Debt Ceiling Chicken

goman wrote:

Market says 2%. And you don't think these investors think about potential inflation? PS - The Treasury also sell TIPS. IE Par value bonds.

The market says two percent now. These guys don't have crystal balls. They have forecasts. The interest rate on Greek debt was low until it wasn't. I note that example not because I think the U.S. is at risk of a greek situation, but because it's a pretty clear illustration of the way markets actually work. The market price is a guess at future valuations. Sometimes the market price turns out to be eerily accurate. Other times it doesn't. This is why market prices fluctuate. It's not a good argument to say we can't have inflation because the market says we won't have inflation.

Also, there are certain advantages to U.S. bonds for financial professionals that lower yield. They're highly liquid, issued in gigantic lots and can be easily traded without big volumes altering the market price too much. There is risk of lack of repayment in nominal terms. If you're really panicked about the economy, U.S. bonds are where you go because corporations can go bankrupt and you don't get repaid. People can buy them to hold them for a short time. Just owning them doesn't mean that a person's expectations of future inflation match their expected interest rate way down the road.

Also, I'm familiar with TIPS. Financial planners advise their use if the worry is preserving buying power, since they pay very little in real interest but will keep pace with inflation. Depending on how you expect the future to play out, you'd invest in TIPS or you'd invest in long term bonds. If you don't have any expectations on how the future will turn out, you invest in both.

The reason I suggest that inflation will be necessary to deal with the debt is because the debt, both private and public, is going to be too large to deal with by other means. Whether this happens now, or in 10 years, or in 20- I don't know. I can guess and invest accordingly. If I'm selling U.S. debt, you can come in and buy it. And in 30 years we can decide which one of us turned out to be right.

Malor wrote:

There's just no way our economy can support the load of paying all the liabilities we've taken on, and printing money doesn't change the basic facts on the ground one iota. It just diverts wealth, away from the people actually generating it, to the people printing the dollars.

Our economy can support paying off all the debts we have incurred and will continue to incur, if the economy keeps growing. Austerity, as we've seen in Europe, depresses the economy and makes the debt situation worse. That's why forced austerity through some sort of debt ceiling cap is a terrible idea.

That's why forced austerity through some sort of debt ceiling cap is a terrible idea.

And then using the debt ceiling cap as leverage to cheerlead a divisive political base is even terribler!

(Yes, I used terribler on purpose.)

fangblackbone wrote:

(Yes, I used terribler on purpose.)

Which makes you more literate than most of the House GOP.

SpacePPoliceman wrote:
fangblackbone wrote:

(Yes, I used terribler on purpose.)

Which makes you more literate than most of the House GOP.

A low bar if ever there was one.

Our economy can support paying off all the debts we have incurred and will continue to incur, if the economy keeps growing.

No, because of the way it's being driven to growth, through deficit spending (borrowing). The economy is growing, but it's growing wrong. The instant the borrowing stops, or even slows down, large chunks of that growth are shown to be false, and they dry up and blow away. The borrowing itself makes the economy look as though it can service the debt -- it's a form of Ponzi scheme.

Again, this is very much like abusing drugs. You become dependent on them, and require ever-increasing doses just to function. If they are withdrawn, you end up in much worse shape than you were when you started.

This is why Greece is in such severe trouble -- a very, very large part of its economy is total fiction. I've seen estimates that real earnings for Greek workers, given their overall productivity and education levels, need to drop by 75% to bring the economy back in balance. This will happen either through default or inflation, but if it happens through inflation (which is very likely) their real earnings will drop even more than that, because of all the additional damage the inflation does, penalizing the prudent, and rewarding the reckless.

Malor wrote:
Our economy can support paying off all the debts we have incurred and will continue to incur, if the economy keeps growing.

No, because of the way it's being driven to growth, through deficit spending (borrowing). The economy is growing, but it's growing wrong. The instant the borrowing stops, or even slows down, large chunks of that growth are shown to be false, and they dry up and blow away. The borrowing itself makes the economy look as though it can service the debt -- it's a form of Ponzi scheme.

Again, this is very much like abusing drugs. You become dependent on them, and require ever-increasing doses just to function. If they are withdrawn, you end up in much worse shape than you were when you started.

Isn't it more like a crash diet? Sure you need to lose weight to get healthy, but if you go on a diet that's too...austere you lose muscle as well as fat and your metabolism drops, which means once you go off the diet you wind up putting the fat right back on because now your metabolism is lower than it was before you went on the diet.

The Complete Guide To America's Jobs Crisis And The Failure Of Monetary Policy Using Animated Gifs

Edit: Feel free to re-post in a more appropriate thread. I looked for one that wasn't completely stale but also wasn't too recently active since I didn't want to non-sequitur (yes, I used it as a verb) an active conversation.

That was a very, um, opinionated piece. Unfortunately their conclusion is a very false dichotomy. At any rate, they make zero mention of the malinvestments that arise from all this fiduciary manipulation, which is what got us into the whole mess in the first place. And the prior mess in 2000 with the .com bubble. Oh, and the one they're setting up right now with a commodities bubble.

I will say, though, the use of this gif as a metaphor for quantitative easing made me chuckle:

IMAGE(http://rortybomb.files.wordpress.com/2012/09/bike_fall.gif)

Yes, I mostly posted it because it amused me.

You should listen to the latest episode of the Common Sense podcast about how the whole "jobs" thing is complete crap anyway.