Government debt needs to be repaid, and other myths about the federal deficit
barrons.com
barrons.com
A debt-like characteristic is interest. We "owe interest" to those who hold our debt.
https://www.marketplace.org/2023/05/26/who-does-the-u-s-owe-...
> As of July 2023 it costs $726 billion to maintain the debt, which is 14% of the total federal spending.
https://fiscaldata.treasury.gov/americas-finance-guide/natio....
Why does the interest rate end up being close/near/the same as the overnight lending rate the Fed sets? Because why would anybody want any kind of risk when you can get XYZ interest rate risk free overnight short term?
and fed's function and policy is to follow the market: if inflation is high they increase rate, so at the end market decides through feedback loop
law, specifically Federal Reserve Act.
One of the fascinating threads to pull within it is the origin of debt and credit creation. It raises some fun questions (some of which are just more random offshoots related to my interests than monetary policy or economic theory):
1) Did all private wealth held in USD originate as monetized federal debt at one point?
2) If banking systems didn't have access to fraction reserve systems, would they be effective tools for debt/wealth creation?
3) Is debt creation the same was wealth creation? How can labor and commodities even be effectively monetized without fluid systems of debt creation?
4) If the lowly game of poker was once used as way to build ad-hoc credit and wealth, before more sophisticated financial systems were more commonplace, how rigidly should we look at debt creation at all, federal or otherwise? Perhaps more gamified and ad-hoc systems would create a higher baseline of wealth globally? [1]
So many interesting questions.
1: MIT 15.S50 Poker Theory and Analysis, IAP 2015 https://www.youtube.com/watch?v=IZZ4y5GfdOU
I fall into the latter camp. I think the tidal musical chairs is going to halt the sound, see the tide gonout, and expose copious corpulent cabooses in the buff.
You can decide whether that makes you believe it less, or more ;-)
Krugman seems to be fully in line with the policy positions typically associated with policy advocates associated with MMT, his disagreement with MMT is that given the theory's position (he has shifted over time between characterizing this as an apparent and a clear position) on the limitations of traditional monetary, a strict application of MMT would actually come to a more conservative policy recommendation on government fiscal policy because MMT denies (or seems to deny) that traditional monetary policy can backstop fiscal policy if the monetary effects of such policy aren't what is intended. He agrees with MMT (both theorists and most of the MMT-influenced policy activists) that the only real constraints on fiscal policy are monetary effects (the positions most MMT critics take issue with), but disagrees with (what he sees as the position of) MMT theorists on traditional monetary policy being ineffective at its monetary goals. I'm not familiar with the source work in MMT to know if the position he takes issue with is actually the position of MMT theorists, but I'm familiar enough with the less academic policy advocates associated with the MMT movement that I've always considered their advocacy to be in line with orthodox Keynesianism more than even most policy advocates who rhetorically are Keynesian, because the latter tend to -- despite embracing the positions which clearly make it out to be a false constraint -- adhere rather strongly to the preference that the government play-act as if the finite public purse (the "fisc") were a real thing outside of the domain of monetary policy, though they'll embrace things like countercyclical deficits, whereas MMT-influenced advocates tend to embrace that a fiat currency budget doesn't have a fisc and is constrained only by the monetary effects of the money it creates by spending and destroys by taxing.
But these MMT-influenced advocates don't generally advocate around the view of the uselessness of traditional monetary policy as currently entrusted to the Fed that Krugman takes issue with; they tend to prefer using traditional fiscal policy within its monetary constraints more actively for the purposes of traditional monetary policy because its easier to fine-tune the distributional impacts within the aggregate target, not because the Fed controlling rates doesn't work for macro-level monetary functions. So, in a sense, academic MMT may be a different thing that policy-world MMT, with the latter being mostly Keynsianism without fiscal policy cosplaying a commodity money constraint in a fiat money system.
Herb Sutter: "The difference between theory and practice is greater in practice than in theory."
Essentially all of them that make their own decisions? Especially "government debt needs to be repaid". Running perpetually increasing nominal debt balances is fairly normal.
The myths are much more common (in incoherent, shifting, inconsistent combinations) in public political discourse about government policy than in actual policy, except policy directed by externally-imposed constraints from (mostly) the IMF.
When the average monthly expenses for an American household add up to about $5,500, certain industries (like transportation (16.8 percent of those expenses), or food (12.8 percent) will always view the American economy as a leading market to operate in. At a macro level, it would seem that many businesses making this similar judgement call would create a dynamic that goes beyond trust.
Regarding the buying power of pensions point, I believe there are cost of living adjustment laws for buying power which require Army or Social Security pensions to react to USD's changing buying power over time.
(There's no reason for government policy to eschew abundance, so I'm not particularly worried for the future, but that is because of the dynamics of the situation, not the laws that are in place)
It's backed by the ability of the US government (and military) to ensure that the US is operating. As long as the US maintains a world hegemony, it's a safe bet. If it loses a series of engagements (not a single theater of economic interest), it's time to hop on to another currency. Ofc, that's just how I see it.
They all mostly do monetary policy the same way though.
Also, ss obviously is not the largest source of American's well being, and those other sources (wages) will not be keeping up with inflation.
stimulus checks were like few 100B, very different amount, total stimulus program was 2.2T: https://en.wikipedia.org/wiki/CARES_Act , while M1 supply increased from 4T to 20T: https://fred.stlouisfed.org/series/M1SL
I think institutions took advantage of low interest rates, borrowed lots of money, and now will borrow/invest with much higher return for next many years.
> That isn't the new rate of money supply growth
I don't think there was so large scaled increase in the past ever.
but does US maintain a world hegemony? How does it demonstrate hegemony?
Yes. As of today.
> How does it demonstrate hegemony?
As it has done since ww2. I mean, maybe that's a rhetorical philosophical question. I don't really care to argue about the self-evident history.
its totally not self-evident. Even after ww2 world was bi-polar, and now US leadership in economy and tech is much less evident.
the issue is that other currencies can be trusted even less.