Higher government debt levels in advanced economies have almost always been associated with lower bond yields, not higher. This finding is not confined to the US: it holds in Germany, Italy, Japan, the UK, Switzerland and Australia back to the 1880s.
They give a few explanations, but one I wonder about is whether causation is backwards? Low interest rates enable government borrowing. After Volcker kicked inflation in the head in the 1980's,...
They give a few explanations, but one I wonder about is whether causation is backwards? Low interest rates enable government borrowing. After Volcker kicked inflation in the head in the 1980's, the US has had low interest rates, so the government can borrow money without much in the way of consequences. And so they do.
I'd be interesting in seeing how that works for other countries, though.
This part also seems a bit counterintuitive:
[M]ost borrowing is much closer at a system level to being self-funding than is widely recognised [...] Provided the proceeds from [a] bond sale are at some point spent in the real economy, they produce an increase in bank deposits which exactly offsets the amount the private investor drew down for the purchase. Total bank deposits — or narrow money — are left unchanged.
...
The process of borrowing therefore itself creates “money”, at least in the broad sense of total credit, from nothing. This applies not only when borrowing is funded by bank lending — a process made familiar by a Bank of England paper — but even when funded by the bond market.
(Treasuries aren't technically money, but they're a near equivalent. People treat money-market funds as being similar to cash.)
The UK hit a limit, though:
As Liz Truss’s UK government all too clearly showed, there is a point where deficits come to matter, and do have the intuitive effect of sending yields spiking higher. But just as increases in corporate defaults tend to be sparked less by looming debt maturities and more by collapses in earnings, so fiscal crises in bond markets tend to be driven less by the inevitability of compounding interest payments and more by sudden collapses in credibility, currency runs and imported inflation.
A summary of the summary: most of the time government borrowing doesn't matter, but it does in a crisis.
The first mitigating factor in the cost of borrowing, financial repression though policies such as quantitative easing, is definitely not without its costs (namely inflation, wealth inequality,...
The first mitigating factor in the cost of borrowing, financial repression though policies such as quantitative easing, is definitely not without its costs (namely inflation, wealth inequality, and rewarding irresponsible and risky business behavior).
Lets name the deficits: WW1, WW2, and Reaganomics. A fun history which makes it real easy to overlay that deficit graph. We're still fighting Reagonomics to this day. You'll notice the only time...
Lets name the deficits:
WW1, WW2, and Reaganomics. A fun history which makes it real easy to overlay that deficit graph.
We're still fighting Reagonomics to this day. You'll notice the only time we deviated from skyrocketing deficit was during the Clinton years, when the top bracket was increased oh so slightly.
All the faffing about reducing spending hasn't fixed the problem. We see the exact problem: We stop taxing the wealthy, deficit goes up. Bring back 90%+ tax to the top brackets, strong estate taxes, and eliminate the separation of Capital Gains.
Taxing higher earners has added benefits: It reduces not just wealth inequality, but also cost-of living disparity. Housing prices grow out of control in part because income does. The Bay Area wouldn't be quite so expensive if the minimum wage was $20/hr and the maximum wage was $200/hr.
But Vord, Don't you want the Job Creators to be able to profit off their hard work? Don't you know that they deserve the helping hand of the invisible market? Oh, they need bailouts? You don't...
We're still fighting Reagonomics to this day. Bring back 90% tax to the top brackets, strong estate taxes, and eliminate the separation of Capital Gains.
But Vord, Don't you want the Job Creators to be able to profit off their hard work? Don't you know that they deserve the helping hand of the invisible market?
Oh, they need bailouts? You don't mind footing the bill do you?
I know it's glib and snarky. But I am honestly exhausted having to argue with people who cannot fathom that Billionaires are a blight on mankind because they think they'll get there <eventually>
I sit in the 'additional tax bracket' in the UK. I make over £125K a year and I scream about how little tax the top dogs pay because I end up footing an inadequate % of the bill whilst they wander off and buy more jets, or use nice little loop holes to ensure their tax bills are lower than mine despite being 1000%'s higher than my damn wage. It's infuriating.
The deficit is $1.7 trillion. The entire discretionary budget is $1.6 trillion. It's literally, mathematically impossible to fix the deficit through spending cuts alone without touching social...
All the faffing about reducing spending hasn't fixed the problem.
The deficit is $1.7 trillion. The entire discretionary budget is $1.6 trillion. It's literally, mathematically impossible to fix the deficit through spending cuts alone without touching social security and Medicare. Taxes have to be raised.
note: this part of the FT can actually be read for free: https://www.ft.com/content/b6cdf8d1-7435-460b-9a68-df456a143ce5
They give a few explanations, but one I wonder about is whether causation is backwards? Low interest rates enable government borrowing. After Volcker kicked inflation in the head in the 1980's, the US has had low interest rates, so the government can borrow money without much in the way of consequences. And so they do.
I'd be interesting in seeing how that works for other countries, though.
This part also seems a bit counterintuitive:
...
(Treasuries aren't technically money, but they're a near equivalent. People treat money-market funds as being similar to cash.)
The UK hit a limit, though:
A summary of the summary: most of the time government borrowing doesn't matter, but it does in a crisis.
The first mitigating factor in the cost of borrowing, financial repression though policies such as quantitative easing, is definitely not without its costs (namely inflation, wealth inequality, and rewarding irresponsible and risky business behavior).
Lets name the deficits:
WW1, WW2, and Reaganomics. A fun history which makes it real easy to overlay that deficit graph.
We're still fighting Reagonomics to this day. You'll notice the only time we deviated from skyrocketing deficit was during the Clinton years, when the top bracket was increased oh so slightly.
All the faffing about reducing spending hasn't fixed the problem. We see the exact problem: We stop taxing the wealthy, deficit goes up. Bring back 90%+ tax to the top brackets, strong estate taxes, and eliminate the separation of Capital Gains.
Taxing higher earners has added benefits: It reduces not just wealth inequality, but also cost-of living disparity. Housing prices grow out of control in part because income does. The Bay Area wouldn't be quite so expensive if the minimum wage was $20/hr and the maximum wage was $200/hr.
But Vord, Don't you want the Job Creators to be able to profit off their hard work? Don't you know that they deserve the helping hand of the invisible market?
Oh, they need bailouts? You don't mind footing the bill do you?
I know it's glib and snarky. But I am honestly exhausted having to argue with people who cannot fathom that Billionaires are a blight on mankind because they think they'll get there <eventually>
I sit in the 'additional tax bracket' in the UK. I make over £125K a year and I scream about how little tax the top dogs pay because I end up footing an inadequate % of the bill whilst they wander off and buy more jets, or use nice little loop holes to ensure their tax bills are lower than mine despite being 1000%'s higher than my damn wage. It's infuriating.
This isn't really engaging with the article, it's going off-topic to make barely-related assertions.
The deficit is $1.7 trillion. The entire discretionary budget is $1.6 trillion. It's literally, mathematically impossible to fix the deficit through spending cuts alone without touching social security and Medicare. Taxes have to be raised.