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Debt Ceiling Debacle 2013: It's the End of the World As We Know It and the GOP Feels Fine
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No, because they'll die just as easily as the rest of us in the locust cloud.
So, comfort yourself with that I guess?
Well yes and no. Everyone agrees that it will make your recession worse, the question is whether or not you think this is avoidable. Austerity/heyekian proponents believe that we are living on borrowed time anyway. They see all this deficit spending as the build up to another financial collapse. So while it might seem like a stupid idea to implement austerity now, and extend the recession, eventually it leads you to the promise land of being financially stable. While deficit spending helps you now, but just leads you to financial ruin later. At least that's what I understand as the main argument for austerity.
You do not understand the argument then
One side wants stimulus, the other side believes lower taxes equals more revenue
It's not even that they're wrong, it's that they're not making any fucking sense. They are proposing we fix the household budget problem by quitting our job, to use one of their retarded metaphors. They aren't actually interested in cutting spending, if you'll look at the Ryan Budget, for every dollar in spending cuts there's either another dollar in spending increase that benefits the rich or a dollar in tax cuts (which by their math increases revenue)
And that currency would need to be held by someone that investors trust enough to make investor friendly fiscal decisions in the long term, so it won't be the yuan. Honestly we'd need to create some kind of artificial world currency to fill the void which was only used for international debt but the logistics of establishing that would make the debt ceiling look simple and friendly in comparison.
You always know what to say to make me feel better.
Currency values are relative, it's not possible for the everything to crash at the same time all relative to each other.
A decrease in the dollar's value would actually be good for our exports (however, this doesn't mean we should default, not at all).
On a (slightly) different topic, if the dollar does stop being the global reserve currency, that's not necessarily a disaster. I haven't yet heard a convincing explanation of how it is that we're reaping substantial benefit from the dollar being the reserve currency.
From my understanding the coin is basically just debt (the workaround is that it's not technically debt since it is legal tender, but you can just think about it as being debt). When the treasury needs more money than it has, it sells debt. Usually that is in the form of treasury bonds. Lots of people buy these bonds, including the Fed. Actually the Fed has been buying most of the bonds for the past few years. So instead of buying bonds from the treasury, the fed swaps a trillion dollars for this trillion dollar coin, with the promise from the treasury that they will buy it back at some point in the future. Thus it is basically debt.
On a related note, how much debt the fed buys from the treasury will have an impact on inflation, since the fed is buying this debt with printed money. The fed can at any time sell off other forms of treasury debt that it owns, or other assets entirely, to combat any inflationary effects. If at some distant point in the future, all that the fed owns is this trillion dollar coin debt, then it becomes a sticky situation. Since the coins are only debt, and not currency, because the fed has promised not to use them to buy shit, and the treasury has promised to buy them back at some point, the fed can't sell this "promise" debt if you will to counteract inflation. This would be bad. Hence the trillion dollar coin debt works for a while, but not for ever.
It is absolutely a disaster for it to happen at the same time as every economy on earth is in freefall because the US is defaulting
You're conflating austerity with republicans. I agree that some of the proposals put forth from the republican party are retarded. I agree that trickle down economics is a laughable economic theory at this point. Austerity/heyekian economics are not so cut and dry. While it certainly hurts the economy in the short term (because of the fact that we have been kensyian for so long), it may actually lead to a more stable financial climate in the future. It could be that the end result of all Kensyian based economies is to deficit spend themselves into oblivion. I'm not really an expert, but to say that austerity is the wrong choice is not necessarily so clear.
Keynesian is predicated on paying down debt in good times.
Indeed, we just have to not cut taxes once stuff goes well. People are so incredibly stupid though.
My misspelling of Keynesian aside, you are missing the point. Yes austerity hurts you in a depressed economy. Actually switching from Keynesian to Heyekian economics will probably have a negative impact on the economy no matter when you do it. But if I believe that the end result of a Keynesian economy is that it will deficit spend until it's currency becomes worthless and the economy collapses, then it's worth some short term pains/recessions to get to an economy that wont self implode. Now maybe you don't think that is going to happen. I can't really argue that it will since I am not at all an expert. But that's what proponents of austerity believe, and I don't think you can prove that they're wrong.
Maybe, but you can tell the proponents of austerity from, say, Republicans because they support tax hikes to cover the deficit.
Keynesian principles do not entail deficit spending at all times forever, only during a recession to increase demand such that the economy gets back on it's feet. Proponents of austerity in this country do not actually believe in austerity, they believe in cutting social programs for normal people such that the rich can get richer. It is entirely a smokescreen, there are no sane economic principles in play.
Also, this week the IMF said that austerity really doesn't work, thus further reinforcing Keynesian principles.
Right, but the question is, will your economy ever overcome your deficit spending. Maybe the economy will never be strong enough to erase all of the debt you're piling up. Maybe all the crazy spending leads to over valued economies that will always crash, and you end up with this never ending cycle of boom/recession. The IMF hasn't said that Austerity isn't possible, and will never work. It's simply admitted that austerity will be worse for your economy in the short term, which most experts probably knew anyway.
Indeed. But the point is that the others do actually think this. So that being the case, it is not illogical to stop it now to prevent future problems that will be even greater.
True, but they also propose reduced spending. The test for a true republican is whether or not you believe in austerity for everyone, or just everyone who isn't in the top 1% financially.
To erase all the money people are paying us to hold onto their money? Yields adjusted for inflation on most T-bills are negative currently. To not borrow right now is almost irresponsible.
If someone said to you, here, hold onto this hundred dollar bill for a week and give me back 95 dollars on Friday, you'd be a fool not to.
It's simply bad policy.
You're fighting a straw man.
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Why is it bad policy?
Don't other countries owe us a fuckton of money too? Doesn't everybody owe everybody else a lot?
Basically means borrowing from the Fed results in free money so long as there is inflation, right? It's basically a negative interest rate.
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Deficit spending isn't bad policy. Holding or having debt isn't bad policy.
Running yourself to a point where you can never pay it back (caveat: and not holding the fiat currency) is bad policy.
Really, it doesn't matter if the US ever pays down its debt so long as the US Dollar is the fiat currency. It only matters if we appear to be unwilling or unable to pay down our debt -- which is why the debt ceiling should simply be abolished as it currently stands.
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This is long, but is easy to follow:
http://www.federalreserve.gov/mediacenter/files/chairman-bernanke-lecture1-20120320.pdf
@chanus
That's just not true. If currency does not circulate, it is not inflationary. Overseas investors ABSOLUTELY think the US is worth enough money for them to loan us more, the coin is simply a budgetary trick to allow us to take advantage of borrowing. The laws combine at the moment to effectively say 'The US must default on it's debts unless it mints a novelty coin'. The fact that it is a coin with a technical 'value' does not mean anything. The fed would just never release it. Technically the US Mint is sitting on INFINITE dollars in hypothetical currency, it could be ordered to print more notes whenever.
Holding the coin is exactly the same as the governments ability to print more money. Unless you actually print the money, or use the coin as real dollars it doesn't matter. It just creates a virtual asset which we can pretend to be borrowing against in our own accounting. The only people suffering are congress and the tea party.
edit - Ha, you could probably be even more tricky and have the coin be 'accidentally destroyed' immediately after it is used to allow the budget trickery needed to borrow the money. The loaning party doesn't care, since the coin wasn't worth anything anyway and now even the hypothetical possibility of releasing the money is gone.
the Fed then sells off an equal amount of Treasuries, destroying the money it takes in. This is disinflationary, because the money is removed from the economy.
the net effect impact on inflation is zero
and medicare Part D
and the Iraq War
Yup. Even taking into account the probability of the 2008 crash happening anyway, we'd be in a much better position.
We just spent money on stupid shit.
Warren 2020
hmm
for the purposes of this discussion, it just needs to be known that the Federal Reserve, as part of its own monetary mandate, holds a massive portfolio of valuable things for the specific purpose of being able to control the value of money
for large developed economies, this is a little mysterious. It is easier to understand in comparison to small open economies that use exchange-rate boards. When those countries want to weaken their currency, they buy foreign currency with domestic currency. When they want to strengthen their currency, they sell foreign currency for domestic currency. Makes sense, yes?
This also means that (1) in general the central banks of all countries like to sit on a hoard of assets, just so they have the latitude to sell in a hurry, and (2) when a central bank undertakes a prolonged campaign to weaken their currency, they will accumulate a particularly enormous hoard of such assets. This includes countries that operate structural fiscal and trade surpluses, by the way, like most oil and export-led states. They have massive twin surpluses and then they buy even more, and fling all the money overseas.
the central bank of the United States, the Federal Reserve, so happens to have been engaging in (2) for a while now. This has given it a spectacular amount of assets, including Treasuries; the Fed cannot rely on forex because the US is simply too damn huge - being a fifth of world GDP does that - so it buys the US federal government's debt. Whose else can it buy?
now the debt ceiling. It's an accounting constraint that says that the total value of Treasuries that may be in existence, at any given time, can only sum up to the debt ceiling, currently $16,394 billion. Enter the coin. The proposed manoeuvre is that the Treasury issue a coin, which it sells to the Federal Reserve at face value, and the Federal Reserve sells an equal value of Treasuries for cash, which it hands to the Treasury as payment for the coin. Hence, the Treasury's new constraint would be the debt ceiling plus whatever amount of coin that the Federal Reserve is willing to accept, which according the Fed's own mandate, would be the amount of Treasuries that the Fed believes it can sell.
the basic argument goes that the the dollar functions well as reserve currency because it has been highly stable (for a currency at least), is fiat money over which the U.S. has control, and because it's extremely difficult for the U.S. not to pay service on its public debt as a result of the constitution. These features mean there is demand for dollar reserves as compared to other currencies, which means the federal reserve can float bonds with very low yields, and it doesn't seem to matter how much public debt the U.S. government takes on.
If the dollar were suddenly not the world's de facto reserve currency (supplanted by the euro I guess, although this seems unlikely given the euro's current situation), it would become much harder (read: more expensive) for the U.S. government to finance its public debt. This would mean (for example) that we'd have much more difficulty deficit-spending our way out of the current troubled period.
Greece, for example, could not just float bonds and spend its way out of its financial crisis, because it doesn't control its own currency and there wouldn't be as much demand for it even if it did.
ed: this is also why all of the 'household budget' metaphors are so dumb. Your household (or for that matter, greece) can't freely issue its own securities to keep itself afloat. The U.S. can (at least, presuming the republicans don't actually let us default, and maybe even if they did.)
do you lack faith, brother?
or do you believe?
that's the benefit; the interesting question is which Americans this dynamic winds up benefiting
I'm not sure if it is within the bounds of this thread to answer that question though.
I'd say "all" to an extent, the poorer you are the quicker the cut off.
Sort of Example:
I can get Cheap Shit (TM) from Walmart, but at some point jobs at Walmart are the only jobs around.
Look I'm not an economics professor. I don't know what the flaws of keynesian economics are. Obviously there are some. Based on the fact that counter economic policies, such as heyekian economics, deal with austerity, I was just guessing that it has to do with deficit spending. The original point still stands. Yes austerity will hurt your economy when you are switching from a keynesian policy to a heyekian one. The reason you would do this is because you think that the heyekian economy will be more stable, thus it is worth the temporary downturn in the economy. To say that austerity never works is simply not true, or at least far from a proven truth.
But no one is saying austerity never works.
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Unless you're talking about never deficit spending, which would be more in line with what Hayek actually proposed, but is simply foolish policy that guarantees inhibited growth.
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My point is that austerity during a recession may not be the lol retarded that some people are making it out to be. I'm sure proponents of a heyekian economy would say that it is perfectly logical, sense it leads you to a more stable economy, even though you pay the price of an extended recession now. There's no great time to switch.