Obama Presidential Thread XIX: Starting a new chapter

[Kepler]

Re: Obama Presidential Thread XIX: Starting a new chapter

I sincerely hope that nobody would ever be able to convict me of being an ideologue!

The unsustainability of our budget situations (at the federal, state and local levels) is a question of economics, not politics. Economics is dangerously close to being a real science P), so our budget problems are stubborn, inconvenient facts - and facts do not depend on your point of view.

In a world where elections determine whether facts or myths are put in high school textbooks, everything is a matter of politics.

The people who at least theoretically understand economics think that the bond market is the force of gravity here. I don't understand the first thing about macroeconomics but I do believe in vengeful Furies that descend upon debtors, liars, and people who are unkind to small animals.

 

[Bakunin]

Re: Obama Presidential Thread XIX: Starting a new chapter

The people who at least theoretically understand economics think that the bond market is the force of gravity here.

It is. As soon as investors (ahem, China) lose confidence in our ability to repay our debt, they'll demand higher returns on that debt (and interest rates will climb regardless of what Bernanke does with the fed funds rate). Once that happens, the cost of servicing our debt will basically bankrupt us (imagine the $14T debt payments being made at an 8-9% interest rate).

 

[Bob Gray]

Re: Obama Presidential Thread XIX: Starting a new chapter

I know that you're being cheeky about Wisconsin, but there's a rant here that deserves to be said
The protest isn't the problem. The problem is that the people here couldn't elect a moderate to save our lives.

On one hand, we have uber-insane liberals who are corrupt to the bone and behave like little children, fleeing the state when they don't get their way. One the other hand, this state's conservatives are responsible for electing a college dropout (who couldn't handle his last post as a Milwaukee County Executive) as our Governor and hold up Jim Sensenbrenner (who is also corrupt to the bone, and accepts more money from special interest groups than the vast majority of Congressmen) as their ideal.

Go to the poll booth on a Wisconsin Election day, and you pretty much have to choose between corrupt bureaucrat children that would make the Daley family blush and a Palin/Bachmann paradise of "keep the Gubmint out of my Gubmint" dumbassery. It's ****ing depressing. I love everything about living in this state (granted, my main reasons probably have more to do with the Packers, beer and family...), but politics in Wisconsin absolutely destroys my faith in humanity.

Sounds like your state is like pretty much every other one, with different nuances here and there.

 

[ScoobyDoo]

Re: Obama Presidential Thread XIX: Starting a new chapter

It is. As soon as investors (ahem, China) lose confidence in our ability to repay our debt, they'll demand higher returns on that debt (and interest rates will climb regardless of what Bernanke does with the fed funds rate). Once that happens, the cost of servicing our debt will basically bankrupt us (imagine the $14T debt payments being made at an 8-9% interest rate).

Yeah, but without American's buying all their Chinese crap the Chinese economy will tank. Everything is interconnected.

 

[Kepler]

Re: Obama Presidential Thread XIX: Starting a new chapter

It is. As soon as investors (ahem, China) lose confidence in our ability to repay our debt, they'll demand higher returns on that debt (and interest rates will climb regardless of what Bernanke does with the fed funds rate). Once that happens, the cost of servicing our debt will basically bankrupt us (imagine the $14T debt payments being made at an 8-9% interest rate).

Where did a workers' paradise get the money to lend to us in the first place?

 

[pirate]

Re: Obama Presidential Thread XIX: Starting a new chapter

In a world where elections determine whether facts or myths are put in high school textbooks, everything is a matter of politics.

.

By this I assume you mean the liberals who are trying to re-write history to take out all of the 'offensive' stuff just as much as you mean the right-wingers who want creationism taught in science class?

At this point I think the books say America was founded by the cast of Saved By The Bell and no animals or humans were injured in the Civil War.

 

[Kepler]

Re: Obama Presidential Thread XIX: Starting a new chapter

By this I assume you mean the liberals who are trying to re-write history to take out all of the 'offensive' stuff just as much as you mean the right-wingers who want creationism taught in science class?

I left it deliberately ambiguous to make everyone happy.

At this point I think the books say America was founded by the cast of Saved By The Bell and no animals or humans were injured in the Civil War.

An oldie but a goodie.

 

[unofan]

Re: Obama Presidential Thread XIX: Starting a new chapter

It is. As soon as investors (ahem, China) lose confidence in our ability to repay our debt, they'll demand higher returns on that debt (and interest rates will climb regardless of what Bernanke does with the fed funds rate). Once that happens, the cost of servicing our debt will basically bankrupt us (imagine the $14T debt payments being made at an 8-9% interest rate).

China can demand it all they want, but so long as they wish to peg their currency to the dollar, they can't do jack about it. There's an unholy trinity of macroeconomics, which says you get to pick 2, and only 2, of the following three propositions:

1)Free capital flows
2)Fixed exchange Rate
3)Monetary Policy

Most countries pick 1 and 3.

The Euro zone as a whole has 1 and 3, but that has meant that a lot of their countries have had to give up 3 for 2 individually, since they no longer have their own currency and their economies are essentially pegged to the Euro. The same can be said of the U.S. as a whole (the Federal government has monetary policy through the Fed, but individual states do not).

China has definitely chosen 2 by pegging the yuan to the dollar, but it can't decide whether it wants 1 or 3 as well and it isn't really working. They keep encouraging foreign investment and trade, which is a strong signal they're choosing 1. But they've also got rampant inflation internally, which is why they're ****ed at the U.S. for keeping interest rates low. Of course, they could fix that by breaking their peg to the dollar, but then their cheap goods would become more expensive.

 

[Kepler]

Re: Obama Presidential Thread XIX: Starting a new chapter

The same can be said of the U.S. as a whole (the Federal government has monetary policy through the Fed, but individual states do not).

Oh God. Please never, ever say this anywhere near a Tea Party rally. I can hear the states' rights people now.

BTW, your entire post was fascinating and informative, thanks. Can you recommend a layman-comprehensible source (something at a similar level) for more information on this?

 

[unofan]

Re: Obama Presidential Thread XIX: Starting a new chapter

Oh God. Please never, ever say this anywhere near a Tea Party rally. I can hear the states' rights people now.

States will never have monetary policy, though, so long as we have the dollar and not 50 individual currencies. If the Tea Partiers get what they want (the gold standard or some variation thereon), we'd be trading 3 for 2.

But yeah, it would be fun to see their heads explode.

 

[Bakunin]

Re: Obama Presidential Thread XIX: Starting a new chapter

I'd say their b*tching at our fiscal / monetary policies is wonderfully counterbalanced by us b*tching at them to end the dollar peg.

 

[unofan]

Re: Obama Presidential Thread XIX: Starting a new chapter

I'd say their b*tching at our fiscal / monetary policies is wonderfully counterbalanced by us b*tching at them to end the dollar peg.

Yeah, but the fact is they need us as a market more than we need them as a debt buyer. If it came to an impasse, we'd both get dinged, but they'd get dinged worse.

 

[Handyman]

Re: Obama Presidential Thread XIX: Starting a new chapter

Now I only took one semester of Macro (which I enjoyed way more than Micro) so I may be completely wrong but if the debt gets too high and confidence drops further in the dollar internationally couldn't those that own our debt choose to sell it off on the cheap when they realize that there is no chance to pay? Wouldn't that kill the dollar as well and act as the ultimate counter to those yahoos who say stuff like "Lets just default and screw em!"?

I mean, if China saw no solution and their economy begins to tank because of the lame *** dollar could they not just sell all our debt to anyone who wants to buy it and cut their losses? Wouldnt that slap us right in the ***?

Like I said I am no expert so feel free to laugh at my ignorance if I am wrong

 

[Bakunin]

Re: Obama Presidential Thread XIX: Starting a new chapter

Yeah, but the fact is they need us as a market more than we need them as a debt buyer.

Isn't there an assumption built in here that we won't continue selling a trillion plus in T-bills each year to fund the new debt?

And my original point didn't just hinge on China but on *all* investors that buy our debt. At some point, they'll run out of patience with regard to our policies.

 

[LynahFan]

Re: Obama Presidential Thread XIX: Starting a new chapter

By this I assume you mean the liberals who are trying to re-write history to take out all of the 'offensive' stuff just as much as you mean the right-wingers who want creationism taught in science class?

At this point I think the books say America was founded by the cast of Saved By The Bell and no animals or humans were injured in the Civil War.

Interesting - if I were to make a "generic" criticism like this of liberals' revisionism, I would accuse them of adding *in* too much offensive stuff - how badly the noble Indians were treated, etc.

 

[unofan]

Re: Obama Presidential Thread XIX: Starting a new chapter

I mean, if China saw no solution and their economy begins to tank because of the lame *** dollar could they not just sell all our debt to anyone who wants to buy it and cut their losses? Wouldnt that slap us right in the ***?

Sure, but their whole issue right now is that the dollar it too weak to begin with. If our creditors make a run on the dollar, the dollar just gets that much weaker. Which means we simply stop importing cheap Chinese goods since we can no longer afford them.

It really does go back to the axiom that if you owe the bank $10,000 - they own you. If you owe the bank $10,000,000,000, you own the bank.

Isn't there an assumption built in here that we won't continue selling a trillion plus in T-bills each year to fund the new debt?

And my original point didn't just hinge on China but on *all* investors that buy our debt. At some point, they'll run out of patience with regard to our policies.

Yeah, but China's gonna take a huge beating on any run on the dollar. Which means they can whine all they want, but they've got a vested interest in preventing any such runs. They've made their bed, now they have to lie in it.

 

[Tundra]

Re: Obama Presidential Thread XIX: Starting a new chapter

And my original point didn't just hinge on China but on *all* investors that buy our debt. At some point, they'll run out of patience with regard to our policies.

Good point. $14trillion debt. $9trilion public debt, $5trillion internal debt (social security (0% paid?), gov pension, etc.."invested" in treasury)

http://useconomy.about.com/gi/o.htm...t=0&bts=0&zu=http://www.treas.gov/tic/mfh.txt

Out of the $9trillion public debt foreigner owns $4.3trillion. And rest by US mutual fund, pension fund, hedge fund etc...
#1 China $891billion (I thought this was closer to $2trillion but I guess not)
#2 Japan $883billion
#3 UK $553billion

Not sure if Soros has changed his mind since 1987, but economics is still Alchemy. Although I wouldn't be shocked if we can predict GREED/FEAR cycle in economics in the future using Google Algorithm or IBM Deep Blue "Watson".

http://www.amazon.com/Alchemy-Finance-Reading-Mind-Market/dp/0471042064

to test the Reaganomics "imperial circle" and to demonstrate his own economic theory of "reflexivity." It is investors' perception of market values, claims the author, which perpetuates up-or-down price trends, foreign exchange movements, periodic government regulation, and so on. The most studious investment calculations, he concedes, are in the end more alchemy than science.

 

[Bakunin]

Re: Obama Presidential Thread XIX: Starting a new chapter

Yeah, but China's gonna take a huge beating on any run on the dollar. Which means they can whine all they want, but they've got a vested interest in preventing any such runs. They've made their bed, now they have to lie in it.

Their ability to prevent one depends on how big the run is. If 10% of the market abandons ship and dumps its notes, that's $1T in US debt. If China felt the need to buy all of it, that'd double their position. I don't think they'd do that. And to me, it's not so much a question of whether or not investors will dump t-bills. It's a question of how much longer they wish to buy the ones the US government continues dumping onto the market in the form of new debt. It's not like there's an infinite supply of money out there or an infinite desire to continue buying our debt. As that demand wanes, rates go up. As far as I'm concerned, we've been on a bit of an extended honeymoon with our 10 yr yields. 4%+ is long overdue.

 

[pirate]

Re: Obama Presidential Thread XIX: Starting a new chapter

Interesting - if I were to make a "generic" criticism like this of liberals' revisionism, I would accuse them of adding *in* too much offensive stuff - how badly the noble Indians were treated, etc.

I think we're basically saying the same thing.

 

[Foxton]

Re: Obama Presidential Thread XIX: Starting a new chapter

Interesting - if I were to make a "generic" criticism like this of liberals' revisionism, I would accuse them of adding *in* too much offensive stuff - how badly the noble Indians were treated, etc.

I'm sure Wounded Knee was just a misunderstanding.