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Ug. So many misconceptions and conspiracy theories, where do I begin?

1. The US and the Eurozone are suffering from very different problems. The debt in the US is likely to stabilize at around 80% GDP (source: http://krugman.blogs.nytimes.com/2013/01/24/tim-geithner-is-...). European countries are in quite a bit of trouble, but it will most likely take the the form of a slow and painful recovery. Greece has already partially defaulted on its debt (and the world didn't end).

2. There is no reason to assume that many (American?) banks will collapse anytime soon. The realistic worst-case scenario is another multi-trillion dollar bailout at the expense of the taxpayer.

3. The trillion dollar coin idea was a legal gimmick to counter another legal gimmick (debt ceiling). Minting a trillion dollar coin is not substantially different from conventional methods of "printing money" (there are some differences: e.g. no interest is paid on currency). The trillion dollar coin wouldn't be used to pay off the public debt. Minting coins to pay off the public debt is a bad idea, and not a single economist seriously suggested doing that. To reiterate: the trillion dollar coin is a legal trick and has almost no impact on the actual economy.

4. The cost of printing money isn't zero in all situations. Which is why printing money can partially fix some financial problems, but not all of them. Printing money is a good idea for instance when there is a shortage of money in the economy (i.e. risk of deflation). Printing money is never a substitute for real economic activity.

5. Inflation certainly works like a tax. Those with money are hurt by inflation and those with net debt benefit from it. It also encourages investment, which is why most economists think a little inflation is a good thing.

6. US Government bonds are in very high demand. Hence the low interest rate on them.

7. Your crazy rants about how the US is a socialist state don't have any bearing on reality.

'likely to stabilize'? Are you on crack? Congress & O can't even create & pass a budget. They talk about 'saving' a trillion dollars... over 10 years! Our armed forces are still deployed to 3rd-world cesspools that we have no business being in. Debt is going to go up and up until the balloon pops.

So, for your point 1, neither Krugman nor the CBPP report he links to claims that the debt will stabilise at 80%. It will arrive at 80% with a rising slope, not flatten like the "cuts" scenario. Also, good thing you didn't link to anything containing conspiracy theories:

To say what should be obvious: Republicans don’t care about the deficit. They care about exploiting the deficit to pursue their goal of dismantling the social insurance system. They want a fiscal crisis; they need it; they’re enjoying it.

You're correct that the debt will continue to go up after 10 years if there are absolutely no cuts and no revenue increases. But 10 years is plenty time to bring the budget in line with GDP growth, and after the depression is behind us there should be bi-partisan interest in reducing the deficit. I'll be very surprised if the US deficit is over 80% of GDP in 10 years.

The comment by Krugman about Republicans wanting a fiscal crisis to dismantle the welfare system is somewhat hyperbolic. However there are plenty Republicans who claim to care about the deficit but when push comes to shove go for tax cuts instead and then point at the lack of revenues to justify cuts in the welfare system.

Krugman is as "somewhat hyperbolic" as the GP. In fact, the GP qualifies his theories with "I think", Krugman states them as fact.

Just curious: Does the debt number include unfunded liabilities for social security, medicare, etc?

No, "public debt" is at 73%, including "intragovernmental holdings" (social security etc) it's at 105%

See here: https://en.wikipedia.org/wiki/United_States_public_debt#Meas... and refer to the first paragraph of the article of a definition of the two debt types.

But 10 years is plenty time to bring the budget in line with GDP growth

You are out of your mind. Absolutely, 100 percent out of your mind.

If you don't accept this coming from Krugman, Bruce Bartlett is a moderate voice who says essentially the same thing: http://economix.blogs.nytimes.com/2012/11/20/the-new-republi...

You don't have to do deep investigative journalism to uncover the dirty truth that republicans has a smaller state as a policy goal, and has had it for a few decades. They say so publicly at any opportunity given. So, shockingly, when there's a deficit, they'll argue that the state should be smaller to cover the deficit. Sure, GWB massively expanded the state, and republicans were mostly fine with it, so it comes off as hypocritical. Either way, Bruce Bartlett just wastes a lot of words tracing and uncovering something that's trivially true.

Krugman dwells into conspiracy theory when he argues that republicans "enjoy" the deficit and with a nice slight of hand assigns the full responsibility for it to them. From random partisan hacks, sure, that how it goes, but for someone that likes to remind everyone that he has a nobel price, perhaps, just perhaps, we can expect a higher standard?

>"The problem of socialism is that at one point you run out of other people's money". And that's where we're arriving now.

Ugh. I try my best not to be snarky on here, but here is the wiki explaining what socialism is:

http://en.wikipedia.org/wiki/Socialism

Don't worry, you don't have to read past the first sentence to reveal your complete and utter misunderstanding of the term.

The trend, over the years, has been overwhelming in favor of private ownership of the economic means of production. You're going to need to come up with another word to decry what ails you policy wise if accuracy, not dogma, is your goal.

PolySci 101. It ain't that difficult. Do I really need to GTFY on HN?

> PolySci 101. It ain't that difficult. Do I really need to GTFY on HN?

Best just to flag all political articles and rid them from the site, as they pretty much inevitably end up with discussions like this.

I'm sort of embarrassed that I even replied to it.

Edit: The comment I mean. OP's article isn't overtly political in any way. It was incredibly interesting. Even just for the insight regarding the mechanisms of QA on a purely physical level. I never imagined underwriters jetting around the nation, going into box filled hotel rooms to get busy underwriting. Learn something new every day.

But at the same time we vote up articles complaining that we as engineers should stop making cat video websites and focus on important problems. We flock to advice blogs to find good startup ideas that solve people's problems. This article is food for thought IMO. I'll take a 15 page article detailing inefficiencies/fraud in banks (of which many of us are employed in IT) over a 3 paragraph blog summarizing an 8 paragraph blog on weak typing.

http://mises.org/daily/6277/Socialism

Much better read

Reading tracts on socialism by Mises is similar to learning about capitalism from Marx or mainline Christianity from the Church of Latter Day Saints. I'm not the biggest fan of Wikipedia social science articles, but on the whole I'd still see it as a better starting point than someone beating straw men to death in order to promote their own fringe agenda.

I had no agenda, except to provide a better reference point for defining socialism than Wikipedia. From my experiences, most people have never heard of von Mises, so may not even be aware that definitions and criticisms of socialism may extend beyond how it is categorized on a site whose goal is collective ownership of information.

Of course, not many people understand that psychology (for price tolerance) and sociology (for price determination) are not the same thing; so trying to understand why any old "economic system" won't do, and why society's governing structure cannot just be changed like an operating system.

I wish you wouldn't have been snarky. The next time you write a post like this, I suggest explaining what is socialism in your post, how it differs from what the person described, and providing them with a word that better fits what they were saying.

Also, I don't see why if using the correct word is called "accurate," then using the wrong word is called "dogma" instead of "inaccurate." Your implication was that someone who uses the word socialist when they mean to use another word isn't thinking for themselves, I suppose, but you don't actually have any reason to think that, and even if you did, you would still want to stick to educating them instead of snarkily insulting them.

Finally, I'd like you to imagine what Hacker News would be like if people corrected technical ignorance with "CS 101. It ain't that difficult." It's a completely unhelpful thing to say. If you believe someone should actually take a 100-level political science class, then please be helpful and suggest a free university course.

I do believe you meant to help so I hope you'll incorporate these suggestions the next time you correct a political post.

>next time you write a post like this, I suggest explaining what is socialism in your post

I believe linking to the wiki and clearly directing him to the exact place in the wiki (the first line) communicates the information very effectively. Barrier to entry is zero and if he wants to keep reading he can go more in depth.

>I don't see why if using the correct word is called "accurate," then using the wrong word is called "dogma"

Using the wrong word is not, by definition, dogma. Dogma was inferred from other verbiage in his post, and is my opinion and the impression I got from his language.

>I'd like you to imagine what Hacker News would be like if people corrected technical ignorance with...

See above, -I don't really think this was technical ignorance. Of course I could be wrong, but that's not the premise I'm working with, or the impression I got. Hence the snark.

But as I already mentioned, I shouldn't have bothered to reply at all to what I saw as a dogmatic post. I think there's and adage about what to do when you're coming up short with niceties that applies here...

"governments are going to default.", "we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation"

These are contradictory. Governments don't have to default if they inflate their debt away.

Also, money is just pieces of paper or a number in a computer. You shouldn't keep most of your savings in money. Cash is just an agreed upon number meant to help with short term transactions. It's a tool for trading. You don't have real savings until you have something more err... real, like stocks or actual stuff. Inflation can't touch that. If you feel bonds don't offer a good enough return given inflation risks just don't buy bonds! No reason to panic. The world GDP won't drop 25% unless we run out of key natural resources or face some kind of catastrophe, things that would happen regardless of "socialism".

Government debt matters but not in the way you seem to think.

I think OP might feel better if they knew about inflation protected securities.

When the issuer of those securities is the one defining the amount of inflation, that issuer has every reason to understate said amount, and the holder of the securities may still lose purchasing power.

Consider e.g. Argentina's official inflation statistics versus 3rd party estimates. The difference is not explained by Argentina being a bunch of meanies but rather the system of incentives and particularly Public Choice Theory.

USA TIPS are inflation-adjusted according to a published standard (CPI-U). One can argue that the standard itself underestimates inflation (I would probably agree), but the securities really do adjust with measured inflation. If the inflation is understated, it's at least done in a defined way. So yes, I suppose the holder of the securities would still lose purchasing power, but not in a catastrophic way. TIPS are still a decent hedge against inflation.

> > "governments are going to default.", "we live in a socialist world bent on confiscating savings (at the benefit of the state) using inflation"

> These are contradictory. Governments don't have to default if they inflate their debt away.

The reconciling position is that inflation used this way is simply default via other means. The holders of debt will not get back what they are owed in terms of purchasing power -- a nominal repayment rather than a real repayment.

That's right, socialists are the ones to blame. Good citizen, you've been well trained to see socialist enemies hiding around every corner.

We do not live in a socialist world. If you had any comprehension of what the word meant you would stop using it.

World: socialist. (And in denial) Check!

Just because we haven't obtained the socialist paradise, doesn't mean we aren't living under a socialist order. It's the means that define socialism, not achievement of the goals.

The means are "social" control of the means of production; whether it is by direct seizure of the state, proletariat masses, or small anarcho-syndicalist communes; or indirect by legislation, regulation, licensing, taxation, the SEC, central banks or control of the value of currency and savings; doesn't matter.

And the trend is towards more of that because the goals of most of these initiatives are the goals of distributing goods to (almost) everyone, so that when the private component fails, the social component will expand to rectify the situation.

Seriously, you think that the ever-expanding wealth disparity in the entire western world is a symptom of a socialist planet?

Get a grip. Just because you haven't obtained your Libertarian paradise (which AFAICT would be hell on earth and quickly devolve back to Feudalism) doesn't mean that the word and the political philosophy don't still have distinct meanings.

Socialism is not an all encompassing term for 'anything a Libertarian disagrees with'.

Never said it was an all encompassing term, just an all encompassing practice. The term means social ownership of the means of production. If the political structure of a society wants to pretend regulation, licensing, permissions, incentive/punitive taxes, bail-outs, take-overs and nationalizations are not effectively the same thing as (at least partial) social ownership; that's society's business, not mine.

I cannot understand the political philosophy of socialism any better than I can understand another's faith, nor do I try. Socialist agendas may not be marked as such on the packaging, but that doesn't mean the ingredients didn't come from the same farm.

I have no great plan for society. I am of the mind that the "problem" of stable society is as insoluble as determining what the product prices should be in a marketless society. So, I also don't think anyone else socialist or otherwise has a great plan for society (visions perhaps, but nothing practically actionable), but I don't think that stops policymakers from tinkering when they can.

I have no idea what a Libertarian paradise would be, and I have offered none. Since I have no power to stop the looming dissolution of social order, nor predict the exact time or nature of the chaos; I can only hope to eek out an existence somewhere. But I will continue to remind men such that they may listen, that it was not the pursuit of liberty that brought man's enslavement, but the pursuit of enslavement.

"If the political structure of a society wants to pretend regulation, licensing, permissions, incentive/punitive taxes, bail-outs, take-overs and nationalizations are not effectively the same thing as (at least partial) social ownership; that's society's business, not mine."

Current society is not run on principles or aims anything like the means of production being in the ownership of the workers.

You can pretend all you like that "OMG Socialism!" is taking over the world, but the reality is far from it in both aims and current direction.

You don't have to understand another's religion or political views to understand what those things are, and you have failed.

As for the looming dissolution of social order - LMFAO. You're a wingnut. Get help.

"that's where we're arriving now"

you know, years ago the deficit scolds said the US would turn into Greece "within two years". they were wrong. they said inflation would spike. they were wrong. and here you go doing the same thing again.

the US will never default on its debt. period. it's the law. they will just use inflation to pay it if they have to. more likely the economy will return to growth and a combination of forces will keep it under control.

yes this is a tax on savings. act accordingly. it's not the end of the world, we have all kinds of taxes. this one exists for a good reason.

> inflation would spike

Inflation did spike but what happened was that the definition was redefined in a deceptive way.

Look at cereal prices and volumes. Prices have spiked and the containers/volumes have shrunk, but that's not taken into account under measures that exclude food prices. Energy prices have spiked. Gold prices have been running for more than 12 years.

It's not to say we are seeing hyperinflation, but the CPI and other measures have changed in such a way that it makes inflation appear low.

When people say that CPI doesn't show true inflation, what measure do they prefer to use instead?

Here are some alternative CPI charts worth viewing: http://www.shadowstats.com/alternate_data/inflation-charts

Shadowstats has been discredited so many times that not even libertarians (such as myself) would go near that as a reliable source.

Could you post some links to this? I haven't seen it and would be interested to read more.

It mostly comes down to the fact that shadowstats keeps their data behind a paywall and it has very little peer review.

http://voxrationalis.wordpress.com/2011/05/15/the-absurdity-...

Also MIT collects a large amount of data using online prices to determine inflation rates http://bpp.mit.edu/usa/

So the inflation calculations might indeed be inaccurate but there isn't much solid data to back it up.

I personally find it better to focus on issues that have lots of data such as the debt crisis [1], the growing costs of SS and medicare and the harmful effects of industry/government collusion [2] which are all very real and can be proven.

[1] http://www.amazon.com/Endgame-Debt-Supercycle-Changes-Everyt...

[2] http://i.imgur.com/XwyV4yi.jpg

That's a very fascinating link. Are the claims made here true, that these charts are true to the 1980 definition of inflation? Are there any other factors that could make what is in these charts incorrect or misrepresented? I'm not from the US and don't have a first-hand impression of US price development.

It seems unlikely to me that the US has really had >7% yearly inflation for well over a decade. So what gives? The most compelling counterargument is simply that the charts in your link don't reflect reality.

Usually it involves taking one common and fixed item, like cereal, and looking at its prices over time. While there are seasonal effects, looking at the price over a number of years gives you a good picture as to the actual inflation.

The key thing here, though, is "fixed". Sometimes companies will make adjustments to the product to reduce costs, and those adjustments make the apparent inflation appear lower than they really are. For example, a jeweler can quote the same price for jewelry next year (assuming gold price rises) if they use less gold and more base metals in the jewelry. CPI measure would say that there was no change, although for all intents and purposes there was a change.

I'm no economist, so take this with appropriate skepticism:

I think the issue is that there probably isn't a "true" inflation. The main contention seems to be between those who use inflation as a measure of cost of living, and those who use it as a measure of policy-driven change in the value of money. Both views have their uses. Personally, I prefer the growth in money supply view because it seems to be less susceptible to manipulation by an agenda. The basket of goods is by necessity a small sample of the total cost of living, and I think that the main complaint lodged against it is that the goods are chosen and changed over time in order to portray a picture that's better than it would otherwise be. shadowstats.com has more information on how the CPI changes with selections in the basket of goods.

Using the money supply as the definition of inflation gets closer to the viewpoint I care about, which is trying to get a sense of how policy is changing the value of my savings and income. I like to look at a simple ratio of money supply growth to GDP growth for some idea of how policy is changing the value of money, but this too is fraught with danger because it ignores important things like technical innovation, changing resource bases, and money velocity. So, I think it's a matter of personal preference and probably the best policy is to look at it from as many angles as possible if it's something that's important for your decision making.

I can't speak to the details of the various and diverse Europe problems, but in the U.S. the debt problem is primarily political. Tax receipts as a percentage of GDP are near historic lows, and GDP itself is inhibited because we are climbing out of a recession.

In plain English--the government is taking a smaller piece of a smaller pie. No wonder our debt level has climbed.

And yet U.S. Treasury bond rates are still extremely low--which indicates that people are still very eager to invest in them. Why? Because despite obvious problems to solve, the U.S. government is still more secure than other options. As long as that is true, we can continue to finance.

So to talk about doom and gloom, you need to make a case for where all the money will go if it abandons the U.S. The typical candidates have been Europe or China. Well, Europe is in even worse shape, and China is heavily dependent on the U.S. for its own growth.

The two largest holders of federal debt are the Fed and the Social Security trust. A big part of the reason interest rates are so low is because we're buying our own debt.

Neither participates in the competitive bidding process that sets the interest rates. Social Security gets special bonds not available on the open market, and the Fed buys Treasuries from primary dealers at market rates (since the whole point is to inject money into the private economy).

It doesn't matter how the bonds are obtained by Social Security or the Fed -- no matter what it affects interest rates.

If Social Security weren't buying government bonds (ok, not technically treasuries), that same debt would be issued as Treasuries or similar. Greater supply of treasuries means higher interest rates.

If the Fed weren't buying treasuries in the open market, demand would decline and the market interest rate would go up. Primary dealer bids are influenced by the market rate for treasuries, so the interest rate on new debt would go up.

Replying to myself since I can't reply directly to you.

Social Security gets special bonds specifically to avoid the bond market distortions you describe. They have been purchasing these bonds in high volume for decades prior to the financial crisis, and marketable Treasury rates were much higher for most of that time.

In addition, in 2011, SS tax receipts dropped below expenditures for the first time since 1983, so SS stopped purchasing these special bonds in any significant net volume. (The trust fund is still cash flow positive due to interest earned on bonds they already hold.)

As for the Fed's purchasing program, Treasury rates were historically low before Fed started buying. In fact the historically low rates were why they started buying Treasuries in the first place--with interest rates bottomed out, QE was one of the only levers left to them. You've got the cause and effect backwards.

I'm not trying to be an ass, but I'm actually legitimately curious where our misunderstanding is.

My understanding is that, all other things being equal, when government/government controlled agencies purchase government debt ("cause"), the result ("effect") is lower interest rates. Here it is, directly from the head of the Fed regarding the rationale behind QE2:

"What we're doing is lowering interest rates by buying treasury securities and, by lowering interest rates, we hope to stimulate the economy to grow faster." - Ben Bernake

This is the fundamental idea behind reserve banking -- the central bank controls interest rates by manipulating the money supply via the purchase of government bonds:

"When the Central Bank cuts the target rate, they must simultaneously increase the monetary base by buying government securities. The growth of the monetary base creates a surplus in the banks, the supply of funds overnight increases, the demand falls and the overnight rate falls.

...

By controlling overnight interest rates, the central bank will affect the interest rates with longer maturity." - Essentials of Macroeconomics

Is there anything in the above that you disagree with?

The Fed is using quantitative easing to lower market interest rates because their typical lever against market interest rates--the interest rates of short-term U.S. Treasuries--was already effectively zero.

They were already effectively zero because there has been such strong demand for U.S. Treasury bonds from customers both domestic and foreign, which was my point at the beginning.

You forgot the link to a fake news article interviewing an "economist" predicting Massive Wealth Destruction and peddling a workbook detailing how you can survive the impending disaster.

There's a difference between ringing alarm bells over economic trends and government actions that are fully public and extensively analyzed by the public, and ringing alarm bells about unacknowledged criminal behavior inside a public corporation that endangers the clients, investors, and economy. My only beef with these whistle-blowers is that they didn't contact law enforcement (at least per the article).

Needs more paragraphs.