U.S. Debt discussion

[Slava]

Originally Posted by Calgaryborn

No I realize it is just computer magic. In fact I've heard that it would be impossible with current capacity to print the money being spent fast enough.

What are you talking about? Are you just saying the government spends too much in general or is this something new? I don't think that anyone has suggested they print more money, save for you?

[Azure]

Didn't some high ranking Fed official say they could just print more money to pay their debts?

[yads]

Originally Posted by Azure

Didn't some high ranking Fed official say they could just print more money to pay their debts?

Typically governments have 2 ways to pay off their debts. Tax everyone, or print more money. However, since the government doesn't control the money supply (the Fed does) the government can only go with option 1. Since the Fed's stated mandate is to control inflation they are unlikely to print more money. If inflation starts to go out of control, they can go to the open markets and sell their debt holdings to take money out of circulation.

There are 2 factors in inflation, money supply and money velocity. Right now there's a pretty high money supply, but it's just being hoarded, which is why you're not seeing much inflation.

[MarchHare]

Originally Posted by Azure

Didn't some high ranking Fed official say they could just print more money to pay their debts?

I saw some media "experts" suggesting minting a few trillion dollars as one of the worst case scenario options the government could use to avoid defaulting if no deal to raise the debt ceiling could be reached by Congress. Obama said all along he was never considering it, but who knows what was happening behind closed doors.

[Edit]
Here's an article from The Economist discussing this option:

http://www.economist.com/blogs/freee...ust-might-work

[Shazam]

Originally Posted by Slava

What are you talking about? Are you just saying the government spends too much in general or is this something new? I don't think that anyone has suggested they print more money, save for you?

He's referring to the rate that QE1 and QE2: Electric Bugaloo used up money.

[Flash Walken]

Originally Posted by Shazam

He's referring to the rate that QE1 and QE2: Electric Bugaloo used up money.

Big ups for Electric Bugaloo.

[Tinordi]

Originally Posted by Azure

Didn't some high ranking Fed official say they could just print more money to pay their debts?

Many governments have and will continue to do that. It's actually a part of the risk of investing in sovereign debt.

[Tinordi]

Money is valuable in so far and people believe it's valuable. The purpose of a central bank is to instill confidence in the value of the money they produce. The reason the Fed is a separate corporation is because it is supposed to act as a corporation looking out for its own best interests which, as for any central bank, is in the interest of the national economy.

What the gold standard folks and the anti-fed folks just fail to realize is that the solution is much worse than the problem. Bringing monetary policy back under the portfolio of politicians is just way worse. Want proof look at any country that actually has a politically driven central bank. Argentina is probably the best example but there are many others. Politicians cannot put the broad interests of their country in front of the short term interests of themselves and the citizens.

In the end, the fed receives interest and pays a dividend to the government. There's no international cabal of elites that secretly enriching themselves off the fed. It's set up to avoid conflicts of interest and meddling. Bottom line.

[Cowboy89]

Originally Posted by Tinordi

Many governments have and will continue to do that. It's actually a part of the risk of investing in sovereign debt.

This is actually I think the only way out of this with less public backlash.

Basically two options

1) Raise taxes and cut spending by a lot for a long time until debt is paid down to more reasonable levels all the while hurting if not haulting economic growth completely

2) Run the printing presses and devalue your currency so that you have less nominal debt to nominal GDP until you reach levels that are more manageable, all the while maintiaining spending increases at nominally the same clip but less in real terms.

People seem to think they're better off when there's more zeros at the end of their bank accounts regardless of what it means in real terms so I imagine that if the Fed and the Treasury ever get together this is what will happen. This is why China's having a cow because they fear getting stiffed on their treasury holdings and the fear being able to maintain their low yuan currency values against the US dollar so that they can continue to have cheaper ways of producing stuff to sell to Americans.

[Tinordi]

It's a pretty simple way to look at it but you're right. The one point you don't mention however is the role of growth. Devaluing your currency by investing in domestic infrastructure, stimulating demand in other ways and supporting key export related industries is seen as basically the model for growth in the developing world and there's no reason it doesn't apply to the U.S. Infact, that's been the ostensible policy of the past 3 years. So you don't need to inflate away your debts completely, you can devalue, grow and pay your debt off in that not so insidious way.

[Cowboy89]

Originally Posted by Tinordi

It's a pretty simple way to look at it but you're right. The one point you don't mention however is the role of growth. Devaluing your currency by investing in domestic infrastructure, stimulating demand in other ways and supporting key export related industries is seen as basically the model for growth in the developing world and there's no reason it doesn't apply to the U.S. Infact, that's been the ostensible policy of the past 3 years. So you don't need to inflate away your debts completely, you can devalue, grow and pay your debt off in that not so insidious way.

I dismissed government generated growth because quite frankly it won't work in a real sense. 'Beggar thy Neighbour' is not the best policy for the world's largest economy to pursue as other countries will respond by increasing their money supplies too and the combined effect of this might have an adverse effect on international trade.

[photon]

I thought the Fed had to pay everything it made back to the government (after operating costs and dividends for shareholders)?

How can the Fed be a ponzi scheme or some evil money pit when 95% of the Fed's earnings have been paid back into the Treasury?

[oilyfan]

Originally Posted by Cowboy89

This is actually I think the only way out of this with less public backlash.

Basically two options

1) Raise taxes and cut spending by a lot for a long time until debt is paid down to more reasonable levels all the while hurting if not haulting economic growth completely

2) Run the printing presses and devalue your currency so that you have less nominal debt to nominal GDP until you reach levels that are more manageable, all the while maintiaining spending increases at nominally the same clip but less in real terms.

People seem to think they're better off when there's more zeros at the end of their bank accounts regardless of what it means in real terms so I imagine that if the Fed and the Treasury ever get together this is what will happen. This is why China's having a cow because they fear getting stiffed on their treasury holdings and the fear being able to maintain their low yuan currency values against the US dollar so that they can continue to have cheaper ways of producing stuff to sell to Americans.

I have been talking about this (not on this board, and not so succinctly as Cowboy did here) for a long time to anyone who would listen (not that anyone listens to me or can do anything about what I say ;-)

In the end this is the only option the US has in front of it without causing massive economic upheaval and value destruction by cutting back severely. Devaluing the US dollar today by printing trillions of dollars is the best option, reduce the real liability of the US debt in the long run and improve the competitiveness of its industries.

This to some people is not a very palatable solution, which puzzles me. I recognize the danger of inflation, but the arguments I hear have to do with the prestige of the US dollar in the world and it becomes devalued that how does the US shows its face. That's a ridiculous argument.

[Shazam]

Yeah I too want them to print money. I want some GICs that pay 25%. I missed it in the 80s.

[VladtheImpaler]

Originally Posted by oilyfan

This to some people is not a very palatable solution, which puzzles me. I recognize the danger of inflation, but the arguments I hear have to do with the prestige of the US dollar in the world and it becomes devalued that hwo does the US shows its face. That's a ridiculous argument.

It's not about prestige. The US $ is the world reserve currency. If you devalue it, it will cause incredible upheaval in the global system. Take China - the RMB is currently pegged at 7:1 to the US $. If the US $ is devalued, suddenly China is very unhappy (aside from the enormous quantities of Treasuries it holds which will be discounted). China will follow suit and devalue to maintain relative parity. Etc, etc, etc...

[Shazam]

Anybody that says that they're okay with inflation doesn't understand economics.

[HPLovecraft]

I'll admit I don't understand economics, but I thought inflation is pretty much inevitable, and low inflation is actually preferred in some circumstances.

[Shazam]

Originally Posted by HPLovecraft

I'll admit I don't understand economics, but I can tell from that comment alone that you don't either.

Sure, tell me why then.

Sure, change your comment

Low inflation is okay. You'll always have some inflation just because our current economic system is inflationary by nature. Having said that it would be preferred to have an economic system that didn't have inflation. Wanna win a Nobel Prize?

But inflation caused by excess printing of fiat money is beyond stupid.

[HPLovecraft]

Originally Posted by Shazam

Sure, tell me why then.

I edited my post to be a little more respectful. That said, I say it because inflation can encourage people to spend instead of hoarding it, since it slowly loses value anyway, and this, of course, is useful during a recession or when trying to get out of one. It's also better in the sense that it's not deflation.

I'm not an expert in economics, but I have read some other things from time to time concerning low inflation being favorable in certain circumstances. Saying it's bad across the board is, from my understanding, however, incorrect.

[Shazam]

Money only loses value because it... inflates. So if you can get rid of inflation/deflation (I have no idea how to do that, BTW), then you can really stabilize supply/demand. Hypothetically it would mean that there would be no demand caused by inflation.

No economist is really "okay" with inflation - it exists because our system is flawed.