Economist Stephanie Kelton on The Deficit Myth

[Alcoholic Actuary]

Something about taking money out of your left pocket to pay your right hand . . I don't know - right wingers, help me out.

aa

 

[DBT]

Something about taking money out of your left pocket to pay your right hand . . I don't know - right wingers, help me out.

aa

One hand paying the other while using inflation to devalue the size of debt.
Sleight of hand performed by the master magicians of economics using their special set of fiscal tricks and mumbo jumbo terminology.

 

[Canard DuJour]

Something about taking money out of your left pocket to pay your right hand . . I don't know - right wingers, help me out.

aa

Right wingers : OMG they're taking money out of the left pocket to pay the right - teh sky is falling!!!1!

Left wingers : Calm down, they're just taking money out of the left pocket to pay the right.

 

[J842P]

What case, exactly? Why must it cause one of those? Why do you say there is no way to pay that debt? Please, show your reasoning.

The debt is too large. The only real way to pay debt is to raise taxes which would hurt the economic "growth" which is the reason why you have debt in the first place - nobody wanted to hurt the "economy".

None of this is true, as far as I can tell, you are pulling it out of your own ass.

 

[barbos]

What case, exactly? Why must it cause one of those? Why do you say there is no way to pay that debt? Please, show your reasoning.

The debt is too large. The only real way to pay debt is to raise taxes which would hurt the economic "growth" which is the reason why you have debt in the first place - nobody wanted to hurt the "economy".

None of this is true, as far as I can tell, you are pulling it out of your own ass.

All I said is true.

 

[barbos]

I conceded nothing. Holding govt debt is just a swap - an interest bearing asset instead of a non-interest bearing one.

The debt may never be paid back, but it will be serviced.

That's why debt holders hope they die before it crashes.

So why, in your world, would an investor buy US Treasuries?

They would buy it because they have no alternative. Largest economy and historically US Treasuries have been 100% safe..... so far.

 

[barbos]

I conceded nothing. Holding govt debt is just a swap - an interest bearing asset instead of a non-interest bearing one.

The debt may never be paid back, but it will be serviced.

That's why debt holders hope they die before it crashes.

Why would it crash? Is the USA planning to retire, die, or become totally and permanently disabled? Because those are the reasons why personal debt always needs to be paid off in full at some point. Nation states are not only immortal; Their ability to earn increases massively over time.

Greece, Argentina, Italy were not planning to retire either.

 

[barbos]

Did the people who lived thru World War 2 hope to die because of that debt?

I resent your comparison of debt to kill Hitler with debt to buy an iPhone.
That debt was a reason why it was invented - for actual emergencies.
Current debt was mostly wasted and stolen.

I didn't bring up iPhones, and you didn't answer the question.

You obviously did not.

Are you retrenching? Is your new position that people hope to die when there is debt that you don't approve of?

No I am not retrenching. Current US debt level IS worrisome. Yes, there are retards who seriously say that there is nothing to worry about at all, and if needed US could simply print 20 trillions and ship it over.

 

[laughing dog]

None of this is true, as far as I can tell, you are pulling it out of your own ass.

All I said is true.

Not even close.

Right now, US debt as a share of GDP is not even at its historically largest level (after WWII), and the US had no trouble with debt. You have made no argument based on data why any sane person should be worried about the US debt at this time.

Instead, you parrot the mindless memes of economic ignoramuses.

 

[DBT]

What does Investopedia say:


KEY TAKEWAYS

The national debt level of the United States is a measurement of how much the government owes its creditors.

Since the government almost always spends more than it takes in via taxes and other income, the national debt continues to rise.

The majority of the national debt is issued in the form of government bonds, known as Treasuries.

Some worry that excessive government debt levels can impact economic stability with ramifications for the strength of the currency in trade, economic growth, and unemployment.

Others say the national debt is manageable and people should stop worrying.

The National Debt Affects Everyone

''Given that the national debt has recently grown faster than the size of the American population, it is fair to wonder how this growing debt affects average individuals. While it may not be obvious, national debt levels directly affect people in at least five ways.

First, as the national debt per capita increases, the likelihood of the government defaulting on its debt service obligation increases, and therefore the Treasury Department will have to raise the yield on newly issued treasury securities to attract new investors. This reduces the amount of tax revenue available to spend on other governmental services because more tax revenue will have to be paid out as interest on the national debt. Over time, this shift in expenditures will cause people to experience a lower standard of living, as borrowing for economic enhancement projects becomes more difficult.

Second, as the rate offered on treasury securities increases, corporations operating in America will be viewed as riskier, necessitating an increase in the yield on newly issued bonds. This, in turn, will require corporations to raise the price of their products and services to meet the increased cost of their debt service obligation. Over time, this will cause people to pay more for goods and services, resulting in inflation.

Third, as the yield offered on treasury securities increases, the cost of borrowing money to purchase a home will increase because the cost of money in the mortgage lending market is directly tied to the short-term interest rates set by the Federal Reserve and the yield offered on treasury securities. Given this established interrelationship, an increase in interest rates will push home prices down, because prospective home buyers will no longer qualify for as large of a mortgage loan since they will have to pay more of their money to cover the interest expense on the loan they receive. The result will be more downward pressure on the value of homes, which in turn will reduce the net worth of all homeowners.

Fourth, since the yield on U.S. Treasury securities is currently considered a risk-free rate of return, and as the yield on these securities increases, risky investments such as corporate debt and equity investments will lose appeal. This phenomenon is a direct result of the fact it will be more difficult for corporations to generate enough pre-tax income to offer a high enough risk premium on their bonds and stock dividends to justify investing in their company. This dilemma is known as the crowding out effect and tends to encourage the growth in the size of the government and the simultaneous reduction in the size of the private sector.

Fifth, and perhaps most importantly, as the risk of a country defaulting on its debt service obligation increases, the country loses its social, economic and political power. This, in turn, makes the national debt level a national security issue.''

 

[barbos]

DBT, good explanation which agrees with me, or I agree with that.
Were you trying to contradict?

Speaking of low bond yield, proponents of everything is fine like to appeal to it as a proof that everything is fine, debt is servicable, but as I mentioned US is still a more less largest economy with the largest military who can push around anyone anywhere and its bonds is still a last resort. That makes it superficially stable, whenever financial shit happens somewhere everyone runs to US bonds as an ultimate safe haven.
Once US loses that status (Yes, I am looking at China) all the debt weight would suddenly start feel very real and unserviceable . And one of the ways to lose that status prematurely is by piling up too much debt.

 

[DBT]

DBT, good explanation which agrees with me, or I agree with that.
Were you trying to contradict?

It was a general comment. Not aimed at anyone.

 

[Canard DuJour]

First, as the national debt per capita increases, the likelihood of the government defaulting on its debt service obligation increases, and therefore the Treasury Department will have to raise the yield on newly issued treasury securities to attract new investors (..etc)

Nah :

​

"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." - Alan Greenspan, then Fed Chairman.

The rest seems to be based on this misconception. It was arguably true under the gold standard and for Eurozone countries. For monetary sovereigns which "borrow" in their own floating currencies (not pegged to any commodity or other currency), it's nonsensical and whoever wrote it simply hasn't been paying attention..

Govts of most advanced economies have "borrowed" substantially since the GFC while yields on their bonds have continuously fallen. For example, Britain's debt-to-GDP ratio rose from 40% to over 80% while bond yields fell from ~4.5% to below 0.5%. After inflation, the bond market is effectively paying the govt to borrow.

Not because bond markets love high debt to GDP ratios, but because there is zero default risk (unlike, say, Greece) and because the central bank can effectively set bond yields by taking govt debt onto its balance sheet. Wannabe "bond vigilantes" are powerless against central banks with infinitely deep pockets, and which can bypass the bond market altogether if the govt wants them to. Japan's been doing it for decades and now has debt-to-GDP >200% with effectively negative bond yields.

[YOUTUBE]https://www.youtube.com/watch?v=je-1eTl6J0g[/YOUTUBE]​

Fourth, since the yield on U.S. Treasury securities is currently considered a risk-free rate of return,

..points one to three are therefore flapdoodle. As is point five:

Fifth, and perhaps most importantly, as the risk of a country defaulting on its debt service obligation increases, the country loses its social, economic and political power. This, in turn, makes the national debt level a national security issue.'

Pfft.

 

[SimpleDon]

What does Investopedia say:


KEY TAKEWAYS

The national debt level of the United States is a measurement of how much the government owes its creditors.

Since the government almost always spends more than it takes in via taxes and other income, the national debt continues to rise.

The majority of the national debt is issued in the form of government bonds, known as Treasuries.

Some worry that excessive government debt levels can impact economic stability with ramifications for the strength of the currency in trade, economic growth, and unemployment.

Others say the national debt is manageable and people should stop worrying.

The National Debt Affects Everyone

''Given that the national debt has recently grown faster than the size of the American population, it is fair to wonder how this growing debt affects average individuals. While it may not be obvious, national debt levels directly affect people in at least five ways.

First, as the national debt per capita increases, the likelihood of the government defaulting on its debt service obligation increases, and therefore the Treasury Department will have to raise the yield on newly issued treasury securities to attract new investors. This reduces the amount of tax revenue available to spend on other governmental services because more tax revenue will have to be paid out as interest on the national debt. Over time, this shift in expenditures will cause people to experience a lower standard of living, as borrowing for economic enhancement projects becomes more difficult.

Second, as the rate offered on treasury securities increases, corporations operating in America will be viewed as riskier, necessitating an increase in the yield on newly issued bonds. This, in turn, will require corporations to raise the price of their products and services to meet the increased cost of their debt service obligation. Over time, this will cause people to pay more for goods and services, resulting in inflation.

Third, as the yield offered on treasury securities increases, the cost of borrowing money to purchase a home will increase because the cost of money in the mortgage lending market is directly tied to the short-term interest rates set by the Federal Reserve and the yield offered on treasury securities. Given this established interrelationship, an increase in interest rates will push home prices down, because prospective home buyers will no longer qualify for as large of a mortgage loan since they will have to pay more of their money to cover the interest expense on the loan they receive. The result will be more downward pressure on the value of homes, which in turn will reduce the net worth of all homeowners.

Fourth, since the yield on U.S. Treasury securities is currently considered a risk-free rate of return, and as the yield on these securities increases, risky investments such as corporate debt and equity investments will lose appeal. This phenomenon is a direct result of the fact it will be more difficult for corporations to generate enough pre-tax income to offer a high enough risk premium on their bonds and stock dividends to justify investing in their company. This dilemma is known as the crowding out effect and tends to encourage the growth in the size of the government and the simultaneous reduction in the size of the private sector.

Fifth, and perhaps most importantly, as the risk of a country defaulting on its debt service obligation increases, the country loses its social, economic and political power. This, in turn, makes the national debt level a national security issue.''

These are all in one way or another based on the fallacy that the US is will at some point have to default on its national debt. As long as it is in dollars there is no reason that this has to occur.

The belief that the US will at some point have to default on its national debt, which is not held by even the most doctrinal neoclassical economists, is based on the confusion between the national debt and household consumer debt.

To all who believe in this fallacy please answer this question, if you could print as much valid US currency as you needed would you declare bankruptcy because of your credit card debt? Would you even have credit card debt?

The so-called national debt is more than just a debt, it is also by far the main part of our national savings of businesses and individuals. This is why you can't ever pay off the national debt. You would also be destroying our national savings.

To destroy our national savings, which the believers in the fallacy say that we have to do, the government has to raise taxes beyond what it requires for the national government's needs and to destroy the surplus that it takes in. Instead of running the national printing press to create money it would run the national shredder destroying money.

 

[Horatio Parker]

So why, in your world, would an investor buy US Treasuries?

They would buy it because they have no alternative. Largest economy and historically US Treasuries have been 100% safe..... so far.

So all investors hope their investments won't "crash before they die". Which renders your assertion meaningless.

 

[Horatio Parker]

What does Investopedia say:


KEY TAKEWAYS

The national debt level of the United States is a measurement of how much the government owes its creditors.

Since the government almost always spends more than it takes in via taxes and other income, the national debt continues to rise.

The majority of the national debt is issued in the form of government bonds, known as Treasuries.

Some worry that excessive government debt levels can impact economic stability with ramifications for the strength of the currency in trade, economic growth, and unemployment.

Others say the national debt is manageable and people should stop worrying.

The National Debt Affects Everyone

''Given that the national debt has recently grown faster than the size of the American population, it is fair to wonder how this growing debt affects average individuals. While it may not be obvious, national debt levels directly affect people in at least five ways.

First, as the national debt per capita increases, the likelihood of the government defaulting on its debt service obligation increases, and therefore the Treasury Department will have to raise the yield on newly issued treasury securities to attract new investors. This reduces the amount of tax revenue available to spend on other governmental services because more tax revenue will have to be paid out as interest on the national debt. Over time, this shift in expenditures will cause people to experience a lower standard of living, as borrowing for economic enhancement projects becomes more difficult.

Second, as the rate offered on treasury securities increases, corporations operating in America will be viewed as riskier, necessitating an increase in the yield on newly issued bonds. This, in turn, will require corporations to raise the price of their products and services to meet the increased cost of their debt service obligation. Over time, this will cause people to pay more for goods and services, resulting in inflation.

Third, as the yield offered on treasury securities increases, the cost of borrowing money to purchase a home will increase because the cost of money in the mortgage lending market is directly tied to the short-term interest rates set by the Federal Reserve and the yield offered on treasury securities. Given this established interrelationship, an increase in interest rates will push home prices down, because prospective home buyers will no longer qualify for as large of a mortgage loan since they will have to pay more of their money to cover the interest expense on the loan they receive. The result will be more downward pressure on the value of homes, which in turn will reduce the net worth of all homeowners.

Fourth, since the yield on U.S. Treasury securities is currently considered a risk-free rate of return, and as the yield on these securities increases, risky investments such as corporate debt and equity investments will lose appeal. This phenomenon is a direct result of the fact it will be more difficult for corporations to generate enough pre-tax income to offer a high enough risk premium on their bonds and stock dividends to justify investing in their company. This dilemma is known as the crowding out effect and tends to encourage the growth in the size of the government and the simultaneous reduction in the size of the private sector.

Fifth, and perhaps most importantly, as the risk of a country defaulting on its debt service obligation increases, the country loses its social, economic and political power. This, in turn, makes the national debt level a national security issue.''

Nonsense. The govt is not dependent on the willingness of creditors to lend. It can, and has, simply directed its central bank to buy the issues. As others have pointed out, Japan has been doing this for decades with an effectively negative yield. It can thus control the supply and therefore the price and yield of its bonds. That is why sovereign debt issuance isn't really borrowing. You're not really borrowing if you can buy your own IOUs.

 

[barbos]

Nonsense. The govt is not dependent on the willingness of creditors to lend. It can, and has, simply directed its central bank to buy the issues. As others have pointed out, Japan has been doing this for decades with an effectively negative yield. It can thus control the supply and therefore the price and yield of its bonds. That is why sovereign debt issuance isn't really borrowing. You're not really borrowing if you can buy your own IOUs.

So the whole thing is a Kabuki theater?
...
The Idiot in the video was I think discussing reissuing debt - exchanging bonds which matured with a new ones, this is a completely meaningless and technical procedure. What is meaningful is a new debt which is sold for a hard cash, which government need to pay for crap it does or buy.

And I think it was well established that Alan Greenspan is an idiot, very confident bullshitter and an idiot.

 

[Canard DuJour]

So the whole thing is a Kabuki theater?

Yep.

As Dr Kelton put it in the FT the other day:

"So today, governments sell bonds to protect something more valuable than gold: a well-guarded secret about the true nature of their fiscal capacities, which, if widely understood, might lead to calls for “overt monetary financing” to pay for public goods. By selling bonds, they maintain the illusion of being financially constrained."

And, hey, maybe it's no bad thing. Because why wouldn't govts eventually devalue their currencies if they weren't handcuffed to the debt bogeyman?

Just see it for what it is.

 

[Horatio Parker]

Nonsense. The govt is not dependent on the willingness of creditors to lend. It can, and has, simply directed its central bank to buy the issues. As others have pointed out, Japan has been doing this for decades with an effectively negative yield. It can thus control the supply and therefore the price and yield of its bonds. That is why sovereign debt issuance isn't really borrowing. You're not really borrowing if you can buy your own IOUs.

So the whole thing is a Kabuki theater?
...
The Idiot in the video was I think discussing reissuing debt - exchanging bonds which matured with a new ones, this is a completely meaningless and technical procedure. What is meaningful is a new debt which is sold for a hard cash, which government need to pay for crap it does or buy.

And I think it was well established that Alan Greenspan is an idiot, very confident bullshitter and an idiot.

If by Kabuki theater you mean completely from the mind of man, then yes. The real subtlety IMO though is that so called hard currencies, e.g. gold backed, are equally subjective. The restraint is equally artificial, equally self imposed.

However, you still don't seem to understand that currencies are govt's tool to provision itself. Govt creates the revenue by fiat, then demands it back in taxes. That creates a demand for the currency, since people want to avoid penalty. "Hard cash" and govt debt are the same thing.

Another thing which might be throwing you is pegging i.e. fixing your currency to another. In the case of Russia's default, the govt was not insolvent, it made a policy decision that it would not relinquish its foreign exchange reserves to the peg. Meaning, when the rubles future started to look uncertain, investors decided they'd rather have dollars. Notice again the prominence of foreign exchange. The US does not maintain foreign exchange reserves.

I agree with you wrt Greenspan. However, he does have credibility in circles where Stephanie Kelton doesn't, so public statements he's made that are consistent with MMT are useful in these discussions.

 

[ElysianFields]

The US hasn't paid off the national debt since a very brief period in 1835-1836. Hasn't been a problem, and the US' prosperity continues.