Rug Burn Junky on 1/8/2011 at 03:23
Quote Posted by heywood
Disagree with you there. Bankruptcy isn't imminent like Greece, but the state of public denial is like Greece.
It's all well and good that you "disagree," but that's gibberish: "You don't have the same problem, but your problem is that you're not fearful of the problem the same way they are."
For one thing, we don't have NEARLY the level of debt that they do, but even more so, Greece is subject to a whole host of other factors at play - not the least of which is that they don't have control over their own currency. Because of the friction between their needs and the rest of the EU, they can't take the steps they need to prevent a default. In fact, because of the currency issues, they can default at all, which we technically can't - our worst case scenario is hyper-inflation, which is no where near on the horizon. In fact, a small period of inflation in the near term would be a good thing, changing the accounting ratios and relieving the family/home debt burden, likely giving an uptick in demand.
Quote:
I think more realistically, we're going to follow the model of Japan and be stuck in a long term debt-induced period of little growth.
It's no longer possible to grow our way out of the deficit, so austerity is required in the form of both revenue increase and spending decrease. It's a simple compound interest problem. If you wait until economic conditions are better, you will have accrued that much more debt and the extra debt service costs will require austerity measures deeper than would be required today. The solution becomes more painful every day. It's the inverse of the retirement savings problem that Americans also have to face.
Again, this is gibberish. But reason number one is that compound interest isn't a problem when you're borrowing at near zero percent. Which is why saying we're facing being "Japan" is correct (failure to take steps to actually recover), and why saying it's "debt induced" is wrong (when it's going to be the austerity that causes it).
CCCToad on 1/8/2011 at 04:24
I'm a bit hesitant about more inflation. While I have no doubt it would be good for the financial markets and the rich, the lower classes are being badly hurt by rising cost of living (and yes, I'm well aware that food and energy aren't technically "inflation" anymore. I prefer the old definition). I've already had some of the guys who work for me have to cut back by carpooling, moving into assisted housing (back onto base for one guy) or trading in their leave time for pay. On a related note, : (
http://money.cnn.com/2011/04/27/news/companies/walmart_ceo_consumers_under_pressure/index.htm) Wal-mart shoopers are running out of money each month Any inflation significant enough to further pressure that bottom 20% of income earners could have significant unforeseen consequences.
Aerothorn on 1/8/2011 at 04:46
While I am in no way knowledgeable about economics (so feel free to correct me, guys) it's my understanding that right now it would actually be the other way around. Inflation is good for debtors and bad for those owed; generally speaking, the poor are in debt while the rich (financial institutions) hold that debt. Obviously that's an oversimplification, but I think what RBJ was getting at is that inflation would allow people to more easily pay down their mortgages, credit cards, etc., and therefore divert more of their money to spending on actual goods/services.
heywood on 1/8/2011 at 04:50
Quote Posted by Rug Burn Junky
It's all well and good that you "disagree," but that's gibberish: "You don't have the same problem, but your problem is that you're not fearful of the problem the same way they are."
For one thing, we don't have NEARLY the level of debt that they do, but even more so, Greece is subject to a whole host of other factors at play - not the least of which is that they don't have control over their own currency. Because of the friction between their needs and the rest of the EU, they can't take the steps they need to prevent a default. In fact, because of the currency issues, they can default at all, which we technically can't - our worst case scenario is hyper-inflation, which is no where near on the horizon. In fact, a small period of inflation in the near term would be a good thing, changing the accounting ratios and relieving the family/home debt burden, likely giving an uptick in demand.
Again, this is gibberish. But reason number one is that compound interest isn't a problem when you're borrowing at near zero percent. Which is why saying we're facing being "Japan" is correct (failure to take steps to actually recover), and why saying it's "debt induced" is wrong (when it's going to be the austerity that causes it).
US public debt is about 100% of GDP, which is 12th highest using IMF figures. Greece's debt was higher, around 160% of GDP before the bailout, and is now around 100%. Japan's is higher still. We're not there yet, but 4 years ago we were around 60% of GDP using the same figures. The US debt as a percentage of GDP, the deficit as a percentage of GDP, and interest as a percentage of the budget are all growing exponentially. We're borrowing at the world's best rates, but they're not zero and they're not likely to get lower. The Treasury is currently benefiting from the "safe haven" effect which is temporary. And the more the deficit grows and the more the Treasury has to borrow every year, the harder it will have to compete and the greater the risk of being downgraded.
And technically, the US can default because we have this artificial debt ceiling. I know the theory, any country that controls its own currency can print money to buy its own debt. However, there is still the debt ceiling so ultimately Congress controls whether we default or not. It may seem like I'm arguing a technicality, but I think we just came within a day or so of choosing whether to default or shut the government.
It's dangerous to think the US can simply print its way out of the situation. You can do it in spurts, but you can't sustain it over the long term because it sets off a positive reinforcement cycle that can lead to hyperinflation (as you point out) which destroys economies. Inflation also acts equivalently to a regressive tax.
But more importantly, inflation doesn't solve the long term debt problem because it drives up the budget and thus the debt. Inflation only wipes out debt if you're not continuing to borrow.
CCCToad on 1/8/2011 at 04:58
Quote Posted by Aerothorn
While I am in no way knowledgeable about economics (so feel free to correct me, guys) it's my understanding that right now it would actually be the other way around. Inflation is good for debtors and bad for those owed; generally speaking, the poor are in debt while the rich (financial institutions) hold that debt
In theory, yes. And it generally does work that way. But from what I'm seeing in families working at the ground level the actual results may defy economic theory as it is taught.
In practice (and right now) it would make things harder because their incomes are staying flat or even decreasing as people continue get fired from moderately-paying and switch to minimum wage jobs, or can't replace the income at it was the secondary income. Lower wages combined with already existing inflation has already forced many of these guys down to interest-only payments as it is, and the ones with larger families are already borrowing more to pay off already existing debt.
Other way of putting: higher cost of living plus falling wages means inflation will only increase household debt and continue to increase income inequality.
Edit: I'm adding this link in just to spite. Sorry, but your friends at Goldman Sachs actually (
http://www.reuters.com/article/2011/07/29/us-lme-warehousing-idUSTRE76R3YZ20110729) are evil
heywood on 1/8/2011 at 05:47
Quote Posted by Aerothorn
While I am in no way knowledgeable about economics (so feel free to correct me, guys) it's my understanding that right now it would actually be the other way around. Inflation is good for debtors and bad for those owed; generally speaking, the poor are in debt while the rich (financial institutions) hold that debt. Obviously that's an oversimplification, but I think what RBJ was getting at is that inflation would allow people to more easily pay down their mortgages, credit cards, etc., and therefore divert more of their money to spending on actual goods/services.
Yes, that was the point he was making. Assuming that wages rise proportionally with inflation, the burden of pre-existing, fixed interest debt will decrease (e.g. mortgages, student loans). A potential boon for existing homeowners because it drives down their loan to value ratio. It hurts new borrowers though. And inflation disproportionately hurts low income people because they hold a higher percentage of their wealth in liquid assets. And proportional wage growth is not assured. It depends on how tight the labor market is; if you get stuck in 1970s style stagflation (high inflation and unemployment) then everybody hurts.
CCCToad on 1/8/2011 at 10:21
Quote:
if you get stuck in 1970s style stagflation (high inflation and unemployment) then everybody hurts.
Thats not an "if", we're already there. Real cost of living has been increasing dramatically (driven by exploding food and energy prices) at the same time as wages go down(due to the fact that most jobs "created" are minimum wage).
The only "if" involved is if anyone of consequence is going to face those facts rather than continue in denial.
Rug Burn Junky on 1/8/2011 at 12:20
Quote Posted by heywood
US public debt is about 100% of GDP, which is 12th highest using IMF figures. Greece's debt was higher, around 160% of GDP before the bailout, and is now around 100%. Japan's is higher still. We're not there yet, but 4 years ago we were around 60% of GDP using the same figures. The US debt as a percentage of GDP, the deficit as a percentage of GDP, and interest as a percentage of the budget are all growing exponentially. We're borrowing at the world's best rates, but they're not zero and they're not likely to get lower. The Treasury is currently benefiting from the "safe haven" effect which is temporary. And the more the deficit grows and the more the Treasury has to borrow every year, the harder it will have to compete and the greater the risk of being downgraded.
And technically, the US can default because we have this artificial debt ceiling. I know the theory, any country that controls its own currency can print money to buy its own debt. However, there is still the debt ceiling so ultimately Congress controls whether we default or not. It may seem like I'm arguing a technicality, but I think we just came within a day or so of choosing whether to default or shut the government.
It's dangerous to think the US can simply print its way out of the situation. You can do it in spurts, but you can't sustain it over the long term because it sets off a positive reinforcement cycle that can lead to hyperinflation (as you point out) which destroys economies. Inflation also acts equivalently to a regressive tax.
But more importantly, inflation doesn't solve the long term debt problem because it drives up the budget and thus the debt. Inflation only wipes out debt if you're not continuing to borrow.
It really is impossible to have this conversation with you when you're making superficial comparisons and don't really grasp the underlying concepts that well.
Scots Taffer on 1/8/2011 at 13:09
The unwashed masses in the peanut gallery just let out a disappointed sigh.
Rug Burn Junky on 1/8/2011 at 13:31
Quote Posted by Scots Taffer
The unwashed masses in the peanut gallery just let out a disappointed sigh.
Sorry, but I have to get ready for work, and I just don't have time to deal with stupid shit like this:[INDENT][INDENT][INDENT]
Quote Posted by CCCToad
Thats not an "if", we're already there.
Superficial comparisons and bad data lead to faulty conclusions. I'm only one man, and eventually all I can do is point it out if the proponents are going to persist in continuing to say such stupid shit.[/INDENT][/INDENT][/INDENT]
