Is that debt interest-free? If not, then at 5% interest that's 18% interest that's 1/6 of the GDP going into paying that interest. Nice for those on the receiving end.
Yeah, it's really counter-intuitive. That's because economics is not just based on maths. The only schools of economics with pure-mathematical analysis are neo-liberal schools with game-theory axioms (which are provably wrong).
Mathematics fail to prevent economic crashes of the capitalist system, as they have for more than a century: 1929 was going to be the last crash ever, or so they said.
To understand economics, we have to study social/political context. That's why economists that actually make sense are studying it as a social science, not a branch of mathematics (though mathematical principles apply).
> We don't get our own money back from ourselves?
Debt is a complex topic. But many NGOs and economists over the years have argued it's a system designed to keep the poor and the third world in check. That's evidence by the fact that rich nations/people owe [m,b]illions without any concern for their safety, while poor people will have their property seized for minor debts, and entire countries will be wreaked just to pay off a handful of greedy banks (Greece).
And that's assuming the debt is legitimate in the first place. See concept of odious debt in international accords/law, which applies to most country's debt, which has been contracted not to help the people but eg. to develop the military or give away money to private companies through dubious public-private partnerships.
I agree we are dealing with problems better than in the 20th century... but we're on the precipice of a massive economic depression, actually probably already in the throes of it. Unfortunately the fed has bastardized the cost of money and so people are getting cheap loans despite the outsized risk that it'll simply never be paid back.
Why is this down voted? Things are incredibly unstable.
Further, while "increasing debt can be the sign of positive developments" it can also simply reflect a panic dropping rates to zero to try to bail out the boat. The big question is the utility of that debt. Is it being used to expand wealth or is it being consumed -- especially in buy-backs to artificially inflate stock prices?
This isn't rocket science. This isn't a good thing.
> Does society look stable and secure to you right now?
Do you think society would look more stable and secure if debt-to-GDP ratio had been kept constant in the massive slowdown by even further reductions of private and public spending?
> You don’t take a 25 year loan to build a shopping center in the middle of a civil war.
I do... If my friends win the civil war, I'll have a great shopping center to make lots of profits... If my side loses the civil war and my city is bombed to the ground, then I doubt anyone will be coming after me for that debt.
It's the super low interests rates that are a sign of no ongoing civil war... And those interest rates are denominated in currencies backed by nothing, so aren't really tied to anything.
The part that is government debt, I think of as private funding of government:
* Government cannot cover its expenses through taxes
* There is plenty of wealth out there though, and its owners are eager to "invest" it
The problem is that with funding comes power. If a government owes you, you have some kind of power over it. There are many mechanisms — beyond the scope of this comment — but it leads to greater capture of government by the wealthy.
Who is wealthy?
* Retirement funds
* Companies with lots of cash sitting around
* Investment firms
An alternate approach would be to raise taxe rates on these entities instead (and hopefully lower the tax rates when the crisis passes) — then they wouldn't get the money back. In the case of retirement funds, you'd need to compensate with direct payments to retirees in general, which would be a redistribution of wealth.
I'm no chef but I think heat is usually good for food. That's why I just put the meat in the pan at full flame and leave it there for 10 hours.
Saying that debt can be positive in some situations does absolutely nothing to address the concerns of this article. The problem is it doesn't look good in this situation for a large number of complicated reasons.
Or something unexpected happens and you get stuck with low interest rates and a war of some sort.
High debt and low interest rate environment don't guarantee your more stable amd secure society. Only for short term while you keep printing money. While experiencing all kinds of weird societal phenomena, such as markets decoupled from fundamentals, extremely expensive real estate or low birth rates. The low birth rates will actually implode this entire debt and money printing based scheme or some war or similar conflict even sooner.
This is all wrong, though. We're talking about global debt. There's no external buffer from which funds are being drawn, nor money "printed" to refill. It's all our money. Every debt borrowed is held by someone else. Debt, on this scale, is effectively the engine that turns "wealth" (static resources) into "economy" (doing stuff).
All the stuff you're talking about is true only on micro scales, assuming that that debt is "owed" to some third party.
In fact this can keep going on forever, really. If the money printers are going Brrr... and no inflation is happening nor buildups of saved wealth, then by definition the economy is increasing in size.
More debt generally leads to more economic growth. More trade leads to more economic growth. Those are true statements.
They also lead to brittle economic systems.
In 1900, if everyone was asked to stay home for 3 months, they'd go home for 3 months, and come out not-too-much-worse for the wear. In 2020, when the same happened, crippling mortgage payments, leases, and similar caused a near-total implosion.
Likewise, in 2020, we nearly saw global supply chain break down. In 1800, a global economic crisis couldn't do too much to a town in the midwest growing its own food. In 2020, if, for example, TSMC were to go wonky due to China taking Taiwan, we'd lose over half of our IC manufacturing capacity, including critical components for virtual every other electronic device made.
We're wound really tight. The danger is systemic collapse.
It's a comment about the other piece: Trade and specialization.
It's more efficient to have specialized countries. If Germany and Japan focus on optics, that's more efficient than having an optics industry in each country. Everyone is wealthier.
It's also more brittle; if WWII breaks out again (as a hypothetical), the allies don't have access to optics, and can't repair step-and-repeats. That, in turn, means they can't manufacture ICs. And so on, down the line.
All of your examples occur in the context of a much less developed and less connected world. Industrialization massively increased its footprint, the computing era began and then the internet era began. These are phase changes to human civilization.
Of course it has a different impact vs essentially subsistence agriculture, as per your midwest yardstick.
Silos. Europe is independent. North America is independent. South East Asia is independent. Africa is independent.
There are scientific exchanges, humanitarian aide, artistic exchange, coordination on climate change, and similar, grounded in mutual benefit, but not in mutual interdependence.
These can be big or small silos. Aside from off-grid living, villages, towns, or countries can be independent.
These can also be complete or incomplete. If the tech tree needed for food and transport is local, it's okay if many luxury goods are global.
We don't have an infinite pool of human states. We have one history. We don't have examples of modern and unconnected.
We do have examples of collapses from too much interconnection and trade. A good example of systemic collapse of this sort, from another point in human history, is Late Bronze Age collapse circe 1150BC. There were complex, structured societies which were pretty efficient for the time, due to trade and specialization.
All of the major cultures were wiped out, all at about the same time, when those structures broke down.
"In 1900, if everyone was asked to stay home for 3 months, they'd go home for 3 months, and come out not-too-much-worse"
Considering that back then most households spent close to 50% of their income on food and there were basically no social safety nets it's much more likely they would have starved to death by then end of those 3 months...
Maybe in the few industrialized areas from that time, such as the UK, Belgium, the Rurh basin or the US North-East, the rest of the world was pretty much still agricultural and as such didn’t depend on a factory job/income in order to live.
Global debt is really a measure of the complexity & interconnectedness of the economy. Like you say, all debt is somebody else's asset. When total debt loads rise it just means that there are more links between firms in the economy, where somebody else's financial picture can affect yours.
The downside, like the sibling comment mentions, is that complex systems have complex failure modes. Additional links between firms raises the chance that you could get a cascading solvency crisis.
I'd really like to see who holds the debt. Is it widely dispersed - say lots of individual retirees owning government bonds? Or is it a few big financial firms who own all the assets with lots of little debtors? That has big implications for what inflation incentives are.
It seems to me that as interest rates go down people take on more debt because their interest payment is the same. This is true of households, companies, and governments. At the same time, the price of assets goes up. As long as interest rates are going down it all works. At some point, however, you reach an interest rate of zero and a zombie economy (insolvent companies, governments and households refinancing to repay debt) or interest rates go up and everything collapses.
No economist either, but there's a balance. Too long the projects too high the possibility of something changing along the way or the thing never finishing.
That’s not what’s happened here though. This debt is to cover up holes in balance sheets because of covid. Also because of artificial lowered interest rates.
Strongly disagree. Whenever you borrow money from someone, you start paying interest until your debt is repaid. On the global scale increasing debt means that more and more people are using someone else's money to accomplish whatever projects they do. Or that a larger an larger chunk of our economy is interest paid to existing capital holders that made money in the previous cycle and are not passively collecting rent from it.
If you compare it to the housing market, it's like seeing that more and more people move from owning their property to renting it, increasing the divide between the landlord class and the renter class. In the long run, this just brings more social tension, kills social lifts and ultimately brings more unrest.
This rose-colored-glasses take directly contradicts everything stated in the article, such as:
Further, almost all of the debt issued in 2020 was to deal with present circumstances rather than to invest in forward-looking projects or growth, making future investments in such projects more difficult and potentially more costly.
(Also: Revolution tends to be financed with debt. So while you may not build a shopping center in the middle of a Civil War, the existence of debt is not some sort of evidence of peace and prosperity.)
I am leveraged (via my mortgage) about 600% of my GDP (yearly salary). This seems realistic for me, why is it not realistic for the government? Especially when the government's spend directly correlates with their future income.
As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot. You personally lack the ability to cause inflation via your debt, for example. You also can’t raise bonds, adjust taxes, or declare war.
Not saying that 356% is bad, I’m not an economist, but just because you’re leveraged higher than that on a mortgage tells us very little about whether or not 356% is bad or not.
For certain it matters what that government debt is going to pay for. Debt for infrastructure (and therefore future growth) is quite a bit different than debt to finance consumption, for example.
The shift to long term mortgages ballooned house prices. If people conspired to pay banks less, houses would cost less (purchases are mostly made based on the monthly payment and perception that the price will go up, not on some more concrete valuation).
> If people conspired to pay banks less, houses would cost less
and so that one person who would really prefer a particular house/location (because it's a great house/location) would pay just a little bit more and guarantee that he/she gets it.
The line of thinking behind this comment is exactly why we're experiencing rapid decline - zero ability to consider the root causes behind issues and how to address them at a fundamental level. "Hit back at the banks" is the kind of cable-news-hot-takes-style solution that only address issues caused by prior solutions.
Every single asset class has experienced significant inflation over the last 50 years. Banks created 30 year mortgages because of demand. Demand occurred as a result of actions by the federal reserve. The FHA, not really a bank but rather a government entity, started the trend.
Could you ELI5 why? Is it because we wouldn't be able to keep up with interest payments on the debt given the fact that we're actually already cash flow negative as is?
Pretty much. You get into such insane levels of debt by borrowing more and more every year, by leading a lifestyle that you can't afford.
"Lifestyle" in case of government spending being the levels of healthcare, education, social services, war, tax & tariff rates, capital controls, etc.
If you don't want to be crushed by interest payments, eventually you'll need to pay up, and that means inflation, possibly hyperinflation, and a crash of a lot of systems that we take for granted.
I think i will repeat myself in this thread: printing money ALONE does not create hyperinflation.
I don't understand where this belief came from. Even standards/orthodox/right-leaning economists agree.
Unless the US is suddenly also incapable of producing (and this is impossible), you won't ever have hyperinflation even if the fed did twice the QE they are already doing only to reimburse US gov debt.
> printing money ALONE does not create hyperinflation
Printing ever-increasing amounts of money to finance expenditures that you can't afford will definitely result in correspondingly huge inflation. I don't know if it will qualify as hyper, but you are very much not going to like it.
We could be printing 10x money that we are printing now. We aren't, and we're not short of paper. There's a very real cost to increasing money supply – by printing, QE, or whatever fancy names you call it – even if many people don't realize it yet.
As long as asset inflation is seen by the general population as "stocks / housing are going up, therefore the economy is booming" we have a chance to maintain the illusion of normalcy, but eventually enough people will catch on where the real inflation numbers are hidden, and it's not gonna be pretty.
Inflation is not driven just by economic fundamentals, it is just as much driven by people's expectations, and trust in the system. Economic models assume rationality, which, along with trust in government, is increasingly in short supply, and that is an economic problem as much as it is a social one.
"As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot."
Can we - all of us - graduate a bit in our sophistication here ?
I agree with your statement and don't need any of this explained to me - there is, in fact, a too-simplistic, oft-made analog to personal, household finances. People would do well to understand what governments (particularly sovereign issuers borrowing in their own currency) can do that they, in their household, cannot.
Yet at the same time, I grow tired of the pedantic scolding of the "dummies" that don't understand modern finance.
I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance.
>> I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance.
On what exactly do you base this hunch? Because it hasn’t held true, ever.
Argentina has given us two examples of it just in the last 20 years. Not a perfect example as the Argentine debt was not denominated in a currency they could print ...
I would further point to the "Nixon Shock" as an example where a country (the US) that can borrow in its own currency was forced by (global) economic realities to undertake what some would label a "soft default".
I am on my way to lunch and am limited by what comes to mind in just this fleeting moment - I beg your pardon for my dearth of examples.
Both situations demonstrate almost the opposite of your point. The Nixon shock was abandoning of gold as a base currency. Your household cannot abandon your base currency.
If Activision-Blizzard borrowed its debt in World of Warcraft gold, they would never be in default. The same applies to countries that print their own currency.
I believe that in the very long run (many decades) the growing debt cripples the the government, hurting its productivity along with trust on its proper functioning. (Japan, Italy are around here)
Growing debt is not a good sign even for governments, unless the money goes fully into investments for the future. Many times though it goes into liabilities.
Eventually, currency gets hurt and global capital moves on, leading to its failure. There is always competition, other govs might be doing things a little better.
I think the broader point as to why that comparison doesn't work is in situations where its trying to communicate the point "I can't do this, so the government can't do it."
In this situation, its "I'm able to do this, so why not the government?"
That’s a fair response. You’re absolutely correct that the personal mortgage analogy is used to argue that governments can’t (or shouldn’t) take on certain debt loads.
On the flip side, I’d argue that mortgages and personal finance in general doesn’t tell us much about how governments should treat debt. The nature of government debt, how it’s financed, and what it’s used for is just so different from personal debt that any analogy between the two gives us very little information.
Presumably you are young and you hopefully have your whole working life to pay this mortgage back. A country as a whole consists of people of all ages. If they borrow as much as the young could they are enlisting future generations, who get no say in whether they enjoy this, in paying back these debts. One can ask ethical questions about that. On the other hand, one can argue that covid is an exceptional situation....
Much of that 281t debt is private debt payable which the person or organization that took it out has plenty of time to repay though. Many debtors will expect substantial financial returns on that borrowing, and all of them will have borrowed with the expectation (rightly or wrongly) that the share of GDP they earn in a given year will be greater than the share of debt repayment they owe that year. The details of who owes what under what time frame and whether they are likely to be able to repay matter much more than debt/GDP ratio or the absolute size of the debt burden.
It is possible for the debt-to-GDP ratio to be sub 100% and a financial ecosystem to be on the brink of collapse because the people borrowing the money earn too small a share of GDP to repay, and it is possible for the debt to GDP ratio to be well over 400% whilst consisting entirely of people borrowing money to make sensible, easily repaid long term investments. The reality is somewhere in between.
Because economists know that if you’re leveraged too high you won’t be able to service your debt.
Using your analogy, the rule of thumb in real estate is that a property shouldn’t cost more than 356% of your GDP (yearly salary). Said another way, your mortgage is no more than 28% of tour gross monthly income.
Depends - you could have a very high salary and want a really nice house, that might mean you can't afford three holidays per year, nicest food or the latest technology but it's a tradeoff you could choose to make.
While true - 'traditional' underwriting would not allow that kind of risk, as the lack of slack to be able to take a vacation means another life challenge (6 months without a job?) would likely result in a default at the worst time for selling the asset - when a bunch of other people are out a job.
Same with requirements for large downpayments (20% traditionally) - more skin in the game for the buyer, along with more cushion for the bank to make their money back if the market is down when a default happens.
Thinner margins, higher leverage happens near the top of debt cycles (typically) as lenders get desperate for return, and amp up risk. The type of leverage it allows also inflates asset prices, as money is 'easier' and people who want asset x can leverage higher to get it, increasing demand.
Well there you go, you've identified the problem. We've confused "want" for "need".
If you make $100,000 a year, you can't afford a $600,000 home. Too bad, so fucking sad. More people need to be told this, by everyone down the line, from their bankers to their parents.
And you're making far more tradeoffs than just three holidays per year, the nicest food, etc.. That level of debt means you miss out on investment opportunities when they present themselves. GameStop might have been one of the most recent and dramatic ones I've ever seen. I wish I had known about Roaring Kitty / /u/DeepFuckingValue a year ago. I've been looking for some investment vehicle to park a significant sum for awhile now. After watching his videos, I would have easily dropped $25,000 there. Unfortunately I didn't know about it. But what's even worse is knowing something is going to take off and not having much - or even worse, any - money to invest.
When Facebook IPO'd, I only had $10,000 to invest, but I was able to purchase for $18.50 per share. Would that I had had $100,000...
Said another way, your mortgage PAYMENTS shouldn't be that high. I.e. what the debt repayment terms are of the overall debt of the economy is the important part not the total debt (yes it is important but not nearly as much as the repayment terms).
Government income is lower than GDP, often a lot lower.
As an example, the US federal budget is under $5 trillion, US GDP over $20 trillion (getting a good view is extremely difficult, as states, counties, cities, etc. also have income, and borrow money, and that situation differs by country)
What happens if you lose your job and can't find another one in time to make your mortgage payments? Leverage introduces risks, higher leverage means more risk.
Even if we take that study at face value (they basically overfitted a model with so many free parameters, they could tune it to give any result they want), car seat regulations have at least two orders of magnitude less effect than any of immigration, healthcare, tax, or labor regulations policies.
To paraphrase and mangle a certain quote, if you owe a few hundred thousand dollars to a bank to purchase your home, that's your problem. If a government owes 356% of trillions of dollars, that's not just their own problem anymore.
For a start, while your annual income can indeed be thought as your "GDP", a country's GDP is not the same as the government/state annual income.
Second, a mortgage is a secured loan used for capex: You have borrowed a lot but you used that money to buy an assert worth as much or more so your personal balance sheet still looks fine and the lender can repossess the asset if you don't pay. Basically for debts you need to look at 2 things: balance sheet, i.e. how the debts/liabilities stack up against assets, and cash flow, i.e. whether you can service the interests on the debts.
The issue with government borrowing is that it is largely used to finance a level of spending that exceeds income. So instead of a mortgage I think a more apt comparison with personal finance would be if you used your credit card to finance a life style above what your income allowed. The difference is that governments can get away with much more of that than individuals can, but it will still come back and bite them at some point.
You have a re-possessible and appreciable asset leveraged. You also aren't renewing your debt. 600% of your salary in credit card or student or medical debt is dire.
The structure requires repairs and maintenance over time. If the owner keeps up with this cost, there isn't as much reason for the structure itself to decrease in value. Some homes can be outdated and need a remodel, but that gets baked into the price as well.
Land is finite, and becomes more in-demand as the population increases. When homes appreciate in value over time, I reckon that's mostly the result in land being more in demand and/or asset inflation.
Don't forget the other part I mentioned: asset inflation (here the asset is the land and structure). Money supply has grown over time: https://fred.stlouisfed.org/series/M2
The 40 year old house is probably in an area that has been developed for 40 years with schools, business and recreation.
Anecdote, but illustrative: Myself and a friend bought houses in 2020 of comparable size. My friend bought a build in a new neighborhood (technically put the money down in '19), I bought a 30+ year old house in an older neighborhood.
Thanks to COVID, none of the businesses to support that new neighborhood actually materialized. My friend has to drive to the nearest convenience store, and has to hop on the highway to go to any other business. I can (and do) walk to my local convenience store, pharmacy, grocery store, pizza joint and mechanic. And I can bike or e-scooter to various parks, restaurants and healthcare.
Accordingly, my old fixxer-upper of a house is worth quite a bit more than my friend's brand new house.
House prices don't really go up; land prices go up.
Land prices go up because the desirable land (land given value by its qualities, whether inherent or through value added through improvements) becomes more desirable.
Land prices also go up when money is cheap (low interest rates), as do other assets. In those circumstances, house prices (the house, not the land) will depreciate slower than usual because having a deteriorating house is better than having cash.
GDP isn’t equivalent to salary. GDP is the measure of the economy’s production as a whole. not the governments cut. If you compare tax revenues, which is their salary the picture is much more stark.
(in this situation GDP is more like the value you create for your company whereas salary is like tax revenue)
There is one correct answer to this: collateral. Your mortgage is secured by the value of your house, which can be repossessed and sold to recoup loan proceeds. Of course, the housing market can decline, but it provides a very real backstop to your ability to repay that loan. You might be inconvenienced to sell your house, but ultimately it can be repaid relatively easily even if you default.
Government debt on the other hand is uncollateralized and "secured" by two intangible things: tax receipts and central banks. Taxes are obviously a significant headwind for economic growth, and while necessary, should be as low as possible. So increasing taxes is not desirable. The second way is through inflation vis-a-vis Central Banks (so called debt monetization). Inflation is an implicit tax on everyone, and as we know, like taxes, too much inflation is a very bad thing.
Governments have three ways to retire their debt, and all are pretty bad:
1) they can raise taxes which impedes growth and done in the extreme can cause a recession, which then reduces taxable income in a negative feedback loop
2) they can debase their currency causing inflation so that the money they have to pay back is worth less, which is also really bad when done excessively
3) or they can either default which unlike your house, is catastrophic because there is nothing for creditors to repossess
And the above is without getting into the topics about utility: your house will provide utility for decades whereas most debt has been accumulated to fund social programs which need continuous funding, unlike your house which is funded once and amortized over decades.
> Governments have three ways to retire their debt, and all are pretty bad:
What does this mean for our deficit long term? Does the deficit even matter? To what degree? Everything you said is true. It makes it seem like we will most likely never live in a time where the government is cash flow positive (some kind of surplus that is used to pay down debt).
> Governments have three ways to retire their debt
But very little reason to retire debt; there are arguably good reasons to try to manage the debt-to-GDP ratio within broad parameters over the long term, but mostly that is about trying to constrain the long-term growth rate of total debt below long-term economic growth rate, not reducing debt on an absolute basis.
For about a year I dated a forensic accountant with a Ph.D. whose job it was to untangle and uncook books. We got on the subject of mortgages. She said you should never buy a home that costs more than double your yearly salary. If you make $60,000 a year, as she made when she bought her home, then you can afford a $120,000 home. If you make $100,000, then you can afford $200,000.
Entirely too many people, including apparently you, are severely overleveraged on their home loans.
There's absolutely no scenario where your situation makes financial sense to people with in-depth financial education, who are also not beholden to what we've come to accept as the "norm" for financial services.
The reasons she listed for this are myriad. 1) You have to save for retirement. Most people usually do this in the form of stocks, bonds, ETFs, etc., 2) you have, or should be, putting away a minimum of six months of your income in order to survive a job loss, and she recommends at least one-to-two years for people with advanced degrees (M.A., M.S., M.B.A., etc.) because the average time it takes to find another position for advanced professionals is something along the lines of 8-9 months, 3) you have other expenses such as your auto loan or loans, food, insurance, etc., all of which costs money.
Those are only some of the many areas of cost that she and I discussed while we were dating.
There's absolutely no amount of money you can make where your 600% figure makes reasonable financial sense... even if you make $1 million a year, you're still in a $6 million home. Hell if you made $10 million, that's a $60 million home. After taxes, there's still no scenario where that makes good financial sense.
Lastly, I don't want you to think I'm personally attacking you - there's a lot of people in your boat, but its a boat in which no one belongs. These levels of debt are dangerous... the 2008 financial crisis proved that.
The person likely is dual income. So, it might only be 3x their household income. Which is perfectly acceptable.
Getting a home for 2x your household income is basically impossible in this day unless you’re one very lucky remote worker who enjoys living in the middle of nowhere.
I’d say the upper threshold of 4x your annual income is where you’d likely want to throttle back. Any higher, you’re in very high risk or can’t afford it. But trying to get a home for below 3x your income? Basically impossible for most people.
A max of 2x salary for a house is absurd and saving 50% of your salary is overkill and not realistic.
What about the opportunity costs? Buying a cheap home makes you miss out on market appreciation dollars, has less rental value, is likely in an area that has a higher likelihood of impacts from market downturns, etc.
Also being an ultra cheap-ass has opportunity costs such as costing you personal relationships.
>>I am leveraged (via my mortgage) about 600% of my GDP (yearly salary). This seems realistic for me, why is it not realistic for the government? Especially when the government's spend directly correlates with their future income.
if you manage to pay of your debt, and then end you own an asset that is presumably worth more than the total of all your payments - so for you that migt make sense.
If you owned 600% of your personal GDP and all you were doing was buying food and booze - i.e. current consumption - that would be a HUGE problem.
Problem is most of the debt that govt is taking on is of the food and booze variety - i.e. spending money on things that will be consumed today, and counting on future generations to pay for your poor choices.
The Dollar debt denominated system either blows up taking down American hegemony with it or the Fed, et al. manages to inflate its way out of the debt and America prospers while the rest of the world lags behind. Given that the two other centers of power (EU and China) are as inimical towards each other as China is to the US, I doubt a non-Dollar alternative springs up any time soon. I wouldn't start betting against America any time soon.
It's interesting to me not being able to imagine a world where the dollar is less important. Every other country on the planet doesn't need their currency to be the global standard to be successful. You'll be fine when that inevitably happens too.
Not sure why you are getting downvoted ? The crux of it is that the rest of world(ROW) wishes to net export to America and America wishes to net import. So ROW, wants to save dollars and maintain a relatively stable exchange rate in order for prices to remain attractive. Unless and untill someone else steps up as net import for ROW, I don't see it happening. Also, we benefit from this world order because ROW spends bares the real world costs of production: labor, pollution, raw materials, etc where as we bare the monetary costs which are not 'real' world costs and you could argue since there is no gold standard, monetary costs are just the entering numbers into a spreadsheet. Its a racket.
A lot of it I think was just trajectory. But I think deregulation (lowering costs of domestic production) + tariffs (raising costs of imports) is probably the right approach.
I don't think it's tariffs. Most economists agree once you take into account retaliatory tariffs they're bad for the economy. This doesn't mean we shouldn't do them, it might be worth it to take a gdp hit to preserve certain types of jobs. Plus the trade deficit didn't really move.
I doubt it's deregulation especially in the short-term. It takes a herculean amount of deregulation to move gdp, and most of the impact would happen over the long term. Like they say it takes a lot of Harbinger's triangles to fill an Okun gap.
Honestly I think the Trump economy is mostly due to Trump yelling at the Fed to keep their foot on the gas. We had un/underemployment and he pushed them to lean a little harder on the accelerator.
The stimulus plan is proposed, and until it's enacted it probably shouldn't be included. And it's barely 2.1% of global GDP so it's not exactly like it would make a huge impact to the numbers. It seems completely reasonable on both counts to keep it out.
As 16-18, if debt increases and debt % of GDP decreases, the only thing that could cause that is GDP increasing more than debt.
> It seems completely reasonable on both counts to keep it out.
Yes. I didnt mean to imply the article was wrong for omitting. however, USD being the global reserve makes it a little more relevant than other countries.
> As 16-18, if debt increases and debt % of GDP decreases, the only thing that could cause that is GDP increasing more than debt.
i wonder how much of this is obama policies and how much is trump policies. also im not sure debt is a fine-grained enough metric to be meaningful. some debt can drive the economy forward and some is rent-seeking wealth destruction.
Also, it's not a stimulus package. People need to stop calling it that. A stimulus is intended to get people spending money because they're all scared and keeping their money in savings. This is meant to keep people afloat because they have no income.
> why did debt skyrocket but debt% of gdp go down?
Because world GDP grew faster than world debt. The debt growth is also smaller than it appears from the graph (the y axis starts at 200trillion rather than zero)
It's just imaginary numbers at this point. I'm no economist but the fact that this is all still functioning seems like a miracle to me, resting on the single concept of owing money.
Does anyone know if there is anywhere we can find a graph of interest (rather than debt) vs GDP? It seems more useful to compare one annualized number with another. With interest rates historically low, this might be less of a burden on the economy than previous lower debts at higher interest rates, or it might be much worse - but I can't tell from a graph like this.
The headline sounds a little more exciting than it really is. Debt before this year was already at 320% of GDP. It's also important to remember that GDP is an annual number ($/year) whereas the debt number includes accumulated debt from all prior years.
If rates are way higher, then that means that money is making money. If you borrowed in order to invest, rather than consume, you should have been making money.
When you consider that the unemployment spiked at the fastest rate ever seen and the entire world fell into a brief, but severe recession (~30% GDP decline in the US), a 15% increase in debt / GDP seems quite mild.
"...the world's already high debt levels look to be inhibiting economic growth and threaten to hold back a full recovery from the pandemic in the long run."
Is that what they "look" do be doing? Explain how.
Who the fuck do we owe, the Martians? How long before we just accept that money is made up and free ourselves of this make believe game? Just give people what they need to survive and let the unwieldy and inefficient private sector die, we're propping them all up with tax money already anyway and they still barely tread water.
Private sector had multiple pharma firms ready to go to create vaccines to cure us from terrible virus. If we had one “efficient” government firm we wouldn’t have anything.
And public sector money props them up each year when they pay little if any taxes, and we also fund their research endeavors because corporations are notoriously shitty at that sort of thing.
99% of private sector "innovation" is repackaging the stuff created under DoD/DARPA research projects. Then once that's done, they corner cut.
I dunno man, you tell me. We're perpetually running out of money every time we're talking about doing things like helping people not die or freeze to death, yet miraculously we always have trillions around to funnel into more tanks that will rust away in a field in Kentucky, but we can't help people survive the deadly plague circling the globe by just paying them to stay home, yet also have the money to just GIVE Wall Street 3.5 TRILLION DOLLARS, like just here, not a loan whatever, it's all good bro. Just 3.5T for 30 minutes-ish of market stability.
You explain how this shit is working for anyone not in the C-level or political classes.
The only time I hear about Supply and Demand is when poor people get fucked. Nobody is worried about the money supply when we're pissing streams of BILLIONS into the military industrial complex, when we already have a military multiple factors larger than anyone else on the fucking planet. Yet in the midst of shitloads of people not being able to afford rent, we can't like, defer mortgages or just give the people money, noooo, that'll hurt the moooneeeey.
They often repackage a shit ton of open source software developed by volunteers, all of which is running on Internet standards originally developed by the Department of Defense for military use. Most of the tech in the servers was developed by various DARPA initiatives surrounding transistors and solid-state memory.
Mind you these things were invented at companies, yes, but almost every time if you dig deep enough you'll start finding the lists of the various grants given to said companies to fund this research, because otherwise they just tend to not do that. This is not controversial stuff, it's very normal.
Yet that efficiency has only increased as the money system we have now stabilized, and was adopted by every single country in the world, because it did provide empirical benefits to the populations in those countries.
So the point is correct - stable currencies have allowed vast increases in economic growth and vastly better standards of living than were possible the millennia before it.
Being locked to other forms of money, such as the rate a country can amass gold, slowed growth to that rate. The current system is vastly better.
Your point presumes that the spread of the globalized market is a boon to the countries it touches. Like, fair dues, now people in remote island nations can buy televisions and smart phones, but now they also have Facebook which is being used by their leaders to foster genocides.
"Standard of living" is more complicated than good and bad.
And we've been doing it for as long as I've been alive. I'm certainly never going to make enough to pay it down, and nobody else in my generation is. So like... who's paying it and when? Or again, do we just acknowledge this whole thing is just a Ponzi scheme to direct more money to the same boardrooms who already have more money than they could ever conceivably spend?
Take all of Bezo's wealth away, and just leave the number there. He'll never know nor will anyone else, because there is nothing you can do with that much money. There's nothing to buy.
I’ve responded to some of your other comments with corrections. You’ve been stating falsehoods as facts throughout this thread. If you really believe that we could “take all of Bezo’s wealth” or that it would improve the situation rather than worsen it (seizing private assets to punish business owners is the fastest way to ensure no business owners want to operate in your country) then it’s clear that you don’t understand how basic economics works.
We’re not going to get anywhere productive as long as the goal is to punish the rich no matter the cost. The economy isn’t a zero-sum game where every dollar of Bezos’ net worth is a dollar subtracted from the poor. Amazon had created value across the economy, far beyond Bezos’ net worth. Likewise, arbitrarily destroying Amazon or Bezos would likewise destroy value across the economy, as well as destroy the institutional trust that enables the economy in the first place.
> I’ve responded to some of your other comments with corrections. You’ve been stating falsehoods as facts throughout this thread. If you really believe that we could “take all of Bezo’s wealth” or that it would improve the situation rather than worsen it (seizing private assets to punish business owners is the fastest way to ensure no business owners want to operate in your country) then it’s clear that you don’t understand how basic economics works.
Your imagination is limited. I don't care about business or business owners. I'm exploited by every business I interact with, either as a consumer or an employee. They don't have my loyalty.
> We’re not going to get anywhere productive as long as the goal is to punish the rich no matter the cost. The economy isn’t a zero-sum game where every dollar of Bezos’ net worth is a dollar subtracted from the poor.
Yes, it literally is. Amazon makes money by selling whatever product at a cost higher than it cost them to complete the logistics to get that product to a consumer. That means their profits are whatever they can scrape off of paying people to shuffle boxes through their warehouses, drive their trucks, and write their code. That is exploitation by definition: those employees are not paid what their labor has generated in terms of wealth. Every employee is paid less than they are worth, because otherwise profits would not exist.
> Amazon had created value across the economy, far beyond Bezos’ net worth.
Amazon has also decimated numerous other businesses, and used the resulting holes in the market to grow.
> Likewise, arbitrarily destroying Amazon or Bezos would likewise destroy value across the economy, as well as destroy the institutional trust that enables the economy in the first place.
I don't want to destroy Amazon, necessarily. I want them to pay their workers enough to live. The problem is every time people suggest that, people like you come in and say "well if we paid them a living wage the business would die, do you want that?" To which I say, yes. If your business must pay poverty wages and force people onto Government welfare, that is literally the Government subsidizing your workforce and why the hell should we do that? If we're going to pay, by proxy, for people to work at Amazon, then let's just fucking own Amazon as a public utility and cut out fucking Bezos. We don't need Bezos. He is doing nothing essential at Amazon, he just had the capital to start it, and he certainly doesn't do fucking anything worthy of earning what he does. No human being can EARN 4.5 million dollars an hour.
We saw in the pandemic what happens when the workers can't go to work, but the finance guys, and the CEOs and everyone else can. The economy ground to a fucking halt. Bezos was able to do everything he does at Amazon just fine, just like every other CEO, because what they do is functionally nothing. Their workers, on the other hand, were essential! They were heroes! So they had to go to work, and get sick, and die to avoid this entire ponzi scheme coming crashing down. And still huge sectors of it are on the verge of collapse precisely because the people actually generating wealth are having a hell of a time doing it.
"Well we can now only inhabit 2% of the planet after the ice caps melted and flooded the rest, and it rains acid every day, and we haven't seen the sun in a decade, but for awhile, we generated so much value for shareholders. It was beautiful."
Would you please stop using HN for ideological battle? It's tedious, predictable, not what this site is for, destroys the curious conversation that it is supposed to be for, and does nothing to help the ice caps.
Edit: on closer look, I'm going to ban this account until we get some indication that you want to use HN as intended. There are already too many signs to the contrary, such as the insult in https://news.ycombinator.com/item?id=26168564. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future.
Using HN primarily for political or ideological battle is generally something that we ban accounts for, regardless of which ideology they're battling for. As I said above, it's destructive of what HN is meant to be for.
This headline includes private sector debt. Most of that number is private debt.
If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders.
Likewise, government debt is still real debt. A not insignificant part of your taxes goes to servicing interest on government debt. That’s because it’s still a real debt owed to real people who expect real interest payments.
Money isn’t some made up concept. We can’t simply print more and declare it all good. Don’t confuse money with wealth, which is a separate concept that underpins this system.
> If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders.
Yes and on an individual scale like that, it makes complete sense. It's borrowed against my future income, and that I will someday pay off (I mean probably not I'll buy a different house but you know what I mean.)
I'm saying, on a scale of Nations and megacorporations, it's fucking bananas nonsense. According to the Goog, US national debt is 27 trillion. Who do we owe? How did we qualify to borrow that, apart from being if not the center, at least a good chunk of the center, of the world economy? Is anyone in a position to say we can't borrow it? Is there a credit check? Who fails that check, if there is one, because we haven't despite the last several decades of absolutely racking it up.
At this point to analogize the US to a single person (which is reductive and useless but bear with me, I'm making a point), we'd be someone with hundreds of thousands in credit card debt, making a lot of money to be sure, but also carrying four mortgages and making interest only payments, and the bank in question is just still handing us money. And like, I don't think that's great, but also, it's been chugging along more or less fine for as long as I've been around. So... why don't we just stop pretending it means anything? We "owe" some foreign banks... do we? Says who? Who's gonna enforce that? Are they gonna foreclose America? The only time I've ever seen countries actually brought to their knees by banking is when a tiny one gets too uppity about getting screwed on the global economy scale, at which point we send in Marines to remind them who's in charge. Who's gonna do that to us?
American assets can be repossessed abroad if a judgement is served - look at what happened to Argentina in NY. Plus you want Americans to be free from money but everyone else use our currency at gunpoint?
> American assets can be repossessed abroad if a judgement is served - look at what happened to Argentina in NY.
Yeah, that happened to Argentina, who is not America. I'm saying if that's the consequence, which you seem to agree it is for nonpayment, then America is immune from that consequence. If someone tried that shit on a US Naval ship, they would be bombed out of existence.
Mind you, this is brutally unfair to the Global South. That's my point. Global capitalism just exploits countries to small too play the game like we do, and the countries that do play said game, do so largely with stolen wealth from those same exploited countries.
If America owes money but the mechanisms to enforce that don't exist, then why do we owe it? We owe it exactly as long as we agree we owe it. And this is not to say America should just move on, this is to say the world should move on.
> Plus you want Americans to be free from money but everyone else use our currency at gunpoint?
Government debt is literally sold. You can go buy it and invest in America, and you will receive your interest payments right on time like clockwork.
Likewise, when you pay your taxes, some of that goes to servicing that debt. You can look up how much of your federal tax bill went to paying debt holders.
The system only works as long as its trusted. If we just stopped paying interest on our debt, that trust would vanish overnight. As a result, the price of borrowing would skyrocket because who would invest in something that has demonstrated it doesn’t care about paying you back?
Likewise, if we do too silly monetary policy stuff, the trust will also disappear. Despite what the memes say, we can’t literally print infinite money and call it good. Fiscal policy isn’t a secret, it’s done in the open. The buyers of our debt know what they’re buying.
You can look this up. 21T is owned by the public (think retirement funds, pensions, etc., a lot of which own treasuries). Simply blowing off paying them would wreck the US economy and destroy lots of people. So it's real money owed to real people.
Foreign govts own around a third of the debt - same thing - they invested in US treasuries and those assets are intertwined in their economies, just like ours. Of this Japan has 1.3T and China 1T.
State and local US govts own around 1T for their pension funds.
So we owe it to any actor that has purchased US Treasuries, and that's a lot of people, big and small.
>it's fucking bananas nonsense
No it's not. It's simply big, but then again, so is the US and world economy. There is no goofy, ill-conceived, wholesale ignorant corruption going on.
> Is there a credit check?
Yes, it's the rate at which buyers willingly buy Treasuries on the open market. If enough people/institutions lower their trust, rates go up. It's as simple as that.
The main question is not how much debt the US carries, but can it afford to service the debt, and so far, that is a yes. Servicing the debt is around 10% of federal receipts, which is a decent chunk, but by no means debilitating.
The debt and the money is not "made up," but the "we" is made up. The owed amount will be paid by our children and grandchildren through their taxes. The money will go to foreign countries, federal agencies, central banks, hedge funds, and pension payouts.
"Money is made up therefore it serves no purpose" is just a bafflingly implication. Care to provide any detail at all about how your moneyless society is going to work?
Oh it absolutely serves a purpose, it's a shared value that speeds the exchange of goods and services. However as the monetary system exists now, is mainly as a tool of oppression to keep people locked in a cycle of working themselves to death. It doesn't work for anyone save a tiny minority of people, who have more of it than they could ever use.
I suppose instead of "moneyless" society, I'm saying we need a money reboot.
We need money that has actual value that can't be manipulated. That is why the gold standard worked. At the same time that is why those in power ended the gold standard.
Without the anchor to gold our money can freely be manipulated for personal or political gain at the expense of the public.
> We need money that has actual value that can't be manipulated. That is why the gold standard worked. At the same time that is why those in power ended the gold standard.
No, the gold standard worked because at that time, manipulating the value of money to tweak the economy was not a practice. And besides-which, gold is a terrible standard anyway. We use tons of the stuff in basic, cheap electronics all the time. We use it on boutique audio connectors. It's not uncommon or rare at all. It's like diamonds, the only reason they're worth a goddamn thing is that everybody just agrees they should be, even though the same substance that sits on the end of a $10,000 ring is ground up and coats the outer surface of saw blades.
> Without the anchor to gold our money can freely be manipulated for personal or political gain at the expense of the public.
As we've seen though, this can be done with virtually any asset now, which is why land remains basically the only thing that holds value, because increasing or decreasing the supply of it is really ridiculously hard.
We owe each other. A owes B, who owes C, who owes A. Sometimes paying off one debt causes a cascade of several debts being paid off in turn, all with the same money.
Please see the history of communist countries for how that works out. Central allocation of resources is incredibly inefficient and highly susceptible to corruption.
I recently read a great book called "The Price of Tomorrow" - Jeff Booth. The author discusses how credit and debt is the main driver of growth over the last 20 years (Inflationary) because technology is deflationary and as it exponentially increases so does deflation. Governments who are terrified of deflation and dependent on a system that encourages incessant growth and higher prices, can only maintain that growth through credit and debt (inflation). Considering that almost every country in the world is participating in uncontrolled borrowing and spending, it's going to get very interesting.
> Governments who are terrified of deflation and dependent on a system that encourages incessant growth and higher prices, can only maintain that growth through credit and debt (inflation)
Money is cash and credit. The government has been printing cash for a decade. You don’t need, and we haven’t only had, debt.
Isn't government debt extremely cheap compared to 20/30 years ago?
Should we not look at how much interest we are paying compared to GDP for a better outlook?
This headline is total global debt, which includes private sector debt.
Many of the comments here are mistakenly assuming this is only government debt, which is incorrect.
The article mentions the government portion of debt further down:
> Government debt accounts for 105% of global GDP, up from 88% in 2019, rising by $12 trillion in 2020 or nearly triple its $4.3 trillion increase in 2019.
I'd be more interested in what percentage of global GDP are the debt repayments. This is a bit of scare mongering on Axios part - if the denominator goes down (gdp as a result of a pandemic) of course the % is going to blow up. At least they did put in a time-series plot of the last years. Yes debt flew up this year ... is anyone surprised given the large scale stimulus by most central banks?
As a side note / gripe - Any reputable news organization should always be putting in time-series plots for any news article talking about talking about budgets/large scale economic values so people can grasp concepts and get honest context. Otherwise it always feels manipulative when they place random large numbers for shock value.
I would say that what really matters is the interest rate.
Interest rates worldwide are really, really low. In quite a few countries, below zero actually. So the real debt burden, which comes from the need to pay interest, is not really painful right now.
It is not at all clear if such a low level of interest rates can be sustained forever. If it jumps up a bit, heavily indebted countries like Italy and France will be immediately in serious trouble and risk of default.
There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too.
>I would say that what really matters is the interest rate.
Interest rates are negative in many places. Germany has had negative interest rates for nearly 2 years and 0% for over 5 years. Does that mean you have can infinite debt?
Worse yet, Germany was deflationary for nearly all of 2020 and are officially in a recession. Constitutionally Germany's government cannot run a deficit. As such they have reduced their government debt in the last several years. For all of 2020 however unemployment basically never moved.
Now lets look at Canada where the government has run historic record breaking levels of debt. In 2020 alone the central bank took on $400 billion in debt. The Canadian government stopped reporting their economic numbers during 2020 because lets be realistic...
GDP of Canada is roughly 1750 billion. 14% unemployment. That $400 billion does mean that Canada was not deflationary.
So the government took on $400 billion in debt and how much did GDP increase? Surely we should see 15-20% gdp increase? Nope. We see -17%.
>It is not at all clear if such a low level of interest rates can be sustained forever.
YTD on interest rates is +35% or so. Which is interesting because inflation targets are well below target.
>There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too.
Well we're seeing it all over. So many countries are over leveraged and bubbles are everywhere. They are going to pop.
I think central banks are distorting the economy in a non good way by artifically lowering interest rates. Low interest rate is driving up house and asset prices. Central banks try and control price inflation by lowering interest rates to get wage/price inflation up to 2% but we live in a globalized market so that dont work.
Central banks intervene in the market and buys debts. Thus central banks distort the true pricing of debt since well if the central bank would not buy the debt the price of issuing that debt would be higher ie interest rate.
Its artificial in that with quantitative easing the true price of the assets is distorted.
"A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time. "
source: https://en.wikipedia.org/wiki/Quantitative_easing
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[ 1.1 ms ] story [ 297 ms ] threadHow about going back 10 or even 20 years? And how about starting the y-axis from, say, 100%
Conversely, this means that GDP recovery will provide downward pressure on the ratio.
We owe ourselves 356% of what we produce every year? We don't owe this money to some foreign planet with a death-star pointing at us. So at what point should we be concerned? What is the worst that can happen? We don't get our own money back from ourselves?
Countries are not households, and the world as a whole is not a household either. Heuristics that work for individual households fail when applied to countries or the world.
Debt hysteria is promoted by lenders, who will go to extremes to try to ensure they are repaid. Even if their actions cause a general depression that impoverishes themselves as well as borrowers.
Lenders conveniently forget the reason they can charge interest is because there's a risk they won't be paid back.
Yet when these private investments go back, they always go to the government to be subsidised with a bailout.
No, the reason they can charge interest is that they have the money now, and other people want it, and are willing.to pay interest to get it.
The reason they need to charge interest if they don't want to go broke is that there is a risk they won't be paid back.
Any liquidity issues could be addressed by the central bank, again at low interest if no risk.
And a central bank of a sovereign country can arbitrarily increase liquidity, pushing down the non-risk part of the interest rate.
But interest rates for borrowers, as I said, can be high, depending upon the risk profile.
Actually, this is wrong. If you can borrow money and spend the money in a way that you will get more money in the future then you can take on an infinite amount of debt. This applies to households, small businesses, large businesses and governments.
Households get into trouble because debt can be used to overspend on consumer goods. Nigeria is in this situation. Oil exports made importing food very cheap. Now that oil is worth less they suffer from a trade deficit and the government has to borrow foreign currency so that companies can import food. Inflation is the expected result because you have exceeded the production capacity of your economy.
The ideal choice would be to invest the borrowed money into agriculture and eliminate the deficit.
Now, whether this is actually the case remains to be seen...
This assumes that people think of the world as a single unit. Last 4 years should reveal our primitive minds.
The "world" doesn't owe the "world" that amount, it's people in already tight situations owing that to people in pretty comfortable ones. The ones borrowing to get by are paying more money than what they borrowed to people who already had money to lend out.
What we'll see is yet another rise in inequality, yet another wave of the bigger businesses surviving over the smaller ones, and more debates within each government regarding how much intervention is wanted to try and save people from the consequences of those inequalities.
I can assure you that the comfortably rich are not getting richer by loaning money to the average person to buy houses and cars with 2.5% interest rates, while inflation is arguably significantly higher than that number.
The rich get richer in this scenario because low interest rates increase the buying power for everyone, which means they can buy more expensive houses or pay less for the mortgage on the house they already own, which in turn means they can buy more things from Amazon, which means Amazon does more business, which means the stock price goes up, and so on.
The populist narrative likes to simplify complex economic topics into rich versus poor narratives as if this was a zero-sum game, but it’s not. I’m not sure how your final points about inequality relate to increasing total global debt, but it’s obvious that this isn’t as simple as funneling money from the poor to the rich.
Your explanation doesn't explain anything away but to try and put some sort of weird blame on poorer people for borrowing, it's just as usual of a narrative as the populist thing to be infantilizing poorer people. There's however a pretty big difference between borrowing at your limit or sometimes beyond because you're trying to get through a pandemic or have a place to live, and borrowing at high risk because you're playing with huge sums and can in fact afford the loss. The latter as a group made more money during the pandemic from any possible source you could look at, the former as a group lost money and jobs. I won't insult you by throwing Oxfam reports at the situation, especially since you might be keen on calling it populist too and calling it a day.
Not true. Governments around the world are just using money that doesn't exists, an example is the new economic rescue package. This kind of money, is great to made rich people richer.
Ultimately it just wasn't in bills but it was indeed paid in the government's loss of abilities (as well as the price to the population) and made money in other places where it was due. And that exactly what governments do when they deal with currency: any adjustment isn't creating energy out of nothingness, it's just that the layers of our system make it pretty hard to figure just where the debt is paid and it ultimately ends up being paid by those least able to see it coming & to avoid it. Not to hammer the point again, but those people tend to be again on the end of the spectrum that has "poorer" written on it.
Consider what happens with high interest rates: The people with money are incentivized to put it in the bank and sit on it, while the people without money are forced to pay exorbitant interest rates for the privilege of borrowing that money to start businesses, buy cars they need to get to work, and so on.
Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank.
> The latter as a group made more money during the pandemic from any possible source you could look at
Stock prices are up because we literally stimulated the economy by giving the average person free money to spend and subsidizing their jobs. The headlines comparing net worth of wealthy people at the lowest point of the pandemic to the highest point are outrage porn. They didn’t make money by funneling it out of the poor and into their bank accounts.
How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich. It is obviously a zero sum game. Over last year my FAANG friends had their stocks increase by insane amounts which they sold and bought second homes, beach houses, ski condos. I am not a FAANG employee or owner or TSLA stock, we want to buy a house but we are priced out of most places. We have to move away from our family to the farthest suburbs to even be in the competition.
That said lots of markets are close to zero-sum on a near-term basis. Real estate in very scarce locations is a good example for sure.
Regarding the real-estate example, the real estate may be zero-sum but net economic value still increases when a piece of land changes hands from someone who values the property less to someone who values the property more—which is the default expectation underlying any voluntary trade.
Total utility depends on people's ability to use/appreciate goods and services. Therefore, a transaction that allows for more use/appreciation creates value.
However, you can anticipate that other people will use/appreciate something, and set out to produce it. The expectation of future sale creates value for you; value is created before any buyer appears.
Feels to me like most value is probably created intentionally this way.
On real estate: I think there's not that much value created on average simply due to transacting. Sometimes people die and their estate is sold, or a space has features that are more valued by the buyer (e.g. proximity to water for a sailor, or 3-phase power for a machine shop), or some other asymmetry arises. However, most spaces don't suddenly provide more value to people just because someone else resides there. The majority of value in real estate is created by building/modifying, and the overall community (e.g. building a train stop increases value around it). Asymmetrically valued features are probably far from the biggest driver of value or price increase in aggregate. So, I agree value can be created by transacting real estate, but find the statement a bit misleading when thinking about why prices go up. The growth of availability of space is much slower than the growth of population and buying power.
I think if you stopped the transacting then the value of the property would deteriorate; the value that a given owner places on the property is variable and in the end must always go to zero when the owner dies. So transacting increases the value compared to not transacting but there are other factors in play with the opposite effect, resulting in little net change in value over time.
It's net negative when the buying party is misinformed and cannot afford the financing for the property he just bought. That's how we got the 2008 crash.
Those who are routinely wrong in their expectations tend not to accumulate wealth, and thus make up a smaller proportion of economic activity over time—unless there is some external force at work transferring wealth from those who make good economic decisions to those who do not, thus increasing the economic influence of bad decision-makers.
> How though? There are only limited amounts of land to own, water to drink, desirable places to live ect. How can everyone simultaneously get rich.
If you define "get rich" as "own land" or "own water" or "own property in desirable place X" then yes, you can see it as zero-sum.
But if you define "get rich" as "accumulate money", then the economy it is not zero-sum. And one of the ways it is not zero-sum is fractional reserve banking. This allows the banks (who arguably are the originators of most of the loans being discussed here) to literally "create money out of thin air". For a bank to underwrite a loan to someone for $20,000 for a car, they don't have to wait for grandma's saving account to accumulate $20,000 in order to have the funds to make that loan. They only need (example) $2,000 to be "savings" in grandma's savings account in order to be able to underwrite a $20,000 loan to the person wanting to buy the car. The $18,000 difference was simply created by fiat out of thin air.
Which is how, if one defines "get rich" as "accumulate money", the economy is not zero-sum. In order for person X to gain 10,000 more dollars, person Y does not have to give up any dollars (unlike with land/water/housing/etc.).
You are not rich if you have ten billion Zimbabwean dollars.
what is owning water? I don't want to own water. I want to live in place where there is no water shortages. What is your plan to survive without 'owning water' ?
Untrue. The world has always had problems, even today, but it's ridiculous to think that everything was bad (before capitalism, isn't that what you meant?). That is propaganda you are repeating out without even noticing.
Go study history before making absolute claims like that.
Until sometime in the last few hundred years, the vast majority of human effort was spent on trying to make sure there was enough food, and famine was far more common than it is today.
The fact that life was so hard does not mean that people didn't find meaning in it or that it was bad by any means, but what's ridiculous to me is to suggest that there is a finite amount of wealth in the world when very obviously there is more today than there was yesterday and who knows how much more than there was a thousand years ago.
It's important to note that the third of these is not like the first two.
Yes, the Earth is a planet of finite size and there are only a finite amount of acres of land and molecules of H20 on the planet. Note that the actual land used by humans, and the actual H20 used by humans, are both much smaller than the total that is available. And the H20 gets recycled anyway. But yes, there are finite limits to both set by the Earth's finite size and the physical characteristics of humans.
"Desirable places to live", however, is subjective. Different people have different desires. And we have the ability to create different places to live that satisfy different people's desires. In other words, "desirable places to live" is not a finite, limited resource; we can create more.
Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.
> Most human wealth is like the latter, not the former; we can create more of it. But you have to have a mindset that you can create wealth. That is a fundamentally different viewpoint than the viewpoint many people seem to have.
Agreed. Another thing many people miss is that money isn't wealth: its simply the measuring stick or common language/protocol we collectively use to measure the wealth or value people create through their work.
Simply creating money out of thin air, or out of non-collateralized debts results in systemic distortions in money's ability to accurately measure wealth and value. This leads to price signals that no longer communicate real needs, which in turn leads well-intentioned people to make malinvestments.
Can't upvote this enough. If only most people grasped this and saw through the smoke screens that politicians and financial institutions put up to disguise what is really going on.
The only thing I would add to this is that, in addition to the distortion effect you describe, creating money is a method of redistributing wealth from the poor to the rich, since the newly created money ends up going mostly to the rich.
I'm not sure it's as simple as that. Creating more money reduces the value of money that already exists. It helps those who are heavily indebted (including the government) by reducing the real cost of those debts and hurts anybody with a large amount of net worth saved in cash. Both rich and poor people gain a lift from this debt-reduction effect; rich because they use leverage to purchase income-producing assets, and the poor because it erodes the cost of any consumer debt they have. The savers are losers, regardless of net worth.
Yes, which is why all the people who don't get any of the newly created money lose wealth. They have the same amount of money as before, but it's worth less.
Where does the wealth they lose go? To the people who did get the newly created money. In other words, it's a wealth transfer from whoever doesn't get the newly created money, to whoever does. Usually the latter are banks and financial institutions, i.e., the rich.
> It helps those who are heavily indebted
As long as debts are denominated in dollars, yes, the real cost of the debt is reduced. But the people who don't get any newly created money also lose buying power, and the latter loss is not fully compensated for by the reduction in the real cost of their debt.
To see why, consider a simple example: I have $1000 in monthly income, $200 of which goes to pay off debt. The government creates some more money but I don't get any of it. The dollars I have to spend on debt each month stays the same, $200, but it now represents less real cost than before, so yes, the real cost of my debt has gone down. But the dollars I have left over for everything else also stays the same: it was $800 before and it's $800 after. But the $800 now buys me less than it did before, so in real terms I am still worse off.
> The savers are losers, regardless of net worth
Assuming they don't get any of the newly created money, yes.
I would agree if we had runaway population growth. However, we get to be wealthy simply because our population growth is going down. The amount of resources accessible to the average person is roughly staying the same or increasing. Urbanization and failure to build more housing is what is causing issues in the housing market. It's not about the availability of resources but rather their perceived value and low interest rates and job opportunities make the perceived value go up.
What's zero sum isn't the economy because productivity improvements happen all the time. What's zero sum is the access to fresh money. There is an inherent imbalance in the financial markets that favors large corporations. The money is arriving in their hands and thus the hands of their owners first, at the expense of those who get the money far later, the workers. This is why Biden wants a stimulus package. He's trying to make it fair for both sides.
Saying that the function isn't flat doesn't give us ANY useful information about the finer distribution of wealth, studies do. And those studies keep on pointing out a world where the inequality gaps are getting wider and deeper. This is exactly back to my first comment, and somehow that was populist to point that out to you.
I think they were saying that it's not zero-sum with respect to policy rather than time. Most ideas of wealth redistribution would have disastrous effects on the economy. There's a reason why even the most progressive countries primarily fund their social programs with income taxes and VATs rather than capital gains or wealth taxes.
In order for this to exist, you need people to trust that their capital is well protected and handled in a fair manner. "Fair", when talking about the global economic perspective, is a cost/benefit analysis taking account of your tax burden.
Private investment is a way of putting your money at risk in exchange for a potential reward. Wealth redistribution at scale implies that you massively reduce or eliminate the rewards associated with your capital. This is a big problem as it drastically affects the incentives to put your money at risk (i.e. in a private company). This will absolutely tank the private economy, which, as mentioned, is the backbone of a modern country. No one will want to hold capital in your country or invest it in your country because it's going to be redistributed.
This is why even the most "socialist" countries from the uninformed American perspective actually have very low wealth and corporate taxes: they recognize that encouraging the private economy is fundamental to the stable function of a modern country. (Instead, they heavily tax income, which has much less economic side effects)
The idea of infinite supply side stimulus when the demand side is anemic simply makes no sense unless you love increasing wealth inequality. You need multiple tools in your toolbox.
https://www.oxfordmartin.ox.ac.uk/blog/reducing-wealth-inequ...
I don't see it. How does increasing capital gains taxes and decreasing dividend taxes cause disastrous effects on the economy? If anything the low capital gains taxes incentivize bubbles by making it easier to make money off of selling to a greater fool than to simply let the company earn money and pay the profit out as a dividend.
Tesla's market cap is going to overtake Apple. If the value of the stock was based on (future) dividends people would stop trying to hype up the stock because it went up and instead just invest based on actual and future business activity. I consider a $100 billion market cap for Tesla to be fair but optimistic. The current market cap is just illogical. Once batteries have turned into a commodity, Tesla will no longer be able to justify its valuation.
Or a business. Give $1M today to the right business and it'll be worth more than if you give it to your local neighborhood MLM. While the change in value is realized over time, the net present value of the money varies depending on those future deltas.
Am I way off here? What I'm trying to say is that current value is derived from future value, so the sum of money at time t is dependent on how today's money is distributed and grows in the future.
What you're talking about is what the PROMISE of a dollar right now in some hands can be, in which case you're not solely putting value on the dollar bill in my hand but on the value created by my person in your belief - which is where people get to disagree and think whatever they want. And be right and win big, or be wrong and lose big, and anything in between.
It doesn't change the fact that whether the promise is mine or some other person's, when you give us a dollar it's a dollar to either of us. What we're making of it is the added value from human contribution at t+1 (and on and on).
> However at any fixed t, the total value is a constant
This doesn't make sense. This as opposed to the total value at any fixed time t being... not a constant? What does that even mean? If f(1) = 2, then is f "constant" at 1 or not? What would a not-a-constant value for f(1) be in that case? Infinity/Dirac delta?
What I'm saying is that when we keep on using the idea that this isn't "zero-sum" we implicitly carry the mindset that "money that I have isn't money that you don't have", that "it's not because I have this money that you don't" - but at that exact instant it's mechanically the case that me having this money is the actual barrier to you having it. The "zero sum" comment is a misleading way to talk about creation of value over time, because all it hints at is the idea that money somewhere isn't money taken from elsewhere simply because new value gets created as time goes. But it doesn't give any fact about money distribution at even a fixed time and even less so as a function of time. It's not a useful saying at all, because it only states "in the simple modelling of value(t), we have value(t+1) != value(t)", that's literally ALL it states but the heavy lifting is what it tries to imply.
High interest rates make sure that only the most productive businesses get access to capital. This is a very important inflation moderator in an overheating economy. Right now the economy is far from overheating which is why interest rates are low.
>Low interest rates are a forcing function to force the wealthy to deploy capital somewhere other than letting it sit in a bank.
They aren't. The theory behind low interest rates is that there are infinite investment opportunities and thus having access to cheaper loans will cause entrepreneurs to start more businesses and thus employ more people. Once unemployment is down any additional loan will cause any additional dollar to contribute to a decrease in purchasing power of the dollar because you have reached the maximum production capacity of the country. If you want to run your country at maximum production capacity demand has to just barely exceed supply. This is one reason why 2% inflation is a policy goal.
In practice nobody is spending the cheap money on sensible investments with a reasonable expectation of a return based on productive work. It's because small businesses have a hard time getting a loan in the first place. A small drop in interest rates isn't enough to compensate for the increased default rate of a startup. What happens is that big companies and rich individuals essentially have a monopoly on cheap credit and they use it for dumb stuff like buying stocks or Bitcoin.
It's not because we're allowing a lot of risks to be taken with regards to money that those risks don't have a value, i.e. a real cost.
The only 'real' money is cash and central bank reserves.
Banks create money, thats their role in the economy. Thats what banking license is for. You don't need banking licence to lend out money you already have.
www.bankofengland.co.uk › ...PDF Web results Money creation in the modern economy - Bank of England
What this inevitably means is that when it fucks up and doesn't juggle fast enough or people all change their expectations (like if everybody wants to suddenly pull money out of their accounts), then the money that doesn't exist has to end up existing one way or another - and governments foot the bill directly and/or indirectly.
In less "agitated" times, that "fake" money being created is a direct measure of the value that banks are agreeing to see in the people they loan the money out to (and in fact they see a higher value over the exact same horizon of time and at any given value of t, otherwise they wouldn't loan the money out unless regulations force them to).
In both cases, money that circulates at any moment in time is money that exists in the system (yes it's a tautology), with money that exists at t+1 being paid one way or another by the system. If everybody takes out their money right now and that's more than what the banks have, governments step in and the impact over the financial system is the value of money itself falling, with the cost being that everybody having relied on money now has less value out of it.
It's not because it's not using the term "dollar" that it isn't a cost, just like on the other end of the system where we bet on humans creating value the humans in question aren't magically producing fully-formed dollar bills. Both ends of the system aren't formulated in dollars in and of themselves, because dollars are only the medium to 'illustrate' or represent the value, not the value itself. Ceci n'est pas une pipe, etc.
There are only three kinds of money: central bank reserves, which you can't get access to, cash, and commercial money, what you are calling 'fake money'
So if everyone tried to take out the money in cash, yes, there is simply less cash than 'digital money', so its impossible.
But there is no 'real money' except cash that you as an ibdividual has ever had your hands on.
The system, as designed, cannot work without banks. So its unfair to call banks 'smoke and mirrors' - you would have to redesigns the whole economy to get rid of them
By the way, you're the one who called it fake money in your message, I responded to that.
The cash that I have had in my hands is as true as whatever field in a database at a bank, in that whichever we refer to either way the bank will agree to make use of it equally and if it doesn't or can't it won't discriminate either in its inability to use the value. In both cases, when shit hits the fan and the value that banks bet on needs to be present and isn't, the system as a whole pays the cost of that. Printing new bills to put in the banks vault does create the "money" as in bill but not as in value.
I don't even understand what you're trying to argue here, quite frankly. I have no problem with the social constructs of money and the fact that banks through loans are a vessel for humans to inject value into the system, so I don't see what conversation we're having here.
Inflation in the US isn't, even arguably, significantly higher than 2.5% per annum, and anyplace it is, interest rates are substantially higher.
And don't “but asset price inflation”; that's not relevant, since that's just the rate at which people invested in assets can get richer, not a price deflator that helps gauge how rich someone with a given nominal $ amount of wealth is.
As you note, money printing is a big part the tide went up. But why did Amazon go up even more than the tide? I think it is more complex than just printed money. It is partly aligned incentives, incentivized workers, ruthless execution, focus, internal investment, and i'm sure you can think of some bad reasons also.
At some point we do need to acknowledge better execution, more aligned incentives, etc.
One particular thing to note, many of the non-FAANG companies treat their employees terribly, especially engineers. Comp is nothing compared to FAANG, and yet they expect cheery engineers and other "low level workers" who give it their all and bring success to the company. And perhaps the formula doesnt work, which is good, because all workers should share in the success of their efforts.
Oh, so everyone is getting richer! Whew, Thanks, I was worried for a second.
Do they do this? I was under the impression that they stashed it offshore and sat on it. I'd like to see what "the rich" are actually spending their money on and how it drives any economic levers.
There are multiple populist narratives. At least equally popular is simplifying into the narrative where the non-zero sum aspects make up for any number of other problems (cf Regan's trickle down stories).
I guess it's hard to simplify complex things without losing important information.
Isn't this precisely the idea of securities backed by subprime loans? As long as you're not stuck holding the bag you can generate a lot of wealth. The interest rate just determines how quickly you'll need to cash out; conceivably you might even prefer a lower interest rate to avoid raising significant attention.
They get to spend the money right now, before the inevitable asset inflation that occurs when 2T gets printed.
By the time you -- YOU, the regular person -- see the money that was pumped in 10 months ago, in the form of your salary, it is already too late. Your salary does not give you any actual increase in any concrete thing, because inflation has already occurred.
If, somehow, that money that was printed goes into actually useful things, like RnD, infrastructure, or education, then perhaps your salary could buy more things because the economy would be more productive. But it can't because it's not... instead, dog walking apps are worth a billion dollars.
The federal governments deficit last year was about 4 trillion so the FED basically directly and indirectly financed 3/4 of our own federal governments deficit spending most of which went towards the CARES act which mainly gave cash to citizens directly through stimulus checks and increased unemployment payouts and indirectly by paying employee wages to keep people employed. It also helped fund state budgets, hospitals and operation warp speed which has speed up the moderna vaccine. Overall, I think the those were some pretty damn good investments for a pandemic induced recession.
No, I can tell you lots of rich people lost a lot during the pandemic. Especially in the affected industries (events, airlines etc). Unless by rich you mean Jeff and Elon, this statement isn't generally true though it is true for some.
https://theconversation.com/fact-check-us-did-some-americans...
https://www.thestar.com/business/2020/08/15/as-the-pandemic-...
https://www.npr.org/2020/04/22/840678984/small-business-resc...
https://www.cbsnews.com/news/billionaires-pandemic-1-trillio...
The idea that poor people could hold a large percentage of debt is - in itself - paradoxical / ridiculous. In order to have debt, you need something to service the debt with. Otherwise, you're bankrupt.
The major caveat here is student debt - anyone can load up on student debt regardless of ability to service - and there's no way out of the debt. You can't file bankruptcy.
[1] https://www.fool.com/the-ascent/research/average-american-ho...
To me (not from us) this sounds like indentured servitude.
It's like a concept from the days when we used to burn people at the stake and executions happened on a public holiday so everyone could watch.
Only the distress companies (Oil, Travel, Restaurant, Airlines) need debt more than anyone else.
Poor people are in debt. They have student loans, medical debt, housing debt, etc.; there are people who owe on houses that they've been long evicted from. Inflation reduces that debt, which is why the fed believes its only mission is to hold inflation down.
People with savings, and who own debt are the people who suffer from inflation. Or would, if there were any. Instead we just have an explosion in price of what rich people already own, like real estate.
Poor people without debt still pay because their buying power continually diminishes. Their $100 saved today isn't worth as much the next year.
Poor people without assets still pay. They are forced to pay rent to those who have assets. The rent will be priced to cover the debt of the asset owner.
> People with savings, and who own debt are the people who suffer from inflation.
People with savings most typically invest it. The higher the inflation, the riskier the investments they will take to ensure their savings don't dwindle away.
For the last 50 years, home prices have tracked or exceeded CPI. When home prices appreciate, you get leveraged equity on your home. You are unquestionably benefiting enormously from inflation.
Sure - if you took out personal loans to go to Cancun for the weekend, you're not doing any better. But >68% of all personal debt is mortgage debt. The majority of debt is backed by assets which are inflating. The majority of people in debt (and especially companies) are benefiting enormously.
Further - even if you did have an unsecured personal loan or an auto loan or even student debt - you can refinance to artificially cheaper rates - so you are still benefiting.
This is wrong. Most people in tight situations around the world don't even have access to banking or debt.
I imagine most of this is sovereign or corporate debt, and financialized debt, like obligations incurred by instruments such as shorts, or taken out to perform leveraged trading.
"The private sector’s debt has tripled since 1950. This makes it the driving force behind global debt. Another change since the global financial crisis has been the rise in private debt in emerging markets, led by China, overtaking advanced economies. At the other end of the spectrum, private debt has remained very low in low-income developing countries.
Global public debt, on the other hand, has experienced a reversal of sorts. After a steady decline up to the mid-1970s, public debt has gone up since, with advanced economies at the helm and, of late, followed by emerging and low-income developing countries."
-> Debt owned in the private sector isn't just about stock market but about all the small businesses which in the US are 99.9% of them (see https://www.chamberofcommerce.org/small-business-statistics/ )
-> Public debt is debt that we all deal with, and it might come as a surprise to you but a majority of people aren't actually rich
What I'm trying to say here is that you can play on the technicality of the amount of people under poverty thresholds not being in debt because they can't even access debt, but it's not really changing anything about the people who ARE in debt being in significant amounts people who might not have the shoulders to take it on but are trying to get by and doing so as a requirement to get by.
Nor am I suggesting that the lower class won't bear the brunt of this problem. They will eventually bear the brunt of the global debt issue in a different way - through prices that outpace pay increases.
Why isn't the money printer funding wind turbines, bridge repairs, etc. Instead of inflating ezisting bubbles.
If you are in the Western hemisphere, the interest rates are low (or negative) and the outlook of inflation is bleak. So it's more like the other way around.
You are not a cantiollionaire, neither are other HN users.
The rules are different for you than for those closest to the money printer.
Inflation hits those who have a salary, as their purchasing power sinks. The rich earn their income from owning capital, not from contracts where they trade hours per dollars.
That's not how people in poverty view or use debt. But we are talking about global debt holdings. When zoomed out to the global scale, the VAST majority of debt is owed by large scale entities and it is pretty incoherent to describe that as a transfer from the wealthy to the poor.
Yes, the idea is that you expect to invest the money into something productive. At low interest rates the bar for "productive" is really, really low. Most companies just play around with stock buy backs.
One, not all that debt is termed to one year. And two, it’s an internal transmission mechanism.
If two people produce $50 a year, and one owes the other $100 in four years and the other owes the one $100 in five years, that’s a perfectly fine 200% debt to annual production ratio. For years 1, 2, 3 and 5, their positions will be equal. In year 4, there will be inequality. If one or the other defaults, that inequality would persist even though aggregate indebtedness went down.
It's almost impossible to have a rational discussion about this subjects when most people (including the writer of the article, I'm afraid) don't understand the difference between private debt and the public debt of a country with its own currency.
[1] https://mises.org/wire/review-stephanie-keltons-deficit-myth
When you have a gold backed currency there is a "guarantee" that each dollar can be exchanged for physical gold. When you have a fiat currency it is backed by nothing, except the existence of an economy that exchanges your dollars for physical goods and services. If you can create money and spend it in a way that preserves this contract you unlock economic growth.
Having lived through hyperinflation, I do believe that printing trillions (+40% last 12 months, +75% since '09 crisis) has negative consequences.
There is no free lunch.
If that happens is becomes much more difficult for people to buy a house, car, college tuition, construction loan. That could cause a recession which causes businesses to do layoffs and spend less because they are worried about future income.
Only about 1/3 of the debt is government debt right now (a little under $100 trillion globally).
If you look up where your federal tax dollars go, there is a significant line item for servicing debt. Those interest payments go to holders of the government debt, which range from US citizens to foreign countries. You can find charts and estimates of who holds that debt if you want to understand where it goes.
The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online.
... and also the fed[1] which, currently, holds more than 10% of the US debt[2].
"The popular narrative about governments printing free money isn’t really true in the simplified meme-style presentation that we hear online."
Perhaps - but it is getting more true all the time. In the case of the ECB it is getting more true all the time in the absence of any oversight, transparency, adherence to constitutional law or democratic processes[3].
[1] https://www.nytimes.com/2020/12/16/business/economy/fed-dece...
[2] http://www.crfb.org/blogs/fed-buying-our-new-debt
[3] https://www.lrb.co.uk/the-paper/v43/n01/perry-anderson/ever-...
Even before this pandemic, by cutting taxes the US Government got larger deficits under Trump (after Bush’s $1.5T a year deficit, Obama era got it down to $500B only, and then Trump’s and Republican budgets ran it up again.) The public sector deficits add up to the debts.
The northern cities - forget about it, they can’t even print their own money, and they shus down their businesses - they are screwed.
Now, everything is relative, so US sovereign debt instruments compete against, say, China’s in the open marketplace. But, there are alternatives to US treasuries - like Bitcoin and cryptos and gold etc.
If banks start to keep those as reserves, then the public sector and central banks will have decreasing power unless they FORCE the banks to have higher reserve requirements of base money that they print.
Btw in the USA, the vast majority of dollars is issued by banks (to businesses whose cashflows back this money supply, so bailing out businesses is a priority for the economy).
People are taking all that fiat money being sent by the government created by banks and plowing it into assets, which the government doesn’t have laws to seize, dilute the value of, etc.
Note that this view does not include the existence of the money printing press, which currently runs at full throttle. In theory it would mean destruction of the debt via inflation (i.e. debt yield will be smaller than inflation), thus preventing the avalanche effect, but this approach is by no means a free lunch.
There's still the matter of principal. The US government, for instance, could absolve itself of almost all debt liability by going into high-inflation mode, erasing the burden of most T-bills. Again though, this is a one-shot thing. It could eliminate most of the current debt, but would do nothing about the deficits. As long as large deficits remain (and are politically intractable), it doesn't seem workable in any meaningful sense.
The working quantity of cash out there is also fairly small. The entire point of a bank is that it minimizes the cash in the system by balancing deposits against loans. That means that changing the cash supply will affect the price levels more violently than what would otherwise be expected. That just means that there's less cushion to absorb large amounts of new cash that government issues, again, kind of reducing the benefit of "free" money.
Yes, when you consider that we don't need actual CPI inflation in order to reduce the debt. Economic growth works just as well. In hard terms, we can inflate money so the debt is smaller. We could also all get richer so the debt is proportionally smaller.
Pro-growth policies like the strengthened safety net we in the US are experimenting with as pandemic response could have the impact of increasing overall growth to make debts more easily serviceable.
Taken to its logical extreme, why bother collecting taxes at all? Just pay for all government spending with this magic money machine.
Generally, no, it pays the interest on T-Bills (or any other marginal increase in spending) with additional borrowing.
> I don't understand why people give me resistance on this.
Because it's mostly false.
> The higher the debt is, the higher the interest payments are.
Ceteris paribus, yes, but that doesn't support your other claim.
> Taken to its logical extreme, why bother collecting taxes at all?
MMT adherents will tell you “for the monetary impacts of withdrawing the amount of funds, and the distribution of funds, collected by the taxes from circulation”.
I am looking into this because people I respect are saying things that surprise me. I abjectly disagree with your sentiments and the core points of the book, so far. I'm looking to see if this book will change my mind.
It's hard to even pin down what MMT is saying. What I'm saying is that our national debt is productivity borrowed from our future, from our children, used for today. This translates into real investment, because I fully expect that our debt crowds out physical investment, like renewable energy or nuclear power plants in favor of plants with lower capital but higher operating costs. It's entirely possible to borrow from our children in terms of physical allocation of assets. While the debt is just some numbers in computers, it changes the way we allocate real productive resources.
I fully agree that we can, and should, step on the inflation pedal more. If our deficit were fully paid for by printing money, then I would not have a problem with it. I would hardly even consider it a deficit. This is miles away from reality. Issuing T-bills is not the same as issuing cash, and this book I'm reading (and commentators like you) are reckless with the distinction.
I also agree with the book's claim that we should increase taxes. This appears to be the opposite of what the MMT headline argument is, which is that deficits don't matter.
I think we don't see big inflation (relative to the amount of the injected money) for two reasons:
- Slow velocity of money due to the effects of the pandemic. It's a temporary effect and we already see raises of oil and steel prices.
- Money distribution. The Fed (and the US government in general) policy mostly benefits the rich. Thus we do see inflation of real estate and financial assets (including cryptocurrencies). It works well for now (well, let's forget about the moral aspect of such policy for now), but such capital is very mobile and it can migrate to other jurisdictions very fast on the very first signs of danger, thus aggravating the situation which has caused this migration even further.
A bigger factor from which the "magic" comes in my opinion is the reserve status of the dollar, highly disproportionate to the global share of the US economy. There are signs that this status gradually being lost, which in 10-20 years probably will lead to big tectonic shifts in the global economy. I think that in 20-30 years, the US economy will be far more "normal" than currently, i.e. it will not be able to exploit the reserve status anymore.
You probably mean CPI, not inflation. Inflation is really only loosely correlated if at all with the price of goods that consumers actually buy. Things like hedonic quality adjustments leave CPI largely up to whims of the regulators.
It's obviously a complicated domain, but I think it is dishonest to say that it is transparency issue. It's not like BLS keeps adjustment methodologies secret.
An alternative approach to tracking CPI through scraping e-commerce. They get effectively the same result.
I've seen many comments dismiss the CPI as if it was somehow broken. The real problem is that the CPI is correct and that there is no inflation. Stock gains are either driven by a bubble or simply through unfair government policies or both at the same time.
Now, I'm no economist or anything so this is all armchair stuff and bits I've picked up over the year.
One concern: Being indebted means favors. China could offer to waive some of the US's debts in return for a favor, e.g. Chinese companies having more of a presence in the US (or the other way around). The US owes China nearly 1 trillion, Japan 1.2 trillion. (https://howmuch.net/articles/foreign-holders-of-us-debt-2020)
Another concern: Credit worthiness / rating. Currently, the US is looking very good and they have a AAA credit rating with various organizations that measure it (http://www.worldgovernmentbonds.com/credit-rating/united-sta...). But, if the US fails to pay interest and down payments because they're too deep in debt or their GDP drops for whatever reason, these companies may opt to lower the credit rating (which actually happened in 2011: https://www.bbc.com/news/world-us-canada-14428930). A lower credit rating means that they will have to pay higher interest rates, and that requests for loans may actually be rejected. If the US depends on loan to e.g. pay for government employees (and they do, given that the US's expenses are higher than their income: https://en.wikipedia.org/wiki/United_States_federal_budget, revenue is $3.5T, expenses are $4.4T, so they're borrowing $900B from somewhere to make ends meet).
Mind you, I get the impression most countries have a budget deficit and compensate by taking out loans: https://en.wikipedia.org/wiki/List_of_countries_by_governmen... has a good chart. The US tops the list though, in terms of deficit. The countries that aren't running a deficit - only ten of them - are pretty small countries, who I think may not have the same credit rating as others.
TL;DR I have no clue what is going on or what I'm talking about. It's a big borrowing circlejerk that is probably self-balancing.
That's a bit of a hostile "we". I and my bank don't have any debt, considered as a group. Technically true, but doesn't make my mortgage go away.
> What is the worst that can happen?
When governments can't/won't pay their debts, the way out is printing money to pay with. This has in at least one case led to the Holocaust.
Low sample size, but still.
https://en.wikipedia.org/wiki/Hyperinflation_in_the_Weimar_R...
Again, since i don't know why people believe that (even orthodox economists agree on that): printing money alone don't cause inflation to run away. It can cause a big inflation and make people who have money in the bank/ on the side loose a lot, sure. No hyperinflation, not alone at least.
Hyperinflation have confounding factors, one being being unable to sell (Venezuela, Zimbabwe) another being unable to produce enough (Weimar republic in 23). Also my country not invading the Weimar republic for fun and giggles would have helped much more against Nazi propaganda than preventing hyperinflation. Hyperinflation did not cause a famine in Germany. Lack of food caused a famine in Germany, and also in Austria, Poland, USSR, probably Greece and Ottoman Empire (i'm mostly focused in Northern europe history so if someone that extensively studied this area during this time period can correct me, i'd like that, i know a lot of people studied the rise and fall of the Ottomans). Because its what a lack of food does.
Incidentally, my late grandfather was born in august 23 and he was told this was the first good harvest year since 1914. I have to look into it but the French government probably decided to store excess grain to refurbish the depleted stocks, and did not help their neighbors much.
Anyway, printing money does not cause hyperinflation. This is a usefull myth for the masses since printing money reduce "our" asset size (mine too, i'm rich now!).
The way this figure is calculated, the amount of debt you and your bank have between you is your mortgage + your bank account.
- Some loans start to default. Either randomly, or because the easy availability of credit encourages riskier projects.
- Conservative lenders get spooked and exit. Credit becomes a bit scarcer.
- This repeats in a cycle. Each round wipes out more businesses. At first it's mostly the obviously risky ones, but increasingly it's normal business with unlucky timing.
- People start to see the writing on the wall, credit markets lock up, and panic sets in. Major corporations find themselves unable to make payroll. Ordinary financial stuff like currency exchanges stop working, while everyone scrambles to figure out which intermediary banks might be insolvent.
The derivatives were a multiplier.
At the time, real estate investing felt like Bitcoin or GameStop today: Everywhere you turned, it felt like everyone else was getting hilariously rich by investing in it and anyone who wasn’t speculating in real estate was going to be left out. Dinner party and online forum conversation was all about how real estate prices could only go up and how we were going to be destroyed by inflation if we didn’t put all of our money into real estate, the real store of value.
The difference was that anyone could walk into a bank and get a huge mortgage without much scrutiny. As strange as it sounds, lenders would give you a mortgage based on “stated income” without verifying paystubs or even checking if you had a job.
I remember realizing the frenzy was out of control when an unemployed acquaintance suddenly moved into a large new house and was talking about building her real estate rental empire. If money was free and house prices only go up, the only way to lose was to not play, right?
As we all know, it turns out house prices can go down and debt really does have to be paid back.
Low interest rates alone won’t cause this cycle to repeat without similar Mia pricing of risk, but it certainly increases the probability of bubbles popping as quickly as they inflated.
FWIW, the finance world seems keenly aware of the bubble-like nature of our current situation this time around, contrary to what I saw during the 2008 era.
Housing prices have gone up almost $200,000 in some areas.
[0] - https://en.wikipedia.org/wiki/No_income,_no_asset
You lend me $10. I then lend $10 to my friend who lends $10 to his mom. We just created $30 of debt.
But it’s gonna take just $10 to repay all $30.
Poor mom, who needs to lend $10 from her son :-)
Multiple layers of lending on a single dollar is building a house of cards. When everything works out you get a nice house. When one of the legs fails the whole house comes tumbling down. This is not a good way to build an economy.
You seem to know this 'mom' quite well :-)
In financial terms, such cascades are typically mopped up by central banks through dilution of the money supply and/or taxpayer financed bailouts.
Long story short: more debt means more risk of a financial crisis.
p.s. I think it is not helpful to use terms such as "our own", "ourselves" when trying to understand these issues.
You can think of a promise as an edge between nodes in a graph. A failure cascade occurs when removing a single edge causes many nodes to become unreachable.
Whether adding edges increases that change depends entirely on the topology of the graph. A long linear chain increases the risk. (But you have to implicitly create new nodes—new lenders—in order to maintain that topology while adding edges.)
But if you just add edges without increasing nodes, the result is that the graph becomes more connected and thus more resilient to edge loss. In other words, if you owe me $100 and don't pay, I'm out $100. But if five people owe me $20 and one doesn't pay, I still get $80 back.
It's borrowed from the future. Literally, we owe the money to our future selves, like in human race.
To oversimplify it, we expect that the productivity (ie. the amounts of material possessions and services that are available to humanity as a whole) will grow in a geometric rate.
Those future money are an instrument on how this growth is to be directed, basically relying on the wisdom of the crowds to determine investment strategies. The opposite - direct planning of growth - was vastly tested (in communist countries) but it didn't go anywhere.
What is the worst that can happen? A government defaults on its debts, and then cannot secure the loans needed for some other very important work. Large numbers of defaults will cause interest rates to rise, and everyone suffers as a result. The "contagion" effect is also possible: a bank sees too many defaults from its clients, and then finds itself unable to repay its own loans, triggering more defaults elsewhere.
If the obvious answer is, "Can't we just forgive the debt," the answer is, "Sure, but we need to be careful." Forgiving all debt would break the markets, because it would remove the negative consequences of investing in bad ideas. Sometimes a business has to be allowed to fail. So the better answer is that central banks would have to buy some of the bad debt, just enough to prevent a cascade of defaults and other worst-case scenarios, but leave creditors holding enough bad debt to feel some "pain" when the defaults happen (in some cases, allowing creditors to fail entirely -- as long as it is not too many too quickly).
The best way to think of it is 356% inflation that will hit us slowly.
I'm this case because the printed money is going to people with lower income it can be thought of as wealth transfer from richer people to poorer people. Poor people get printed cash, wealth people lose more due to inflation. Most of us as software engineers should be losing money if our wealth is stored as cash.
Money printing transfers wealth overall to the asset owning class, not the bottom ~40% of Americans who do not hold assets.
Research from the NY Fed and impact of money printing: https://www.newyorkfed.org/medialibrary/media/research/staff...
It's quite possible this ends in a global depression that's worse than what we had in 2008, maybe even worse than what we had in the 1930s.
There are a lot of states that are not very solvent: states collapsing financially is also a possibility. Very bad for the people who live there, and sometimes their neighbors.
Well, no. Yes, this is the sum of what everybody owes, which is also the sum of what everybody is owed.
But not everyone is equally on both sides of that equation.
Our future selves find that the cupboard is bare because our present selves squandered it all. Printing money now is a gamble that the real economy of goods and services will expand at that rate over the long term. It’s not by any means certain that it will.
More like some people don't get their money back from some other people. It can manifest in many ways: Higher taxes, Inflation, or Bonds defaults.
Banks defaulting and no way to payout their customers in that branch because they lent it out.
When you have a bank account your money moves, your bank give you iou and they gamble / invest or lend out mortgages which go bad as much or more then good.
The debt is not all due next year, so why not? As long as it’s serviceable, the amount of outstanding debt is kind of meaningless.
Serviceable now or serviceable forever? its not the same thing, and its the kind of thinking that convinces someone who just got a small bump in pay to go out and lease a new $800/month car because they can affords the payments today, or buy an expensive house at the top of the market, because in their opinion house prices only go up, and their job will only ever pay more - neither of those things are always true, and when the conditions change, they can change fast and have a huge domino effect.
When a household can sell bonds to investors, then you can logically compare household debt vs corporate/government debt. I know I can’t issue bonds, nobody will buy them! Also, one persons debt is another person’s asset.
Yea, some consumers make bad purchasing decisions, that has nothing to do with the ability of corporations and governments to service bond interest payments.
Taking the national debt example, that’s asking: can I reasonably and safely bet on four years of comparable value generation?
When you need to worry is if anything you’re extending debt that you can’t say that about.
A lot of countries and companies have a lot of debt, but at the same time they're also often owed. So, from those numbers alone it's impossible to know what the actual situation is.
Ourselves is a strange thing to say, the whole world isn't exactly one country. When you have visa restriction preventing movements, and wars for resources. We are not one entity.
No country is going to forgive defaults on money borrowed from it.
Yeah, it's really counter-intuitive. That's because economics is not just based on maths. The only schools of economics with pure-mathematical analysis are neo-liberal schools with game-theory axioms (which are provably wrong).
Mathematics fail to prevent economic crashes of the capitalist system, as they have for more than a century: 1929 was going to be the last crash ever, or so they said.
To understand economics, we have to study social/political context. That's why economists that actually make sense are studying it as a social science, not a branch of mathematics (though mathematical principles apply).
> We don't get our own money back from ourselves?
Debt is a complex topic. But many NGOs and economists over the years have argued it's a system designed to keep the poor and the third world in check. That's evidence by the fact that rich nations/people owe [m,b]illions without any concern for their safety, while poor people will have their property seized for minor debts, and entire countries will be wreaked just to pay off a handful of greedy banks (Greece).
And that's assuming the debt is legitimate in the first place. See concept of odious debt in international accords/law, which applies to most country's debt, which has been contracted not to help the people but eg. to develop the military or give away money to private companies through dubious public-private partnerships.
We're in for interesting times that's for sure.
Further, while "increasing debt can be the sign of positive developments" it can also simply reflect a panic dropping rates to zero to try to bail out the boat. The big question is the utility of that debt. Is it being used to expand wealth or is it being consumed -- especially in buy-backs to artificially inflate stock prices?
This isn't rocket science. This isn't a good thing.
Do you think society would look more stable and secure if debt-to-GDP ratio had been kept constant in the massive slowdown by even further reductions of private and public spending?
I do... If my friends win the civil war, I'll have a great shopping center to make lots of profits... If my side loses the civil war and my city is bombed to the ground, then I doubt anyone will be coming after me for that debt.
It's the super low interests rates that are a sign of no ongoing civil war... And those interest rates are denominated in currencies backed by nothing, so aren't really tied to anything.
* Government cannot cover its expenses through taxes
* There is plenty of wealth out there though, and its owners are eager to "invest" it
The problem is that with funding comes power. If a government owes you, you have some kind of power over it. There are many mechanisms — beyond the scope of this comment — but it leads to greater capture of government by the wealthy.
Who is wealthy?
* Retirement funds
* Companies with lots of cash sitting around
* Investment firms
An alternate approach would be to raise taxe rates on these entities instead (and hopefully lower the tax rates when the crisis passes) — then they wouldn't get the money back. In the case of retirement funds, you'd need to compensate with direct payments to retirees in general, which would be a redistribution of wealth.
Saying that debt can be positive in some situations does absolutely nothing to address the concerns of this article. The problem is it doesn't look good in this situation for a large number of complicated reasons.
High debt and low interest rate environment don't guarantee your more stable amd secure society. Only for short term while you keep printing money. While experiencing all kinds of weird societal phenomena, such as markets decoupled from fundamentals, extremely expensive real estate or low birth rates. The low birth rates will actually implode this entire debt and money printing based scheme or some war or similar conflict even sooner.
All the stuff you're talking about is true only on micro scales, assuming that that debt is "owed" to some third party.
In fact this can keep going on forever, really. If the money printers are going Brrr... and no inflation is happening nor buildups of saved wealth, then by definition the economy is increasing in size.
They also lead to brittle economic systems.
In 1900, if everyone was asked to stay home for 3 months, they'd go home for 3 months, and come out not-too-much-worse for the wear. In 2020, when the same happened, crippling mortgage payments, leases, and similar caused a near-total implosion.
Likewise, in 2020, we nearly saw global supply chain break down. In 1800, a global economic crisis couldn't do too much to a town in the midwest growing its own food. In 2020, if, for example, TSMC were to go wonky due to China taking Taiwan, we'd lose over half of our IC manufacturing capacity, including critical components for virtual every other electronic device made.
We're wound really tight. The danger is systemic collapse.
That's not an argument about debt, though.
It's more efficient to have specialized countries. If Germany and Japan focus on optics, that's more efficient than having an optics industry in each country. Everyone is wealthier.
It's also more brittle; if WWII breaks out again (as a hypothetical), the allies don't have access to optics, and can't repair step-and-repeats. That, in turn, means they can't manufacture ICs. And so on, down the line.
Of course it has a different impact vs essentially subsistence agriculture, as per your midwest yardstick.
There are scientific exchanges, humanitarian aide, artistic exchange, coordination on climate change, and similar, grounded in mutual benefit, but not in mutual interdependence.
These can be big or small silos. Aside from off-grid living, villages, towns, or countries can be independent.
These can also be complete or incomplete. If the tech tree needed for food and transport is local, it's okay if many luxury goods are global.
We do have examples of collapses from too much interconnection and trade. A good example of systemic collapse of this sort, from another point in human history, is Late Bronze Age collapse circe 1150BC. There were complex, structured societies which were pretty efficient for the time, due to trade and specialization.
All of the major cultures were wiped out, all at about the same time, when those structures broke down.
Considering that back then most households spent close to 50% of their income on food and there were basically no social safety nets it's much more likely they would have starved to death by then end of those 3 months...
The downside, like the sibling comment mentions, is that complex systems have complex failure modes. Additional links between firms raises the chance that you could get a cascading solvency crisis.
I'd really like to see who holds the debt. Is it widely dispersed - say lots of individual retirees owning government bonds? Or is it a few big financial firms who own all the assets with lots of little debtors? That has big implications for what inflation incentives are.
Low interest rates = Low growth.
* https://www.bankofengland.co.uk/working-paper/2020/eight-cen...
* https://www.visualcapitalist.com/700-year-decline-of-interes...
* 20d ago: https://news.ycombinator.com/item?id=25951516
Look up money printing at times of war. Weimar republic.
Also look up money printing over the last year. FRED is gov resource on this metric.
Debt is fragility.
Debt is a no-no in Christianity, Judaism, and Islam.
If you compare it to the housing market, it's like seeing that more and more people move from owning their property to renting it, increasing the divide between the landlord class and the renter class. In the long run, this just brings more social tension, kills social lifts and ultimately brings more unrest.
Further, almost all of the debt issued in 2020 was to deal with present circumstances rather than to invest in forward-looking projects or growth, making future investments in such projects more difficult and potentially more costly.
(Also: Revolution tends to be financed with debt. So while you may not build a shopping center in the middle of a Civil War, the existence of debt is not some sort of evidence of peace and prosperity.)
Not saying that 356% is bad, I’m not an economist, but just because you’re leveraged higher than that on a mortgage tells us very little about whether or not 356% is bad or not.
For certain it matters what that government debt is going to pay for. Debt for infrastructure (and therefore future growth) is quite a bit different than debt to finance consumption, for example.
and so that one person who would really prefer a particular house/location (because it's a great house/location) would pay just a little bit more and guarantee that he/she gets it.
Guess what happens then?
Every single asset class has experienced significant inflation over the last 50 years. Banks created 30 year mortgages because of demand. Demand occurred as a result of actions by the federal reserve. The FHA, not really a bank but rather a government entity, started the trend.
I suppose 'bank' can be bad shorthand for mortgage lenders, but whatever.
There will always be people rich and liquid enough to buy houses in cash without ever involving a bank.
It includes private sector debt as well.
If total government debt was 356% of GDP, we would be in huge trouble. Fortunately that’s not what this number indicates.
Again, maybe it’s good and maybe it’s bad. But we can’t tell that by making analogies to a single mortgage. They’re just different beasts.
Could you ELI5 why? Is it because we wouldn't be able to keep up with interest payments on the debt given the fact that we're actually already cash flow negative as is?
"Lifestyle" in case of government spending being the levels of healthcare, education, social services, war, tax & tariff rates, capital controls, etc.
If you don't want to be crushed by interest payments, eventually you'll need to pay up, and that means inflation, possibly hyperinflation, and a crash of a lot of systems that we take for granted.
I don't understand where this belief came from. Even standards/orthodox/right-leaning economists agree.
Unless the US is suddenly also incapable of producing (and this is impossible), you won't ever have hyperinflation even if the fed did twice the QE they are already doing only to reimburse US gov debt.
Printing ever-increasing amounts of money to finance expenditures that you can't afford will definitely result in correspondingly huge inflation. I don't know if it will qualify as hyper, but you are very much not going to like it.
We could be printing 10x money that we are printing now. We aren't, and we're not short of paper. There's a very real cost to increasing money supply – by printing, QE, or whatever fancy names you call it – even if many people don't realize it yet.
As long as asset inflation is seen by the general population as "stocks / housing are going up, therefore the economy is booming" we have a chance to maintain the illusion of normalcy, but eventually enough people will catch on where the real inflation numbers are hidden, and it's not gonna be pretty.
Inflation is not driven just by economic fundamentals, it is just as much driven by people's expectations, and trust in the system. Economic models assume rationality, which, along with trust in government, is increasingly in short supply, and that is an economic problem as much as it is a social one.
Can we - all of us - graduate a bit in our sophistication here ?
I agree with your statement and don't need any of this explained to me - there is, in fact, a too-simplistic, oft-made analog to personal, household finances. People would do well to understand what governments (particularly sovereign issuers borrowing in their own currency) can do that they, in their household, cannot.
Yet at the same time, I grow tired of the pedantic scolding of the "dummies" that don't understand modern finance.
I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance.
I hope to never be vindicated in this hunch ...
On what exactly do you base this hunch? Because it hasn’t held true, ever.
Argentina has given us two examples of it just in the last 20 years. Not a perfect example as the Argentine debt was not denominated in a currency they could print ...
I would further point to the "Nixon Shock" as an example where a country (the US) that can borrow in its own currency was forced by (global) economic realities to undertake what some would label a "soft default".
I am on my way to lunch and am limited by what comes to mind in just this fleeting moment - I beg your pardon for my dearth of examples.
[1] https://en.wikipedia.org/wiki/Nixon_shock
[2] https://www.livemint.com/Money/57inMm5EbLi1soOnOrMk1J/Did-th...
If Activision-Blizzard borrowed its debt in World of Warcraft gold, they would never be in default. The same applies to countries that print their own currency.
I hope we can indulge one another with such things here.
I believe that in the very long run (many decades) the growing debt cripples the the government, hurting its productivity along with trust on its proper functioning. (Japan, Italy are around here)
Growing debt is not a good sign even for governments, unless the money goes fully into investments for the future. Many times though it goes into liabilities.
Eventually, currency gets hurt and global capital moves on, leading to its failure. There is always competition, other govs might be doing things a little better.
In this situation, its "I'm able to do this, so why not the government?"
On the flip side, I’d argue that mortgages and personal finance in general doesn’t tell us much about how governments should treat debt. The nature of government debt, how it’s financed, and what it’s used for is just so different from personal debt that any analogy between the two gives us very little information.
What's so special about 1 year that a government shouldn't borrow more than 1 year of GDP? Why not ten years or 1 month?
It is possible for the debt-to-GDP ratio to be sub 100% and a financial ecosystem to be on the brink of collapse because the people borrowing the money earn too small a share of GDP to repay, and it is possible for the debt to GDP ratio to be well over 400% whilst consisting entirely of people borrowing money to make sensible, easily repaid long term investments. The reality is somewhere in between.
Using your analogy, the rule of thumb in real estate is that a property shouldn’t cost more than 356% of your GDP (yearly salary). Said another way, your mortgage is no more than 28% of tour gross monthly income.
https://www.moneyunder30.com/how-much-house-can-you-afford
Same with requirements for large downpayments (20% traditionally) - more skin in the game for the buyer, along with more cushion for the bank to make their money back if the market is down when a default happens.
Thinner margins, higher leverage happens near the top of debt cycles (typically) as lenders get desperate for return, and amp up risk. The type of leverage it allows also inflates asset prices, as money is 'easier' and people who want asset x can leverage higher to get it, increasing demand.
If you make $100,000 a year, you can't afford a $600,000 home. Too bad, so fucking sad. More people need to be told this, by everyone down the line, from their bankers to their parents.
And you're making far more tradeoffs than just three holidays per year, the nicest food, etc.. That level of debt means you miss out on investment opportunities when they present themselves. GameStop might have been one of the most recent and dramatic ones I've ever seen. I wish I had known about Roaring Kitty / /u/DeepFuckingValue a year ago. I've been looking for some investment vehicle to park a significant sum for awhile now. After watching his videos, I would have easily dropped $25,000 there. Unfortunately I didn't know about it. But what's even worse is knowing something is going to take off and not having much - or even worse, any - money to invest.
When Facebook IPO'd, I only had $10,000 to invest, but I was able to purchase for $18.50 per share. Would that I had had $100,000...
As an example, the US federal budget is under $5 trillion, US GDP over $20 trillion (getting a good view is extremely difficult, as states, counties, cities, etc. also have income, and borrow money, and that situation differs by country)
At the macro level, it's not about governments per se, it's about demographics.
Govs have some effect, e.g. car seat regulations lowering the birth rate in the U.S., but legislative/regulatory priorities reflect the wider culture.
It's also a correlation study, and I'd hesitate to quote it as fact currently.
The government has nothing to sell.
Better analogy is that you have 600% GDP in student debts, and you don’t have a realistic plan to repay it because you studied liberal arts.
Governments have assets and the legal right to others’ assets (e.g. taxation).
Second, a mortgage is a secured loan used for capex: You have borrowed a lot but you used that money to buy an assert worth as much or more so your personal balance sheet still looks fine and the lender can repossess the asset if you don't pay. Basically for debts you need to look at 2 things: balance sheet, i.e. how the debts/liabilities stack up against assets, and cash flow, i.e. whether you can service the interests on the debts.
The issue with government borrowing is that it is largely used to finance a level of spending that exceeds income. So instead of a mortgage I think a more apt comparison with personal finance would be if you used your credit card to finance a life style above what your income allowed. The difference is that governments can get away with much more of that than individuals can, but it will still come back and bite them at some point.
The fact that a home goes up in value over time does not seem natural to me.
In 30 years time, won't people prefer to buy a house that is 10 years old, compared to one that is 40 years old?
Why is it normal that housing prices go up?
Land is finite, and becomes more in-demand as the population increases. When homes appreciate in value over time, I reckon that's mostly the result in land being more in demand and/or asset inflation.
Don't forget the other part I mentioned: asset inflation (here the asset is the land and structure). Money supply has grown over time: https://fred.stlouisfed.org/series/M2
That makes sense.
But then other investment vehicles should also do fine.
I suppose it then comes down the fact housing can have a higher leverage than any other investment vehicle.
So buy a house, but don't pay it off.
Anecdote, but illustrative: Myself and a friend bought houses in 2020 of comparable size. My friend bought a build in a new neighborhood (technically put the money down in '19), I bought a 30+ year old house in an older neighborhood.
Thanks to COVID, none of the businesses to support that new neighborhood actually materialized. My friend has to drive to the nearest convenience store, and has to hop on the highway to go to any other business. I can (and do) walk to my local convenience store, pharmacy, grocery store, pizza joint and mechanic. And I can bike or e-scooter to various parks, restaurants and healthcare.
Accordingly, my old fixxer-upper of a house is worth quite a bit more than my friend's brand new house.
Land prices go up because the desirable land (land given value by its qualities, whether inherent or through value added through improvements) becomes more desirable.
Land prices also go up when money is cheap (low interest rates), as do other assets. In those circumstances, house prices (the house, not the land) will depreciate slower than usual because having a deteriorating house is better than having cash.
Note, the government will do anything to support housing prices because voters and homeowners heavily overlap.
- Mortgage deduction on taxes
- 0% interest rates
- Bailing out lenders
- Heavy zoning that has made new apartment buildings somewhere between impossible to uneconomical to build.
- In CA we have P13 to further limit supply.
Housing prices going up, even in a pandemic are not a surprise.
(in this situation GDP is more like the value you create for your company whereas salary is like tax revenue)
Government debt on the other hand is uncollateralized and "secured" by two intangible things: tax receipts and central banks. Taxes are obviously a significant headwind for economic growth, and while necessary, should be as low as possible. So increasing taxes is not desirable. The second way is through inflation vis-a-vis Central Banks (so called debt monetization). Inflation is an implicit tax on everyone, and as we know, like taxes, too much inflation is a very bad thing.
Governments have three ways to retire their debt, and all are pretty bad: 1) they can raise taxes which impedes growth and done in the extreme can cause a recession, which then reduces taxable income in a negative feedback loop 2) they can debase their currency causing inflation so that the money they have to pay back is worth less, which is also really bad when done excessively 3) or they can either default which unlike your house, is catastrophic because there is nothing for creditors to repossess
And the above is without getting into the topics about utility: your house will provide utility for decades whereas most debt has been accumulated to fund social programs which need continuous funding, unlike your house which is funded once and amortized over decades.
What does this mean for our deficit long term? Does the deficit even matter? To what degree? Everything you said is true. It makes it seem like we will most likely never live in a time where the government is cash flow positive (some kind of surplus that is used to pay down debt).
But very little reason to retire debt; there are arguably good reasons to try to manage the debt-to-GDP ratio within broad parameters over the long term, but mostly that is about trying to constrain the long-term growth rate of total debt below long-term economic growth rate, not reducing debt on an absolute basis.
For about a year I dated a forensic accountant with a Ph.D. whose job it was to untangle and uncook books. We got on the subject of mortgages. She said you should never buy a home that costs more than double your yearly salary. If you make $60,000 a year, as she made when she bought her home, then you can afford a $120,000 home. If you make $100,000, then you can afford $200,000.
Entirely too many people, including apparently you, are severely overleveraged on their home loans.
There's absolutely no scenario where your situation makes financial sense to people with in-depth financial education, who are also not beholden to what we've come to accept as the "norm" for financial services.
The reasons she listed for this are myriad. 1) You have to save for retirement. Most people usually do this in the form of stocks, bonds, ETFs, etc., 2) you have, or should be, putting away a minimum of six months of your income in order to survive a job loss, and she recommends at least one-to-two years for people with advanced degrees (M.A., M.S., M.B.A., etc.) because the average time it takes to find another position for advanced professionals is something along the lines of 8-9 months, 3) you have other expenses such as your auto loan or loans, food, insurance, etc., all of which costs money.
Those are only some of the many areas of cost that she and I discussed while we were dating.
There's absolutely no amount of money you can make where your 600% figure makes reasonable financial sense... even if you make $1 million a year, you're still in a $6 million home. Hell if you made $10 million, that's a $60 million home. After taxes, there's still no scenario where that makes good financial sense.
Lastly, I don't want you to think I'm personally attacking you - there's a lot of people in your boat, but its a boat in which no one belongs. These levels of debt are dangerous... the 2008 financial crisis proved that.
Getting a home for 2x your household income is basically impossible in this day unless you’re one very lucky remote worker who enjoys living in the middle of nowhere.
I’d say the upper threshold of 4x your annual income is where you’d likely want to throttle back. Any higher, you’re in very high risk or can’t afford it. But trying to get a home for below 3x your income? Basically impossible for most people.
What about the opportunity costs? Buying a cheap home makes you miss out on market appreciation dollars, has less rental value, is likely in an area that has a higher likelihood of impacts from market downturns, etc.
Also being an ultra cheap-ass has opportunity costs such as costing you personal relationships.
if you manage to pay of your debt, and then end you own an asset that is presumably worth more than the total of all your payments - so for you that migt make sense.
If you owned 600% of your personal GDP and all you were doing was buying food and booze - i.e. current consumption - that would be a HUGE problem.
Problem is most of the debt that govt is taking on is of the food and booze variety - i.e. spending money on things that will be consumed today, and counting on future generations to pay for your poor choices.
>That projection was made without including President Biden's proposed $1.9 trillion stimulus package
this is, as the kids say, an oof.
the more interesting question those graphs present to me is what happened in 2016-2018? why did debt skyrocket but debt% of gdp go down?
The Trump economy.
I doubt it's deregulation especially in the short-term. It takes a herculean amount of deregulation to move gdp, and most of the impact would happen over the long term. Like they say it takes a lot of Harbinger's triangles to fill an Okun gap.
Honestly I think the Trump economy is mostly due to Trump yelling at the Fed to keep their foot on the gas. We had un/underemployment and he pushed them to lean a little harder on the accelerator.
How much real predictive signal is there in economists' consensus?
As 16-18, if debt increases and debt % of GDP decreases, the only thing that could cause that is GDP increasing more than debt.
Yes. I didnt mean to imply the article was wrong for omitting. however, USD being the global reserve makes it a little more relevant than other countries.
> As 16-18, if debt increases and debt % of GDP decreases, the only thing that could cause that is GDP increasing more than debt.
i wonder how much of this is obama policies and how much is trump policies. also im not sure debt is a fine-grained enough metric to be meaningful. some debt can drive the economy forward and some is rent-seeking wealth destruction.
1.9T on top of 281T is barely a drop in the bucket. So now instead of 356% it's at 358.5% . Barely an oof.
Also, it's not a stimulus package. People need to stop calling it that. A stimulus is intended to get people spending money because they're all scared and keeping their money in savings. This is meant to keep people afloat because they have no income.
GDP increase at a greater proportional rate than debt increase.
Because world GDP grew faster than world debt. The debt growth is also smaller than it appears from the graph (the y axis starts at 200trillion rather than zero)
"Just" a Greek word, that's all.
Why would that be so bad?
If all countries decided to devalue jointly, it wouldn’t create inflation, no?
Seems to me that it would iron out some inequalities...
For the world there's the World Bank. I don't know if this is the right statistic, though: https://data.worldbank.org/indicator/GC.XPN.INTP.RV.ZS
Only about 1/3 of it is government debt. Keep that in mind when trying to put it in context.
When you consider that the unemployment spiked at the fastest rate ever seen and the entire world fell into a brief, but severe recession (~30% GDP decline in the US), a 15% increase in debt / GDP seems quite mild.
Is that what they "look" do be doing? Explain how.
99% of private sector "innovation" is repackaging the stuff created under DoD/DARPA research projects. Then once that's done, they corner cut.
Who’s paying the taxes then?
You explain how this shit is working for anyone not in the C-level or political classes.
The only time I hear about Supply and Demand is when poor people get fucked. Nobody is worried about the money supply when we're pissing streams of BILLIONS into the military industrial complex, when we already have a military multiple factors larger than anyone else on the fucking planet. Yet in the midst of shitloads of people not being able to afford rent, we can't like, defer mortgages or just give the people money, noooo, that'll hurt the moooneeeey.
Which DoD/DARPA stuff do FAANG repackage?
Mind you these things were invented at companies, yes, but almost every time if you dig deep enough you'll start finding the lists of the various grants given to said companies to fund this research, because otherwise they just tend to not do that. This is not controversial stuff, it's very normal.
This is factually wrong. We've been miraculously efficient since 18th century.
Being more efficient than the 1700's is an astonishingly low bar.
So the point is correct - stable currencies have allowed vast increases in economic growth and vastly better standards of living than were possible the millennia before it.
Being locked to other forms of money, such as the rate a country can amass gold, slowed growth to that rate. The current system is vastly better.
"Standard of living" is more complicated than good and bad.
Take all of Bezo's wealth away, and just leave the number there. He'll never know nor will anyone else, because there is nothing you can do with that much money. There's nothing to buy.
We’re not going to get anywhere productive as long as the goal is to punish the rich no matter the cost. The economy isn’t a zero-sum game where every dollar of Bezos’ net worth is a dollar subtracted from the poor. Amazon had created value across the economy, far beyond Bezos’ net worth. Likewise, arbitrarily destroying Amazon or Bezos would likewise destroy value across the economy, as well as destroy the institutional trust that enables the economy in the first place.
Your imagination is limited. I don't care about business or business owners. I'm exploited by every business I interact with, either as a consumer or an employee. They don't have my loyalty.
> We’re not going to get anywhere productive as long as the goal is to punish the rich no matter the cost. The economy isn’t a zero-sum game where every dollar of Bezos’ net worth is a dollar subtracted from the poor.
Yes, it literally is. Amazon makes money by selling whatever product at a cost higher than it cost them to complete the logistics to get that product to a consumer. That means their profits are whatever they can scrape off of paying people to shuffle boxes through their warehouses, drive their trucks, and write their code. That is exploitation by definition: those employees are not paid what their labor has generated in terms of wealth. Every employee is paid less than they are worth, because otherwise profits would not exist.
> Amazon had created value across the economy, far beyond Bezos’ net worth.
Amazon has also decimated numerous other businesses, and used the resulting holes in the market to grow.
> Likewise, arbitrarily destroying Amazon or Bezos would likewise destroy value across the economy, as well as destroy the institutional trust that enables the economy in the first place.
I don't want to destroy Amazon, necessarily. I want them to pay their workers enough to live. The problem is every time people suggest that, people like you come in and say "well if we paid them a living wage the business would die, do you want that?" To which I say, yes. If your business must pay poverty wages and force people onto Government welfare, that is literally the Government subsidizing your workforce and why the hell should we do that? If we're going to pay, by proxy, for people to work at Amazon, then let's just fucking own Amazon as a public utility and cut out fucking Bezos. We don't need Bezos. He is doing nothing essential at Amazon, he just had the capital to start it, and he certainly doesn't do fucking anything worthy of earning what he does. No human being can EARN 4.5 million dollars an hour.
We saw in the pandemic what happens when the workers can't go to work, but the finance guys, and the CEOs and everyone else can. The economy ground to a fucking halt. Bezos was able to do everything he does at Amazon just fine, just like every other CEO, because what they do is functionally nothing. Their workers, on the other hand, were essential! They were heroes! So they had to go to work, and get sick, and die to avoid this entire ponzi scheme coming crashing down. And still huge sectors of it are on the verge of collapse precisely because the people actually generating wealth are having a hell of a time doing it.
That much is clear. You also said:
> Fuck no, I want no one to use money.
I’m afraid your ideology is preventing any actual discussion of economics.
https://news.ycombinator.com/newsguidelines.html
Edit: on closer look, I'm going to ban this account until we get some indication that you want to use HN as intended. There are already too many signs to the contrary, such as the insult in https://news.ycombinator.com/item?id=26168564. If you don't want to be banned, you're welcome to email hn@ycombinator.com and give us reason to believe that you'll follow the rules in the future.
Using HN primarily for political or ideological battle is generally something that we ban accounts for, regardless of which ideology they're battling for. As I said above, it's destructive of what HN is meant to be for.
If you have a mortgage or a car loan or a credit card, you’re part of that number. And you certainly owe real money to real lenders.
Likewise, government debt is still real debt. A not insignificant part of your taxes goes to servicing interest on government debt. That’s because it’s still a real debt owed to real people who expect real interest payments.
Money isn’t some made up concept. We can’t simply print more and declare it all good. Don’t confuse money with wealth, which is a separate concept that underpins this system.
Yes and on an individual scale like that, it makes complete sense. It's borrowed against my future income, and that I will someday pay off (I mean probably not I'll buy a different house but you know what I mean.)
I'm saying, on a scale of Nations and megacorporations, it's fucking bananas nonsense. According to the Goog, US national debt is 27 trillion. Who do we owe? How did we qualify to borrow that, apart from being if not the center, at least a good chunk of the center, of the world economy? Is anyone in a position to say we can't borrow it? Is there a credit check? Who fails that check, if there is one, because we haven't despite the last several decades of absolutely racking it up.
At this point to analogize the US to a single person (which is reductive and useless but bear with me, I'm making a point), we'd be someone with hundreds of thousands in credit card debt, making a lot of money to be sure, but also carrying four mortgages and making interest only payments, and the bank in question is just still handing us money. And like, I don't think that's great, but also, it's been chugging along more or less fine for as long as I've been around. So... why don't we just stop pretending it means anything? We "owe" some foreign banks... do we? Says who? Who's gonna enforce that? Are they gonna foreclose America? The only time I've ever seen countries actually brought to their knees by banking is when a tiny one gets too uppity about getting screwed on the global economy scale, at which point we send in Marines to remind them who's in charge. Who's gonna do that to us?
Yeah, that happened to Argentina, who is not America. I'm saying if that's the consequence, which you seem to agree it is for nonpayment, then America is immune from that consequence. If someone tried that shit on a US Naval ship, they would be bombed out of existence.
Mind you, this is brutally unfair to the Global South. That's my point. Global capitalism just exploits countries to small too play the game like we do, and the countries that do play said game, do so largely with stolen wealth from those same exploited countries.
If America owes money but the mechanisms to enforce that don't exist, then why do we owe it? We owe it exactly as long as we agree we owe it. And this is not to say America should just move on, this is to say the world should move on.
> Plus you want Americans to be free from money but everyone else use our currency at gunpoint?
Fuck no, I want no one to use money.
https://news.ycombinator.com/newsguidelines.html
Likewise, when you pay your taxes, some of that goes to servicing that debt. You can look up how much of your federal tax bill went to paying debt holders.
The system only works as long as its trusted. If we just stopped paying interest on our debt, that trust would vanish overnight. As a result, the price of borrowing would skyrocket because who would invest in something that has demonstrated it doesn’t care about paying you back?
Likewise, if we do too silly monetary policy stuff, the trust will also disappear. Despite what the memes say, we can’t literally print infinite money and call it good. Fiscal policy isn’t a secret, it’s done in the open. The buyers of our debt know what they’re buying.
You can look this up. 21T is owned by the public (think retirement funds, pensions, etc., a lot of which own treasuries). Simply blowing off paying them would wreck the US economy and destroy lots of people. So it's real money owed to real people.
Foreign govts own around a third of the debt - same thing - they invested in US treasuries and those assets are intertwined in their economies, just like ours. Of this Japan has 1.3T and China 1T.
State and local US govts own around 1T for their pension funds.
So we owe it to any actor that has purchased US Treasuries, and that's a lot of people, big and small.
>it's fucking bananas nonsense
No it's not. It's simply big, but then again, so is the US and world economy. There is no goofy, ill-conceived, wholesale ignorant corruption going on.
> Is there a credit check?
Yes, it's the rate at which buyers willingly buy Treasuries on the open market. If enough people/institutions lower their trust, rates go up. It's as simple as that.
The main question is not how much debt the US carries, but can it afford to service the debt, and so far, that is a yes. Servicing the debt is around 10% of federal receipts, which is a decent chunk, but by no means debilitating.
How would you differentiate between the two?
I suppose instead of "moneyless" society, I'm saying we need a money reboot.
Without the anchor to gold our money can freely be manipulated for personal or political gain at the expense of the public.
No, the gold standard worked because at that time, manipulating the value of money to tweak the economy was not a practice. And besides-which, gold is a terrible standard anyway. We use tons of the stuff in basic, cheap electronics all the time. We use it on boutique audio connectors. It's not uncommon or rare at all. It's like diamonds, the only reason they're worth a goddamn thing is that everybody just agrees they should be, even though the same substance that sits on the end of a $10,000 ring is ground up and coats the outer surface of saw blades.
> Without the anchor to gold our money can freely be manipulated for personal or political gain at the expense of the public.
As we've seen though, this can be done with virtually any asset now, which is why land remains basically the only thing that holds value, because increasing or decreasing the supply of it is really ridiculously hard.
The gold standard is a protection against exactly the problem you are complaining about.
See for example any country that has ever tried anything close to this - Zimbabwe, Venezuela or post-war Hungary, to name just a few examples.
When that happens, perhaps you’d understand why a stable money supply is important.
The whole private sector? You mean the economy?
It's hard to tell if this is sarcasm, but I'll go and name this the unicorns and rainbows theory of economics.
An quick and interesting read...would recommend.
Money is cash and credit. The government has been printing cash for a decade. You don’t need, and we haven’t only had, debt.
I prefer "44 months of GDP" over "356% of GDP".
Many of the comments here are mistakenly assuming this is only government debt, which is incorrect.
The article mentions the government portion of debt further down:
> Government debt accounts for 105% of global GDP, up from 88% in 2019, rising by $12 trillion in 2020 or nearly triple its $4.3 trillion increase in 2019.
Interest rates worldwide are really, really low. In quite a few countries, below zero actually. So the real debt burden, which comes from the need to pay interest, is not really painful right now.
It is not at all clear if such a low level of interest rates can be sustained forever. If it jumps up a bit, heavily indebted countries like Italy and France will be immediately in serious trouble and risk of default.
There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too.
Interest rates are negative in many places. Germany has had negative interest rates for nearly 2 years and 0% for over 5 years. Does that mean you have can infinite debt?
Worse yet, Germany was deflationary for nearly all of 2020 and are officially in a recession. Constitutionally Germany's government cannot run a deficit. As such they have reduced their government debt in the last several years. For all of 2020 however unemployment basically never moved.
Now lets look at Canada where the government has run historic record breaking levels of debt. In 2020 alone the central bank took on $400 billion in debt. The Canadian government stopped reporting their economic numbers during 2020 because lets be realistic...
GDP of Canada is roughly 1750 billion. 14% unemployment. That $400 billion does mean that Canada was not deflationary.
So the government took on $400 billion in debt and how much did GDP increase? Surely we should see 15-20% gdp increase? Nope. We see -17%.
>It is not at all clear if such a low level of interest rates can be sustained forever.
YTD on interest rates is +35% or so. Which is interesting because inflation targets are well below target.
>There is another risk of having interest rate too low: zombie corporations can be kept alive longer by borrowing, unprofitable projects too.
Well we're seeing it all over. So many countries are over leveraged and bubbles are everywhere. They are going to pop.
What does this mean? Do they just mean 'is as large as' rather than 'makes up'?
Its artificial in that with quantitative easing the true price of the assets is distorted.
"A central bank implements quantitative easing by buying financial assets from commercial banks and other financial institutions, thus raising the prices of those financial assets and lowering their yield, while simultaneously increasing the money supply. In contrast to conventional open-market operations, quantitative easing involves the purchase of more risky assets (than short-term government bonds) and at a large scale, over a pre-committed period of time. " source: https://en.wikipedia.org/wiki/Quantitative_easing