National Debt

[Tiberius]

 

Quote

 

Right now, economics is going through a mind-change on public-sector debt that borders on intellectual revolution.

Government debt accumulation was once considered inherently risky: By competing with private investors for investible funds, it would trigger ruinous interest-rate spikes. The new consensus is that debt is, if not quite the proverbial free lunch, then such a good deal that the United States and its fellow industrialized democracies can’t afford not to borrow. And this applies not only to the covid-related crisis but also to the more normal times ahead.

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What happened? Mainly, the gap between theory and fact became too large to ignore: The Congressional Budget Office’s 10-year forecast of U.S. government debt as a share of total output grew from a mere 6 percent in 2000 to 109 percent in 2020. Yet in that same decade, real (inflation-adjusted) interest rates on benchmark U.S. government bonds fell from 4.3 percent to negative 0.1 percent, as two top former Obama administration economists, Jason Furman and Lawrence H. Summers, point out in a new paper that’s attracting attention in pre-Biden Washington.

In fiscal 2020, the U.S. government borrowed a staggering 15 percent of gross domestic product, yet the 10-year government bond still pays less than one percent.

The strong likelihood is that low rates will continue well after the pandemic ends, Furman reported at a Dec. 1 virtual conference sponsored by the Brookings Institution. A blue-chip panel including former Federal Reserve chairman Ben S. Bernanke, and Olivier Blanchard and Kenneth Rogoff, former chief economists of the notoriously austerity-minded International Monetary Fund, nodded in agreement.

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Far from burdening future generations, governments have a golden opportunity to fund long-standing needs by borrowing for investments in future prosperity — the list includes child care, early education, job training and clean water.

In light of the past 20 years’ experience, the oft-cited metric of total public debt as a share of total output does not truly capture the burden of borrowing.

Rather, the focus should be on annual inflation-adjusted interest payments as a share of annual output; anything under 2 percent should be sustainable, according to the Furman-Summers analysis. At present, the figure is well below that.

Persuasive as it is, this rosy scenario would be even more convincing if economists could say exactly why interest rates are behaving as they are.

 

For now, the prime suspect is a mismatch between abundant private savings around the world and scarce profitable opportunities for private investment — the latter of which, in turn, partly reflects slow labor supply growth in industrialized countries.

 

Under such circumstances, holders of wealth see no alternative to parking their money with governments. There’s no private investment to “crowd out”; to the contrary, financial markets are actually signaling that the highest and best use of the funds may be a public one.

 

https://www.washingtonpost.com/opinions/economics-is-going-through-an-intellectual-revolution-on-public-debt/2020/12/07/074da3bc-38a8-11eb-9276-ae0ca72729be_story.html

 

I've been reading Bob Woodward's book on the Clinton presidency, "The Agenda" and was pretty taken aback by the super high priority they put on reducing the national debt so as to lower interest rates. Woo, what a change 30 years makes! Cheney saying in 2003 that "deficits don't matter" seems to be right 

[Scraps]

To me, this is all courtesy of a Federal Reserve that is printing money and using it to buy bonds, crowding out private investors.  This is a bigger bubble to solve the last bubble.  When this bubble bursts, it ain't gonna be pretty.

[Tiberius]

1 minute ago, Scraps said:

To me, this is all courtesy of a Federal Reserve that is printing money and using it to buy bonds, crowding out private investors.  This is a bigger bubble to solve the last bubble.  When this bubble bursts, it ain't gonna be pretty.

How will that happen? The burst? 

[Warcodered]

Republicans are about to start caring about this again.

[Unforgiven]

Sheeples want that 2nd round of stimulus checks. what other reason would anyone vote for the rat party?

[Tiberius]

7 minutes ago, Unforgiven said:

Sheeples want that 2nd round of stimulus checks. what other reason would anyone vote for the rat party?

Sore loser. What a sore loser you are 

[SoTier]

7 hours ago, Scraps said:

To me, this is all courtesy of a Federal Reserve that is printing money and using it to buy bonds, crowding out private investors.  This is a bigger bubble to solve the last bubble.  When this bubble bursts, it ain't gonna be pretty.

 

Which "bubble" are you referring to?   The housing bubble that collapsed and led to the panic that froze the financial markets  in 2008?   That was fueled by reckless lending practices that developed into what was essentially a Ponzi scheme by several of the largest mortgage lenders.   

 

7 hours ago, Tiberius said:

How will that happen? The burst? 

 

There's a segment of conservative economists and politicians who believe that the dollar and other modern currencies are doomed to collapse because they are "fiat currencies" that are backed by the government that issues them rather than being backed by a commodity like gold.   Believers in this idea in the US have been predicting "the collapse" ("burst"?) since the US disconnected its currrency from gold back in 1933, although there's no evidence that the gold backed currency makes an economy more stable than "fiat currency".   This idea of an inevitable financial collapse became especially popular among anti-government conservatives like Tea Partyers and survivalists during the Great Recession.

 

[Scraps]

32 minutes ago, SoTier said:

 

Which "bubble" are you referring to?   The housing bubble that collapsed and led to the panic that froze the financial markets  in 2008?   That was fueled by reckless lending practices that developed into what was essentially a Ponzi scheme by several of the largest mortgage lenders.  

 

I'm talking about the bubble in bonds caused by the Federal Reserve printing money then using that money to buy bonds.  This has caused interest rates to fall to artificially low levels.  Fixed income investors can't get a return on their investments and are forced to take greater risks, which has led to a bubble in stocks as well.

 

I would stipulate that if inflation rises, the game the Fed has been playing will come to an end.  Large investors will short bonds and stocks and this bubble will burst badly.

 

How was the housing bubble a Ponzi scheme?  It was bad lending.  These risky mortgages were backed by insurance that was insufficient to cover the losses when adjustable rate mortgages went up in response to the Fed raising short term rates.  That's not a Ponzi scheme as I understand it.

[TPS]

11 hours ago, Tiberius said:

 

https://www.washingtonpost.com/opinions/economics-is-going-through-an-intellectual-revolution-on-public-debt/2020/12/07/074da3bc-38a8-11eb-9276-ae0ca72729be_story.html

 

I've been reading Bob Woodward's book on the Clinton presidency, "The Agenda" and was pretty taken aback by the super high priority they put on reducing the national debt so as to lower interest rates. Woo, what a change 30 years makes! Cheney saying in 2003 that "deficits don't matter" seems to be right 

What you say, the debt doesn't matter....?

[SoTier]

9 hours ago, Scraps said:

 

I'm talking about the bubble in bonds caused by the Federal Reserve printing money then using that money to buy bonds.  This has caused interest rates to fall to artificially low levels.  Fixed income investors can't get a return on their investments and are forced to take greater risks, which has led to a bubble in stocks as well.

 

I would stipulate that if inflation rises, the game the Fed has been playing will come to an end.  Large investors will short bonds and stocks and this bubble will burst badly.

 

How was the housing bubble a Ponzi scheme?  It was bad lending.  These risky mortgages were backed by insurance that was insufficient to cover the losses when adjustable rate mortgages went up in response to the Fed raising short term rates.  That's not a Ponzi scheme as I understand it.

 

Fair enough about the issue of bonds as it's a legitimate concern.

 

I see the housing bubble as a type of Ponzi scheme because it was built on continually finding new "investors" by expanding the pool of borrowers by lowering lending requirements as housing prices soared because of the demand created by the continually lowering of lending standards.  These shaky "sub-prime" loans were then packaged into "mortgage backed securities" that were sold to other investors.  It just went round and round until the proverbial manure hit the proverbial fan in the form of rising mortgage defaults brought down the entire thing.

[Tiberius]

11 hours ago, Scraps said:

 

1) I'm talking about the bubble in bonds caused by the Federal Reserve printing money then using that money to buy bonds.  2) This has caused interest rates to fall to artificially low levels. 

3) Fixed income investors can't get a return on their investments and are forced to take greater risks, which has led to a bubble in stocks as well.

 

 

1) How is that a bubble? 

2) "Artificially" low? Is there a natural place for interest rates? 

3) Fixed income investors don't have enough wealth to create a stock bubble 

[SoCal Deek]

1 hour ago, SoTier said:

 

Fair enough about the issue of bonds as it's a legitimate concern.

 

I see the housing bubble as a type of Ponzi scheme because it was built on continually finding new "investors" by expanding the pool of borrowers by lowering lending requirements as housing prices soared because of the demand created by the continually lowering of lending standards.  These shaky "sub-prime" loans were then packaged into "mortgage backed securities" that were sold to other investors.  It just went round and round until the proverbial manure hit the proverbial fan in the form of rising mortgage defaults brought down the entire thing.

Bingo! A very good summary. It was a classic example of bad, if well intentioned, public policy running head first into private capitalism. Bad things tend to be the natural result. 

[Scraps]

1 hour ago, SoCal Deek said:

Bingo! A very good summary. It was a classic example of bad, if well intentioned, public policy running head first into private capitalism. Bad things tend to be the natural result. 

 

Bad policy?  Yes.  A Ponzi scheme, that it was not.

[Scraps]

1 hour ago, Tiberius said:

1) How is that a bubble? 

2) "Artificially" low? Is there a natural place for interest rates? 

3) Fixed income investors don't have enough wealth to create a stock bubble 

 

1)  You don't think that the ability to print and endless amount of money and buy bonds doesn't create a bubble?

2)  The market should be set by buyers and sellers that are putting money at risk.  The Fed risks nothing.  Benn Bernanke, Janet Yellen and Jerome Powell have no skin in the game yet controlled markets with made up money.

3)  The fixed income market is much larger than the stock market,  If fixed income investors can't get a return in bonds, they are forced to take more risk, which bubbles up stock prices.  Again, this is happening because of the Fed, which isn't taking any real risk to the Fed Chairman or the Governors.

[T master]

14 hours ago, Tiberius said:

Sore loser. What a sore loser you are 

 

The pot calling the kettle black again, how soon we forget ...

 

The debt hasn't mattered much to any Pres. for the most part since the "federal Reserve act of 1913" (thank you so much Pres. Wilson you did such a great thing for the country ! ) they did away with the gold standard (FDR) so they could have a free amount of money when ever they need it and could give them selves raises as they see fit .

 

I would like to see any politicians personal checking accounts i bet they are more screwed up than a box of coat hangers and the use common sense with in their balancing act of their finances is no where to be found .

 

The lead by design and show us all every day that incompetence is a prerequisite to becoming a career politician yet we all fall for their BS and believe they are there and actually care for our best interests !! 

 

What did Einstein say "Insanity is doing the same thing over & over again & expecting a different out come" There you have it the US Gov't in a nut shell they can't get out of their own way yet the people still fall for it !!

 

The US will NEVER be out of debt .. Given the current state of those running the country .

 

So let's go back to the same ole same ole a career politician and expect a different out come 🤔 Brilliant ...

Edited December 9, 2020 by T master

[Tiberius]

1 hour ago, T master said:

 

The pot calling the kettle black again, how soon we forget ...

 

 

Did Hillary challenge the election results? I don't recall that. Trump is a big time sore loser and so are his followers. 

 

I mean, where did they all go? Did I literally leave the board when Hillary lost? 

 

You see the difference, right? 

1 hour ago, Scraps said:

 

1)  You don't think that the ability to print and endless amount of money and buy bonds doesn't create a bubble?

2)  The market should be set by buyers and sellers that are putting money at risk.  The Fed risks nothing.  Benn Bernanke, Janet Yellen and Jerome Powell have no skin in the game yet controlled markets with made up money.

3)  The fixed income market is much larger than the stock market,  If fixed income investors can't get a return in bonds, they are forced to take more risk, which bubbles up stock prices.  Again, this is happening because of the Fed, which isn't taking any real risk to the Fed Chairman or the Governors.

1) No one has said it is "endless" except for you 

2) It is, but the government has to adjust the rules as situations change. 

3) Proof? You saying that retirees have a bigger stake in the overall game than people investing in stock market? I'll need to see proof of that 

[Scraps]

21 minutes ago, Tiberius said:

You see the difference, right? 

1) No one has said it is "endless" except for you 

2) It is, but the government has to adjust the rules as situations change. 

3) Proof? You saying that retirees have a bigger stake in the overall game than people investing in stock market? I'll need to see proof of that 

1.  Jerome Powell said so on 60 Minutes.

2.  Then you do not have free markets.

3.  https://www.fool.com/knowledge-center/5-bond-market-facts-you-need-to-know.aspx

[TPS]

2 hours ago, Scraps said:

1.  Jerome Powell said so on 60 Minutes.

2.  Then you do not have free markets.

3.  https://www.fool.com/knowledge-center/5-bond-market-facts-you-need-to-know.aspx

We haven't had free markets in a long time.  With each crisis, the FED intervenes in more and more markets creating the expectation they will always bail out Wall Street...because they do bail out Wall Street.  It's difficult to put the genie back in the bottle.  Wall Street likes socialism when they benefit...

[Scraps]

11 minutes ago, TPS said:

We haven't had free markets in a long time.  With each crisis, the FED intervenes in more and more markets creating the expectation they will always bail out Wall Street...because they do bail out Wall Street.  It's difficult to put the genie back in the bottle.  Wall Street likes socialism when they benefit...

 

How far back are you talking in your opinion?

[Plano]

20 hours ago, Unforgiven said:

Sheeples want that 2nd round of stimulus checks. what other reason would anyone vote for the rat party?

You're aware like 99% of trumps followers have about $0 to their name, right?

 

They thought he'd make um richhhhhhh

 

wrong baby boy, wrong wrong