“For years, we lived in a world where there was basically zero risk premium on U.S. debt,” Jared Bernstein, the former head of Joe Biden’s Council of Economic Advisers, told me.
“In four short months, Team Trump has squandered that advantage.”
I like how our sovereign credit rating got bumped down a couple weeks ago and legacy media was like “eh”. The double standard is absolutely deafening.
This article is mostly talking about an economics concept of “r vs g”, which the author describes as follows:
As long as a country’s economic growth rate (g) is higher than the interest rate ® it pays on its national debt, then the cost of servicing that debt will remain stable, allowing the government to roll it over indefinitely without much worry.
I’m not an economist, but this seemed odd to me. I suspected the author might not understand economics and the concept might more complicated than they were making it out to be.
A quick search on “r vs g economics” seems to indicate that this author has no business writing about economics. Here is the first result I clicked on, which near the start of the article states:
One approach to assess the sustainability of federal debt was popularized by Olivier Blanchard, in his speech as outgoing American Economic Association president, in 2019. That paper was written during a period of low interest rates and noted the relationship between the interest rate on government debt ® and the growth rate of the economy (G): R less than G could imply a stable debt trajectory. However, Blanchard, as well as other economists and fiscal policy experts, recognized that the framework only holds true when the deficit excluding interest payments is small, which unfortunately is not the current case in the United States.
That makes a lot more sense to me. The economics concept applies when the deficit is small. The US deficit is not small. Regardless of R vs G, a large deficit means that debt is becoming more of a burden, even if R is less than G. Yes, R getting closer to G or exceeding G increases the burden of US debt, but R vs G isn’t all that matters like the writer of this piece in the Atlantic claims.
…At least as far as I can tell… But it’s late, I’m tired, and I’m not an economist. I’d love to hear what one has to say about this article, even if they tell me I’m totally wrong.
Arguably the deficit and level of debt doesn’t matter either. After all, both have been higher in times gone by as a gdp ratio. So this is then a question of how much debt will a government be willing/allowed to take on?
Due to money not being backed by anything physical, debt itself is used as an inflationary measure in order to then lead interest rates, and is the biggest market leaver a government has. Adding more money (debt) to a relatively inelastic economy means that goods will cost more as market forces say there is more money for the same stuff. In the case of tax breaks, the theory goes that these companies will invest. But what is actually happening is Trumps mates are doing lay-offs and pocketing more and more profit.
So, Trump is showing his desire to make things cost more (something that negatively affects the bottom of the economy far more than the top) and by spending more on tax breaks instead of investment; he is literally stealing from the poor to give to the rich. And that’s easily verifiable by asking: who ultimately owns the government’s debt, and who is getting richer?
That’s right suckers, Trump is taking his whole voter base for a ride
The US isn’t the only country on the planet. The real question is what are other country’s debt ratios, and how have those impacted their economies? And the answer is there are lots of countries with a similar debt ratio, and many with a higher ratio, and most of those are doing fine.
Of course, if (say, over a period of four years) the US replaced its healthcare system with universal single-payer, cut back on defense spending, and raised taxes on the rich, it might actually get back to a surplus.
But then some Republican would come along and squawk about the “people’s money” and give it all away in tax cuts and just plunge us back into a deficit again.
All of this is just so stupid, it’s so unnecessary. There’s no reason growth must be correlated with increased debt. The Federal government doesn’t need to borrow money for anything, they create their own money. They don’t need to go to people and say, “hey, lend me some of your dollars so I can pay for the army, or roads and bridges,” they can just make more dollars. The US Federal government is a sovereign currency issuer, they make the money. You wouldn’t need to borrow money from your friend if you had a legal money printer at home that could print an infinite number of dollars.
But I know, inflation. Yes, if the Federal government made a bunch of money and went around dropping it out of hot air balloons, inflation would go up. When people get money in their hands they tend to want to spend it, this causes increased demand, supply can’t necessarily keep up with the sudden increase in demand and you get inflation. There’s a pretty easy solution to this problem: don’t print a bunch of money and just hand it out to people. Print it, and use it to fund infrastructure projects or public services. Put some of it in an account that can only be used to make payments to bond holders. I know the infrastructure projects would mean money being put into the hands of the people who work on those projects, but I doubt that would increase the overall inflation rate very much, and if it did you could always just pull back on the infrastructure spending when inflation was high and ramp it back up when the inflation rate goes lower.
When you print money, it devalues all the existing money because there’s more of it but the extra value it generates hasn’t materialised yet.
Guess who owns over half of all the money there is. Imagine how they would feel if you devalued it, and then imagine whose campaigns they would fund next time.
When you borrow money, you create a taxpayer liability that Americans have to work hard to repay, in addition to servicing the debt with interest payments.
Guess who neither pays taxes nor has to work harder to service federal debt. That’s right, and guess who funded your campaign. Are you going to let them down, or make the choice to screw workers a bit more?
When you print money, it devalues all the existing money because there’s more of it but the extra value it generates hasn’t materialised yet.
Money doesn’t have value. Money is just a medium of exchange. It can be anything, a pebble, a shell, a small piece of metal, a piece of paper, or, most commonly today, digits in a computer. Things are what have value. Consumer products and services, raw materials, etc. Money is just a stand-in for those things. Simply increasing the amount of digits in the computer isn’t going to suddenly increase prices. What would affect prices is if you transferred a bunch of that newly created money into everyone’s checking accounts, all at once. That would lead to inflation, because, as I already said, if you put money into people’s hands (or checking accounts) they’re going to spend it. This would increase the number of dollars pursuing goods and services, but the amount of goods and services wouldn’t increase right away, so there would be more money relative to the same number of things, and prices would go up. So, just don’t transfer all of the newly created money into people’s checking accounts.
Like I said, put some of it into an account that can only be used to pay bond holders. You know, the people the US Federal government owes all their money to. That money would trickle out of the Treasury department as the Treasury made payments to bond holders, it wouldn’t just be some big, sudden cash infusion into the broader economy. The same is true of using the money for Federal infrastructure projects.
I’m not suggesting the Federal government should default on its debt. Not at all. They should pay back bond holders, at interest. All except one: the Federal Reserve. The Federal Reserve doesn’t need to be paid back because they’re the ones who create the money, and they can manage the creation of the money so that it doesn’t lead to too high of inflation.
asdf
You have no idea what you’re talking about. Stop it.
“The assumption that what currently exists must necessarily exist is the acid that corrodes all visionary thinking.”
- Murray Bookchin
Thank you for doubling down on it. Next tell us about your perpetual motion machine, followed by that quote of course.
False equivalency.
It’s a good thing not everyone is as arrogantly resistant to new possibilities as you, otherwise human progress might cease entirely.
Funny because that’s essentially what YOU did. You don’t know what you’re talking about, so you handwave away people that say that’s not how it works, first with your quote and second with “false equivalency”. And you miss the point. The whole point is your “idea” is as possible as a perpetual motion machine, except this time with essentially a money glitch.
And you’re still at it! “Something something new possibilities!”
Dude you have no idea how it works. And worse is that you have no idea that you have no idea. And it gets even worse when you dismiss everything with your quote. And EVEN worse is that you attack people when they say that’s now how it works. Ok that’s enough for me. Ciao.
I didn’t mean to imply that I think what I’m suggesting is possible in the current system. I should have made that more clear. That’s my fault. I understand that what I’m talking about would require significant systemic changes. To you, that might essentially make it impossible, but I don’t think that’s necessarily true. People made the existing system, there’s no reason why people couldn’t make a different system.
One thing I don’t understand about inflation is why printing money increases it but borrowing money doesn’t.
Either way you all of a sudden have $200 million dollars to spend, why does inflation care if that came from another country? The money is still the same, being spent the same, etc.
Eventually it needs to be paid back but that’s not for a very long time so wouldn’t inflation happen between now and then anyways?
Spending by 1) borrowing or 2) by increasing the money supply are VERY different things.
