So... does this just go up indefinitely without consequence? It seems like it's rarely spoken about vs the 10-year, inflation, mortgage rates, and other metrics.
It looks like it has never gone down in any meaningful way. [0]
It looks like it has never gone down in any meaningful way. [0]
Financial assets actually do great in inflationary environments. Most people don’t have any.
Why do you think most Americans can’t afford housing?
Most peoples wages won’t even be close to increasing 10%/yr for a decade.
> Most peoples wages won’t even be close to increasing 10%/yr for a decade.
It's only because you aren't used to such inflation. Once the cycle kicks in, wages start increasing accordingly. I know it first-hand after living in a country with high inflation.
If you are living not in a closed off country, there will be more successful countries out there, so if you won't increase the wages of the workers they'll leave for other economies (or just work remotely), thus, reducing the workforce supply, which drives up wages.
(At least until they raise the interest rate to match inflation)
To state and local governments? Because they can't print money and do actually need taxes in order to spend.
It’s just regressive (the poorest are paying the most). income tax and ideally a wealth tax get the richest to pay the most.
Obviously the US could use some fixing in both regards.
What? If I have $1,000,000, inflation is 10%, and prices readjust I just lost $100k in purchasing power but if I have $1000 I lost $100 in purchasing power. Proportional taxes aren't regressive. Inflation hits wage earners hardest because it lags behind prices but that's not the same thing.
Any person with $1,000 is living paycheck to paycheck and has no choice but to keep it in cash (if they can keep it at all).
So really you have to compare $1,000,000 in bonds/averaged stock performance to $1,000 of income per month.
The latter is far more impacted as the cost of gas and food increases 10%.
With no taxes all government expenditure would be printed money. That would mean the monetary base increases by the government spending per year. That hasn’t been a problem until recently because only a portion of the government was funded this way, and increasing the monetary base wasn’t (until it did) causing inflation above Fed targets.
Let’s say government spending is 25% of GDP. The federal reserve has our monetary base at around 5.5T out of 20T GDP currently. So we’d have to double our monetary base to fund the government this way for one year. This would cause very high inflation - we basically did fund the government 50% this way for 2 years because of COVID and look where that got us. Imagine inflation then with 100% funding in this manner over long periods.
Isn't that exactly the reason repayment matters?
Edit for the pedantic: I obviously mean total debt.
Any individual who has a debt would like very much to also be able to continue to borrow money indefinitely and pay the old debt without worries.
Then just look at the graph of national debt both in nominal and real value.
(from article, but not referencing content besides the chart https://seekingalpha.com/article/241751-visualizing-the-u-s-... )
There are other times U.S. has paid down debt.
The problem is we continue to issue new and more debt at higher rates so the total amount still only goes up.
I would be interested to know of a time when inflation was higher than the rate of new debt being issues in the US. Maybe in the 70s when inflation hit record highs but interest rates also hit record highs at that time.
I believe it is inflation adjusted and if the US were to 'magically' create a coin worth 31 trillion dollars, that number would go to 0 and we would be able to pay off the entire thing. There would be no more interest payments because there's no more debt to pay interest on.
Except for the fact that we still run a deficit so itd start going back up again.
I believe it isn't.
Oh for sure. history has many examples. Greece and Venezuela are your more recent ones. Basically it goes up until the bankers and funds no longer want your debt. THEN the consequences happen.
when the government debt to gdp reaches above 100%, like too many countries have, then credit ratings start dropping. Absolutely nothing will get in your way to pump that up to 200%. The lenders don't care if you're making a terrible decision or not; just whether or not you keep paying. At around 200% is when you struggle to keep paying and your credit rating shifts to junk and nobody wants your debt anymore.
no, its not.
(1) Monetary policy doesn’t have just one purpose.
(2) Sometimes one of its purposes is to slow rather than stimulate the econony.
(3) Mostly its high-level purpose is economic stability.
2) You gotta read the thing I was replying to, and interpret my comment as a response to it, not as a standalone assertion. I think it's pretty obvious that I meant monetary policy resulting in inflation, as that's what they were complaining about, not all possible monetary policies in the abstract.
The person I was replying to was saying that inflation is bad because it dilutes the value of savings, which is therefore sorta kinda like a tax. I'm saying, that's a terrible model; a better one is that monetary policy uses inflation to stimulate investment in order to grow the economy, and doesn't care if that dilutes your savings, because it wants you to invest those savings.
If you disagree, say so, but argue with the whole thing, not with a sentence fragment taken out of context.
GDP would be one of the better metrics to compare against [1] since it serves as a taxable base for the US government.
"the results of every study except two find a negative relationship between high levels of government debt and economic growth"