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Comment by neilwilson | Hacker News Reader

He's wrong.

The US debt is just the amount of savings in US dollars that the non-government sector has accumulated from government spending that hasn't yet been paid back in taxes.

In other words it is a component of the money supply that allows people to save safely for the future.

The problem is the idea that this saving has to be rewarded in some way. It doesn't. The saving will happen anyway for status and insurance purposes and then have to be accommodated by additional spending.

It's the belief amongst economists like Powell that they are 'guided by the stars' that is the issue. We should not be using interest rates as a control knob. After 15 years it should be clear they don't work as advertised.

The stabilisation policy for an economy needs to be in the market for labour, not the market for money.

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If not interest rates, what would you advise the Fed to use for controlling inflation?

Please don’t say there’s no need to control inflation. That will wipe out any savings anyone has. Your money will be worth We’ve seen its ill effects time and again.

Argentina has 211% inflation right now. It is a vibrant economy, crippled by inflation. People cannot save. Either spend all you have (it will be worth 1/4th in a year) or buy forex.

(I apologize if the following sounds a bit ranty):

We need to keep in our minds that a lot of economics is human psychology. Inflation is a mass psychology phenomenon. The stock markets work on psychology. Which is why we have these insane “valuations”. Why would anyone think NVIDIA is worth $1.5 Trillion dollars is beyond me. I’ll explain - 1) Traders gotta trade. 2) Investors have got to invest. When despite such high interest rates, people invest in the markets - that’s got to be greed - likely caused by a high inflation recency bias. Still operating as if their money will be worth much less next year.

Also it’s noteworthy that just before 2020, the valuations were 1/4 of what we have now. Has the productivity of the world suddenly increased manifold? No. It was fuelled by two things 1) Near 0 interest rates that forced safe investors to pull their money out of bonds and savings accounts 2) Collapse of office real estate. The second one is on-going, so my guess is a lot of the money in the markets is coming from ex-office real estate investors.

Taxes. Taxes are the other tool that can be used to control inflation, especially when most of the money supply is in the hands of relatively few and has questionable productivity.

It's a shame however that taxation isn't used for monetary policy due to the political system just not being set up that way.

Agreed. Non-productive money making should be taxed more heavily than productive money making. By productive I mean non-speculative activity. Also, sales tax is harder on lower income people. Sales tax should be scrapped except on luxury items or things like cigarettes.

Interest rates are not the only way of controlling inflation.

GP's post is just a rather convoluted way of saying the US needs to increase taxes.

Not sure whether they actually intended this, but it seemed the only logical conclusion. Unless they really were advocating for a zero interest rate environment... to which I agree with your points.

We need more inflation than 2% though. The fact that 211% is too high doesn't mean that 2% isn't too low. And the low inflation expectations leads to low interest rates which reduces the cost of money which is creating our financial sector inflation/bubble.

You should look up Wynne Godley and Sectoral Balances.

Prefer Thomas Palley and Monetary Disorder: https://www.imk-boeckler.de/fpdf/HBS-008713/p_fmm_imk_wp_93_...

same same

I am not your parent but…

I believe the prevailing answer to your question (among people who think we shouldn’t use interest rates as our lever) is taxed - specifically, corporate taxes.

I don’t have strong feelings about this one way or another, but I believe that is the answer you will be given.

Actually, that’s not a bad answer. For that to work, US will need to kick all the lobbyists out of congress tax/budget meetings.

Because as soon as they get a whiff of what’s coming, the anti-taxation machinery goes in full-swing.

God bless Warren Buffett for having Berkshire pay taxes on things they didn’t have to. He’s set a great precedent, but others don’t want to follow him. On the other hand, we have the likes of Sam Bankman-Fried touting “effective altruism” then doing the opposite.

The United States is not Argentina. Argentina, unlike the United States, has to finance most of it's debt from external parties in foreign denominated currency.

Argentina has a vibrant economy, but it's export revenues are almost entirely from agricultural products. Since ag prices are volatile, it's harder for Argentina to acquire the foreign currency it needs to pay debts.

> Inflation is a mass psychology phenomenon

Inflation is a supply and demand phenomenon. If inflation is caused by constraints/shocks to supply, then increasing production capacity is a better long term solution than raising interest rates.

> we have these insane “valuations

This is a completely different problem than goods inflation. Stock market valuations can spike at times when inflation is well under control, and may even crash if inflation is too high. There was a long period where we had near-0 interest rates, high valuations, and little-to-no inflation after the 2008 crash

Interesting definition of government debt, but those “paying back” the debt in future taxes are very unlikely to have any connection to those who incurred the costs to start with.

But they will have inherited the asset side of the debt from grandad won’t they.

That’s the connection. Debt is really saving and when people spend those savings it eliminates the debt.

That assumes Grandad didn’t blow the money on dumb and/or short lived stuff.

If he did then additional tax would occur from his spending and that induced downstream in the spending chain which would eliminate the debt that was previously his savings.

Debt and savings are two sides of the same coin. If the savings disappear via spending and taxing then so does the debt.

Remember money doesn’t stop at its first use. Spending and taxing work like a stone skipping across a pond. Saving and debt is like videoing that skip and pressing pause half way through. Once you unpause by spending the savings the stone skip continues.

What you’ll note is that the stone always sinks - taxation will always match spending in the long run.

I don’t agree that spending money always results in valuable, transferable assets. It isn’t hard to think up counter-examples: under-utilised infrastructure projects, projects that become a maintenance liability, many social and health programs, etc.

That's using a lot of fancy words to define debt. Debt is debt: money or value to be paid back, in the future.

> In other words it is a component of the money supply that allows people to save safely for the future.

All debts have risk. There is no zero risk instrument, as the currency itself can devalue even if you get your basis back.

> The stabilisation policy for an economy needs to be in the market for labour, not the market for money.

Not sure what this means. Maybe you have an idea that you want to better articulate?

In other words, the U.S. government owes its citizens what money tries to represent. Which is a better life found outside the current global trend toward dysfunctional economics.

U.S. debt proportionally indexes how bad the state treats its citizens. Rather, how bad the U.S. state is at being a state worth living under.

Because production should always be disproportionately done and not at all coming from a mass of ordinary people. A dictator should be the only producer of all goods within a country.

Workers work and consumers consume. A simple division of labor.

Long-term interest rates aren’t set by the Fed, they’re market rates based on the Treasury’s demand for borrowing and investors’ demand for purchasing US government debt. If there were enough demand for zero-interest US government debt to support the Treasury’s borrowing needs, then the interest rate on that debt would already be zero.

I’m curious, how would you advocate for using the labor market directly as a stabilization tool?

Look up Japan. Then tell me long term government debt rates are set by the market

Does that definition hold when a significant part of the debt is owned by foreign entities?

Some part of governmental debt is held by the central bank. So the interest that the government pays on this debt goes back to the government because the central bank somewhat belongs to the government too.

if the US dollar wasn't a reserve currency globally, these statements would be rational.

Can you expand on this, I'm not 100% familiar with the way this is communicated and it just seems like mental gymnastics to avoid calling debt what it is.

If you hold a government Treasury are you in debt or do you have a saving asset?

There's such big potential to tax boomer wealth as they die that are are allowing to slip away. It has big potential to reduce the debt.

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