Politicians Paranormal Economics

This article targets democrats however I find the GOP equally as culpable.

US government debt now stands at $27 trillion, or roughly 200% of GDP. This should be a concern, but Democratic economists are not worried. A much-discussed November 30 paper by former Treasury Secretary Lawrence Summers and former Council of Economic Advisors Chairman Jason Furman suggests that Democratic thinking has veered into the paranormal, with an emphasis on levitation. Governments will be able to borrow and spend as much as they want for whatever purpose they want, the authors argue in so many words, and interest rates will remain low forever.

As Washington Post editorialist Charles Lane commented Dec. 7, “Far from burdening future generations, governments have a golden opportunity to fund long-standing needs by borrowing for investments in future prosperity—the list includes child care, early education, job training and clean water.”

The argument so easily refuted by casual reference to the facts that it takes a doctorate from Harvard (which both Summers and Furman hold) to suspend disbelief in the obvious. The authors aver:

We note that with massive increases in budget deficits and government debt, expansions in social insurance, and sharp reductions in capital tax rates, one would have expected to see increasing real rates if private sector behavior had remained constant. We suggest that changes in the supply of saving associated with lengthening life expectancy, rising uncertainty and increased inequality along with reductions in the demand for capital associated with demographic changes, demassification of the economy, and perhaps changes in corporate behavior have driven real interest rates down. This characterization is rather like Hamlet without the Ghost, for the ghost in the interest machine during the past decade has been the Federal Reserve Board’s multi-trillion-dollar purchases of Treasury and agency securities. Summers and Furman do not mention this in their 50-page excursus.

It surely is the case that the aging of the industrial nations’ population prompts people to save more, and that higher savings rates depress interest rates, but the collapse of real Treasury yields to the negative 1% range during the course of 2020 had nothing to do with the savings rate, but rather with the Federal Reserve’s unprecedented purchases of public debt.

No deleterious consequences attach to the explosion of public debt, according to Summers and Furman, who

… reconsider traditional views about the dangers of debt and deficits. We note that in a world of unused capacity and very low interest rates and costs of capital, concerns about crowding out of desirable private investment that were warranted a generation ago have much less force today. We argue that debt-to-GDP ratios are a misleading metric of fiscal sustainability that do not reflect the fact that both the present value of GDP has risen and debt service costs have fallen as interest rates have fallen. Instead we propose that it is more appropriate to compare debt stocks to the present value of GDP or interest rate flows with GDP flows.

But it is perverse to use “interest rate flows” as a benchmark, because the interest rate is manipulated downward by the Federal Reserve (which, as noted, the authors do not mention). The collapse of real yields during quantitative easing, moreover, puts the US dollar and the whole currency system at risk. This is reflected in the price of gold, which roughly tripled during quantitative easing, and tracked the fall in real Treasury yields closely.

The 10-year TIPS yield explains about 80% of the change in the gold price during the past thirteen years (the r2 of regression of gold against the 10-year TIPS yield is 0.8). That is no surprise, because the two assets have similar functions. Gold is not a currency (because most governments do not make it legal tender), but it is a sort of shadow currency, a “primitive relic” (Keynes) to which countries must fall back if the value of fiat currency collapses. In effect, gold is an insurance policy against currency collapse. Inflation-indexed Treasuries perform a similar function; if the dollar collapses and inflation rises sharply, they will protect investors. They also offer protection in the case of extreme deflation (because their coupon rise when the Consumer Price Index rises, but does not fall if the Consumer Price Index turns negative).

The close relationship between real interest rates and gold makes clear that the risk to the monetary system has increased drastically as the deficit rose during the past decade and a half. The decline in real interest rates thus reflects a higher price for hedges against extreme movements in the value of the national currency (as the price of inflation-indexed securities rises, the yield falls). We observe the same pattern in the long-term relationship between the US federal deficit (expressed as a percentage of nominal GDP) and gold. The greater our deficit, the more the world is willing to pay for insurance against the collapse of our currency.

The price of insurance against a currency collapse has risen, but that does not mean such a collapse is inevitable. Why can’t the United States simply ignore the warning signals, as Furman and Summers propose, and continue to borrow and spend? Japan’s government debt now stands at 240% of GDP, more than twice the American ratio. Japan appears able to sustain a much higher debt burden. Why can’t the United States?

If the United States were to issue debt in order to rebuild its industrial base and reduce the current account deficit, increased debt might be justified. That is not the form that deficit spending is likely to take under a Biden Administration, which is likely to offer lip service to investment in technology while spending lavishly on social and environmental programs.

The difference is that Japan has a current account surplus and nearly $4 trillion in net foreign assets, while the US has a current account deficit and a net international investment position of negative $13 trillion. Japan finances its government debt by selling bonds to Japanese institutions and households. The dollar is the world’s principal reserve currency, which gives the United States the benefit of free or cheap credit from the rest of the world. Foreigners hold trillions of dollars of deposits in dollars to pay for transactions, and these constitute a loan to the United States.

I do not believe that the dollar’s reserve status is in immediate danger, but the world has shifted markedly away from dollars during the past several years. As of late 2020 the world cleared as many transactions in Euros as in dollars through the interbank SWIFT electronic transfer system.

The dollar may be overripe as a world reserve currency, but there is no easy replacement. Japan and Europe have economic problems of their own. Gold is extremely cumbersome as a substitute for electronic transfers, and digital currencies do not inspire the same confidence as fiat currencies backed by central banks and governments that can collect taxes. China’s RMB is a possible competitor to the dollar in the long term, but China has no intention to field its currency as a dollar substitute in the short- or medium-term. Its capital markets are too immature to support a global reserve instrument. A reserve currency is a mixed blessing, because it exposes the domestic financial system of the issuer to global pressures and volatility.

The fact that the reserve status of the dollar is no immediate danger should not lull us into complacency. China is not ready to field the RMB as a replacement for the dollar, but at present growth rates its economy will become larger than America’s in dollar terms by the mid-2020’s (it is already larger according to the International Monetary Fund’s measure of purchasing power parity), and it will seek a monetary status commensurate with its economic power. China may be cautious for the present, but its geopolitical and economic ambitions will give rise to a challenge to the dollar’s reserve status between five and ten years from now. We have a few years’ grace to get our house in order, but not a decade.

Within the time horizon of the next US election cycle, the likelihood is that the United States can continue to increase its debt. That, almost certainly, is what the Biden Administration will attempt to do. If the United States were to issue debt in order to rebuild its industrial base and reduce the current account deficit, increased debt might be justified. That is not the form that deficit spending is likely to take under a Biden Administration, which is likely to offer lip service to investment in technology while spending lavishly on social and environmental programs.

It is magical thinking to believe that the United States run large deficits indefinitely. The closest equivalent to America’s position today is Britain during the 1970s, when the collapse of the pound’s reserve role forced a series of currency devaluations and budget cuts. China’s economy will be as large as America’s in dollar terms within a few years, and Beijing’s financial reforms are preparing the way for an eventual challenge to the dollar’s reserve status. If the Biden Administration listens to Furman and Summers, we shall have to burn that bridge when we come to it.

Fault lines in the financial system could produce a crisis in dollar funding much earlier. A crisis in the US government debt market nearly erupted in March, due to forced liquidation of Treasury securities by foreign investors. Germany and Japan have negative real interest rates, so their investors buy American bonds at positive real interest rates. But Germans and Japanese have to pay out Euros and yen, not dollars. Under the present regime of floating exchange rates, currency fluctuations can diminish the value of US dollar bonds held by foreign investors. These investments must be hedged against currency risk. Foreign portfolio investors go to their banks to swap dollar income into local-currency income. The banks borrow dollars in the United States, sell them in the forward market and receive Euros and yen.

European banks are running out of borrowing capacity. After five years of negative short-term rates, their profitability is low, their stock prices are falling and their credit is deteriorating. They can no longer borrow the dollars required to construct the hedges that local investors need.

Foreign exchange derivatives form the biggest mountain of obligations in the world financial system—a notional amount of about $90 trillion, up from $60 trillion in 2010. Breaking down the numbers, Bank for International Settlements (BIS) economists showed that the foreign exchange derivatives taken on by non-financial corporations tracked the growth of world trade, and the derivative obligations of nonbank financial institutions—money managers and insurance companies—tracked international securities investments.

Bank for International Settlements (BIS) economists noted three years ago that non-US banks now owe $10.7 trillion in US dollars, most of which reflects the hedging requirements of these global flows. The banks don’t report foreign exchange swaps with their customers on their balance sheets, but the BIS estimates that these obligations amount to $13 or $14 trillion.

For some time, international bank regulators and the International Monetary Fund have warned that the banking system no longer can support these enormous flows. The Federal Reserve is tightening liquidity in the US, and in a volatile market, European banks might not be able to roll over nearly $11 trillion of short-term obligations—and might default.

As the BIS warned in September 2017: “The combination of balance sheet vulnerabilities and market tightening could trigger funding problems in the event of market strains. Market turbulence may make it more difficult for banks to manage currency gaps in volatile swap markets, possibly rendering some banks unable to roll over short-term dollar funding. Banks could then act as an amplifier of market strains if funding pressures were to compel banks to sell assets in a turbulent market to pay their liabilities that are due. Funding pressure could also induce banks to shrink dollar lending to non-US borrowers, thus reducing credit availability. Ultimately, there is a risk that banks could default on their dollar obligations.” Something like this nearly happened in March 2020, when a global shortage of dollar liquidity hit European banks, who cut off funding for foreign-exchange hedges, forcing their customers to liquidate US Treasuries.

The Federal Reserve immediately made more than $1 billion of dollar liquidity available to European banks through swap lines, and the brief spike in Treasury yields disappeared. I believe that the Treasury and Federal Reserve have the resources to control such episodes for the time being, but they can’t do so forever.

The last person anyone should listen to is Larry fking Summers! That asshole D-bag should be in prison!

r reagan ushered in the age of massive deficit spending by tripling the very small debt into trillions…
bush after reagan kept the process going by doubling it again…clinton didn’t increase the debt in 8 years and turned over a surplus to bush…bush no.2 doubled the debt again and dumped a bankrupted economy on Obama 3 months before Obama took office…bush crashed the world banking and almost put us in a depression…Obama increased the debt but had massive things to do to keep us from a depression…but managed to have 32 quarters of increasing employment and growth…trump came in and almost immediately gives the rich and the big corporations trillions and trillions of $$$ and the debt he created will cap at 8 trillion $$$ in 4 years…when he inherited a good economy…

republicons have been a massive failure for the debt,it funneled 3/4 of the debt today to the rich and the big corporations…socialism is alive and well in the rich and big corporations pockets thats where all the moneys gone!!!

If you don’t believe the above just search "government debt yearly since 1980 it all there…

More bullshit from the DaJerkoff to provide proof positive of showing their willful ignorance to make up their own set of facts, not to mention a lame attempt of trying to sound as if they know what they are talking about.

That is completely false Clinton added $1.396 trillion, a 31.6% increase from the $4.4 trillion debt at the end of George H.W. Bush’s last budget.

You obviously can’t distinguish between Debt and and surplus deficit spending.

Also another blatant display of ignorance on your part while ignoring inflation. Roosevelt and Wilson were the ones who introduced massive deficit spending, not Reagan but I guess because they were democrats you purposely omit that fact from you stupid false claims.

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The reality is congress is responsible for authorizing spending. Without congress not a dime can be spent.

Biden will begin his reign asking congress for 2 trillion dollars and they will authorize wasting another 2 trillion to help clean up the mess made by governors who shut down businesses across the country.

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Regardless, making shit up to pass blame on one party is simply lying in order to propagate a false narrative not to mention calling the obvious ignorance out when it comes to understanding the economics of National Debt and Deficit spending. The left often can’t distinguish between the two when trying to prop up Clinton as their Messiah of good economic policy narratives when essentially all he did was play a good shell game. The same is true about Obama’s bad economic policy when the GDP hardly was able to reach beyond 1% growth, and employment numbers were inflated by part time jobs, not high paying jobs during his entire tenure. Now they will try to repeat the same policies again by destroying the economy with wealth redistribution and zero interest rates. I suspect that we will enter a very severe high inflationary period when it comes to Treasury Yields and the lack of GDP output. Either way, it is not going to be good, and expecting Biden and that cunt Harris to fix it is beyond stupid, it is utterly retarded,

That is totally correct.

Congress uses out tax dollars to ensure re-election.

As to Clinton, congress, the Republicans forcedClinton fiscal record. Recall that it was the Clinton White House that fought Republicans every inch of the way in balancing the budget in 1995. When Republicans proposed their own balanced‐​budget plan, the White House waged a shameless Mediscare campaign to torpedo the plan — a campaign that the Washington Post slammed as “pure demagoguery.” It was Bill Clinton who, during the big budget fight in 1995, had to submit not one, not two, but five budgets until he begrudgingly matched the GOP’s balanced‐​budget plan. In fact, during the height of the budget wars in the summer of 1995, the Clinton administration admitted that “balancing the budget is not one of our top priorities.”

And lest we forget, it was Bill Clinton and his wife who tried to engineer a federal takeover of the health care system — a plan that would have sent the government’s finances into the stratosphere. Tom Delay was right: for Clinton to take credit for the balanced budget is like Chicago Cubs pitcher Steve Trachsel taking credit for delivering the pitch to Mark McGuire that he hit out of the park for his 62nd home run. Clinton into not spending

One has to ask, why did the US government spending 670 billion in 2007 for healthcare and in 2019 US government spending rose to over 1.2 trillion and continues to escalate. And the idiots on the left want a single payer system which will send healthcare spending into the stratosphere.

The US will never see a balanced budget again until the investors in US treasuries give the US the middle finger and say we want a risk premium before we buy your junk treasure. On that day a real conversation will take place as to what we really need and what we can afford.

As to the inflationary spiral, coming soon. Today the fed cannot raise rates as the interest required to service the debt will send the intern on the debt into the number 1 positioning in spending. Just think a 1% increase in interest on our debt equates to over 270 billion dollars, a year from now it will be 300 billion dollars in addition to what’s spent today.

The really interesting part is it’s ignored by congress and the media so people are not concerned.

Look at the numbers…200 years and 39 presidents to get to 900 billion in debt and a B actor from Hollywood, you know, the guys the right loves to gate, comes along and in 8 short years America goes from 900 billion to 2.8 trillion in debt…

Fuck fake fiscal conservatives…

Did you know that trump promised a paid off debt and balanced budgets…:rofl::rofl::rofl::rofl::rofl:

And fuck you and your cherry picking bullshit! If you weren’t so retarded as your ducksucking friend (you like licking each others anuses) you would know its a non partisan issue, both parties are responsible for the debt, you are just too much of an ignorant asshole to admit it, instead we get more blame game from you, which pretty much is the main reason no one here likes you cunts! You simply can’t be honest with facts which is pretty much what makes up the identity of the entire progressive left. So you can take your little petty narratives and shove them up your gerbil ass.

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The jacmonte is in rare form. The leftists claim to be the intelligent party when the reality they have a lack of critical thinking skills as well as basic common sense backed by a PUBIC education which is poor at best.

The left claim to believe in science when all they really believe in is anything spoon fed to them by the MSM.

No truer words have ever been written.

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What the leftist dickheads like JACKOFF and dickdweeb cum swallowing Montecrusty claim to be or accuse is projection at its best. These two losers regularly post their bullshit news and attack people is exactly what they themselves are, disgusting lowlifes that need to justify their degenerate behavior. Fuck these asswipes!

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Who listens to you… the retrumpliCON PARTY IS A PARTY OF LIARS NO ONE BELIEVES ANYTHING YOU SAY liar…all you have to do is search USA debt yearly you’re a fukin liar Clinton didn’t increase the debt…republiCON presidents have been the kings of the debt for 40+ years…Another case for republiCONS repeating something so many time to try to get people to believe it…

Hey dr. manHOLE I heard your expanding your black circle jerkers club…dude your gobbling to much dik and it’s black dik these red necks here won’t like you…OHI forgot you’re a fukin red neck huh

No body listens to you that is for sure! I stated facts you make them up! When you lose the argument you resort to name calling. Thank you for proving my point and again showing the world the shithead that you are!

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Look at this lowboy and dr. manHOLE getting together to spute the retrumpliCON LIES…ALL THEY DO IS LIE AND CHANGE EVERYTHING TO SUITE THERE NEEDS LIARS…

These are the same fukers that said “donnie the loser CON MAN” would WIN 40 STATES HAHAHAHA A PILE OF STUPID FUKS…the same fools that said the election would be over turned by pence…the same liars that said trumputin didn’t have anything to do with Jan 6th terrorist attack ON THE CAPITOL BUILDING…THEY KILLED PEOPLE…the retrumpliCONS ARE THE MOST PATHETIC SCUM IN HISTORY…You know your party is shot and the good people in your party will be gone for good soon…you and your party is FINISHED

You can’t even write complete sentences nor use proper grammar and you are attempting to assert your arguments into an economic discussion? Yeah right! (Sarcasm)

Buffoon is your middle name when you can’t even stay on topic. :rofl: :rofl:

Hey people need to know what a sick fuk you are…a pathetic liar …your whole party is a party of trumputin liars…all you do here is lie to each other you never stop…

and now you can add to your accomplishments you’re LOSERS AND LOSERS OF EVERYTHING HAHAHA…IN 4 YEARS YOU LOST EVERYTHING EVERYTHING DONNIE LOST YOU EVERYTHING IN JUST 4 YEARS…TOTALLY UNBELIEVABLE LOSING EVERYTHING IN JUST 4 YEARS THAT’S YOUR donnie the self proclaimed genius…just go blow your brains out you have nothing left…


Same shit different day from DaJerk !



dr manHOLE why is it you can’t come up with anything yourself…you have to copy Dems posts and ideas…you’re a silly little sissy along with your louboy…


DaJ, Much like monte wait it is monte both always have to have the last word even of it is incomprehensible, inaccurate, uneducated etc, you get the idea.