I need to figure out the line by line quoting thing...is there an easier way that manually tagging the sections?
1. Entitlement spending is over half the Federal Budget. Of course it is the prime contributor to the deficit. To ignore that fact is irresponsible.
While entitlement spending consumes most of the Federal budget, that doesn't necessarily make it the prime contributor to the deficit, particularly when much entitlement spending has a separate revenue source.
While entitlement spending consumes most of the Federal budget, that doesn't necessarily make it the prime contributor to the deficit, particularly when much entitlement spending has a separate revenue source.
That is an accounting trick. While on your pay stub and on the government books it's marked as separate, it goes to the same federal government. Much of that intragovernmental debt you mentioned earlier was the non-social security part of the government borrowing money from the social security fund. No sense in splitting it out. It gets rolled up into government revenues and budgets the same as any other spending item
2. Budget deficit spending rates decrease obfuscates the fact that that we still adding to our total debt, already at dangerously high levels. It's like saying, well, i have 10k in credit card debt, but over the next few months I will only add 1000 dollars, then 950 dollars, then 900 dollars.....etc. I've decreased the rate at which I'm adding to my debt so I'm in good shape! You say that because our interest rates are so low it's okay, that it's basically free money. It's not. even 1% interest rates add up when the debt is 16 trillion dollars. And this line of thinking only works if you assume deficits will continue to decrease, that we can grow our economy significantly, and that our creditors don't shut us off.
What's a "dangerously high level" of the debt? Compared to what?
Under what conditions should the government run a deficit?
Under what conditions will our creditors - most of whom are the government itself and the U. S. investing public - cut us off?
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Dangerously high debt can be determined through multiple criteria, but the primary one is if the debt payments start cutting into our ability to pay for necessary government services.
I'd say the virtually never, and if we do, for very short periods. I don't believe "stimulating growth" is a good reason to.
Creditors will cut us off when they think the US won't be able to pay them back.
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3. Just because creditors are buying US notes now, doesn't mean they will always do so. Everyone was buying subprime mortage debt until the crash. Creditors can be stupid. Depending on them to be stupid forever is risky.
Please demonstrate how subprime mortgage debt is similar to debts of the U. S. government.
Please substantiate your statement that "Everyone was buying subprime mortage (sic) debt until the crash", as I certainly didn't purchase any.
I was criticizing your idea that just because creditors are currently purchase something at a low price, it reflects the underlying "safety" of that asset. That could change at any time, as purchasers of sub-prime debt found out.
I obviously exaggerate with everyone, but any institutions that invested in the big investment banks that bought them encompasses quite a bit of people, wheteher directly, or indirectly.
4. Japan hardly seems the model for us to emulate. High spending on infrastructure projects and other "stimulus" and low GDP growth. Plus an aging populating which will decrease their tax base. It's a disaster waiting to happen.
I never stated that Japan was a model to emulate, but rather an example of a high-debt country with very low inflation. Show me what when debtors will stop purchasing Japanese debt and/or when the hyperinflation will start, which it hasn't in the 25 years since the Japanese slowdown began.
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Same issue as above. I don't need to
when Japan's creditors will stop buying their debt, I just know that if they do, Japan is screwed and will likely need to print money which will lead to hyperinflation. If there is a glass of water perched on the edge of a table, do I know when the next person will bump into it? No. But is it at risk of happening? Yes. Are the consequences severe? A glass of water falling, no. Hyperinflation? Yes.
5. I understand that the Fed has three goals. I only mentioned the one that was most relevant to the hyperinflation discussion.
You questioned the Fed's job performance while oversimplifying its mandate. If you're going to criticize the Fed and blame it for your imagined forthcoming hyperinflation, you need to take its entire mandate into account.
I don't blame the Fed. I think the root problem is excessive spending. I don't think the Fed wil be able to do much about that.
6. Hyperinlation is notable because of how disastrous it is, not it's lack of frequency in modern times. Look at Venezuela. That is what hyperinflation looks like. You obviously believe it's low probability, but if a low probability event can kill you, don't you think you shoud do something to protect yourself?
You stated "a lot has to go right for hyperinflation not to happen". That sounds like you think it's a sure thing, rather than a low-probability occurrence. I noted that historically, hyperinflation has only occurred exceptionally, rather than inevitably as you imply.
Show me how Venezuela's economy is relevant to the discussion of the U. S. economy, as I don't see the connection.
I'm entitled to decide what risks are relevant and need protection, and you haven't proven to me that U. S. hyperinflation is a risk I need to insure myself against. MMM agrees that some risks do not merit insurance.
I don't think it's a low probability occurence. The cases in which hyperinflation has occured have been due to government printing money due to excessive spending relative to its tax revenue. That looks a lot like the state of the US at the moment.
Venezuela is currently experiencing hyperinflation because they printed money to pay for excessive spending relative to its revenue, which collapsed along with oil prices. Fortunately, the US is not dependent solely on oil prices for revenue, however, it is still spending more than it has the ability to take in in tax revenues.
I realize I won't convince you, nor do I particularly care if anyone else does here. I am personaly doing it and I'm explaining why I'm doing it.
7. I don't understand why defaulting on debt "owed to ourselves" is not disastrous. What does that matter in a hyperinflation context?
You keep saying that our creditors will cut us off, and you haven't questioned my assertion that most federal debt is owned by the American people, who seem to continue to find the U. S. government creditworthy. Who are the creditors who will cut us off, and under what circumstances?
Okay so US Banks, pension funds, retail investors, etc. are currently buying US Federal Debt. If they begin to lose faith in the US Government's ability to pay, they will stop doing so. Because the government is financing so much of its debt from these creditors, it will either be forced to default, or print money.
You seem to be counting on the American people being willing to continue to finance the debt-repayments to themselves with their own money. Sort of a self-induced Ponzi scheme. While that has been true so far, I don't want to count on that going indefinitely.
8. If a market crash and recession happens, US tax revenue plummets, while spending remains constant (even higher if entitlement spending increases at the time). We either cut spending, or borrow. Politicians face huge backlash if they cut, so they will try to borrow. If there's no one to borow from, then they will print money. You're counting on aggregate demand going down so that the velocity of the money supply doesn't increase, but the existing federal expense still have to be paid for, and that money does get circulated. If all that is additional printed money, that's a situation ripe for a hyperinflation scenario.
Hmmmm we already did this 2008-present. Again, where is your inflation?
Honestly I am a bit puzzled at why it hasn't happened. I won't propose any theories here. However, the fact that it hasn't happened doesn't diminish the risk of it possibly happening. See earlier glass of water on edge of table analogy.
9. You can concurrently have a recession/depression and hyperinflation. The former can trigger the latter and the latter will exacerbate it.
Please demonstrate how a recession will lead to hyperinflation, and/or show an example from history and how it is relevant to the U. S. economy in 2016.
Recessions/depressions are typically a confidence game. If people think things are too bubbly, they get nervous. Institutional investors might start selling off assets, laying people of, etc. Recession happens, economic activity is low, and government tax revenues go down. Government response? Borrow and spend. In the absence of the ability to borrow, print and spend.
10. Why would I pay for your insurance policy, even if it is cheap? Your attempt to mock my recommendations is non-sensical.
I quite succeeded in mocking your recommendation, because $100,000 is not cheap. Alternatively, if you believe $100,000 to be cheap, then you should have no problem lending or giving it to me.
Why is converting $100k of USD to a foreign currency expensive? There are transaction fees (exchange fees and any travel), but as a hedge in order to preserve value of your cash assets, pretty low cost.
You might argue about the opportunity costs, but someone on another thread had a good expression for that, "Picking up pennies in front a steamroller."
Obviously, if you think the steamroller doesn't exist, then you wouldn't worry about it. I think there is one, and that's why I'll let the pennies go on 2 years of expenses so I don't get crushed.
Anyway, for the rest of the people reading this thread, I hardly need to state that you can do what you'd like as far your risk mitigation strategies. The case presented by elysianfields is fundamentally about estimation of the likelihood of a hyperinflation event. He argues that the probability is so low, you don't need to wory about it. I'm skeptical about his arguments because for hyperinflation not to happen, current conditions need to either stay the same or improve.
I'm worried because many things can happen to disturb the current equilbrium. The economy could crash, creditors can get antsy, we could get into another expensive war, etc. Even if I'm wrong about the probability and hyperinflation never occurs, the worst case is I have exposed myself to some currency risk by buying foreign currencies and have an emergency fund that I can convert back to USD is necessary.
If elysianfields is wrong and hyperinflation does happen and you have a lot of USD, it will become worthless very quickly. If you're invested in the markets, that will be an uncertain return. Many companies go out of business during a hyperinflation scenario. It's a lottery. So if you have USD and Stocks, you could potentially be completely wiped out.
So do what you like.