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Comment by ashtonkem | Hacker News Reader

As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot. You personally lack the ability to cause inflation via your debt, for example. You also can’t raise bonds, adjust taxes, or declare war.

Not saying that 356% is bad, I’m not an economist, but just because you’re leveraged higher than that on a mortgage tells us very little about whether or not 356% is bad or not.

For certain it matters what that government debt is going to pay for. Debt for infrastructure (and therefore future growth) is quite a bit different than debt to finance consumption, for example.

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This story is about global total debt, not global government debt.

It includes private sector debt as well.

If total government debt was 356% of GDP, we would be in huge trouble. Fortunately that’s not what this number indicates.

This makes the mortgage analogy worse. Global debt is not the same as personal debt. It’s even more complex than government debt.

Again, maybe it’s good and maybe it’s bad. But we can’t tell that by making analogies to a single mortgage. They’re just different beasts.

> we would be in huge trouble

Could you ELI5 why? Is it because we wouldn't be able to keep up with interest payments on the debt given the fact that we're actually already cash flow negative as is?

Pretty much. You get into such insane levels of debt by borrowing more and more every year, by leading a lifestyle that you can't afford.

"Lifestyle" in case of government spending being the levels of healthcare, education, social services, war, tax & tariff rates, capital controls, etc.

If you don't want to be crushed by interest payments, eventually you'll need to pay up, and that means inflation, possibly hyperinflation, and a crash of a lot of systems that we take for granted.

I think i will repeat myself in this thread: printing money ALONE does not create hyperinflation.

I don't understand where this belief came from. Even standards/orthodox/right-leaning economists agree.

Unless the US is suddenly also incapable of producing (and this is impossible), you won't ever have hyperinflation even if the fed did twice the QE they are already doing only to reimburse US gov debt.

> printing money ALONE does not create hyperinflation

Printing ever-increasing amounts of money to finance expenditures that you can't afford will definitely result in correspondingly huge inflation. I don't know if it will qualify as hyper, but you are very much not going to like it.

We could be printing 10x money that we are printing now. We aren't, and we're not short of paper. There's a very real cost to increasing money supply – by printing, QE, or whatever fancy names you call it – even if many people don't realize it yet.

As long as asset inflation is seen by the general population as "stocks / housing are going up, therefore the economy is booming" we have a chance to maintain the illusion of normalcy, but eventually enough people will catch on where the real inflation numbers are hidden, and it's not gonna be pretty.

Inflation is not driven just by economic fundamentals, it is just as much driven by people's expectations, and trust in the system. Economic models assume rationality, which, along with trust in government, is increasingly in short supply, and that is an economic problem as much as it is a social one.

"As a general rule, analogies between personal finance and government finance don’t work very well. It feels intuitive, but governments can do things you cannot."

Can we - all of us - graduate a bit in our sophistication here ?

I agree with your statement and don't need any of this explained to me - there is, in fact, a too-simplistic, oft-made analog to personal, household finances. People would do well to understand what governments (particularly sovereign issuers borrowing in their own currency) can do that they, in their household, cannot.

Yet at the same time, I grow tired of the pedantic scolding of the "dummies" that don't understand modern finance.

I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance.

I hope to never be vindicated in this hunch ...

>> I - a relatively sophisticated, learned observer - have a hunch that at the very margins government finance collapses all the way back down to the simple rules of household finance.

On what exactly do you base this hunch? Because it hasn’t held true, ever.

"... because it hasn’t held true, ever ..."

Argentina has given us two examples of it just in the last 20 years. Not a perfect example as the Argentine debt was not denominated in a currency they could print ...

I would further point to the "Nixon Shock" as an example where a country (the US) that can borrow in its own currency was forced by (global) economic realities to undertake what some would label a "soft default".

I am on my way to lunch and am limited by what comes to mind in just this fleeting moment - I beg your pardon for my dearth of examples.

[1] https://en.wikipedia.org/wiki/Nixon_shock

[2] https://www.livemint.com/Money/57inMm5EbLi1soOnOrMk1J/Did-th...

Both situations demonstrate almost the opposite of your point. The Nixon shock was abandoning of gold as a base currency. Your household cannot abandon your base currency.

If Activision-Blizzard borrowed its debt in World of Warcraft gold, they would never be in default. The same applies to countries that print their own currency.

Like I said - a hunch.

I hope we can indulge one another with such things here.

I share the same hunch.

I believe that in the very long run (many decades) the growing debt cripples the the government, hurting its productivity along with trust on its proper functioning. (Japan, Italy are around here)

Growing debt is not a good sign even for governments, unless the money goes fully into investments for the future. Many times though it goes into liabilities.

Eventually, currency gets hurt and global capital moves on, leading to its failure. There is always competition, other govs might be doing things a little better.

I think the broader point as to why that comparison doesn't work is in situations where its trying to communicate the point "I can't do this, so the government can't do it."

In this situation, its "I'm able to do this, so why not the government?"

That’s a fair response. You’re absolutely correct that the personal mortgage analogy is used to argue that governments can’t (or shouldn’t) take on certain debt loads.

On the flip side, I’d argue that mortgages and personal finance in general doesn’t tell us much about how governments should treat debt. The nature of government debt, how it’s financed, and what it’s used for is just so different from personal debt that any analogy between the two gives us very little information.

The shift to long term mortgages ballooned house prices. If people conspired to pay banks less, houses would cost less (purchases are mostly made based on the monthly payment and perception that the price will go up, not on some more concrete valuation).

> If people conspired to pay banks less, houses would cost less

and so that one person who would really prefer a particular house/location (because it's a great house/location) would pay just a little bit more and guarantee that he/she gets it.

Guess what happens then?

Then it becomes attractive for the neighbour to sell their house. There are two sides to a market.

The line of thinking behind this comment is exactly why we're experiencing rapid decline - zero ability to consider the root causes behind issues and how to address them at a fundamental level. "Hit back at the banks" is the kind of cable-news-hot-takes-style solution that only address issues caused by prior solutions.

Every single asset class has experienced significant inflation over the last 50 years. Banks created 30 year mortgages because of demand. Demand occurred as a result of actions by the federal reserve. The FHA, not really a bank but rather a government entity, started the trend.

My comment isn't an attack on banks though, it's just where mortgage interest more or less goes, into the banking system.

I suppose 'bank' can be bad shorthand for mortgage lenders, but whatever.

> If people conspired to pay banks less

There will always be people rich and liquid enough to buy houses in cash without ever involving a bank.

It's not a perfect analogy, but it's better than freaking out just because the number crossed 100%.

What's so special about 1 year that a government shouldn't borrow more than 1 year of GDP? Why not ten years or 1 month?

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