Who Owns the US National Debt?(thebalance.com)
thebalance.com
Who Owns the US National Debt?
https://www.thebalance.com/who-owns-the-u-s-national-debt-3306124
278 comments
> It almost feels as though economics discussion is made complicated on purpose
Mostly because finance as much as financiers desperately want it to be a science it isn’t. For the most part they’re guessing in the dark and presenting it like hard science, using baselines that are very generic and seeing if their associated metrics change all the while speaking in cryptic language.
Good example is Greenspan’s one number to rule them all.
In general I’ve noticed the same behavior in life too, whenever people start speaking in overly complex ways they’re usually (though not always) masking incompetence in the subject matter.
This article in general felt more like a forced down your throat PSA than anything else. Don’t worry it’s not foreign countries owning your future, it’s your own retirements at work for you. Your country working for you. There’s a name for that, propaganda.
The article didn’t really explain anything about debt, it just used government publications to recite to you how the government segregated the owners of US treasuries. Same as when an analyst will tell you what kind of institutions own AAPL. Hint: the same.
Mostly because finance as much as financiers desperately want it to be a science it isn’t. For the most part they’re guessing in the dark and presenting it like hard science, using baselines that are very generic and seeing if their associated metrics change all the while speaking in cryptic language.
Good example is Greenspan’s one number to rule them all.
In general I’ve noticed the same behavior in life too, whenever people start speaking in overly complex ways they’re usually (though not always) masking incompetence in the subject matter.
This article in general felt more like a forced down your throat PSA than anything else. Don’t worry it’s not foreign countries owning your future, it’s your own retirements at work for you. Your country working for you. There’s a name for that, propaganda.
The article didn’t really explain anything about debt, it just used government publications to recite to you how the government segregated the owners of US treasuries. Same as when an analyst will tell you what kind of institutions own AAPL. Hint: the same.
I appreciate your comments and agreeable insight about needless complexity, but I'm tempted to read this as "I don't understand it either, so they must be idiots".
I agree it could be better presented, but a sibling comment actually presents this in a way that makes more sense than OP, but without disparaging the whole field.
I agree it could be better presented, but a sibling comment actually presents this in a way that makes more sense than OP, but without disparaging the whole field.
Tbh, it's also because it's much more a political compromise than it is a solution to a scientific problem. It's complex because of competing interests disguised ideologies (and occasional actual ideologies), not because the science is hard.
Economics or more broadly, finance has its own vocabulary to describe concepts, just like tech, law, medicine or any other discipline. There is always domain knowledge in any field that is required for reasonable understanding.
A country's central bank (The Fed) is not the same as the country (U.S.A.), or more specifically, the government of a country (PoTUS, Congress, ...Treasury).
The central bank is an entity, like a company is an entity, that is lending to the Government, which is often more than one specific entity. The Public.
It can be confusing in the same way that explaining how BGP is used to route TCP packets, across an IP network, with an AES representation of some data that can be used to store value.
That said, money !== resources.
The Fed does issue money which is exactly just 'money creation'. But... It issues bonds to show that other entities will hold the other side, or a 'loan' of the money just created.
This money system was built into what it is now by the Medici: https://en.wikipedia.org/wiki/House_of_Medici
Niall Ferguson wrote a great book which gives a detailed history called 'The Ascent of Money'(2008). Niall's other books are worth a read too.
A country's central bank (The Fed) is not the same as the country (U.S.A.), or more specifically, the government of a country (PoTUS, Congress, ...Treasury).
The central bank is an entity, like a company is an entity, that is lending to the Government, which is often more than one specific entity. The Public.
It can be confusing in the same way that explaining how BGP is used to route TCP packets, across an IP network, with an AES representation of some data that can be used to store value.
That said, money !== resources.
The Fed does issue money which is exactly just 'money creation'. But... It issues bonds to show that other entities will hold the other side, or a 'loan' of the money just created.
This money system was built into what it is now by the Medici: https://en.wikipedia.org/wiki/House_of_Medici
Niall Ferguson wrote a great book which gives a detailed history called 'The Ascent of Money'(2008). Niall's other books are worth a read too.
[deleted]
Crypto fixes this. Pseudo private, politically motivated monetary debasment is archaic and fuels inequality by punishing savers.
That's exactly the same as the arguments made by proponents of the gold standard, and it's just as wrong now as it was then. Crypto is an alternative to investing in gold, not an alternative currency. It has all the same market dynamics.
Crypto is far too broad a term to use and say it's the same as Gold.
In many ways it worse (PoW for Bitcoin), in some its better (banking for the bankless). However you can have Crypto that has an inflationary mechanism that's codified (can still be gamed), none the less it can be inline with modern monetary schemes.
In many ways it worse (PoW for Bitcoin), in some its better (banking for the bankless). However you can have Crypto that has an inflationary mechanism that's codified (can still be gamed), none the less it can be inline with modern monetary schemes.
>This money system was built into what it is now by the Medici:
It's funny because the Warburgs could trace their lineage back to Venice.
It's funny because the Warburgs could trace their lineage back to Venice.
I believe this is why any arguments comparing finance at a national budget level to finance at a home budget level are incorrect. Money works completely differently at both levels.
This is why microeconomics and macroeconomics are different but related disciplines.
By way of analogy, think of the first as physics and the second chemistry (the study of emergent phenomena from the more fundamental relationships). But less rigorous than physics/chemistry, at least so far.
By way of analogy, think of the first as physics and the second chemistry (the study of emergent phenomena from the more fundamental relationships). But less rigorous than physics/chemistry, at least so far.
My favourite how different the "home budget" and a national economy works is if you want to save some money for a trip you just stop spending a bit and keep the extra money in a savings account until needed. If an economy did that then the economy will contract, reducing peoples spending power and income.
It's like you're saving for you holidays and your hourly rate goes down because of it.
It's like you're saving for you holidays and your hourly rate goes down because of it.
In Sweden, much of the national "debt" is between the government and the central bank. It could all be erased by decree and no one would be affected. The national debt number truly does not matter.
> You can't pay your groceries by taking a loan from yourself,
No, but countries with their own currency can.
> You can't pay your groceries by taking a loan from yourself,
No, but countries with their own currency can.
The flip side is that by doing so they increase the amount of money in the market, decreasing it's value. So anyone holding that currency is less rich. In net effect it is spending money by reducing the value of that money.
If you invest it (e.g. in long lasting infrastructure) it’s generally worth it. If you borrow to meet current obligations it’s generally not. (“Generally” is the kicker).
There are other good reasons to borrow from a macroeconomic perspective (e.g. a liquidity crisis). In such a case you hope the side effects are less than the primary effects. This case is like the doctors’ Hippocrateic Oath: yes, first do no harm, but sometimes you have to cut a hole in the patient to heal them.
There are other good reasons to borrow from a macroeconomic perspective (e.g. a liquidity crisis). In such a case you hope the side effects are less than the primary effects. This case is like the doctors’ Hippocrateic Oath: yes, first do no harm, but sometimes you have to cut a hole in the patient to heal them.
It’s not particularly inflationary. If you remove $100bn of government bonds from circulation and replace it with $100bn newly printed cash, private sector net worth stays the same.
Hardly stays the same. That $100 billion cash is going to be spent somewhere, that increases money supply across the market, private sector now has more money but the actual resources produced has not changed that much.
No, erasing all that debt world not affect the amount of money in circulation. It would only affect the balance sheets of the two institutions. (The money is already in circulation)
Making the middle class poor. Inflation punishes responsible savers.
It punishes people who save money in unproductive ways, such as stuffing it in a mattress. We want to encourage people to invest their savings productively, benefiting them and the economy. The middle class are generally very good at this, putting capital into pensions (which are invested), tax efficient savings schemes, shares and property.
This is correct. The middle class owns little in cash, but owe a lot in debt. Inflation eats a little of the former, and significantly lowers the burden of servicing the latter.
Inflation isn't the thing they need to worry about. What they need to worry about is making sure their particular job's wage inflation is keeping up with the average.
Inflation isn't the thing they need to worry about. What they need to worry about is making sure their particular job's wage inflation is keeping up with the average.
> Inflation punishes responsible savers.
You know that this is false, why say so?
Putting your money under a mattress is not responsible, putting it on an investment which will accrue interest is, and imagine what. That interest will compound not only from inflation but ensuring good gains
You know that this is false, why say so?
Putting your money under a mattress is not responsible, putting it on an investment which will accrue interest is, and imagine what. That interest will compound not only from inflation but ensuring good gains
It's almost as if national income accounting is nothing like household accounting, and money is nothing but paper backed by a military and a police force.
Agreed, but its not just backed by the military and police. Its backed by all the people interacting in the economy, both domestically and internationally. Nobody is going up to people and saying "take this job and add to the GDP or we'll shoot you". Its a large scale symbiotic system (with many faults) that almost everyone wants to be a part of.
It takes a lot more than military and police. Just ask North Korea.
Imagine an economist reading the manga website infrastructure post that was on the front page of HN yesterday. Would they maybe be confused? And think it is an overly complicated approach to serving webpages with comics on them?
I think there is an important difference between “this is needlessly complicated” and “I don’t understand this yet.”
Nations are very large things, and national governments have powers and responsibilities that are different from the individuals and organizations within them. So, it is logical that government finances don’t work the same way as the personal and business finances we are used to in every day life.
That doesn’t mean government finances are optimal or perfect. But I think it’s reasonable to expect that it will take some effort to understand it as it exists today.
I think there is an important difference between “this is needlessly complicated” and “I don’t understand this yet.”
Nations are very large things, and national governments have powers and responsibilities that are different from the individuals and organizations within them. So, it is logical that government finances don’t work the same way as the personal and business finances we are used to in every day life.
That doesn’t mean government finances are optimal or perfect. But I think it’s reasonable to expect that it will take some effort to understand it as it exists today.
> So, it is logical that government finances don’t work the same way as the personal and business finances we are used to in every day life.
In other words when you need a bailout because you made some stupid financial decisions due to greed the govt wont bail you out but if you are a too big to fail institution and have friends in high places, the govt will bail you out even though you made some reckless decisions, you just have to tell everyone that its very complicated.
In other words when you need a bailout because you made some stupid financial decisions due to greed the govt wont bail you out but if you are a too big to fail institution and have friends in high places, the govt will bail you out even though you made some reckless decisions, you just have to tell everyone that its very complicated.
>Would they maybe be confused? And think it is an overly complicated approach to serving webpages with comics on them?
To be fair that seemed to be the reaction of several HNers, too
To be fair that seemed to be the reaction of several HNers, too
A lot of debt is “money creation”. When you buy something on a credit card where does that money come from? Even when you write a check you buy something without handing over cash — the money is still in your bank account for a little while.
Fiscal policy is what the government does. Governments sell bonds to raise money, this is what "government debt" is, a bunch of bonds each for a fixed period (usually between 1 and 30 years), pay interest each year and then repay the collateral when they expire.
Monetary policy is what central banks do, and includes quantitative easing (QE) which is often referred to as "money printing". Monetary policy also includes setting interest rates, managing the supply of physical currency and acting as a clearing house for bank operations.
The two are separate things but get conflated a lot in discussion - including on here - which makes the whole thing way more confusing than it could be. These Bank of England pamphlets on money in the modern economy are the clearest layman's overviews of the monetary policy side of things I've found:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
Monetary policy is what central banks do, and includes quantitative easing (QE) which is often referred to as "money printing". Monetary policy also includes setting interest rates, managing the supply of physical currency and acting as a clearing house for bank operations.
The two are separate things but get conflated a lot in discussion - including on here - which makes the whole thing way more confusing than it could be. These Bank of England pamphlets on money in the modern economy are the clearest layman's overviews of the monetary policy side of things I've found:
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
https://www.bankofengland.co.uk/-/media/boe/files/quarterly-...
There are two forms of money in the US economy. There is hard currency which the US does prints and ends up in banks as reserves (if you print it, you go to jail). There is also interest bearing form of money called the US treasury bond. The US prints and spends (though most of the printing is digital) and then sells bonds to convert some of that non-interest bearing money into interest bearing money. It doesn't have do the latter but it does because ... tradition? Also useful for large institutions to have a safe interest bearing asset. Economy likes that sort of thing.
>You can't pay your groceries by taking a loan from yourself,
pay using credit card and then repay the the cc (with interest) over the next few months / years.
pay using credit card and then repay the the cc (with interest) over the next few months / years.
This isn't a loan from yourself though.
If we would get into details and that all that money is virtual I think at some level it really is just a loan from your future self.
That would be also applicable to all loans. So yeah country would loan from future generations and they will have to pay it back.
That would be also applicable to all loans. So yeah country would loan from future generations and they will have to pay it back.
Some credit cards have 0% apr for 12 months though
yes. that is like QE at microeconomics level. nudges people to take on more debt .
What I don't understand about those, is like... you can basically just make the "minimum payment" for 12 months straight? So if you spend 15k in that timeframe, you basically free up 15k in capital that can be invested? It's like a 0% loan.
> The US goes into 'debt', to pay for something.
The US doesn't go into debt to pay for things, it goes into debt voluntarily to play-act that it is using a commodity rather than fiat currency. Or perhaps out of political inertia since it once did use such a currency.
Pointing this simple fact out (hello, Modern Monetary Theory) gets very serious people very mad, though.
The US doesn't go into debt to pay for things, it goes into debt voluntarily to play-act that it is using a commodity rather than fiat currency. Or perhaps out of political inertia since it once did use such a currency.
Pointing this simple fact out (hello, Modern Monetary Theory) gets very serious people very mad, though.
The US doesn't go into debt to pay for things. It goes into debt to create money. It doesn't tax to get money. It taxes to destroy money.
Where is the money created? The bonds they issue are bought with money that was already in circulation.
Here's the trick: the vaporous debt money becomes real when the oligarchs and people that matter use it to get paid real money, for whatever business dealings with the country, money which they then put in a real bank. When they avoid taxes, the theft becomes complete.
And guess who makes the banking laws.
And guess who makes the banking laws.
It doesn't make much sense if you think of the US government as a single entity with a single balance sheet. This, however, isn't the case.
It is interesting how accounting does the opposite - even quite complicated situations quickly become dry and boring.
The complexity of economic discussion is 100% politics. Nearly everyone in the debate is looking for justifications as to why they & theirs should get more stuff and not have to do anything for it.
The complexity of economic discussion is 100% politics. Nearly everyone in the debate is looking for justifications as to why they & theirs should get more stuff and not have to do anything for it.
Pension funds own a lot of it but the Fed has more on their balance sheet, about a third of all US debt. But this is the same situation with most central banks - ECB, BoE - they have roughly a third of their respective national debts on their BS.
It has been going up since the global financial crisis and accelerated during COVID. Central banks keep saying they’re going to taper but it will be very, very slow tapering in order to not hurt the economy.
In essence, currency is being debased when central banks buy debt to protect the financial system from sudden shocks, and keep buying it because the economy remains fragile and gets hooked on the central bank asset purchases.
Due to artificially low interest rates (because of said debt purchases) asset bubbles are formed elsewhere in the economy, and the ones who gain disproportionately the most from this are people who own invested assets, while those who don’t are no longer able to afford financialised assets like housing, or goods affected by inflation.
It has been going up since the global financial crisis and accelerated during COVID. Central banks keep saying they’re going to taper but it will be very, very slow tapering in order to not hurt the economy.
In essence, currency is being debased when central banks buy debt to protect the financial system from sudden shocks, and keep buying it because the economy remains fragile and gets hooked on the central bank asset purchases.
Due to artificially low interest rates (because of said debt purchases) asset bubbles are formed elsewhere in the economy, and the ones who gain disproportionately the most from this are people who own invested assets, while those who don’t are no longer able to afford financialised assets like housing, or goods affected by inflation.
Low interest rates means there isn't a lot of easy money to be made and not a lot of people who expect their income to rise (which is partly western demographics), and since we are talking nominal, not much inflation.
None of these things look artificial to me. This is an argument that central banks should be doing more debt purchases, not less. The long game of the central banks is to raise long term rates (the reverse of the current situation), but they either haven't been successful at it or think things will improve on their own.
None of these things look artificial to me. This is an argument that central banks should be doing more debt purchases, not less. The long game of the central banks is to raise long term rates (the reverse of the current situation), but they either haven't been successful at it or think things will improve on their own.
Raising long term rates = central banks reducing their long term debt purchases - they are one of the primary buyers right now, keeping those rates artificially low compared to what free market rates would be. If central banks stopped buying medium/long term debt now, those rates would spike and the economy would choke. They can't do it.
Central banks have a couple of primary mandates - (consumer) price stability ie. keeping inflation in check, and sustainable growth / employment.
As long as the economy is weak and the official CPI figures don't show sustained inflation, they will keep printing (buying debt), in order to protect growth, employment and financial stability. We are getting to the limits of how much you can print without affecting inflation.
They are unable to let longer term rates rise (by stopping or tapering debt purchaces) because the it will negatively impact the fragile economy - unless there is clear indication of sustained inflation, in which case they are mandated to act. This would also be very bad for the economy (inflation/rate rises plus economy stagnating).
The only way out of this mess is for central banks to reduce buying debt very, very slowly and hope the economy doesn't choke and grows out of this. There is no other way.
Central banks have a couple of primary mandates - (consumer) price stability ie. keeping inflation in check, and sustainable growth / employment.
As long as the economy is weak and the official CPI figures don't show sustained inflation, they will keep printing (buying debt), in order to protect growth, employment and financial stability. We are getting to the limits of how much you can print without affecting inflation.
They are unable to let longer term rates rise (by stopping or tapering debt purchaces) because the it will negatively impact the fragile economy - unless there is clear indication of sustained inflation, in which case they are mandated to act. This would also be very bad for the economy (inflation/rate rises plus economy stagnating).
The only way out of this mess is for central banks to reduce buying debt very, very slowly and hope the economy doesn't choke and grows out of this. There is no other way.
"There is no other way" = "There is no Plan B"
Fortunately if we've learned anything from recent history, it's that our initial attempts at a solution are almost always successful and rarely are there setbacks, hiccups, or insurmountable obstacles along the way to the perfect realization of your immaculately designed strategy.
Fortunately if we've learned anything from recent history, it's that our initial attempts at a solution are almost always successful and rarely are there setbacks, hiccups, or insurmountable obstacles along the way to the perfect realization of your immaculately designed strategy.
I don’t think it’s so much an immaculately designed strategy as a corner central banks have painted themselves in and have difficulty getting out of.
And of course monetary systems could go another way that doesn’t end so well for central banks, like:
-high inflation central banks can’t control
-collapse of fiat
-return to a gold standard in some form
-hypercryptoization
-the path of last 20 years of Japan
…or some other unknown turn of events like a war between superpowers or emergence of advanced AI which will turn the economy upside down
And of course monetary systems could go another way that doesn’t end so well for central banks, like:
-high inflation central banks can’t control
-collapse of fiat
-return to a gold standard in some form
-hypercryptoization
-the path of last 20 years of Japan
…or some other unknown turn of events like a war between superpowers or emergence of advanced AI which will turn the economy upside down
Yes I agree with your summary of the situation. I assumed a phrase like "immaculately designed strategy" would set off your sarcasm sensors but I appear to be mistaken.
Central bank buying govt debt or QE is basically just maturity transformation. The Fed / ECB / BoE buys 10 year debt and issues cash which is also a form of govt. debt. IMO, when interest rates are as low as they are, it is foolish to issue short term debt. A lot of people like Martin Wolf and John Cochrane have been calling on govts to take advantage of the low interest rates and issue perpetual (or 50 or 100 year) debt and insulate themselves from sharp increase in inflation or interest rates.
if they find free market buyers for 100 year debt at current interest rates, sure. I'm not sure there will be many, so the central banks would end up buying most of it themselves.
Soros is also advocating perpetual bonds for the EU/ECB, especially Club Med countries, with the whole union guaranteeing the debt. Northern EU member states are already subsidising the south/east member states, something like this would set it in stone for a long time.
Soros is also advocating perpetual bonds for the EU/ECB, especially Club Med countries, with the whole union guaranteeing the debt. Northern EU member states are already subsidising the south/east member states, something like this would set it in stone for a long time.
Pension funds are required to own some percentage of their assets in govt bonds. Also, many high net worth individuals have a strong preference for safe assets like govt bonds. And then there are speculators who think interest rates will fall and they'll make killing by actively trading on long term bonds. So, there will be buyers. Not all of it is being purchased by central banks.
true, there are some free market participants but central banks such a big % of the buyers that if they stopped buying, rates would shoot through the roof
I'm not so sure about that. When the Fed was tapering and starting to raise rates back in 2018, the bond market flashed warning signs in December 2018 with long term rates falling sharply and the yield curve inverting.
Then there's also the market expectations of whether the Fed is willing to go with negative interest rates, which would influence the behavior of bond traders.
Then there's also the market expectations of whether the Fed is willing to go with negative interest rates, which would influence the behavior of bond traders.
> The Biggest Owner Is Not Foreign Entities, but U.S. Taxpayers
In other words, the average US citizen has, over the years, been taxed way harder than they've ever realized.
And the argument that this is a "debt" and can therefore be "repaid" at some point does not hold, since it will be repaid in USD, whose value generally decreases over time and is controlled by the USG (they can produce arbitrary amounts of it).
Nice way to boil the frog.
In other words, the average US citizen has, over the years, been taxed way harder than they've ever realized.
And the argument that this is a "debt" and can therefore be "repaid" at some point does not hold, since it will be repaid in USD, whose value generally decreases over time and is controlled by the USG (they can produce arbitrary amounts of it).
Nice way to boil the frog.
> In other words, the average US citizen has, over the years, been taxed way har
I look at it through the shares of income to the Treasury.
In 1950 the Treasury took in $39 billion, adjusted for inflation that would be $458 billion today. 40% of that was individual income taxes, 10% was social security. 26% was corporate taxes, and 20% was excise taxes.
In 2020 the Treasury took in $3,421 billion. 47% of this was individual income taxes, 38% was social security. 6% were corporate taxes, and 2.5% was excise taxes.
The individual burden went from 50% to 85% over the past 70 years.
I look at it through the shares of income to the Treasury.
In 1950 the Treasury took in $39 billion, adjusted for inflation that would be $458 billion today. 40% of that was individual income taxes, 10% was social security. 26% was corporate taxes, and 20% was excise taxes.
In 2020 the Treasury took in $3,421 billion. 47% of this was individual income taxes, 38% was social security. 6% were corporate taxes, and 2.5% was excise taxes.
The individual burden went from 50% to 85% over the past 70 years.
Every dollar the US spends goes into the private sector. Your bank account. US debt is private sector savings. Some of that savings is interest bearing like US treasuries. Think of it like a bathtub. Spending is the spout, and taxes are the drain. The US must spend more than it taxes otherwise there won't be money in the economy.
For those using TOR: https://web.archive.org/web/20210828180159/https://www.theba...
Maybe the US strategy is to become (or stay) too big to fail, after all it’s the same people rotating in and out the banks and govt. Once everyone’s on the dole with UBI there’s no problem using inflation as a back door tax.
The piece says that Social Security owns "most of" the national debt (2.9T out of 28T). I wouldn't call 10% "most of."
More importantly: will it ever be paid? Let's say this is a household that decides to stop accumulating debt and starts a pay off plan. How long will it take?
That is a truly bizarre question to ask of a sector of the economy. In fact, it's so bizarre as to be a category error.
You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing.
Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue.
Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts.
The government is a sector of the economy that will maintain a positive debt level just as households and corporates.
That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero.
So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.
You might as well ask, when will household debt be zero? Well, household debt refers to debt owed by a sector of the economy; it is not, you know, an actual person that will retire and move to Florida. Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing.
Similarly the corporate sector is never going to "repay" all corporate debt. Corporates are not planning on retiring and earning no more revenue.
Like all other sectors, debt is rolled over and grows with the overall growth of the sector, generally in line with the growth of revenue. For the government, that means tax receipts.
The government is a sector of the economy that will maintain a positive debt level just as households and corporates.
That does not mean that things like interest rate burdens and debt ratios can be ignored. When looking at the health of the corporate sector or the household sector or the foreign sector, we do look at various ratios, and the government sector is no different. But all of these ratios like debt to income for non-financial business assumes that the debt level owed by non-financial business will never be zero.
So asking when government will "pay back" debt is silly. The government will pay back debt when the household, financial, and foreign sector no longer wish to hold liquid risk-free assets and decide to own gold, seashells, and bitcoin instead. That would be never.
> Neither will our government retire and move to Florida. Our government is not saving up for the days when it collects no taxes. There is no clicking tock that says it's time for government liabilities to shrink to nothing
I think there are plenty of people around here who would be very satisfied if the government of the US did exactly that, as long as it didn't try to claim Medicare.
I think there are plenty of people around here who would be very satisfied if the government of the US did exactly that, as long as it didn't try to claim Medicare.
So why do we repay the debt at all?
It matures, e.g. 10 year treasury note has to be paid off in 10 years
That's like saying we must pay them because we said we will pay them, which is the definition of debt.
My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?
My question is more, that given your comment and others suggest it will never been paid completely, why then pay at all? What's the threshold for "we pay this, but not that"?
Because we need investors to buy more treasury notes, and they will only do that if they are always paid.
So we do need to repay the debt, but you (and others) said we won't pay part of it. So what's the deal?
We will pay all of it! Just not all at once.
Government finance is not like household finances or even business finances. Most critically, the government controls the issuance of money. In the USA that's done via the Federal Reserve. Which while not part of the government per-se, is sorta controlled by the government.
If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.
If the USA wishes maintain the US Dollar's position as the de-facto international currency, then it must maintain a negative balance of trade and high debt levels. Simple fact is that foreigners cannot use USD if they don't have any USD (in the form of cash or US Treasuries). There was once a hope that the Euro could rival the USD but that dream is dead in most people's eyes.
You seem to have moved from "the government controls the issuance of money" to "a private organization that controls the issuance of money is sorta controlled by the government" really fast.
This are most definitely not the same thing.
The Federal Bank is only independent from the US Government in a very symbolic way. The system only exists as set out in US Legislation, the President of the US appoints all the board members and designates which is the chair, they all have to be confirmed by the US Senate, etc. etc.
The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
The "private ownership" in that member banks hold stock is also largely symbolic, given that they can't sell the stock and the stock doesn't give them any control, voting rights, etc.
Congress could, tomorrow, choose to just take control of the fed if it was being such a problem. They have done things to this effect many times in the past!
The US is very much not a household; long duration low interest tbills are almost a special form of high denomination currency. If the treasury stops selling them into the market and doesn't issue new ones, strange things happen, starting with the loss of control of interest rates.
You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%.
https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c...
(This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)
You'd probably see a bidding war over the remaining bills, resulting in slightly negative effective rates. Especially for the 30 year ones, which are currently below 2%.
https://www.ft.com/content/a0482f69-be5c-4d92-ae59-17a8e2b2c...
(This is the modern version of "shortage of specie", shortage of physical coins, which occasionally paralyzed pre modern economies)
As I understand, these debts will never be repaid, they will be inflated away so that they remain inconsequential (for some definition of that word) relative to the size of the economy. This is true e.g. for corporate bonds as well, they are a structural part of financing operations rather than a loan to do a specific thing that then gets paid back.
I mean, Al Gore broke the tie in the senate to balance the budget in 1993, after which the Fed and Treasury had to seriously consider how to implement their policies without being able to buy / sell federal debt, because a lot of US debt is short term and as that debt matures without rolling over the debt payoff snowballs fast (for a government anyways).
That's my understanding too. Another way that I've heard it: you don't need to reduce your national debt, rather you need to ensure that your tax base is growing more quickly than your debt.
This might work for long maturity bonds, but debt in the form shorter maturity bonds (0.5 to 5 years) can't really be "inflated away" without destroying the economy in the process.
Right now 5 year US government debt pays less than 1%, with shorter maturities paying less than that. Inflation is always a touchy subject, but I think we can agree that 1%/yr or greater inflation is hardly unimaginable over the next 5 years.
https://www.treasury.gov/resource-center/data-chart-center/i...
https://www.treasury.gov/resource-center/data-chart-center/i...
Sure, but for this scheme to work, the increase in inflation has to be unexpected. If the expected real return is too negative, nobody will buy the bonds in the first place.
For corporate bonds, they are meant to be rolled until bankruptcy right? At that point they are repaid, fully or partially depending on how things go.
Debt is money. So, if we pay off all the debt then we won't have any money other than (probably) physical notes but even then there won't be any debt for the central bank to collateralise the physical notes - physical notes are a central bank liability and therefore must be balanced with an asset (debt, usually).
Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.
Debt isn't inherently bad. However, if mis-managed or abused then both creditors and debtors get into trouble.
Do the US government pay interest to you on your dollar bills? If not I don't see how that is debt. Lots of countries has a currency without paying huge amounts of interest to support it.
That was my point. Physical bills are not debt - everything else is!
Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.
Update for clarification - initial response was a bit flippant and not very well considered... Technically phyisical bills ARE debt (they are a liability of the central bank, after all) but they don't _behave_ like debt because they yield 0%.
First order answer: GDP is about $20tn, debt is about $30tn, so if everybody put half their income towards paying down the debt, it would be paid off in about 3 years.
Assuming you could get every American to agree to that (good luck!) the economy would be massively transformed while everyone stopped spending on every luxury and most necessities. I guess this would require enormous government intervention to prevent all the out of work shopworkers and manufacturers from starving, which might require taking on a bit more debt.
(The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
(The serious answer to the original poster's question is that the US economy is not like a household and the debt does not to be paid off, nor will it ever be paid off.)
People investing in treasuries do not want your cash. Thayer had cash and spent it on treasuries. They want cash in the future to match their future liabilities.
There is a real utility to having a vehicle for investing free of credit risk.
There is a real utility to having a vehicle for investing free of credit risk.
Pensions are another investment where you need somewhere safe to "store" the money. Government bonds are one of those safe places. A quick search says US pension funds alone invest about $32 trillion (not all in bonds of course).
Quite, hence “first order” - although every dollar paid back needs to be paid back to someone, and as the article points out, the majority of the debt is held by US taxpayers, so that money is still likely to be participating in the US economy, just flowing through different hands.
That's not how it works at all though. It's not really something that is "paid off", it's a stock of bonds that eventually come due, and can be rolled over into new bonds basically forever.
The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).
The actual constraints to the issuance of the bonds or money is 1) available natural resources, 2) available labour resources, and 3) inflation (which is usually a result of money issuance or velocity outstripping (1) or (2)).
GDP doesn't measure people's income. It measures capital expenditures and consumption. So it would be a 50% sales tax and 50% tax on capital spending.
That’s just another method for estimating the same thing:
https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
https://www.ons.gov.uk/economy/nationalaccounts/uksectoracco...
Ok but it still includes corporate income. It's not just 50% of people's paychecks.
> if everybody put half their income towards paying down the debt
You realize how unrealistic that is right?
You realize how unrealistic that is right?
The flip side of Social Security owning the US national debt is that Social Security's solvency is entirely dependent upon the USA being able to pay. If you assume that, then Social Security is fine for decades to come.
Unfortunately once the Baby Boom retires and their SS payments come due, there is no reasonable path to the US government being able to actually pay. Doubly not when expenses from Medicare is projected to double in the next decade.
And yes, I know it is popular to say that we can just cut the military. But that is not enough. In fact if we eliminated all government programs except social security, medicare and medicaid, by the middle of this century our federal budget still can't add up. :-(
Unfortunately once the Baby Boom retires and their SS payments come due, there is no reasonable path to the US government being able to actually pay. Doubly not when expenses from Medicare is projected to double in the next decade.
And yes, I know it is popular to say that we can just cut the military. But that is not enough. In fact if we eliminated all government programs except social security, medicare and medicaid, by the middle of this century our federal budget still can't add up. :-(
> ...I know it is popular to say that we can just cut the military.
The US dollar is whatever the US military says it is.
This system is not right, moral, proper, ethical, just, or in any other way virtuous.
It just is.
Philip & Alexander, Genghis Khan, Augustus, Pax-Brittanica, ad nauseam. They all worked the same.
Empires consume humans to feed growth. Grow or die. Money is a shared hallucination.
While the USA's military industrial complex is an unqualified evil, the alternative is worse. No empire means chaos, world war, all against all.
Just a guess.
The US dollar is whatever the US military says it is.
This system is not right, moral, proper, ethical, just, or in any other way virtuous.
It just is.
Philip & Alexander, Genghis Khan, Augustus, Pax-Brittanica, ad nauseam. They all worked the same.
Empires consume humans to feed growth. Grow or die. Money is a shared hallucination.
While the USA's military industrial complex is an unqualified evil, the alternative is worse. No empire means chaos, world war, all against all.
Just a guess.
>>No empire means chaos, world war, all against all.
I think it will be more like a dozen+ regional powers scattered all over the world. And their economies tied up through a mesh of trade and military ties/enmities.
Only people who really suffer from the collapse of an empire is the citizens of that empire. Everybody else just moves on.
I think it will be more like a dozen+ regional powers scattered all over the world. And their economies tied up through a mesh of trade and military ties/enmities.
Only people who really suffer from the collapse of an empire is the citizens of that empire. Everybody else just moves on.
You left out raising taxes.
Any government with the ability to print its own currency can always pay a debt denominated in its own currency.
The only question is whether or not the currency can retain its ability to procure labor and materials.
I have no qualms about getting the numbers I am owed from social security deposited into my account. I do wonder how much I will be able to buy with it though.
The only question is whether or not the currency can retain its ability to procure labor and materials.
I have no qualms about getting the numbers I am owed from social security deposited into my account. I do wonder how much I will be able to buy with it though.
In what world is a currency crisis a better outcome than people being honest about what is happening and either defaulting or raising taxes? Sovereign countries that go down the road of emergency devaluation are routinely found at the start of the worst stories. It shows that not only can't a country pay its bills, it also doesn't have the political fibre to engage with its problems.
Why are those the only options?
Nationalization is also a potential and underrated part of the toolbox.
A nationalized-health-care system could be a huge lever on inflation. On a basic level, it would enjoy near or full monopsony status on many products and labour categories, so it would be easy to say "our reimbursement rates rise 2% per annum, and if you want to sell ANY product, you'll take it and like it." An even more aggressive process could take medical education and supply production directly under a state umbrella, further reducing market pressure for ever-growing margins.
Similarly, a "free state universities for all" program could come with strict restrictions on program costs to clamp down on spiraling costs.
Other forms of state intervention-- subsidized goods, for example, or even WWII-style ration books-- could help to mitigate the negative consumer-facing effects of inflation. You might have to pay $100 per kilo of ground beef on the open market, but if we had a functional ration system, everyone still gets sufficient coupons to have a hamburger once or twice a week. If the only things you need "dollars" for are luxury nonsubsidized/nonrationed goods, then the dollar can crash and burn every few decades with minimal quality-of-life impact.
Nationalization is also a potential and underrated part of the toolbox.
A nationalized-health-care system could be a huge lever on inflation. On a basic level, it would enjoy near or full monopsony status on many products and labour categories, so it would be easy to say "our reimbursement rates rise 2% per annum, and if you want to sell ANY product, you'll take it and like it." An even more aggressive process could take medical education and supply production directly under a state umbrella, further reducing market pressure for ever-growing margins.
Similarly, a "free state universities for all" program could come with strict restrictions on program costs to clamp down on spiraling costs.
Other forms of state intervention-- subsidized goods, for example, or even WWII-style ration books-- could help to mitigate the negative consumer-facing effects of inflation. You might have to pay $100 per kilo of ground beef on the open market, but if we had a functional ration system, everyone still gets sufficient coupons to have a hamburger once or twice a week. If the only things you need "dollars" for are luxury nonsubsidized/nonrationed goods, then the dollar can crash and burn every few decades with minimal quality-of-life impact.
Each of those is its own political debate.
If there was political agreement that those plans worked then there would be no link to currency or debt. They'd be good ideas all weather and all systems.
But they aren't good ideas, they are increasingly clever perpetual motion machines, claiming to make things cheaper while moving the cost around (without making it smaller) until it isn't clear where it is. Because there isn't a step in them to make things cheaper that doesn't involve waving a magic wand and saying "but if the government says it is cheap it will be cheap".
If there was political agreement that those plans worked then there would be no link to currency or debt. They'd be good ideas all weather and all systems.
But they aren't good ideas, they are increasingly clever perpetual motion machines, claiming to make things cheaper while moving the cost around (without making it smaller) until it isn't clear where it is. Because there isn't a step in them to make things cheaper that doesn't involve waving a magic wand and saying "but if the government says it is cheap it will be cheap".
The government doesn't have stockholders demanding double digit year-over-year revenue growth to guide their pricing and product decisions.
That's the magic wand.
That's the magic wand.
That magic wand doesn't make sense. The easiest way to get double-digit revenue growth is already to make the product cheaper.
Note that many high-value companies (eg, Uber, Amazon) historically run on razor thin to negative margins when they want to grow their revenue.
Note that many high-value companies (eg, Uber, Amazon) historically run on razor thin to negative margins when they want to grow their revenue.
Won't these new services require rather significant increases in taxes? Not to mention government takeover of industry to impose price fixing and rationing raises some red flags for me.
> Won't these new services require rather significant increases in taxes?
No, because there are no new services, just nationalization of services people are already paying for, and removing to the extent the industry has profits (or surplus revenues in the nonprofit components), nationalization would provide free revenue in first-order effect.
No, because there are no new services, just nationalization of services people are already paying for, and removing to the extent the industry has profits (or surplus revenues in the nonprofit components), nationalization would provide free revenue in first-order effect.
The inflation has already happened, the price of daily commodities has not changed. You will still be able to buy a carton of milk at same prices.
However the price of assets like blue chip stock or a house has increased massively, we cannot really afford them anymore.
Today there is no way make back principal after even 30 years with returns/dividend on most blue chip stock or rent on a house you buy/invest in.
The returns are mostly based on the asset appreciating even more.
This wealth inflation has resulted in being priced out of housing or generate retirement savings etc and the wealth inequality has widened so much already.
However the price of assets like blue chip stock or a house has increased massively, we cannot really afford them anymore.
Today there is no way make back principal after even 30 years with returns/dividend on most blue chip stock or rent on a house you buy/invest in.
The returns are mostly based on the asset appreciating even more.
This wealth inflation has resulted in being priced out of housing or generate retirement savings etc and the wealth inequality has widened so much already.
Yeah let's just print trillion dollar bills to pay off the debt. Zimbabwe had trillion dollar bills if I remember correctly.
That’s not why Zimbabwe’s economy and currency collapsed.
Zimbabwe’s economy and currency collapsed because the government stole productive assets and gave them to people who did not know how to do anything with them, basically destroying the productive capacity of the nation within a few weeks.
Zimbabwe’s economy and currency collapsed because the government stole productive assets and gave them to people who did not know how to do anything with them, basically destroying the productive capacity of the nation within a few weeks.
>Zimbabwe’s economy and currency collapsed because the government stole productive assets and gave them to people who did not know how to do anything with them, basically destroying the productive capacity of the nation within a few weeks.
Recent history of Zimbabwe (<http://imgur.com/a/VdQdD>)
Recent history of Zimbabwe (<http://imgur.com/a/VdQdD>)
Google Modern Monetary Theory. The jist is that printing money is only inflationary when the nations productive capacity is fully utilized.
One interesting thing about this is that the effect of printing money (how it influences inflation) highly depends on perception. Radio Lab talked about this in a recent episode[0]. This has been a measured effect too and so it is interesting that fearing inflation can be a self fulfilling prophesy.
[0] https://www.wnycstudios.org/podcasts/radiolab/articles/more-...
[0] https://www.wnycstudios.org/podcasts/radiolab/articles/more-...
The best example of how perception matters was how the careful introduction of the Brazilian real ended hyperinflation merely by creating a perception that it wouldn't inflate. (It was pegged to the old currency at a rate that inflated at the same rate that the old currency did. All stores had to post prices in both old and real. After people were used to seeing real standing still, Brazil started printing them and continued indexing them at inflating rates to the old. And the price stayed constant as the old currency was replaced by the new.
MMT does say that, but MMT is far from being widely accepted as correct.
Of the 5 tennets of MMT, only 1 is disputed by mainstream economics i think?
As i understand it, more or less everyone (excluding fringe groups) agrees that:
1. All money is created by the state or other banks acting under state licence
2. Money only has value because the government promises to back it
3. because taxes must be paid in government-issued money
4. Therefore government spending comes before taxation
The bone of contention as i understand it is the 5th tennet:
5. Government deficits are necessary and good because without them the means to make settlement would not exist in our economy
As i understand the argument, it boils down to a disagreement about whether public investment can crowd out private.
EDIT: points from https://www.google.com/amp/s/criticalfinance.org/2019/02/06/...
As i understand it, more or less everyone (excluding fringe groups) agrees that:
1. All money is created by the state or other banks acting under state licence
2. Money only has value because the government promises to back it
3. because taxes must be paid in government-issued money
4. Therefore government spending comes before taxation
The bone of contention as i understand it is the 5th tennet:
5. Government deficits are necessary and good because without them the means to make settlement would not exist in our economy
As i understand the argument, it boils down to a disagreement about whether public investment can crowd out private.
EDIT: points from https://www.google.com/amp/s/criticalfinance.org/2019/02/06/...
5 is really only debated by academics. I think the actions of policy makers prove they think it's true. Does anyone remember the debate during the Clinton years over whether or not they should start paying back government debt given a surplus?
Item 5 is theoretically true if you assume accounting rules hold. The sectoral balances formula (derived from the definition of GDP) doesn't hold otherwise.
The only way for the economy to grow if the Government is running surpluses is with increasing private debt (so not really "paying down" anything but just transferring debt from one sector of the economy to another), and/or with a big enough trade surplus to cancel out the other sectors.
The only way for the economy to grow if the Government is running surpluses is with increasing private debt (so not really "paying down" anything but just transferring debt from one sector of the economy to another), and/or with a big enough trade surplus to cancel out the other sectors.
I was under the impression that 2 is manifestly false (unless I'm a very weak sense) given currencies in use that retained some value after the issuing state fell.
Can you give an example? You could see it being true temporarily just due to lack of any alternative.
In any event, the parents take on 2 is not exactly correct. MMT people say that a primary source of demand for a currency is that taxes may only be paid in that currency. Governments spend money into existence and tax it out of existence.
In any event, the parents take on 2 is not exactly correct. MMT people say that a primary source of demand for a currency is that taxes may only be paid in that currency. Governments spend money into existence and tax it out of existence.
I believe the Somali shilling was the case I first heard of. There seems to have been a case in Iraq in the 90s as well with the "Swiss dinar".
> [...] a primary source of demand [...]
That indeed sounds much more plausible.
> [...] a primary source of demand [...]
That indeed sounds much more plausible.
I hope it's clear that I meant "in a very weak sense" - just noticed the typo.
1 and 2 have really only been the case since the 70's with Nixon and Bretton Woods
OK. No theory is widely accepted before it is.
That doesn’t mean “all theories are eventually correct”.
No it doesn't. I was just pointing out that you weren't really saying anything in your comment.
Does this mean I don’t need to pay taxes until the productive capacity is at 100%, because we can print it?
How do we know when we’re getting close to full utilization
How do we know when we’re getting close to full utilization
MMT says that taxes exist primarily to create demand for a currency. The government doesn't need you to give it money because it is the source of money.
You'll know the economy is neat 100% because inflation will kick in.
You'll know the economy is neat 100% because inflation will kick in.
but there has always been inflation?
When the productive capacity is at a high level of utilization, yes. There hasn't been much inflation in the West for years now.
Also, deflation.
Also, deflation.
Taxes are required to give the currency value, to counter inequality and produce a stable society, to take money out of unproductive or overheating parts of the economy, and to discourage harmful (to individuals or society) behaviour.
That's a pretty good rundown of MMTs thinking. The government spends money into existence. When inflation starts to tick up, tax the money back out of existence.
MMT is just something the ones in control of the printing press made up to convince gullible people that they're not being outright robbed by quantitative easing.
MMT people tend to support major direct spending to people on the bottom, not things like QE
Most MMT economists I follow on the topic would say MMT is independent of QE as a policy.
But also as an outlay of currency, QE is one of the least effective uses to support or generate productive capacity.
But also as an outlay of currency, QE is one of the least effective uses to support or generate productive capacity.
Yeah, no - basically all MMT economists think QE is a bad policy.
Factually incorrect. Mosler spent most of his career in a hedge fund. MMT was a description of how he thought money actually worked in the modern age.
MMT is a junk theory created by silver spooned academics with no real life experience. It has not been proven in practice, or when something close to it is practices it does lead to inflation or devaluation of the country’s currency (Think Argentina, Turkey and today Lebanon).
When communism fell, I remember how the west promoted the ‘shock therapy’ to former communist countries, which was devastating to them. Another junk science that lead to a ‘lost decade’ and misery in eastern countries.
It was a ‘rip the Bandaid’ type of approach, which failed as it didn’t account that some countries needed time to adjust to the new capital system and it led to the closure of many lines of production that were actually profitable, as it was a ‘hard reset’
Be very wary when someone peddles a new ‘theory’ which is unproved, as a magical cure. Communism was one of them as well.
When communism fell, I remember how the west promoted the ‘shock therapy’ to former communist countries, which was devastating to them. Another junk science that lead to a ‘lost decade’ and misery in eastern countries.
It was a ‘rip the Bandaid’ type of approach, which failed as it didn’t account that some countries needed time to adjust to the new capital system and it led to the closure of many lines of production that were actually profitable, as it was a ‘hard reset’
Be very wary when someone peddles a new ‘theory’ which is unproved, as a magical cure. Communism was one of them as well.
I'm gonna guess you know much about the history of MMT, because it was created as a description of how money works in the US by a guy that spent his career on a trading desk.
If it isn’t shrewd application of MMT, then what explains Japans economy?
Zimbabwe's debts were not held in its own currency.
The important thing about inflation is to realize you can't print foreign money.
So if your trade + investment balance remains favourable, it's not a problem. If there's a major flight of investors (to where?), capital, or a thing you must import at any price (usually oil), then inflation kicks in even without money printing.
The US need not worry about inflation until a bigger more stable economy comes along, which is a long way off.
So if your trade + investment balance remains favourable, it's not a problem. If there's a major flight of investors (to where?), capital, or a thing you must import at any price (usually oil), then inflation kicks in even without money printing.
The US need not worry about inflation until a bigger more stable economy comes along, which is a long way off.
> The US need not worry about inflation until a bigger more stable economy comes along, which is a long way off.
You raised a good point about inflation not necessarily being tied to printing money, but you ignored the fact that if you print more money (without an obvious productive place for it to go) then you simply increase supply without increasing demand which causes inflation. It's happening right now in the US by just about every metric, and there is good reason to believe it is about to go up a lot more.
So no, the US not only is currently experiencing inflation like it has not seen for decades but there is likely to be a lot more in the near future. The Fed is printing money like crazy (I believe we've printed approximately 30% of our total money supply in the past ~2 years, so in ~2 years we've printed approximately half as much money as we did in the previous ~200 years) which deflates the value of our currency. I actually rounded all the numbers down to make it seem less problematic than it is - I encourage you to check the data for yourself.
You raised a good point about inflation not necessarily being tied to printing money, but you ignored the fact that if you print more money (without an obvious productive place for it to go) then you simply increase supply without increasing demand which causes inflation. It's happening right now in the US by just about every metric, and there is good reason to believe it is about to go up a lot more.
So no, the US not only is currently experiencing inflation like it has not seen for decades but there is likely to be a lot more in the near future. The Fed is printing money like crazy (I believe we've printed approximately 30% of our total money supply in the past ~2 years, so in ~2 years we've printed approximately half as much money as we did in the previous ~200 years) which deflates the value of our currency. I actually rounded all the numbers down to make it seem less problematic than it is - I encourage you to check the data for yourself.
Many people including the Fed chair as well as hedge funds like Bridgewater, do not believe the current inflation is fundamentally due to issue of currency. They believe it has to do with supply side shocks driven by covid and climate events worldwide.
Believing in something doesn't make it true. Also, given the poor track record of economics in the reproducibility department, I'd take that with a grain of salt.
I wouldn’t say to take experts opinions without further research, but causal dismissal of both the Fed and multi decade successful hedge fund of Bridgewater is foolish.
What is your criteria of success? Mere generation of profit is not mine. Solving societal issues (making them no longer issues with minimal entrenchment of other issues) is mine.
War can be profitable. Climate change can be profitable. Making unsafe airplanes can be profitable. Financial system brittleness can be profitable.
With allocation of capital being the primary incentive setter, and the Fed playing a role of removing the pain and sting of artificially inflated assets, I'm not convinced that Market reality even tracks well with reality anymore.
Where is the surge of investment in physical and supply chain investment in light of all of the logistical difficulty we've run into? Where is the funding of domestic manufacture? Where is the wage growth? Where is the transparency in medical cost reduction?
These are all signs that the economy, instead of focusing on getting real work done, is off chasing purely fiscal optimization rather than societal risk mitigation.
So... Beg your pardon, but I think your measures of success and mine are different enough that I can reasonably say that by my metrics, those "experts" are failing to deliver at anything except perpetuating the status quo that keeps them in a job.
That's just me though.
War can be profitable. Climate change can be profitable. Making unsafe airplanes can be profitable. Financial system brittleness can be profitable.
With allocation of capital being the primary incentive setter, and the Fed playing a role of removing the pain and sting of artificially inflated assets, I'm not convinced that Market reality even tracks well with reality anymore.
Where is the surge of investment in physical and supply chain investment in light of all of the logistical difficulty we've run into? Where is the funding of domestic manufacture? Where is the wage growth? Where is the transparency in medical cost reduction?
These are all signs that the economy, instead of focusing on getting real work done, is off chasing purely fiscal optimization rather than societal risk mitigation.
So... Beg your pardon, but I think your measures of success and mine are different enough that I can reasonably say that by my metrics, those "experts" are failing to deliver at anything except perpetuating the status quo that keeps them in a job.
That's just me though.
I agree in a way; there has been a lot of inflation due to printing money, but that inflation went straight to and stayed in the financial sector, supporting assets prices for the last decade. The recent inflationary trend in the real economy is due to "real" factors, including the covid-19 shock.
>I believe we've printed approximately 30% of our total money supply in the past ~2 years
Doesn't that money start disappearing as soon as the QE stops?
Doesn't that money start disappearing as soon as the QE stops?
The Fed has been printing money like crazy for over a decade. Prices are rising due to supply chain breakdowns.
This is exactly what has happened during the pandemic. In 2015 if you paid $15/hour for entry level physical work you would get a lot of applications with some high quality applicants.
In 2021 you need to remove the weed drug testing provision and then hope that you will get applicants.
Printing 3T dollars and handing out 3k/month to everyone has caused the cost of labor to double or triple in some areas. In other words the way out of the social security insolvency is to reduce the quality of labor a dollar buys.
In 2040 you should expect to get 4k/month from social security and for that to cover your food and housing, but hiring a person to replace your gutters will cost $90/hour
In 2021 you need to remove the weed drug testing provision and then hope that you will get applicants.
Printing 3T dollars and handing out 3k/month to everyone has caused the cost of labor to double or triple in some areas. In other words the way out of the social security insolvency is to reduce the quality of labor a dollar buys.
In 2040 you should expect to get 4k/month from social security and for that to cover your food and housing, but hiring a person to replace your gutters will cost $90/hour
Do you have data to back up mass drug test failing? The general consensus is that you have to be both outstandingly stupid and an actual addict to fail the well-telegraphed drug tests at most minimum wage places.
Amazon dropped drug testing for delivery drivers.
Maybe they’re just feeling kind. More likely: they’re having trouble finding people to become delivery drivers.
https://www.aboutamazon.com/news/operations/update-on-our-vi...
Maybe they’re just feeling kind. More likely: they’re having trouble finding people to become delivery drivers.
https://www.aboutamazon.com/news/operations/update-on-our-vi...
Amazon does not employ delivery drivers. They recently suggested to the delivery companies they pay to deliver packages to homes not drug test in order to find drivers.
I assume the drivers Amazon employs are actual truck drivers under the purview of the Department of Transportion, and are probably still drug tested to satisfy whatever federal requirements they have to satisfy.
> We will no longer include marijuana in our comprehensive drug screening program for any positions not regulated by the Department of Transportation, and will instead treat it the same as alcohol use.
I assume the drivers Amazon employs are actual truck drivers under the purview of the Department of Transportion, and are probably still drug tested to satisfy whatever federal requirements they have to satisfy.
> We will no longer include marijuana in our comprehensive drug screening program for any positions not regulated by the Department of Transportation, and will instead treat it the same as alcohol use.
> Amazon does not employ delivery drivers.
Right, they have a pass-through setup where they dodge liability by employing them through nominally independent companies. They're still in full control over their employment conditions in practice.
Right, they have a pass-through setup where they dodge liability by employing them through nominally independent companies. They're still in full control over their employment conditions in practice.
I kind of don't think local van delivery drivers are DOT regulated.
https://duckduckgo.com/?q=do+you+need+a+cdl+to+drive+for+Ama...
The people under Amazon's purview that are DOT regulated would be CDL holders driving semi trucks and similar. Those are strictly drug and alcohol regulated, with fed mandated preemployment and ongoing random tests.
https://duckduckgo.com/?q=do+you+need+a+cdl+to+drive+for+Ama...
The people under Amazon's purview that are DOT regulated would be CDL holders driving semi trucks and similar. Those are strictly drug and alcohol regulated, with fed mandated preemployment and ongoing random tests.
That is what I wrote, but I specified that the local van delivery drivers are not employed by Amazon, so Amazon not testing them for marijuana is a moot point.
Yep, I misread.
The policy applies to employees and contractors.
Most of their drivers are not long-haul, but last mile delivery.
Most of their drivers are not long-haul, but last mile delivery.
According to this article, the last mile deliveries are made by drivers employed by what they Amazon calls Delivery Service Partners:
https://www.bloomberg.com/news/articles/2021-05-05/amazon-wo...
According to this article, Amazon is suggesting the companies they pay to make the home deliveries to skip marijuana testing in order to find more drivers:
https://www.latimes.com/business/technology/story/2021-09-01...
The distinction is important because Amazon seems to be wanting the companies they pay to make the home deliveries to pick up possible liabilities from not testing drivers for marijuana use, but it is not clear if Amazon has chosen to accept that liability as well.
https://www.bloomberg.com/news/articles/2021-05-05/amazon-wo...
According to this article, Amazon is suggesting the companies they pay to make the home deliveries to skip marijuana testing in order to find more drivers:
https://www.latimes.com/business/technology/story/2021-09-01...
The distinction is important because Amazon seems to be wanting the companies they pay to make the home deliveries to pick up possible liabilities from not testing drivers for marijuana use, but it is not clear if Amazon has chosen to accept that liability as well.
The people driving vans painted with Amazon logos, who are working hours dictated by Amazon, who are delivering parcels at Amazon's instruction, and who are not delivering parcels for anyone else, are not Amazon employees? I guess the IRS rules on "contractor or employee" must have changed.
This has been a news theme for some years. A few years ago the problem got some attention, as problems periodically do. I remember Home Depot and a lumber mill featuring. They had enough candidates for the jobs they had, but rejected many for weed. There was much believable hand wringing.
Of course now Amazon is in the news for asking their contracted local delivery "partners" to not reject driver applicants for weed. Although this time around it's not because of weed directly, it's the general lack of applicants; Amazon's already expressed concern that, due to turnover, they may have already cycled through most of their potential workers.
Of course now Amazon is in the news for asking their contracted local delivery "partners" to not reject driver applicants for weed. Although this time around it's not because of weed directly, it's the general lack of applicants; Amazon's already expressed concern that, due to turnover, they may have already cycled through most of their potential workers.
Right exactly. I fully expect to pay in enough purchasing power for a house or two and to get out enough purchasing power for a car or two.
If you define baby boomers as born 1946 to 1964, that matches ages 57 to 75 so I'd imagine over half are retired already and we're already in the dying out stage.
The biggest problem isn't boomers but the life expectancy of gens X, Z. Luckily(?) they look less healthy than their parents.
SS can be boosted by charging SS on unearned income and income over the limit.
The biggest problem isn't boomers but the life expectancy of gens X, Z. Luckily(?) they look less healthy than their parents.
SS can be boosted by charging SS on unearned income and income over the limit.
please define unearned income. afaik - other types of income ARE taxed ie. capital gains, etc.
EDIT: Asking a question to be more specific is being downvoted leads me to believe there is a party that hates these particular questions being asked, and is antithetical to the idea of community dialogue and shared ideas.
I really think the whole internet forum thing has much to be desired.
EDIT: Asking a question to be more specific is being downvoted leads me to believe there is a party that hates these particular questions being asked, and is antithetical to the idea of community dialogue and shared ideas.
I really think the whole internet forum thing has much to be desired.
Yes they are income taxed but dont pay social security or medicare taxes. If you earn $100 wages you pay 6.2 percent SS taxes and 1.45% medicare (employer pays more than this too). If you earn $100 dividends you dont pay either.
No, Social Security and Medicare (collectively, FICA) taxes are not levied on capital gains.
Does this debt ever get paid back? Most likely it is sold onto someone else or a bank.
A debt being sold from the original lender to another entity has nothing to do with whether or not the debt will be paid back.
That's my point. You can 'get your money out' without 'getting your money back'.
The US government (hence the people of the US) repay their debts all the time, and issue new debts all the time. Just like a home mortgage gets sold from the original lender to subsequent lenders, the borrower still usually pays back the mortgage.
If the debts were not paid back, then why would anyone want to buy the debts from the original lender?
If the debts were not paid back, then why would anyone want to buy the debts from the original lender?
I didn't mean the debts were not paid back. I used clumbsy language before. What I mean is as an owner of bonds you are not expecting to get your money back from the lendee necessary. Most likely your timelines wont match.
Say I lend you $1000 and you agree by contract to pay be back $1000 in 2030. I want my $1000 now. You have no obligation to give it back to me now. If you decide you wont, I will consider selling the debt it on.
If you are a government there is a market for me to sell it on easily.
Say I lend you $1000 and you agree by contract to pay be back $1000 in 2030. I want my $1000 now. You have no obligation to give it back to me now. If you decide you wont, I will consider selling the debt it on.
If you are a government there is a market for me to sell it on easily.
>What I mean is as an owner of bonds you are not expecting to get your money back from the lendee necessary.
Yes, because purchasing a bond is just purchasing cash flow at various points in time. It does not matter who makes that cash flow happen, as long as you receive the cash.
> If you are a government there is a market for me to sell it on easily.
There only exists a market for you to sell on easily because similar debts have been previously paid back.
Yes, because purchasing a bond is just purchasing cash flow at various points in time. It does not matter who makes that cash flow happen, as long as you receive the cash.
> If you are a government there is a market for me to sell it on easily.
There only exists a market for you to sell on easily because similar debts have been previously paid back.
More than half of the "baby boom" generation has already retired. The "baby boom" was born between 1946 and 1964. They are now 57 to 75 years old.
Given that Boomers are called such due to the baby boom that occurred from WW2 vets coming home, most literal boomers are 75 or so.
Calling anyone in the following 18-20 years part of the one-year boom has always felt contrived, though I’m clearly swimming against the tide here.
As someone on the tail end of a “generation”, its odd being lumped together with people who could easily be my parents - with people who weren’t exposed to computers until over a decade into their professional careers.
Calling anyone in the following 18-20 years part of the one-year boom has always felt contrived, though I’m clearly swimming against the tide here.
As someone on the tail end of a “generation”, its odd being lumped together with people who could easily be my parents - with people who weren’t exposed to computers until over a decade into their professional careers.
> Calling anyone in the following 18-20 years part of the one-year boom has always felt contrived,
It wasn't a one-year boom; demobilization wasn't immediate, and anyhow its wasn't just a soldiers-returning effect. Birth rate didn't drop to the pre-war level until the late 1960s.
It wasn't a one-year boom; demobilization wasn't immediate, and anyhow its wasn't just a soldiers-returning effect. Birth rate didn't drop to the pre-war level until the late 1960s.
The boom lasted about 30 years, not 1 year.
Source: https://www.statista.com/statistics/1033027/fertility-rate-u...
Source: https://www.statista.com/statistics/1033027/fertility-rate-u...
If the US is in a situation where it’s defaulting on its debts then social security would have been dead long before that ever happened.
Besides, the choice to default on dollar denominated debt is completely the US government’s.
Besides, the choice to default on dollar denominated debt is completely the US government’s.
Sure there is, the government will print money, as always.
Massive immigration is one solution.
You seen to be confusing two different issues.
The current situation with social security is that the expenditures for benefits exceed the revenues from taxes. The difference is being made up by the social security reserve fund.
This fund consists of the US Treasuries referenced in the article. There had not been any issue with the government paying these debts. They are an expected part of the budget.
The point at which we get into trouble is when the reserve fund is exhausted. Then the government will have to spend more money to keep social security benefits at their current levels. This additional expense is not currently budgeted for.
The current situation with social security is that the expenditures for benefits exceed the revenues from taxes. The difference is being made up by the social security reserve fund.
This fund consists of the US Treasuries referenced in the article. There had not been any issue with the government paying these debts. They are an expected part of the budget.
The point at which we get into trouble is when the reserve fund is exhausted. Then the government will have to spend more money to keep social security benefits at their current levels. This additional expense is not currently budgeted for.
Isn't there more to the story though? For decades IOUs were made to social security because there was a large surplus, that if untouched, would have gained interest providing for a lot more runway and wiggle room for social security well into the future.
We are currently running through that surplus. Current estimate project the surplus will last (and make up for the deficit between revenues and benefits) until the early 2030s.
Or cut social security payouts
Social security is a pay as you go program. The amount of money going out is limited by the amount coming in plus what's in the trust
That's a legal fiction. The "trust" is just US treasuries that the Social Security trust buys with the taxes it collects.
The fact that your social security taxes are "hypothecated" to be for your retirement is a nonsense designed to confuse.
The fact that your social security taxes are "hypothecated" to be for your retirement is a nonsense designed to confuse.
Not really, the government can also fund extra to the payouts. Preload with deficit spending.
[deleted]
> The flip side of Social Security owning the US national debt is that Social Security's solvency is entirely dependent upon the USA being able to pay.
The obvious counterpart here is: assuming social security was invested in non-govermnent US-based assets, and the USA was no long able to pay its debts, how much would those assets actually be worth (i.e., the economy/country is likely in a very bad shape)?
[My personal conclusion is that really, at the end of the day, the currently-retired people are intrinsically supported by the currently-working people, and all the money-tracking is about keeping this exchange reasonably fair. But if the currently-working people are unable to support the retired ones, no financial magic is going to fix that.]
The obvious counterpart here is: assuming social security was invested in non-govermnent US-based assets, and the USA was no long able to pay its debts, how much would those assets actually be worth (i.e., the economy/country is likely in a very bad shape)?
[My personal conclusion is that really, at the end of the day, the currently-retired people are intrinsically supported by the currently-working people, and all the money-tracking is about keeping this exchange reasonably fair. But if the currently-working people are unable to support the retired ones, no financial magic is going to fix that.]
>But if the currently-working people are unable to support the retired ones, no financial magic is going to fix that.
Well, there is a way to work around this: to invest into foreign assets. In other words, domestic retirees will be supported by people working abroad. This approach certainly has its risks, but even before that the modern US is the biggest world debtor, not creditor.
Well, there is a way to work around this: to invest into foreign assets. In other words, domestic retirees will be supported by people working abroad. This approach certainly has its risks, but even before that the modern US is the biggest world debtor, not creditor.
Cutting the military isn't really an option like that. They're the largest employer of people in the country.
You'd create mass unemployment of young people to pay out the unemployment of old people.
You'd create mass unemployment of young people to pay out the unemployment of old people.
This is because the military behemoth is the biggest socialist experiment in job creation of all time. It's not only the actual military members serving and veterans, it's the contractors, the VA and all of the surrounding infrastructure.
You (I'm not in the US) should cut your military not to lower taxes, but to increase spending in actually productive areas of the economy. Military spending is not productive, by definition, most of what it spends is buying stuff and people that are supposed to be disposable via war.
You (I'm not in the US) should cut your military not to lower taxes, but to increase spending in actually productive areas of the economy. Military spending is not productive, by definition, most of what it spends is buying stuff and people that are supposed to be disposable via war.
Any spending as long it is domestic is productive locally. the stuff the miltary buys needs to be made,the manufacturer in turn buys parts or raw material and employees people and so on etc.
There is certainly a case that military spending is not the most effective way to multiply the economic effect that other kinds of spending like infrastructure, education or healthcare, research etc . All of these have huge secondary effects in simulating the economy that military probably does not have .
There is certainly a case that military spending is not the most effective way to multiply the economic effect that other kinds of spending like infrastructure, education or healthcare, research etc . All of these have huge secondary effects in simulating the economy that military probably does not have .
> In fact if we eliminated all government programs except social security, medicare and medicaid, by the middle of this century our federal budget still can't add up. :-(
Citation Needed
From what I've seen SS can be fixed by either
- raising the retirement age (originally, life expectancy was barely older than retirement)
- applying SS tax to all income and even capital gains
The social security time bomb is a political invention.
Citation Needed
From what I've seen SS can be fixed by either
- raising the retirement age (originally, life expectancy was barely older than retirement)
- applying SS tax to all income and even capital gains
The social security time bomb is a political invention.
Social Security is solvent if you remove the income cap. Right now, if you make $140k annually, you pay into social security as much as Jeff Bezos does.
You'd also have to figure out how to eliminate other tax loopholes at the same time, like taxing unearned income from investment at a far lower rate than earned income from actual work.
You'd also have to figure out how to eliminate other tax loopholes at the same time, like taxing unearned income from investment at a far lower rate than earned income from actual work.
The is no such thing as Social Security “solvency”.
If Social Security cannot pay it’s obligations to recipients, it is funded by the general treasury. The treasury doesn’t have the funds either, so is funded by treasuries.
If Social Security cannot pay it’s obligations to recipients, it is funded by the general treasury. The treasury doesn’t have the funds either, so is funded by treasuries.
Or you know payments are reduced. The taxes were not a contract, the government can change the terms at any time.
If at all possible it would probably be best to freeze payouts and let inflation solve the issue.
If at all possible it would probably be best to freeze payouts and let inflation solve the issue.
The weirdest part of all of this: all of the debt is in a currency it can print, and the USA is mostly in debt to itself.
The last paragraph sums it up well:
"The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."
"The Bottom Line Many people believe that much of U.S. debt is owed to foreign countries like China and Japan. The truth is, most of it is owed to Social Security and pension funds. This means U.S. citizens, through their retirement money, own most of the national debt."
That means that I need to pay myself in order to be paid?
At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
At the risk of sounding pejorative, and understanding that there are volumes of sophistries in support of the status quo: how is this not effectively a Ponzi scheme?
Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age. People who don't budget for this properly grow old destitute and unable to convince anyone to aid them.
In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way.
Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
In this regard, it mimics life itself. At some point the body gives up on repairing all the cellular damage that's accumulated and just hopes that it's made new humans along the way.
Civilization is built on all the side-effects of humans chasing Ponzi schemes. The reason governments ban actual Ponzi schemes (in the sense of "Everybody send me a dollar and pass this on, and I'll give you a $0.50 for everyone you recruit") is because it incentivizes the citizenry to do nothing other than create and participate in Ponzi schemes. Meanwhile activities like founding startups or trading stocks - which are every bit as Ponzi as that - are legal because the pursuit of them creates beneficial social effects (like innovation, price discovery, and capital allocation).
> Any viable large-scale retirement system is going to be a Ponzi scheme, because the "old investors" (retirees) are going to be dead soon and the only way to support them is to recruit "new investors" (working-age people). Tontines, life insurance, bank deposits, the stock market, 401(k)s, pensions, cryptocurrency, whatever - when you unravel them deep enough, they're a Ponzi scheme. This applies to even safe, conventional investments like a bank savings deposit: what's really happening there is that you amass a large credit over your lifetime, and then when you need extra care and support and can't work for it anymore, you transfer that credit over to a working-age nurse/etc so that they can build the same sort of credit for their old age.
Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
Not necessarily. One could imagine an individual storing and preserving enough food for their retirement during their working life, and then eating through that stock in their retirement - or, at a slightly more sophisticated level, a group of people buying a farm and setting aside enough gold to pay labourers to work it for them - or, at a more sophisticated level than that, owning enough valuable stuff through investments to be reasonably assured of a decent retirement. The claim that social security is Ponzi-like is the argument that there is no (or insufficient) pile of valuable stuff matching the liabilities already incurred.
When people call investments a ponzi scheme, they implicitly discount the fact that said investment is _producing_ extra stuff.
A real ponzi scheme is one which is not producing stuff, but requires new investment to pay out old investors.
Stocks are not ponzi schemes, because a stock does not require a new investor, because the company behind the stock is earning profit. A new investor is willing to buy the old stock for a higher price than originally sold, because the company is making more money (and is expected to make even more in the future).
A real ponzi scheme is one which is not producing stuff, but requires new investment to pay out old investors.
Stocks are not ponzi schemes, because a stock does not require a new investor, because the company behind the stock is earning profit. A new investor is willing to buy the old stock for a higher price than originally sold, because the company is making more money (and is expected to make even more in the future).
If one must withdraw from their 401k (sell it's holdings), which they must at a certain age, without new buyers (investors) keeping demand up, the prices would deflate. New 401k and Wallstreet investors are needed to keep prices up.
If the holdings are inherently valuable then their value should be stable regardless of how many people are buying or selling.
(In reality there's a spectrum of how speculative any given investment is; basic things like food and land are certainly subject to some speculation, and even hyped penny stocks probably have a nonzero fundamentals case for why they're valuable. But that doesn't mean there's no distinction at all)
(In reality there's a spectrum of how speculative any given investment is; basic things like food and land are certainly subject to some speculation, and even hyped penny stocks probably have a nonzero fundamentals case for why they're valuable. But that doesn't mean there's no distinction at all)
i dont know in detail how 401k is managed, but if you're nearing retirement, you do not keep such a high allocation of stocks in your account, because the volatility is going to prevent you from being able to accurately plan financially.
So it "doesn't matter" where the prices are - because a well planned retirement means you convert some % of your allocation to a more stable asset, like bonds, and live off those bonds. In the mean time, fluctuations of the stocks doesn't affect you as much, and you can strategically sell when the prices are "high".
So it "doesn't matter" where the prices are - because a well planned retirement means you convert some % of your allocation to a more stable asset, like bonds, and live off those bonds. In the mean time, fluctuations of the stocks doesn't affect you as much, and you can strategically sell when the prices are "high".
That will be a neat trick if you can figure out how to preserve and stockpile nursing home workers.
Because unlike in a Ponzi scheme, the US government can simply choose to create more money, thus meeting the obligations of its payments.
A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain.
You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
A Ponzi scheme involves pretending a balance exists when there isn't one. When the gov't says "we will give you dollars later" and they give you dollars later, you might complain in the theoretical universe where the dollars aren't worth much/at all, but they can indefinitely match your bargain.
You can choose to opt out of this system! Go into the countryside, barter for everything. But perhaps, perhaps, there is a reason that economies that have fiscal flexibility flourish and economies that are pegged to some other store of value they don't control have bigger problems resolving economic issues.
>Because unlike in a Ponzi scheme, the US government can simply choose to create more money,
It sure can, but this doesn't go far enough.
The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times.
The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
It sure can, but this doesn't go far enough.
The US Govt' can only choose to "print money". It cannot choose otherwise. This is because fractional reserve banking allows financial institutions to lend out the same $1 multiple times.
The result of collecting $1 and lending 6 people that $1 with an expected total payment of $2 per debtor results in $1 causing $13 in the economy.
Fractional reserve banking pre-dates the US by hundreds of years. It’s not related to central bank operations.
I had this same question when I first learned about social security and saw a non-trivial amount of my paycheck funding the program. So I wrote this comparison (it is about 10 years old but still accurate): https://www.diffen.com/difference/Ponzi_Scheme_vs_Social_Sec...
The essential element of a ponzi scheme is that investors are deceived.
> A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds.
In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
> A Ponzi scheme is a form of fraud that lures investors and pays profits to earlier investors with funds from more recent investors. The scheme leads victims to believe that profits are coming from legitimate business activity (e.g., product sales or successful investments), and they remain unaware that other investors are the source of funds.
In contrast, the Social Security model is pretty transparently a wealth transfer from workers to the elderly and disabled.
so main difference is kinda transparency?
everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
everything else matches. you (old investor) are receiving profits from new investors. and in some countries retirement money is speculative matter for politicians (vote for me I will increase retirement payments).
Some other differences. Ponzis promise high rates of return on investment; Social Security promises vastly below-market returns for most workers. Investors can theoretically redeem from Ponzi investments at any time; SS is completely locked up until you're ~62. Ponzis are voluntary; SS isn't. SS is a mandatory government spending program; ponzis aren't.
Main difference is the profits come from work being performed by members of society that can work, in the form of actual problems being solved. The members of society who are working hope this will help perpetuate the cycle by allowing new members of society to work and solve problems when the previous working members are not able to work.
Ponzi schemes have a fairly specific definition, social security is just a tax that we pretend is going to yourself when you get old. In reality it is just a tax paid by workers and some amount of the government's budget is used to pay retired people money.
Another crucial element distinguishing a Ponzi scheme is that whoever runs it doesn't let the marks escape easily.
So if someone owes you money (a "debt" perhaps), but it's pretty clear that same someone won't be able to pay you and everyone else they owe --- what do you do?
I'm inclined to side with the other comment nearby: cutting payments to foreign creditors is easy, cutting payments to your own citizens is a disaster. Sure, there's this magic pixie dust of MMT, but with inflation already poking it's sharp edge into every day life, I doubt we can print our way back to prosperity.
I'm inclined to side with the other comment nearby: cutting payments to foreign creditors is easy, cutting payments to your own citizens is a disaster. Sure, there's this magic pixie dust of MMT, but with inflation already poking it's sharp edge into every day life, I doubt we can print our way back to prosperity.
The truth is much of the debt is owed to other countries! A quarter of the total national debt is public liability to other nations.
That's not insignificant and will be much harder to write off than paper social security liabilities.
That's not insignificant and will be much harder to write off than paper social security liabilities.
Yeah, that was also covered in the first (second?) paragraph:
> Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt.
Kind of repetitive, but at least it's not clickbait.
> Most headlines focus on how much the United States owes China, one of the largest foreign owners. What many people don’t know is that the Social Security Trust Fund, also known as your retirement money, owns most of the national debt.
Kind of repetitive, but at least it's not clickbait.
Calling the Social Security Trust Fund's bonds part of the national debt is meaningless to the point of being intellectually dishonest. It's an internal IOU, not an actual debt owed to some other party. Any time people talk about the national debt and include intragovernmental debt, stop listening to anything they are saying.
Bonds held by the Social Security trust fund have the same legal weight as bonds held by the public: defaulting on them would be a violation of federal law. The Treasury has no option to say “it’s only an internal IOU, we don’t feel like paying.”
Bonds held by government programs are real (not optional) demands on future government revenue. When Congress passes a budget each year, that budget has to cover all payments on outstanding debt, including intragovernmental holdings, not just those held by the public.
Social Security bonds, when redeemed, fund Social Security benefits, which go to real Americans. Defaulting on bonds held by Social Security would result in real reductions in income outside the government.
Bonds held by government programs are real (not optional) demands on future government revenue. When Congress passes a budget each year, that budget has to cover all payments on outstanding debt, including intragovernmental holdings, not just those held by the public.
Social Security bonds, when redeemed, fund Social Security benefits, which go to real Americans. Defaulting on bonds held by Social Security would result in real reductions in income outside the government.
When one party -- a company, a person, a government -- owes itself by its own rules, that does not mean anything externally.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
I don't see where you are coming from. The debt owed to other portions of the government are no different than external debt. Both must be paid in the same way. Neither can be defaulted on.
They are different in the same way that debts between departments in a company or mental accounts of one person are different -- they mean nothing externally.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
> Social Security
Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Most honest brokers will never cite the meaningless number, but rather the "debt held by the public".
Intragovernmental debt isn't what gets you to "most" or anything, but it should not be counted in any situation where we're talking about the fiscal or macroeconomic situation, rather than a political point.
Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding. Most honest brokers will never cite the meaningless number, but rather the "debt held by the public".
Intragovernmental debt isn't what gets you to "most" or anything, but it should not be counted in any situation where we're talking about the fiscal or macroeconomic situation, rather than a political point.
> Counting Social Security as a holder of the national debt is nonsense. Usually the cited debt excludes intragovernmental debt, since these internal government-internal IOUs are utterly meaningless with respect to the debt the country has outstanding.
Consider 2 situations.
1. Social Security lends the government a trillion dollars.
2. Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
What makes the former "Utterly meaningless", but the latter not?
It's not like Social Security is... Planning on forgiving that debt.
Consider 2 situations.
1. Social Security lends the government a trillion dollars.
2. Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
What makes the former "Utterly meaningless", but the latter not?
It's not like Social Security is... Planning on forgiving that debt.
> Social Security lends the government a trillion dollars.
This is a nonsense step. There is no meaning to the social security lending the government any money, as social security is the government
> Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
This scenario is just "The government buys back some of its debt, reducing its outstanding debt." The "Social Security" part is just a random detail that doesn't add anything.
(BTW, Social Security doesn't actually do this. They hold special bonds that are not the same ones available to the public.)
This is a nonsense step. There is no meaning to the social security lending the government any money, as social security is the government
> Bob lends the government a trillion dollars. Bob sells this loan on the public market. Social Security happens to be the organization that buys that loan from Bob.
This scenario is just "The government buys back some of its debt, reducing its outstanding debt." The "Social Security" part is just a random detail that doesn't add anything.
(BTW, Social Security doesn't actually do this. They hold special bonds that are not the same ones available to the public.)
Social Security is not funded by the government, it's funded by payroll taxes. Saying that Social Security loaning money to the government is meaningless is like saying that you loaning money to your brother-in-law is meaningless because you both have accounts at the same bank.
Debt is debt.
Debt is debt.
> Social Security is not funded by the government, it's funded by payroll taxes
This fictional accounting is a silly marketting gimmick, not a meaningful distinction. It's a government program just like all other forms of welfare.
Do you think that there were decades when lots of folks were contributing and no one was collecting?
This fictional accounting is a silly marketting gimmick, not a meaningful distinction. It's a government program just like all other forms of welfare.
Do you think that there were decades when lots of folks were contributing and no one was collecting?
Uh, if accounting is a fiction, well, I'm not going to say there isn't a kernel of truth to that, but it doesn't help us answer the question of who has debt responsibilities to whom; the entire enterprise is predicated axiomatically on "accounting fictions".
Social Security is a government program like any other. The delineation of tax types is just branding to make people like it more, it isn't economically meaningful. When the payroll tax is higher than the SS spend, the government just spends the money. (These bonds are IOUs for all the times they do that.)
It's like saying that it's meaningless for you to loan yourself money, because it is (except when there is some other, external reason that it carries meaning, not by rules you made yourself.) We constantly ignore these internal self-debts for people and for companies.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
It's like saying that it's meaningless for you to loan yourself money, because it is (except when there is some other, external reason that it carries meaning, not by rules you made yourself.) We constantly ignore these internal self-debts for people and for companies.
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
> Social Security is not funded by the government, it's funded by payroll taxes.
If it is funded by taxes, it is funded by government.
You could argue that the social security trust funds are loaning money to the general fund, but that’s like saying your savings account and money market account are loaning money to your checking account.
If it is funded by taxes, it is funded by government.
You could argue that the social security trust funds are loaning money to the general fund, but that’s like saying your savings account and money market account are loaning money to your checking account.
I fail to see how this debt is "meaningless" given interest is being paid and the solvency of the program is not legally guaranteed.
Congress may step in and directly fund certain SS programs through some other means once the ss trust fund fails to cover these expenses, but that outcome is far from guaranteed, so the ability of this fund to generate revenue through lending to other parts of the federal government remains material.
Congress may step in and directly fund certain SS programs through some other means once the ss trust fund fails to cover these expenses, but that outcome is far from guaranteed, so the ability of this fund to generate revenue through lending to other parts of the federal government remains material.
Yes and hit highlights that this is a choice, ie the choice of how to invest the surplus.
Social Security happens to buy US debt with that surplus, but it could have invested it elsewhere ie stocks if it were allowed to.
(Of course there are pros and cons to this https://www.wsj.com/articles/should-the-social-security-trus...)
Social Security happens to buy US debt with that surplus, but it could have invested it elsewhere ie stocks if it were allowed to.
(Of course there are pros and cons to this https://www.wsj.com/articles/should-the-social-security-trus...)
It's the same party. Bob is an outside party. When my left hand owes my right hand it doesn't matter whether I have the intention of forgiving that debt or not, it is an internal matter, one that may show up on my balance sheet but it has no direct effect on my day to day affairs. Because just as it won't be forgiven it also won't be called in overnight or used to manipulate the market against me: I control both sides of that equation.
But with Bob that isn't the case.
But with Bob that isn't the case.
the oft touted reason for high debt load being bad is that the gov't would be unable to pay it.
So how can it be that on the one hand, it "doesn't matter", but on the other hand, the debt is touted as being unable to be serviced?
The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).
So how can it be that on the one hand, it "doesn't matter", but on the other hand, the debt is touted as being unable to be serviced?
The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).
https://www.cbpp.org/research/recommendation-that-presidents... notes
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
> Most economists agree that the debt held by the public is what really affects the economy. As the Congressional Budget Office stated in its June 2009 report on the long-term budget outlook, “Long-term projections of federal debt held by the public, measured relative to the size of the economy, provide useful yardsticks for assessing the sustainability of fiscal policies.” In contrast, “gross debt . . . is not useful for assessing how the Treasury’s operations affect the economy.”
> The gov't owing it to a department is the same obligation as owing it to a foreign entity (or a domestic, private entity for that matter).
No, it isn't. Sorry, but this just isn't up for debate.
No, it isn't. Sorry, but this just isn't up for debate.
If the Treasury defaulted on its obligation to pay the interest and principle on the debt owned by SS, the ratings agencies would downgrade US Treasuries the same way they would if they failed to pay Japan, or any other bondholder.
Both cases are meaningless debt. The interesting information is total amount owed by the government minus total amount owed to the government.
If I take a loan from the bank for $1000, but also have $1000 in a bank account in another bank, then my debt is 0. Social Security is a bit like the second bank account.
If I take a loan from the bank for $1000, but also have $1000 in a bank account in another bank, then my debt is 0. Social Security is a bit like the second bank account.
> The interesting information is total amount owed by the government minus total amount owed to the government.
That is correct.
In the case of social security, you also have to account the total amount that social security owes to its contributors.
Because at the end of the day, Social Security has to pay out benefits, this debt isn't just pointless accounting fiction.
"Social security owns government debt" very clearly communicates that the government indiscriminately defaulting on loans will mean that social security beneficiaries will have to take a haircut - just like if I replace the words "Social security" with "XYZ pension fund." Just because the government runs this particular pension fund doesn't mean that it's all that much different, accounting-wise from a private one.
That is correct.
In the case of social security, you also have to account the total amount that social security owes to its contributors.
Because at the end of the day, Social Security has to pay out benefits, this debt isn't just pointless accounting fiction.
"Social security owns government debt" very clearly communicates that the government indiscriminately defaulting on loans will mean that social security beneficiaries will have to take a haircut - just like if I replace the words "Social security" with "XYZ pension fund." Just because the government runs this particular pension fund doesn't mean that it's all that much different, accounting-wise from a private one.
This is worse though, not better.
Uncle Sam could cut payments to China or Japan in a crisis. It’s much harder to cut payments to your own people. It would instantly make any crisis much worse.
Uncle Sam could cut payments to China or Japan in a crisis. It’s much harder to cut payments to your own people. It would instantly make any crisis much worse.
The US has excellent credit because, beginning with Alexander Hamilton, it has never ever cut a payment on debt no matter what crisis it thinks it faces. Treasury notes are as good as money because of this.
Keep in mind that debt is a liquid asset. If you were foolish enough to not pay out Chinese debt holders, they would simply sell to Americans. The notion of "lets not pay xyz" has spectacularly bad outcomes because it signals to the world that you are not a serious nation when it comes to debt.
In the long term, the US strategy has clearly paid off.
Keep in mind that debt is a liquid asset. If you were foolish enough to not pay out Chinese debt holders, they would simply sell to Americans. The notion of "lets not pay xyz" has spectacularly bad outcomes because it signals to the world that you are not a serious nation when it comes to debt.
In the long term, the US strategy has clearly paid off.
> The US has excellent credit because,
The US has excellent credit because it has largest military and is the dominant global player. That makes money parked in US T-bills safe. Liquidity and good, healthy economy (but not perfect) helps.
The US has excellent credit because it has largest military and is the dominant global player. That makes money parked in US T-bills safe. Liquidity and good, healthy economy (but not perfect) helps.
The big military only works in US’s favor because of the US commitment to pay.
A country with a reputation for stealing people’s money does not attract foreign investment no matter how big the military. Does a robber seem trustworthy to you just because he’s got a big gun?
A country with a reputation for stealing people’s money does not attract foreign investment no matter how big the military. Does a robber seem trustworthy to you just because he’s got a big gun?
The world might understand if China gets cute though--with all that iron talk.
Maybe the USA is looking for a reason to not pay?
Maybe the USA is looking for a reason to not pay?
There's a printer right there.
If the past 2 decades haven't blown the "deficit/inflation" correlation myth out of the water, just wait until the US goes all Japan and turns up the printers even more and have absolutely nothing of consequence happen to it (especially considering the US is even more isolated from raw resource allocation cuz of all the sheer size and diversity of the economy).
If the past 2 decades haven't blown the "deficit/inflation" correlation myth out of the water, just wait until the US goes all Japan and turns up the printers even more and have absolutely nothing of consequence happen to it (especially considering the US is even more isolated from raw resource allocation cuz of all the sheer size and diversity of the economy).
Nothing of consequence has been happening since https://wtfhappenedin1971.com/
Perhaps the American malaise is linked to many policies, as loads of countries do not have these trends with fiat currencies
Much of the argument here is abstracted away behind human-made definitions of a word such as "Productivity" in economics: https://www.oecd.org/sdd/productivity-stats/40526851.pdf
Simply the evolution of the economic output moving from manufacturing driven to what it is now makes the comparison a little less jarring.
It flips the inference the author of that website is pushing on its head if you consider what those numbers are actually indicating with the context of what the definition is. Maybe it means the "Volume of input" has been greatly improved because of technological assistance, maybe it means human elements contributing to economic input have more help from advancement in sciences, maybe there are a lot more complex factors at play here than what we are aware of.
tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
Simply the evolution of the economic output moving from manufacturing driven to what it is now makes the comparison a little less jarring.
It flips the inference the author of that website is pushing on its head if you consider what those numbers are actually indicating with the context of what the definition is. Maybe it means the "Volume of input" has been greatly improved because of technological assistance, maybe it means human elements contributing to economic input have more help from advancement in sciences, maybe there are a lot more complex factors at play here than what we are aware of.
tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
This site goes into more detail on how productivity as shown on the famous chart is useless for telling you anything useful and worse means something different from the layman understanding of the word. With charts and basic maths.
https://economicsfromthetopdown.com/2020/01/17/debunking-the...
> tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
Oh snap. I read your link but not the tl;dr, oops.
https://economicsfromthetopdown.com/2020/01/17/debunking-the...
> tl;dr: "Productivity" in economics is not the intuitive sense of "productivity" the word in common English usage that indicates human work.
Oh snap. I read your link but not the tl;dr, oops.
[Shrug] Maybe this would explain the strange appeal that covid19 has for some people, think tank groups and social media that were basically driving old and gullible people to its own demise in the last years feeding them with all the wrong advice 24 hours a day.
> It’s much harder to cut payments to your own people.
also, ive heard its an advantage to japan to have its govt debt owned by its own people as well...
curious to hear counter points!
> It’s much harder to cut payments to your own people.
You never have to when you control the actual production of the currency.
A foreign entity might demand to be paid back in actual assets, whereas joe citizen will have to accept any monkey money the USD decides to pay him back with.
You never have to when you control the actual production of the currency.
A foreign entity might demand to be paid back in actual assets, whereas joe citizen will have to accept any monkey money the USD decides to pay him back with.
LOL, no, a foreign entity can't buy a contract promising to pay X dollars and then demand to be paid in euros or something. The bond is not like a magic lamp that you rub to get wishes. If you don't like the payment terms, then don't buy the debt instrument with those terms.
[deleted]
There's a lot of misunderstanding about what is currency and what is debt.
All modern currency is debt. All of it. The amount of debt created and the amount of new money created is equal, because x=x for all x. It's just that simple - there isn't a difference.
There are the printed bills (that everyone has access to), there's the digital base money printed by the Fed that you keep hearing about, it's the liabilities side of their balance sheet (that only select large financial institutions have access to), then there are govt bonds and govt-guaranteed bonds (Mortgage-backed securities) (which again everyone has access to, but they're impractical for day-to-day conduct of business; they're extremely liquid though, you can convert them by the hundreds of millions to bills/base money by a single phone call). But all of this is money, just different types / quality of money.
Operations such as QE are just a means of conversion between the types of money. For example since 2008 we have continuous conversion of high quality bonds (govt and govt-guaranteed) into base money (the top quality money). All of it is still a government liability, since the Fed is a part of the government.
Similarly, the Social Security buying Treasury bonds is just an internal government operation. Pension liabilities are just like government bonds (it's a promise to deliver money at a later point in time), if you fund a pension liability with tbonds you're just doing some internal reshuffling within the federal government books. No actual funding takes place, i.e. no one is delaying their personal (or corporate or nonprofit) consumption in exchange for a future payoff.
If you don't believe me then please try to explain why hasn't Japan experienced a double or triple digit inflation. They are so much more advanced in the "central bank money magic".
PS. I'm using "quality" to refer to types money to simplify a bit, the more accurate first order approximation term would be "duration". Then there are further technicalities such as coupon structures, whether or not the coupons depend on the CPI (TIPS), whether or not they exist at all and maybe you just get a lump base money sum at the end, etc.
PS2. I've skipped the (actually larger) private credit. Yes, bank credit and the bond market also create money, though definitely lower quality than anything discussed above. Private credit is allowed to disappear at any given point in time. The Fed is currently not allowed to touch private credit whatsoever (this might change if the Congress decides so), they very briefly violated their own rules in March of 2020 by doing a weird type of deal with the Treasury (which is allowed to deal in the private credit, as the Treasury is allowed to spend; buying a bond that later defaults is effectively spending). And by the way: their announcement of an intervention in the non-govt guaranteed credit markets was the exact bottom of the covid market panic.
All modern currency is debt. All of it. The amount of debt created and the amount of new money created is equal, because x=x for all x. It's just that simple - there isn't a difference.
There are the printed bills (that everyone has access to), there's the digital base money printed by the Fed that you keep hearing about, it's the liabilities side of their balance sheet (that only select large financial institutions have access to), then there are govt bonds and govt-guaranteed bonds (Mortgage-backed securities) (which again everyone has access to, but they're impractical for day-to-day conduct of business; they're extremely liquid though, you can convert them by the hundreds of millions to bills/base money by a single phone call). But all of this is money, just different types / quality of money.
Operations such as QE are just a means of conversion between the types of money. For example since 2008 we have continuous conversion of high quality bonds (govt and govt-guaranteed) into base money (the top quality money). All of it is still a government liability, since the Fed is a part of the government.
Similarly, the Social Security buying Treasury bonds is just an internal government operation. Pension liabilities are just like government bonds (it's a promise to deliver money at a later point in time), if you fund a pension liability with tbonds you're just doing some internal reshuffling within the federal government books. No actual funding takes place, i.e. no one is delaying their personal (or corporate or nonprofit) consumption in exchange for a future payoff.
If you don't believe me then please try to explain why hasn't Japan experienced a double or triple digit inflation. They are so much more advanced in the "central bank money magic".
PS. I'm using "quality" to refer to types money to simplify a bit, the more accurate first order approximation term would be "duration". Then there are further technicalities such as coupon structures, whether or not the coupons depend on the CPI (TIPS), whether or not they exist at all and maybe you just get a lump base money sum at the end, etc.
PS2. I've skipped the (actually larger) private credit. Yes, bank credit and the bond market also create money, though definitely lower quality than anything discussed above. Private credit is allowed to disappear at any given point in time. The Fed is currently not allowed to touch private credit whatsoever (this might change if the Congress decides so), they very briefly violated their own rules in March of 2020 by doing a weird type of deal with the Treasury (which is allowed to deal in the private credit, as the Treasury is allowed to spend; buying a bond that later defaults is effectively spending). And by the way: their announcement of an intervention in the non-govt guaranteed credit markets was the exact bottom of the covid market panic.
>If you don't believe me then please try to explain why hasn't Japan experienced a double or triple digit inflation.
It's important to note that Japan should not be viewed as a template for the US. Both countries are quite different in many regards. The former is one of biggest creditor nations with private sector deleveraging for almost 2 decades thus compensating for significant part of the government leveraging, meanwhile the latter is the world's biggest debtor nation with both private and government sectors becoming more and more leveraged (see [0] for a more thorough comparison). The ultimate question is: for how long the US will be able to maintain USD as the main reserve currency. We already can see that foreign governments and investors do not wish to buy more T-bonds and even tend to sell them.
[0]: https://www.lynalden.com/economic-japanification/
It's important to note that Japan should not be viewed as a template for the US. Both countries are quite different in many regards. The former is one of biggest creditor nations with private sector deleveraging for almost 2 decades thus compensating for significant part of the government leveraging, meanwhile the latter is the world's biggest debtor nation with both private and government sectors becoming more and more leveraged (see [0] for a more thorough comparison). The ultimate question is: for how long the US will be able to maintain USD as the main reserve currency. We already can see that foreign governments and investors do not wish to buy more T-bonds and even tend to sell them.
[0]: https://www.lynalden.com/economic-japanification/
True. I think that looking for example at the NIIP (US claims on foreign assets - foreign claims on US assets) or the trade deficit (how much the foreigners lend to the entire country [govt+private]) are much more important long term than any of the govt internal accounting numbers, such as the size of the Fed balance sheet.
I see what you are trying to say ... but it's a bit misleading and actually technically wrong.
"x=x for all x" - this is true if you mean to say everything on the Fed's balance sheet is 'Debt' ... but that's wrong - it's referred to as 'Assets'. The currency itself is the 'Liability'.
A Central Bank issues currencies for assets, in which case the 'currency' is 'backed by' those assets. Ostensibly, one could trade the currency back for those assets.
That's not generally what we think of as 'debt'.
Now, much of the 'Assets' are actually US TBills, which is 'debt' - but - not all of the Fed's Balance sheet is TBills.
So 'x' does not equal 'x'.
The US Fed Balance sheet [1]
ECB Balance Sheet [2]
Historically the asset would be gold - and that still makes up part of the Fed's balance sheet. Since 2008, the US Fed has issued currency based on mortgage securities, essentially, it owns homes.
Otherwise, the Fed owns TBills, i.e. US Government debt, as assets, which is part of the basis of this article: The US Fed is one of the 'major owners' of TBills.
Yes, it's legit to point out that 'Internal Operations' are relevant and partly why Japan is not having major inflation, but your denotation of 'Internal' as being 'Government Agencies' is not quite right: by 'Internal' what we really would mean is 'internal to the Japanese economy'.
So Japanese debt is held by Japanese individuals and institutions of all kinds, public, private etc.. So 'Internal' means anything in their entire economy.
For a breakdown of a Central Banks Balance Sheet have a look here [3] which breaks down ECB balance sheet growth over the last while.
[1] https://www.investopedia.com/articles/economics/10/understan...
[2] https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystembalanc...
[3] https://gaeeuk.org/blog/jcc77k9fbhfymchj94edzbahjd5zbe
"x=x for all x" - this is true if you mean to say everything on the Fed's balance sheet is 'Debt' ... but that's wrong - it's referred to as 'Assets'. The currency itself is the 'Liability'.
A Central Bank issues currencies for assets, in which case the 'currency' is 'backed by' those assets. Ostensibly, one could trade the currency back for those assets.
That's not generally what we think of as 'debt'.
Now, much of the 'Assets' are actually US TBills, which is 'debt' - but - not all of the Fed's Balance sheet is TBills.
So 'x' does not equal 'x'.
The US Fed Balance sheet [1]
ECB Balance Sheet [2]
Historically the asset would be gold - and that still makes up part of the Fed's balance sheet. Since 2008, the US Fed has issued currency based on mortgage securities, essentially, it owns homes.
Otherwise, the Fed owns TBills, i.e. US Government debt, as assets, which is part of the basis of this article: The US Fed is one of the 'major owners' of TBills.
Yes, it's legit to point out that 'Internal Operations' are relevant and partly why Japan is not having major inflation, but your denotation of 'Internal' as being 'Government Agencies' is not quite right: by 'Internal' what we really would mean is 'internal to the Japanese economy'.
So Japanese debt is held by Japanese individuals and institutions of all kinds, public, private etc.. So 'Internal' means anything in their entire economy.
For a breakdown of a Central Banks Balance Sheet have a look here [3] which breaks down ECB balance sheet growth over the last while.
[1] https://www.investopedia.com/articles/economics/10/understan...
[2] https://www.ecb.europa.eu/pub/pdf/other/ecb.eurosystembalanc...
[3] https://gaeeuk.org/blog/jcc77k9fbhfymchj94edzbahjd5zbe
Yes there are also "genuine" things on the CB's balance sheet. But notice how small they are, except in some weird cases (like the SNB, the Swiss National Bank, which hoards a ton of equities).
My overall point was that the central bank, the public pensions system and the treasury are all a part of the federal government. When they "trade" with each other and maintain separate balance sheets that really means very little. What's the large scale difference between a tbill and base money if the Fed maintains an open market operations center and guarantees to trade them in unlimited quantities (repo and reverse repo) to keep them priced 1:1 to enforce their monetary policy? I mean I know you cannot take a tbill to a drugstore, but you can trade it back to a spendable private bank account balance in an instant, and you will always be able to.
My overall point was that the central bank, the public pensions system and the treasury are all a part of the federal government. When they "trade" with each other and maintain separate balance sheets that really means very little. What's the large scale difference between a tbill and base money if the Fed maintains an open market operations center and guarantees to trade them in unlimited quantities (repo and reverse repo) to keep them priced 1:1 to enforce their monetary policy? I mean I know you cannot take a tbill to a drugstore, but you can trade it back to a spendable private bank account balance in an instant, and you will always be able to.
Yes, I think I get what you are trying to say and it's a valid point, just the words are a bit confusing.
So yes - 'most of the assets that back currency is just government debt' and 'much of that debt is held not just by the Central Bank but also by other government agencies'.
Which makes a good chunk of the system just a matter of accounting.
But: "balance sheets that really means very little"
No, it still means a lot.
Both the 'internal accounting' stuff matters, and you can't forget that most TBills are not held by 'other government agencies'.
Yes - the fact that the value of currency cay be 'fuzzy' is relevant, but it's not entirely fuzzy. All of that accounting matters still.
So yes - 'most of the assets that back currency is just government debt' and 'much of that debt is held not just by the Central Bank but also by other government agencies'.
Which makes a good chunk of the system just a matter of accounting.
But: "balance sheets that really means very little"
No, it still means a lot.
Both the 'internal accounting' stuff matters, and you can't forget that most TBills are not held by 'other government agencies'.
Yes - the fact that the value of currency cay be 'fuzzy' is relevant, but it's not entirely fuzzy. All of that accounting matters still.
To simplify a bit: the key difference between our thinking is that you think tbills and base money are different things. I think they're the same thing - because they are guaranteed to be always convertible from one into another, at unlimited quantities.
> The truth is, most of it is owed to Social Security and pension funds
After all that data, how did they come to this conclusion? Based on numbers in the article, SS and pensions account for only 13%. The clear largest holder is the federal reserve + government at 35%. Whether or not this means US citizens effectively own most of the debt is another discussion.
After all that data, how did they come to this conclusion? Based on numbers in the article, SS and pensions account for only 13%. The clear largest holder is the federal reserve + government at 35%. Whether or not this means US citizens effectively own most of the debt is another discussion.
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From across the Atlantic it sounds like US national debt is often brought up by Internet libertarians as to why the US can't afford basic healthcare and welfare for its citizens.
It's manipulative strategy that takes advantage of people wrongly thinking that national debt is like personal debt.
There are plenty of countries with higer national "debt" as % of GDP and with a higher quality of life than the US:
https://en.wikipedia.org/wiki/List_of_countries_by_external_...
https://en.wikipedia.org/wiki/List_of_countries_by_public_de...
It's manipulative strategy that takes advantage of people wrongly thinking that national debt is like personal debt.
There are plenty of countries with higer national "debt" as % of GDP and with a higher quality of life than the US:
https://en.wikipedia.org/wiki/List_of_countries_by_external_...
https://en.wikipedia.org/wiki/List_of_countries_by_public_de...
I am somewhat confused by all of this. If mostly pension/mutual funds, social security, military, Medicaid, is buying our debt (as in Americans are buying its own debt? Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves?
Really confused and scared here.
Really confused and scared here.
>Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves?
It can have a serious prolonged correction. "The economy" is the sum total of the productivity of a country, and in some ways is a measure of the expectation of what one can expect to come out of the country, especially stability. The glue that holds it together is trust amongst its participants, and I would say that a currency's desirability is a combination of the trust one has in the ability for a society to continue delivery desirable goods (including stability).
People in society also have expectations about their future quality of life, based on assumptions that may or may not be true. Debt is priced based on these assumptions, and it is certainly possible that if assumed rates of economic growth are not met, then debt will be defaulted on. It has already happened in some local governments (e.g. Detroit), and I assume it plays out the same way. Members of the society that experience the default will go through pain and suffer losses. On a national level, one might experience revolution or violence.
But it all depends on the level of trust and cohesiveness amongst the members of society. Right now, based on the USD's purchasing power, it seems that relative to other societies in the world, a lot of people around the world still assume US society and government will be relatively stable and able to deliver desirable goods and services for the foreseeable future.
Of course, this is all speculation, and any society at any given point in time may be in an inevitable downward spiral, or in a temporary downward trajectory, or just about to hit the local minima and about to experience a boom.
It can have a serious prolonged correction. "The economy" is the sum total of the productivity of a country, and in some ways is a measure of the expectation of what one can expect to come out of the country, especially stability. The glue that holds it together is trust amongst its participants, and I would say that a currency's desirability is a combination of the trust one has in the ability for a society to continue delivery desirable goods (including stability).
People in society also have expectations about their future quality of life, based on assumptions that may or may not be true. Debt is priced based on these assumptions, and it is certainly possible that if assumed rates of economic growth are not met, then debt will be defaulted on. It has already happened in some local governments (e.g. Detroit), and I assume it plays out the same way. Members of the society that experience the default will go through pain and suffer losses. On a national level, one might experience revolution or violence.
But it all depends on the level of trust and cohesiveness amongst the members of society. Right now, based on the USD's purchasing power, it seems that relative to other societies in the world, a lot of people around the world still assume US society and government will be relatively stable and able to deliver desirable goods and services for the foreseeable future.
Of course, this is all speculation, and any society at any given point in time may be in an inevitable downward spiral, or in a temporary downward trajectory, or just about to hit the local minima and about to experience a boom.
That’s what scares me. I actually don’t think we have the type of productivity in our country to be so aggressive with awarding ourselves debt.
Our major growth industry mostly makes apps. We don’t even have a proper semiconductor industry in America. People are getting older. Where is all this productivity going to come from? From everyone switching to web development and making more TikTok apps? That’s the productivity that we think will pay trillions of dollars worth of Medicare/social security? I don’t really see it.
I just read a wsj article about how men have pretty much stopped going to college:
https://www.wsj.com/articles/college-university-fall-higher-...
What is this productive future we are envisioning here? Bunch of SaaS apps?
Our major growth industry mostly makes apps. We don’t even have a proper semiconductor industry in America. People are getting older. Where is all this productivity going to come from? From everyone switching to web development and making more TikTok apps? That’s the productivity that we think will pay trillions of dollars worth of Medicare/social security? I don’t really see it.
I just read a wsj article about how men have pretty much stopped going to college:
https://www.wsj.com/articles/college-university-fall-higher-...
What is this productive future we are envisioning here? Bunch of SaaS apps?
> If mostly pension/mutual funds, social security, military, Medicaid, is buying our debt (as in Americans are buying its own debt? Very confused), aren’t we basically saying the economy can never have a serious prolonged correction? We’d all have to default on the debt we bought to give ourselves?
There are various options. You can print money to pay off the debt, which comes with its own tradeoffs. You can reduce the payouts in a way that doesn't look like defaulting - raise the social security / medicaid eligibility age, reduce what's covered by medicaid - or outright reduce the payouts, or take an orderly haircut. Or, yes, you could do an outright disorderly default, which would probably be unwise.
There are various options. You can print money to pay off the debt, which comes with its own tradeoffs. You can reduce the payouts in a way that doesn't look like defaulting - raise the social security / medicaid eligibility age, reduce what's covered by medicaid - or outright reduce the payouts, or take an orderly haircut. Or, yes, you could do an outright disorderly default, which would probably be unwise.
Here's the crux: The US goes into 'debt', to pay for something. Where did the money (resources) come from?
- it printed it itself -> that isn't debt, just 'money creation'
- someone else -> it is debt, owed to another entity
You can't pay your groceries by taking a loan from yourself, you either have the money or you don't