Do we Cancel Everything? You still Travelling??

[dave2013 1,130]

1 hour ago, sightseer said:

@dave2013  can you tell me what you mean by "treasury debt never gets paid back anyway"?

paid to whom?

The govt. never pays down the debt.  When the principal comes due they just roll it over into a new debt issue.

Most govts. will never be able to pay down their debt as it would mean a drastic cut in spending or a drastic increase in taxes, which they know they cannot do.  They are trapped.

Dave

[birdguy 3,943]

Are you saying, Dave, that unlike debt consumers incur like credit card debt, car loans and home mortgages which is money owed to someone else and must be paid back that government debt is money owed to itself?  Can this go on ad infinitum? If not I assume there will be a reckoning.  What happens then?

I'm not an economist therefore the question.

Noel

 

[dave2013 1,130]

1 minute ago, birdguy said:

Are you saying, Dave, that unlike debt consumers incur like credit card debt, car loans and home mortgages which is money owed to someone else and must be paid back that government debt is money owed to itself?  Can this go on ad infinitum? If not I assume there will be a reckoning.  What happens then?

I'm not an economist therefore the question.

Noel

 

Yes.  When the U.S. govt. borrows money, much of it comes from outside the country.  They have to pay higher interest rates in order to entice those other countries, as well as domestic investors, to buy the debt.

If the federal reserve bank creates the money and buys those bonds, it amounts to almost the same thing, i.e. money is coming from outside and being added to the economy.  The big difference is that the federal reserve bank charges a lot less interest.

I think this can go on for a very long time.  It has already been going on for about 35 years.  The cost is that prices go up, and up, and up.  Just consider food and health care costs which rise annually much more than the 2% the govt. claims.  Wages barely keep up, so no one, except the very wealthy and well connected, ever really gets ahead.

It's a scam, really, but to be fair the govts. don't really have a choice as their citizens demand this and that but no one wants to pay for it.

Dave

[sightseer 895]

3 hours ago, dave2013 said:

Well, there is a great demand for U.S. treasuries by other countries, institutional investors, and individual investors for a few reasons:

 

 

1 hour ago, dave2013 said:

Yes.  When the U.S. govt. borrows money, much of it comes from outside the country.  They have to pay higher interest rates in order to entice those other countries, as well as domestic investors, to buy the debt.

 

You've contradicted yourself here it seems. (Note that I agree with you on several points but I also disagree on a few)

there is current demand for bonds because stocks tanked.  With demand for bonds up, issuers can pay lower returns and people will still buy them.

I paid some of the highest prices I remember (for food) around 2005 when money owed to the Fed by the Treasury was much less but the price of oil was high.  The CPI includes services but not energy as you say and thats just wrong.(I agree with you)

The treasury owes money to individuals and entities inside and outside the US.  It also owes money to US taxpayers.  Thats what "Intragovernmental debt" is.  It has already been collected as taxes and was used to buy bonds that were put into various Trust Funds.

Im not an economist either.  My main worries are that the working guy will get shafted as always.

Current household net worth (which accounts for debt) is sitting around 100 trillion dollars and most of that is held by 10% of the population.  The bottom 50% are worth about 1.5 trillion. This chart I linnked says 118 trillion but it stops in March 2020.

https://fred.stlouisfed.org/series/TNWBSHNO

Edited May 5, 2020 by sightseer

[birdguy 3,943]

Thanks Dave for the lesson in economics.  I assume the more the government borrows in any given year the greater the inflation rate.  That 4 trillion being doled out to us is going to raise prices how much?  Does anyone know?  Is there a formul for that or does it depend on  a lot of other things too.?

Noel

 

 

[sightseer 895]

@birdguy  Noel - In my opinion, inflation is less damaging than a lack of liquidity.

Liquidity is really what its all about as a lack of money moving through the economy (aka liquidity) is what causes the permanent damage and so in times of recession the government increases its spending (stimulus to citizens or works projects) to keep things moving.

[birdguy 3,943]

Since the latest posts on tis thread have to do with economics I thought I'd jump back in because I know little about economics beyond if I don't have enough money for rent and groceries I'm poor and if I can send my children to summer camp on a chartered jet I'm rich.

I sent the link to the economics thread HiFlyer posted, Coronavirus and the Limits of Economics, to an economics professor friend of mine.  I got his reply a while go.

I'm making my way through it. New School is very progressive on social issues. It's a graduate school only. No  undergrads. So they tend to be a lot more political than most economic schools. That clouds things because you have  separate the economic issues from the political issues. Economists try to explain how things work, but it's up to policy makers to make things work. Economists advise policy makers. He mixes it all up, and I'm not sure we're left with any more economic insight than before the article.

It's interesting though, and I'll plow through it a second time and see what I can make of it. My first impression is we don't need to rethink economics. Policy makers need to USE economics to rethink policy.

Noel

[TuFun 435]

Todays headlines...

"Scientists say a now-dominant strain of the coronavirus appears to be more contagious than original"

 

Scientists have identified a new strain of the coronavirus that has become dominant worldwide and appears to be more contagious than the versions that spread in the early days of the COVID-19 pandemic, according to a new study led by scientists at Los Alamos National Laboratory.

More info...

https://news.yahoo.com/mutant-coronavirus-emerged-even-more-110046843.html

[HiFlyer 9,359]

1 hour ago, birdguy said:

That clouds things because you have  separate the economic issues from the political issues. Economists try to explain how things work, but it's up to policy makers to make things work. Economists advise policy makers. He mixes it all up, and I'm not sure we're left with any more economic insight than before the article.

Yup' that was the whole point that was being made, that traditional economic thinking might be ill-prepared for this type of situation, and that there's a case to be presented that the nature of the crisis could and perhaps should invite reexamination of the interconnections between the economy and other factors, including the moral and political. The author meant it to spark a discussion, and, as I said at the top of the post, to be food for thought.

The top of the article even says "Argument" 

Quote

A rational response to the pandemic requires recognizing that interdependencies between the spheres of life are central to economic phenomena just as they are to epidemiology. The kind of knowledge that is required demands active collaboration between the various social and natural sciences. Whether it is in conceptualizing the public interest, making sense of the relation between what is rational when viewed individually and when viewed collectively, recognizing the role of fundamental uncertainty and the consequent need for judgment and justification in making public policies, understanding the economy in its social context, or in other ways, the discipline of economics must open itself to new insights and retrieve old ones.

 

Edited May 5, 2020 by HiFlyer
Grammer..... Again.

[dave2013 1,130]

4 hours ago, sightseer said:

 

You've contradicted yourself here it seems. (Note that I agree with you on several points but I also disagree on a few)

there is current demand for bonds because stocks tanked.  With demand for bonds up, issuers can pay lower returns and people will still buy them.

I paid some of the highest prices I remember (for food) around 2005 when money owed to the Fed by the Treasury was much less but the price of oil was high.  The CPI includes services but not energy as you say and thats just wrong.(I agree with you)

The treasury owes money to individuals and entities inside and outside the US.  It also owes money to US taxpayers.  Thats what "Intragovernmental debt" is.  It has already been collected as taxes and was used to buy bonds that were put into various Trust Funds.

Im not an economist either.  My main worries are that the working guy will get shafted as always.

Current household net worth (which accounts for debt) is sitting around 100 trillion dollars and most of that is held by 10% of the population.  The bottom 50% are worth about 1.5 trillion. This chart I linnked says 118 trillion but it stops in March 2020.

https://fred.stlouisfed.org/series/TNWBSHNO

I don't know if I contradicted myself, but maybe I did.  This is coming from years of reading about this stuff, but it's been a while since I really delved into it.

The interest rates are based on risk, so maybe I shouldn't say that the govt.has to pay higher rates to entice others to buy the debt.  They pay whatever the market demands.  The govt. does, however, try to artificially keep the interest rate low by getting the federal reserve to buy more bonds, thus creating demand. 

Demand for U.S. treasuries is always pretty high because other countries and institutional investors need a place to park their cash and earn a return, so they choose treasuries of stable countries who they believe can pay them back.

Right now, when the federal reserve prints money and buys treasuries, the govt. has to pay them interest.  My theory, and it's a theory that others share, is that it would be better to simply bypass the federal reserve, as well as borrowing in general, and just print the money and use it in times of great need, like now.  That way at least the govt. wouldn't have to pay any interest. 

You are right about liquidity.  In a recession the federal reserve can make cheap money available so the credit markets and banks don't collapse.  Also, in order to prevent a depression, the govt. can borrow money, created or otherwise, and spend it, thus creating artificial demand.

As to Noel's question about a direct correlation between amount of money created and prices, well, I'm not sure about that.  It is not directly proportional, though.  Not all the money gets into circulation quickly, or at all.  Banks hold on to a lot of it to shore up their reserves, for example.  There are many factors.  For example, if the people of a nation lose hope and fear the worst, you can print all the money in the world and inject it into the economy, but those people will hoard it instead of spending it, so it won't do all that much good other than perhaps keeping things functioning at a subsistence level.  This is actually a danger in our present situation where many folks are afraid to go out and engage in economic activity due to Covid-19.

Who knows where all this "creative finance" will ultimately lead?

Dave

Edited May 5, 2020 by dave2013

[n4gix 4,947]

6 minutes ago, dave2013 said:

Who knows where all this "creative finance" will ultimately lead?

Unless the government is very careful, fiat money can lead to hyperinflation, like what happened in post-war Germany when it took literally a wheelbarrow of "money" to buy a loaf of bread, if any was available that is.

[Luke 782]

1 hour ago, n4gix said:

Unless the government is very careful, fiat money can lead to hyperinflation, like what happened in post-war Germany when it took literally a wheelbarrow of "money" to buy a loaf of bread, if any was available that is.

While that's been repeatedly true in the 20th Century, I question just how much monetary expansion it will take to bring back inflation with an aging population and other secular deflationary trends. Japan, the US, and parts of Europe have been spending (and printing) money left and right with no apparent effect on inflation.

Cheers!

[Matthew Kane 1,343]

As the G20 is all spending equal to each other it remains in equilibrium. Post War is a different scenario because the Axis Nations were bankrupt creating an imbalance, or an economic disparity, this scenario means everyone is going bankrupt together

Edited May 6, 2020 by Matthew Kane

[Alan_A 1,650]

Man... I take a day off to write about environmental, social and governance programs in the oil and gas industry - a topic I don't know anything about, so thank god for research and interviews - and I come back here and a discussion has broken out about monetary policy, which I also don't know much of anything about.  Reading it with lots of interest, though.

All I've got tonight is some odds and ends to catch up on...

6 hours ago, TuFun said:

"Scientists say a now-dominant strain of the coronavirus appears to be more contagious than original"

Which is worrisome if true, but it may not be what it seems.  I came across this Twitter thread by a professor at Harvard's Chan School of Public Health, reacting to a scholarly preprint on mutations.  Short version of his take - finding different forms of the virus doesn't necessarily mean that it's actively mutating into something more dangerous.  It could just be that there are multiple strains, and this one happens to have traveled when others didn't. Technical terms are "founder effect" (for a mutation that just happened to exist, jumped on an airplane and became dominant because it was lucky and got widely transmitted while others didn't) and a "functional mutation" that makes the virus more dangerous or more efficient. Washington State gets two strains, and it looks like one is replacing the other. But what's more likely is that the second one arrived from a different direction (east coast).  They decline at pretty much the same time.

Separately, for @MartinRex007 - I just came across this article, which is the most complete critique I've read of the IHME model.  It's a couple of weeks old, so it refers to the previous one.  Make me think even more that the new model is their reaction to these criticisms.  Found it via this Twitter thread by Marc Lipsitch, where he talks about models vs. evidence in epidemiology (spoiler alert - he says you need both). He also links to this aviation-themed article about why you can't just rely on randomized results.

EDIT: The abstract of the aviation-themed article is worth quoting in full...

 

Quote

 

Abstract

Objective To determine if using a parachute prevents death or major traumatic injury when jumping from an aircraft.

Design Randomized controlled trial.

Setting Private or commercial aircraft between September 2017 and August 2018.

Participants 92 aircraft passengers aged 18 and over were screened for participation. 23 agreed to be enrolled and were randomized.

Intervention Jumping from an aircraft (airplane or helicopter) with a parachute versus an empty backpack (unblinded).

Main outcome measures Composite of death or major traumatic injury (defined by an Injury Severity Score over 15) upon impact with the ground measured immediately after landing.

Results Parachute use did not significantly reduce death or major injury (0% for parachute v 0% for control; P>0.9). This finding was consistent across multiple subgroups. Compared with individuals screened but not enrolled, participants included in the study were on aircraft at significantly lower altitude (mean of 0.6 m for participants v mean of 9146 m for non-participants; P<0.001) and lower velocity (mean of 0 km/h v mean of 800 km/h; P<0.001).

Conclusions Parachute use did not reduce death or major traumatic injury when jumping from aircraft in the first randomized evaluation of this intervention. However, the trial was only able to enroll participants on small stationary aircraft on the ground, suggesting cautious extrapolation to high altitude jumps. When beliefs regarding the effectiveness of an intervention exist in the community, randomized trials might selectively enroll individuals with a lower perceived likelihood of benefit, thus diminishing the applicability of the results to clinical practice.

 

 

I've got some more thoughts about the economy but no brainpower left so... 'til tomorrow!

Edited May 6, 2020 by Alan_A

[MartinRex007 390]

3 hours ago, Alan_A said:

finding different forms of the virus doesn't necessarily mean that it's actively mutating into something more dangerous.

If you want to see a nice animated graph of how SARS-CoV-2 mutates as it travels across the world go to this link and go down to the second graph showing the world. Click Reset then Play in the top left corner. You'll see where it began in Wuhan China in purple, and each time it changes color it is mutating. These are usually simple mutations of base pairs, but through genomic epidemiology it allows you to trace the origin of the virus with a lot of details as it spreads and mutates across the world.  

https://www.gisaid.org/epiflu-applications/next-hcov-19-app/

 

Martin