DOOM! (Insert extra Os as you see fit)

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JasonL
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Part of it is that 30 year old people have never in their financial lives seen treasury rates at like 6%. It's incomprehensible that rates could climb.

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JasonL wrote:
28 Oct 2019, 15:33
Part of it is that 30 year old people have never in their financial lives seen treasury rates at like 6%. It's incomprehensible that rates could climb.
Even in The Economist, I get the impression the consensus is 'inflation will never bother us again.'
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Only suckers think your house can decline in value.

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Post by Jennifer »

Painboy wrote:
28 Oct 2019, 14:24
JasonL wrote:
27 Oct 2019, 19:34
I think there is real consensus across both parties that debt and deficits don't matter - bringing it up is loser politics and nobody can imagine a world where the US treasury isn't the sexiest debt instrument among truly fugly competition.
I wonder sometimes that since we have had a massive debt for so long, like generations, without any apparent visible consequences, that people just don't think it's a real problem anymore.
I think that (or something very similar) is part of it -- the idea "being in debt" is not, like, a temporary state that (ideally) you only enter into for some long-term benefit, but a fact of life -- as a modern adult (and any level of modern government), of course you're going to have regular "debt payments" just as you'll have to regularly pay the cost of food and water and utilities and etc. -- for as long as you live, either you must pay these bills yourself or someone else must pay on your behalf, but there WILL be bills to pay.

I recall reading an anecdote, either by a European who spent a year in America as an exchange student, or by an American talking about a European exchange student he knew once -- the gist of it was, a European kid was in an American high-school math class on calculating percentages and decimals, and was supposedly appalled and perplexed by all the word problems with the assumption "Of course you'll not only have a credit card, but carry enough of a balance on it that 'compound interest' is going to be an issue, when you grow up."

IIRC in Connecticut, when I'd look through certain municipal budgets for professional-journalism reasons (pre-2008 housing bubble/economic meltdown) I remember being appalled by how pretty much all of them had a two-digit percentage of their income going toward "debt service" -- which was NOT "paying down the principal of the debt," but merely "keeping up with the interest or bondholder payments." You don't "pay off" debt for awhile, until such time as it's gone; you "service" debt forever and ever. And once during a super-slow news week I remember pitching something about that to my editor, who shot it down with the same amused smile you'd give an earnest child who just said something adorably naive.
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Post by Warren »

JasonL wrote:
28 Oct 2019, 15:33
Part of it is that 30 year old people have never in their financial lives seen treasury rates at like 6%. It's incomprehensible that rates could climb.
My 85 year old father thinks that sovereign debt is magical and never needs be paid back. Seriously, that's what he thinks.
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MMT is a helluva drug.

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To be clear, it doesn't need to be paid back exactly. It needs to be serviced at rates that don't eat the budget and it needs to be paid in dollars that are still worth something.

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Warren wrote:
28 Oct 2019, 17:20
JasonL wrote:
28 Oct 2019, 15:33
Part of it is that 30 year old people have never in their financial lives seen treasury rates at like 6%. It's incomprehensible that rates could climb.
My 85 year old father thinks that sovereign debt is magical and never needs be paid back. Seriously, that's what he thinks.
So does Paul Krugman (and most economists I read about.)
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Post by D.A. Ridgely »

Most states and municipalities do continually carry debt because most municipalities need to pay for capital projects, e.g., roads, schools, etc. for which it is not reasonable to expect taxpayers to pay for their costs except over time. Sure, many if not most are irresponsible to some degree or another in the extent to which they do that, and if they're spending a high percentage of their annual revenues on debt servicing, there's a problem.

People shouldn't run up high levels of debt for the quotidian costs of living. But few people can pay cash for an automobile, let alone a house, and it makes sense to borrow and scrupulously keep up the payments for such things. That said, comparing government spending with personal spending is at some level at the very least misleading.

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JasonL wrote:
28 Oct 2019, 17:27
To be clear, it doesn't need to be paid back exactly. It needs to be serviced at rates that don't eat the budget and it needs to be paid in dollars that are still worth something.
The thing is, he's really good with his personal finances. And when we argue about fiscal responsibility at the federal level, I sometimes get wide-eyed and slack jawed over what he's saying and retort with "How can you think that? You know better than to do that with your finances." and he'll say "But the rules of economics don't apply to governments".
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Post by Pham Nuwen »

JasonL wrote:
28 Oct 2019, 16:15
Only suckers think your house can decline in value.
The only way I believe an honest to god civil war to break out is if real estate actually declined due to fiscal and zoning responsibility. I have spoken.
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Post by Warren »

Pham Nuwen wrote:
28 Oct 2019, 21:54
JasonL wrote:
28 Oct 2019, 16:15
Only suckers think your house can decline in value.
The only way I believe an honest to god civil war to break out is if real estate actually declined due to fiscal and zoning responsibility. I have spoken.
And your words, to be one day read back to you in court, have been recorded.
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MMT types are not wrong about the "governments aren't households" thing. They are wrong about almost everything else they say after that, especially in the areas where they keep running past Krugman at the "liberal opportunist" mile marker and plunge off crazy town cliff.

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Post by Warren »

Okay, governments aren't households. But I still think "Using your VISA to pay off your MasterCard" is a pretty apt analogy.
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Post by Shem »

Warren wrote:
29 Oct 2019, 10:09
Okay, governments aren't households. But I still think "Using your VISA to pay off your MasterCard" is a pretty apt analogy.
Only if you are certain that, absent a disaster, neither Visa nor MasterCard will ever cut you off.
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Post by Warren »

Shem wrote:
29 Oct 2019, 12:42
Warren wrote:
29 Oct 2019, 10:09
Okay, governments aren't households. But I still think "Using your VISA to pay off your MasterCard" is a pretty apt analogy.
Only if you are certain that, absent a disaster, neither Visa nor MasterCard will ever cut you off.
Don't agree. There comes a point when people won't buy your bonds at any price, which precipitates the disaster.
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JasonL
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But that point is not related to the act of rolling over debt, it is related to total debt in relation to total production / ability to claim that production to service debt. You don't ever really pay either card down to zero.

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Post by Aresen »

JasonL wrote:
29 Oct 2019, 13:28
But that point is not related to the act of rolling over debt, it is related to total debt in relation to total production / ability to claim that production to service debt. You don't ever really pay either card down to zero.
This is equally true for people and governments. People could maintain a constant debt to net worth ratio or payments to income ratio throughout their lives and there would not be a problem.

Governments can continue to borrow so long as the debt to GDP ratio or payments to revenue ratios remain below whatever the market is comfortable with. The US gets more latitude than other countries because the US currency is the main reserve currency.
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Post by Warren »

Aresen wrote:
29 Oct 2019, 13:56
This is equally true for people and governments. People could maintain a constant debt to net worth ratio or payments to income ratio throughout their lives and there would not be a problem.
I know quite a few people that do exactly that.
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Post by Jennifer »

Aresen wrote:
29 Oct 2019, 13:56
JasonL wrote:
29 Oct 2019, 13:28
But that point is not related to the act of rolling over debt, it is related to total debt in relation to total production / ability to claim that production to service debt. You don't ever really pay either card down to zero.
This is equally true for people and governments. People could maintain a constant debt to net worth ratio or payments to income ratio throughout their lives and there would not be a problem.
But the thing is -- at least regarding those Connecticut municipalities I mentioned, paying a two-digit percentage of total income NOT to reduce their debt, but merely to keep up with the interest payments so said debt doesn't get higher solely from compounding interest (and this while the housing bubble was still expanding, which in turn means municipalities whose income derives entirely from property taxes were making bank) -- they're constantly crying "poverty" and the need to either raise taxes, find ways to cut the budget or do both at once. (And, whether you're an individual person or some level of government: if you're ALWAYS complaining how you never seem to have enough money, and over ten percent of your take-home pay goes just toward debt-interest payments, the idea "Hmm, I'd be much better off if I could eliminate or at least significantly reduce" should NOT be controversial.)
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Gold has done nothing exciting. Silver is in the toilet. And platinum has been flushed right into the septic tank.
But I had the providence to acquire a handful of palladium some years back, the sale of which should support me through the coming year.

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https://www.youtube.com/watch?v=SqGYk0nmcCA

tl:dw Corporations are carrying a lot of debt that is at or near junk-level. Like $3 trillion worth. Moody's and S&P still rate them high even when they are leveraged to the hilt as long as they have "solid brands"* and good cashflow. Fortunately there are no significant generational shifts occurring that might undermine which brands are solid. Also fortunately there is no good reason that I can remember not to trust Moody's and S&P to accurately assess the risk of securitized debt.

*Fake billionaire Donald Trump values his "brand" at around $5 billion, which is about half of the $10 billion he claims to be worth.
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Post by Warren »

Hugh Akston wrote:
04 Feb 2020, 22:52


tl:dw Corporations are carrying a lot of debt that is at or near junk-level. Like $3 trillion worth. Moody's and S&P still rate them high even when they are leveraged to the hilt as long as they have "solid brands"* and good cashflow. Fortunately there are no significant generational shifts occurring that might undermine which brands are solid. Also fortunately there is no good reason that I can remember not to trust Moody's and S&P to accurately assess the risk of securitized debt.

*Fake billionaire Donald Trump values his "brand" at around $5 billion, which is about half of the $10 billion he claims to be worth.
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Can we have prosperity without growth is a question I have been pondering lately as the fertility crash and climate change grow and intersect. Longish article with a lot of different perspectives.
Yet Vollrath argues that slower growth is appropriate for a society as rich and industrially developed as ours. Unlike other growth skeptics, he doesn’t base his case on environmental concerns or rising inequality or the shortcomings of G.D.P. as a measurement. Rather, he explains this phenomenon as the result of personal choices—the core of economic orthodoxy.
Taken together, slower growth in the labor force and the shift to services can explain almost all the recent slowdown, according to Vollrath. He’s unimpressed by many other explanations that have been offered, such as sluggish rates of capital investment, rising trade pressures, soaring inequality, shrinking technological possibilities, or an increase in monopoly power. In his account, it all flows from the choices we’ve made: “Slow growth, it turns out, is the optimal response to massive economic success.”
This judgment reflected a belief in what’s sometimes termed “absolute decoupling”—a prospect in which G.D.P. can grow while carbon emissions decline. The environmental economists Alex Bowen and Cameron Hepburn have conjectured that, by 2050, absolute decoupling may appear “to have been a relatively easy challenge,” as renewables become significantly cheaper than fossil fuels. They endorse scientific research into green technology, and hefty taxes on fossil fuels, but oppose the idea of stopping economic growth. From an environmental perspective, they write, “it would be counterproductive; recessions have slowed and in some cases derailed efforts to adopt cleaner modes of production.”
To ameliorate the effects of slower G.D.P. growth, policies such as work-sharing and universal basic income could also be considered—especially if the warnings about artificial intelligence eliminating huge numbers of jobs turn out to be true. In the United Kingdom, the New Economics Foundation has called for the standard workweek to be shortened from thirty-five to twenty-one hours, a proposal that harks back to Victor’s modelling and Keynes’s 1930 essay. Proposals like these would have to be financed by higher taxes, particularly on the wealthy, but that redistributive aspect is a feature, not a bug. In a low-growth world, it is essential to share what growth there is more equitably. Otherwise, as Beckerman argued many years ago, the consequences could be catastrophic.
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Long-ish thread

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