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End Game for Central Banks
#21
(03-02-2021, 01:51 PM)fenders53 Wrote:
(03-02-2021, 01:26 PM)Otter Wrote:
(03-02-2021, 12:55 PM)jalanlong Wrote:
(03-02-2021, 09:57 AM)Otter Wrote:
(03-02-2021, 07:06 AM)fenders53 Wrote: We aren't paying this debt down.  We do not have the political will to come close to  balanced budget.  Inflation and growth are our current options.  Better have some growth in our ports too.

Growth results in a paying down of the debt through increased tax receipts on the added economic activity. 

I think long term, inflation will take care of the bulk of debt reduction. There are some long-term demographic issues (aging population, population stagnation/decline) that aren't really compatible with traditional methods of growth. In the absence of a growing working-age population, other factors have to pick up the slack (like productivity gains). Maybe AI and other technological advances will be sufficient to sustain growth despite demographics, but that remains to be seen.

In order to inflate the debt away, wouldn't the rate of inflation have to outpace the growth of debt?  In the last 30 years the debt has gone up 800%.

No serious economists recommend eliminating the entire federal debt. Issuance of treasuries (federal debt instruments) are vital to the functioning of the modern financial system and various sectors of the economy. Sudden elimination of federal debt would probably have serious negative consequences. The only time we've done it in our history (1835), a massive depression happened afterwards, and that was well before huge portions of the global economy were tied to America's sovereign debt issuance. 

Keeping the Debt/GDP level manageable, so that interest rates can eventually (long-term horizon) rise back to more normal historical levels without destroying the ability of government to function would be the likely goal.
Who's goal, because that's sure as hell not what I am reading and hearing?  I'm on record here for supporting a living wage be paid to those who are willing to work fulltime.  It's overdue.  What I am hearing today on the news is scary.  Recurring payments?  Large unemployment kickers with no end date?  Why in the hell would anyone low skilled even want to add to our GDP by being productive?  

Back to my previous statement.  I see no sign whatsoever of the political will to even dream of a balanced budget.  I'll stick around for the liquidity ride and try to figure out when to jump off the train.  Very good subject BTW jalanlong.

Post-WWII, Debt/GDP levels were higher than they are now. The situation was different, as we were a net creditor nation and the only developed country on Earth with an intact manufacturing sector (and essentially had no meaningful competition on that front among capitalist economies for nearly two decades). 

The largest rises in our debt/GDP ratio occurred just after the 2008 financial crisis. COVID-related stuff barely merits a blip on the debt/GDP chart compared to what happened after 2008:

https://tradingeconomics.com/united-stat...ebt-to-gdp

Just before COVID happened, the Fed was in a slow, regular rate rise regime, with occasional taper tantrums. Debt/GDP had leveled off and was essentially flat. It doesn't take much debt reduction to get us back to where we were pre-COVID, with the stock market enjoying the longest (and most hated) bull market in history. The bond market hadn't returned yields to historical norms yet, as the Fed still had a lot of planned unwinding to do. I'm pretty confident that, without too much effort, Debt/GDP ratio can be maintained at current levels, and slowly reduced over time as the Fed begins to unwind. 

The second Clinton term saw the largest draw-down in the Debt/GDP ratio since WWII, from 65% to 55% in four years, with a backdrop of one of the best periods of economic growth since WWII (likely enhanced by the collapse of the Soviet Union opening new markets, China initially opening its markets to the U.S. due to Deng's reforms, as well as all of the productivity gains from personal computing). 

You'd need roughly double the proportionate reduction in Debt/GDP ratio as was achieved in 1996-2000 to get us back to where we were pre-2008 (federal funds rate of 5.25%). So, assuming the U.S. economy can continue to grow at even modest rates, that sort of scenario ought to be achievable within 15 years. 3% should be doable well before that.
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#22
(03-02-2021, 02:46 PM)Otter Wrote:
(03-02-2021, 01:51 PM)fenders53 Wrote:
(03-02-2021, 01:26 PM)Otter Wrote:
(03-02-2021, 12:55 PM)jalanlong Wrote:
(03-02-2021, 09:57 AM)Otter Wrote: Growth results in a paying down of the debt through increased tax receipts on the added economic activity. 

I think long term, inflation will take care of the bulk of debt reduction. There are some long-term demographic issues (aging population, population stagnation/decline) that aren't really compatible with traditional methods of growth. In the absence of a growing working-age population, other factors have to pick up the slack (like productivity gains). Maybe AI and other technological advances will be sufficient to sustain growth despite demographics, but that remains to be seen.

In order to inflate the debt away, wouldn't the rate of inflation have to outpace the growth of debt?  In the last 30 years the debt has gone up 800%.

No serious economists recommend eliminating the entire federal debt. Issuance of treasuries (federal debt instruments) are vital to the functioning of the modern financial system and various sectors of the economy. Sudden elimination of federal debt would probably have serious negative consequences. The only time we've done it in our history (1835), a massive depression happened afterwards, and that was well before huge portions of the global economy were tied to America's sovereign debt issuance. 

Keeping the Debt/GDP level manageable, so that interest rates can eventually (long-term horizon) rise back to more normal historical levels without destroying the ability of government to function would be the likely goal.
Who's goal, because that's sure as hell not what I am reading and hearing?  I'm on record here for supporting a living wage be paid to those who are willing to work fulltime.  It's overdue.  What I am hearing today on the news is scary.  Recurring payments?  Large unemployment kickers with no end date?  Why in the hell would anyone low skilled even want to add to our GDP by being productive?  

Back to my previous statement.  I see no sign whatsoever of the political will to even dream of a balanced budget.  I'll stick around for the liquidity ride and try to figure out when to jump off the train.  Very good subject BTW jalanlong.

Post-WWII, Debt/GDP levels were higher than they are now. The situation was different, as we were a net creditor nation and the only developed country on Earth with an intact manufacturing sector (and essentially had no meaningful competition on that front among capitalist economies for nearly two decades). 

The largest rises in our debt/GDP ratio occurred just after the 2008 financial crisis. COVID-related stuff barely merits a blip on the debt/GDP chart compared to what happened after 2008:

https://tradingeconomics.com/united-stat...ebt-to-gdp

Just before COVID happened, the Fed was in a slow, regular rate rise regime, with occasional taper tantrums. Debt/GDP had leveled off and was essentially flat. It doesn't take much debt reduction to get us back to where we were pre-COVID, with the stock market enjoying the longest (and most hated) bull market in history. The bond market hadn't returned yields to historical norms yet, as the Fed still had a lot of planned unwinding to do. I'm pretty confident that, without too much effort, Debt/GDP ratio can be maintained at current levels, and slowly reduced over time as the Fed begins to unwind. 

The second Clinton term saw the largest draw-down in the Debt/GDP ratio since WWII, from 65% to 55% in four years, with a backdrop of one of the best periods of economic growth since WWII (likely enhanced by the collapse of the Soviet Union opening new markets, China initially opening its markets to the U.S. due to Deng's reforms, as well as all of the productivity gains from personal computing). 

You'd need roughly double the proportionate reduction in Debt/GDP ratio as was achieved in 1996-2000 to get us back to where we were pre-2008 (federal funds rate of 5.25%). So, assuming the U.S. economy can continue to grow at even modest rates, that sort of scenario ought to be achievable within 15 years. 3% should be doable well before that.

That is assuming in that 15 years we haven't had 2-3 more "crisis" that make the government need to run trillion dollar deficits again multiple times.

I agree with Fenders.  I feel like the debt may eventually go parabolic.  We seem to have a public with an endless appetite for "free stuff" and politicians who are falling over themselves to give it to them.  And now for better or worse the answer to any crisis (or the hint of deflation) seems to be to spend money.  I just don't know how we can inflate our way out.  I think we have to hope for a good bit of economic growth to assist.
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