The best optimistic explanation for low inflation (despite current monetary policy) I've seen is that we're in a productivity boom due to technology that is keeping inflation down, and other similar periods like the late 1800s saw high growth coupled with high deflation (skip to 8:15): Current monetary policy is really pushing it though, eventually there will be a crash, the trillion dollar qn is when.
There is a concept that has been around for a while now: Modern Monetary Theory. It stipulates that countries should print sufficient money to stimulate their economy, within the bounds of inflation, etc. There was a LENGTHY discussion on this on another board I was on...I think it was the most replied to thread they ever had. Bottom line is the fact that we have to issue debt when we print money corrupts the MMT concept. But it is still popular, in that it can be used to show, as you ask, that deficits don't matter, which many politicians love. The problem is the theory doesn't apply to countries that are obligated to issue debt when the print money. Issuing debt in MMT is one of the ways governments can slow down their economy. So, we are simultaneously printing money to spur the economy and issuing debt to throttle it back. Hence the perpetual state you describe. Who knows...maybe that's best. As for interest rates, MMT has implications there (interest rates also being one of the ways to control growth, etc), and there is also the sheer size of our debt. What would we do interest rates shot up to, say 8%, for any extended period of time? Much of our debt turns over each year, and much is funded through short term bonds, and that would have to be reissued at the much higher rates. We couldn't afford it. Therefore...its imperative that interest rates remain low. I think it is the 2 factors working together. There is a lot of policy debate going on around this. Here is a link to a variety of those discussions. My personal take on it is that MMT is an ivory tower concept that is difficult to apply in real life, particularly with how most countries are currently required by their own constitutions and policies to issue debt when they create money. But it IS essentially being applied in most countries, including ours. So, your debate question is the central issue: Do deficits matter? For the short to mid term, the answer is clearly no. Long term? That remains to be seen. FWIW...on country that does seem to apply it most completely is China...and they are building entire cities with no one in them. Spurs economic growth, but doesn't that bubble burst eventually? One would think it has to. What this indicates is that MMT can be intrinsically tied to socialism, and take capitalism out of the equation (rather than build out cities as demand indicates, the government just builds them ahead of time, to further its own policy of urbanization). As the video indicates, though...the people can't afford to move there. So, basically just building things to build things. Hugely inefficient use of resources, at the least. Which, again, shows how this is in direct conflict with capitalism.
U.S. National Debt Will Rise to 98% of GDP by 2030, CBO Projects Deficits will exceed $1 trillion a year for at least 11 years, budget office says https://www.wsj.com/articles/u-s-na...to-98-of-gdp-by-2030-cbo-projects-11580238089
It's a global economy. Low inflation is a reflection of that - trade helps keeps the prices of goods and services in check.
It's a big problem and China has already adopted a much tighter, conservtive fiscal policy to deal with their own issues... America needs to do the same. It is really capable of snowballing quick.
Deficit and debt are indeed alarming. Tax reform needs to on the agenda and massive taxation increases on the wealthy.
So, what happens if the US government doesn't pay its debts? What are the repercussions and who holds them accountable? This should be interesting.
Why wouldn't it? Just issue more bonds to raise more funds to pay the old bond holders. If no one else buys, the fed will. Dollar gets diluted, but this risk is known up front to buyers.
I understand what the textbooks say. This is a hypothetical exercise to illustrate the bottom line of all this deficit talk, which incidentally is factored into the price already. Let's say it refuses to pay or sell to fed, and the bond holders are Taiwan and Egypt who also don't want a diluted return. The US will pay it back 10 years late. Egyptians and Taiwanese aren't having it, they want it on time and in full. What happens?
Deficits do matter. MMT is wishful thinking but I guess talking heads asking people to print 1.9T in debt and get 1/5 of it with check in hand knowing that they'll have to pay that 1.9T with interest is a tall order without wishful thinking. If we're really talking about a 10x Keynesian multiplier, I'd rather divide that money up evenly for every household... But as it stands, the diminishing returns are becoming more evident. Articles from now till the next stimulus will paint rosy pictures that underline the importance of the Works Bill for "a full recovery" when the fact that we need more helicopter money belies the sickness we've had since 08 Every major trading power has sizable debt. China, Germany and Japan have l trillion or near trillion treasury reserves but their finances are wack too. Most likely debt jubilee in the future but in the near future, most countries (even China!) willing to use the dollar as a currency reserve until the system breaks down like 08 or March last year. Oddly enough, those panics were caused by shortages in the global dollar. We are reaching another weird Breton Woods moment. Could be hyperinflation like what Michael Burry or 08 gold bugs have been claiming. Post Breton Woods wasn't so bad when eventually transitioning to petrodollar system except for the stagflation and subsequent tax rate hikes by Volker. But if you're a pessimist Volker needed that tonic to cure the run up of previous debt at 20% GDP... I guess the point is that we'll have to pay for all of this in some form but it doesn't necessarily mean what happened a hundred years ago. Might even be another ten years of dollar dominance
Agree with you on China. Their financial system makes the usa's look very healthy in comparison. Banks have a lot of bad debt on the books. Perhaps dollar will remain dominant cos everyone else sucks even more haha. If interest rates go up, wouldn't that be bad for gold?
[Straight Truth] This is the trap of liberal policies... you spend your way into massive deficits and in so doing, you create a dependent class of people who rely on government to live (whether it's their job, their welfare, their healthcare, their retirement, etc). Then it becomes politically impossible to lower spending without getting voted out of office because the dependent class is so large and they want their personal gravy train to continue... deficits build up, taxes are raised, and over time, the incentive to produce becomes reduced (since you keep less)... leading to lower productivity and ultimately, lower quality of life. Europe, despite their very excellent workforce and infrastructure, is a perfect example of this playing out. Inflation (via loose monetary + fiscal policy) is the only politically expedient way out of this mess, which we alone can do because the US Dollar is the global reserve currency... so the S&P 500/DOW/NASDAQ rises (because it's denominated in dollars), gold rises, real estate rises, etc... which all benefits the rich and hurts the poor... which ironically is EXACTLY the opposite effect of what the liberals say they are trying to create with their policies. I'm wealthy, so this benefits me greatly... until social unrest spirals out of control (like last Summer).
