Everyone says US can't raise debt ceiling forever. Why?

[johnyj]

If a dollar which bought one kitteh yesterday is not enough to buy one today, that's price inflation.  If it can buy moar than one kitteh, that's price deflation.  Nothing tricky here.

If a dollar which bought one cat yesterday is not enough to buy one today, it just mean the exchange rate between them fluctuate, you can't tell if it is cat become less or dollar become more, or it is a pure psychological phenomenon that people suddenly start to worship cat

The amount of dollar and the amount of goods/services has no direct relationship. People like to have a stable unit of counting for value of everything, but since the price have stickiness, once that unit of counting has been established, the amount of money supply normally will not affect the price  (if the money supply don't change +- one magnitude in one year)

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[notme]

it is a pure psychological phenomenon that people suddenly start to worship cat

This whole metaphor depends on there being only 1 dollar and its holder want to buy a cat above all else.... that would be quite the psychological phenomenon.

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If a dollar which bought one kitteh yesterday is not enough to buy one today, that's price inflation.  If it can buy moar than one kitteh, that's price deflation.  Nothing tricky here.

If a dollar which bought one cat yesterday is not enough to buy one today, it just mean the exchange rate between them fluctuate, you can't tell if it is cat become less or dollar become more, or it is a pure psychological phenomenon that people suddenly start to worship cat

I don't think i can put this into a simpler form.  I'm out of ideas.  I can repeat that price inflation means the prices go up.  This holds true regardless of what the causes, though cat worship is not one of them.  I use teh cat as a stand-in for "stuff," or "market basket" -- stuff that money buys.  Which shouldn't stop you from worshiping cats, they're pretty awesome.

The amount of dollar and the amount of goods/services has no direct relationship. People like to have a stable unit of counting for value of everything, but since the price have stickiness, once that unit of counting has been established, the amount of money supply normally will not affect the price  (if the money supply don't change +- one magnitude in one year)

If that were true, each year we could print extra nine dollar bills for each one in circulation, without causing the prices to rise.  Profit
Unfortunately, there's a strong correlation between the ratio of goods/$ & prices.  Which doesn't imply that "standard of living" is somehow tied into this.  If prices go up by 50%, but everyone has double the money, everyone can buy more.

[Erdogan]

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Actually they can.  Think about it.  A company make as many shoes as they want and sell for whatever the market will bear.  If they don't like the price, they will stop.  And its the exact same with governments and money.

Except history shows that money is a confidence game, and confidence can evaporate quickly.  If shoe prices fall, oh well, your feet are still covered.  If the currency crashes, now you can't eat.

If the currency crashes, there remains the same amount of food in the market.  No-one will go hungry.  If need be, people will use barter until another currency emerges.

Except that the food supply is now controlled by corporations, not family farmers.  Even when times are good, those who are at the bottom of the income ladder frequently go hungry.

you are not being logical now.  A currency crash does not cause family farmers to disappear and become corporations.  Corporations doesn't refuse to sell their products because of a currency falling in value.  And food in the market does get sold - even if only for bartering.  And none of this is affected by lifting the debt ceiling.

Basically, the distortions come when the bubbles build up, for instance investment in high tech food production and transportation systems that are no longer usable after the crash. In case of a crash, if there is not a functional money system, if the government set price and wage controls, increases minimal wage, violent worker associations, hunger may occur. On the other hand, if there is functional money, and all regulations disappear, the system will reorganize itself in a matter of days.

[Erdogan]

What happens is, the Fed just buys all of the debt. There is no practical reason they cannot just buy it all if no one else will take it. Although, what that does to the exchange rate and the balance of trade is anyone's guess.

Yes, this is what we are guessing about in this thread.

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Basically, the distortions come when the bubbles build up, for instance investment in high tech food production and transportation systems that are no longer usable after the crash. In case of a crash, if there is not a functional money system, if the government set price and wage controls, increases minimal wage, violent worker associations, hunger may occur. On the other hand, if there is functional money, and all regulations disappear, the system will reorganize itself in a matter of days.

 

[lightfoot]

Umm no inflation is where it is because of 2 things. THe model for calculating CPI is skewed to not show the real picture. The second and more important thing is that the USD is the base currency for trade around the world, and if you do a inflation index for the world from now and before you will see a different picture. Since it is being used everywhere the affects of inflation take alot longer to hit, but also take alot longer to unwind aswell if you were not to default. More and more likely the default scnario is playing out so play accordingly. Next few years we should start seeing bullish news for USD and it will rise, but after the cycle completes (3-5 years minimum) we should see a new downturn for USD and they probabyl will abolish it before taking a hit.

CPI is irrelevant. I'm using gold as the baseline, by all logical reasoning it should be at 3600 an ounce to 4800 an ounce today. It is not, it's around 1200. It was at 289 in 1999-2000 when I bought some.

The reason it is at 1200 now is the same reason it went from 300 to 1800 when there was "no inflation" in the 2000's. There was of course, then a massive deflation.

Gold is.

[Behemot]

You second question isn't theoretical. It is happening right now. There is no way the American, Japanese and British governments can ever pay back the debt they owe. None. By printing currency the USA and GB have effectively defaulted on thier debts. The Western world will at some point be forced into a severe recession of the type Greece and Portugal are currently experiencing. At this point the governments will be forced to cut spending back to a sustainable level. It is this brutal recession that fixes the problems that have been building up during the "great moderation" which is a term used to describe the period between the 90's and 2008 when interest rates where low and the economy was booming.

It will not fix anything. Greece is preparing to ask for third money injection and definitelly not last.

Even us, if we'll have no deficit starting next year, we will pay out the debt no sooner than 2030, probably later because the almost-zero interest rates will have to grow in future so also our debt interest rates will grow.

Now, look at Greece and other countires (Portugal, Slovenia, Italy etc). They are not anywhere close to no-deficite budget and they are also much higher on the exponcencial curve. That means they won't be able to pay that. They may be by the end of this century if they tried to manage their national budgets wisely. But are not at all. Just a few countries will ask for another help and sooner rather than later the whole EU will collapse like house from cards. US is the same or even worse. What spending cuts are you talkign about? They printed dollars the way it never happened before during the recession and pumped hundres of bilion into the economy, there were no cuts at all. Each time it will only get worse and it will never be payed of. The debt is too large now. Most of the western-type countries have already crossed zero line.

[johnyj]

The amount of dollar and the amount of goods/services has no direct relationship. People like to have a stable unit of counting for value of everything, but since the price have stickiness, once that unit of counting has been established, the amount of money supply normally will not affect the price  (if the money supply don't change +- one magnitude in one year)

If that were true, each year we could print extra nine dollar bills for each one in circulation, without causing the prices to rise.  Profit

It indeed happened after 2008 when FED effectively printed 4x more dollar bills for each one in circulation. But only banks receive those printed money. They accumulated huge amount of dollar during the process and they never spend them

For them, having 1 billion dollar or 10 billion dollar basically has no difference, they all get deposited back into a saving account at FED and they receive a small interest from it. Only that interest will be spent, even FED printed 4x more money, if the interest is only 1%, that will equal to 4% more money flowing into the society, won't cause any noticeable inflation

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You second question isn't theoretical. It is happening right now. There is no way the American, Japanese and British governments can ever pay back the debt they owe. None. By printing currency the USA and GB have effectively defaulted on thier debts. The Western world will at some point be forced into a severe recession of the type Greece and Portugal are currently experiencing. At this point the governments will be forced to cut spending back to a sustainable level. It is this brutal recession that fixes the problems that have been building up during the "great moderation" which is a term used to describe the period between the 90's and 2008 when interest rates where low and the economy was booming.

It will not fix anything. Greece is preparing to ask for third money injectino and definitelly not last.

Even us, if we'll have no deficit starting next year, we will pay out the debt no sooner than 2030, probably later because the almost-zero interest rates will have to grow in future so also our debt interest rates will grow.

Now, look at Greece and other countires (Portugal, Slovenia, Italy etc). They are not anywhere close to no-deficite budget and they are also much higher on the exponcencial curve. That means they won't be able to pay that. They may be by the end of this century if they tried to manage their national budgets wisely. But are not at all. Just a few countries will ask for another help and sooner rather than later the whole EU will collapse like house from cards. US is the same or even worse. What spending cuts are you talkign about? They printed dollars the way it never happened before during the recession and pumped hundres of bilion into the economy, there were no cuts at all. Each time it will only get worse and it will never be payed of. The debt is too large now. Most of the western-type countries have already crossed zero line.

I'm now convinced that everything you say is true -- all of the civilized western countries, doomed from the moment they have adopted fiat, are racing each other towards a grizzly economic apocalypse.  I'm a huge fan of post-Armageddon/black futurist/dysphoric imagery, and i want more.  Could one of you write an Economy fanfic for me, hopefully featuring BTC/LTC shipping, pl0x?

[bythesea]

Since you simply can't print money indefinitely to cover expenses, you need to cover every $ you print buy some other value....

[LiteCoinGuy]

as long as you take their good old greenbacks as long they can go deeper into debt. but someday nobody accepts their worthless fiat dollars anymore...

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Since you simply can't print money indefinitely to cover expenses, you need to cover every $ you print buy some other value....

Our printing presses are well maintained & came with a lifetime warranty.  The printers are dedicated professionals, ever eager for overtime pay (sometimes we incentivize them by letting them "take all they could carry," they're like kids in a candy store, i swear!)
I see no money-printing problems arising in the near future

[Hawker]

as long as you take their good old greenbacks as long they can go deeper into debt. but someday nobody accepts their worthless fiat dollars anymore...

That will never ever happen.  As long as US taxes are payable in US dollars, there will be a market in dollars.

[Hawker]

as long as you take their good old greenbacks as long they can go deeper into debt. but someday nobody accepts their worthless fiat dollars anymore...

That will never ever happen.  As long as US taxes are payable in US dollars, there will be a market in dollars.

That's the point, there won't be a whole lot of international demand for dollars. Zimbabwe money's worth something in Zimbabwe but outside Zimbabwe its only real value is an example of what happens when things go wrong.

Zimbabwe is an example of political vandalism - Mugabe rejoiced at the destruction of capital and landholdings his policies engendered.  If that ever happened to the US, there are a great many other countries that would fall first. Heck even Ireland would struggle 

[zachcope]

as long as you take their good old greenbacks as long they can go deeper into debt. but someday nobody accepts their worthless fiat dollars anymore...

That will never ever happen.  As long as US taxes are payable in US dollars, there will be a market in dollars.

That's the point, there won't be a whole lot of international demand for dollars. Zimbabwe money's worth something in Zimbabwe but outside Zimbabwe its only real value is an example of what happens when things go wrong.

Agreed. I was just scrolling down the page wondering why no one had mentioned Zimbabwe. It used to be the 'breadbasket of Africa', now it is a basket case.

Internally the US govt might get away with printing money but at some point other countries won't value their debased currencies and will demand their own fiat or bitcoins for their goods.

I think the (potentially violent) turning point will be when oil producing countries start to price oil in non USD currencies or even bitcoin.

[notme]

Europe would be shaken to shit if the USD failed and Asia's exports would take a big hit, hell, it would probably start a world war but its more or less inevitable. The US got left behind, they don't make enough of anything anyone wants to balance out their consumption of what the world has to sell and the longer that imbalance goes on the further they will have to fall. Maybe there's still some of those entrepreneurs and innovators that made the USA the great nation around and one of them can pull a rabbit out of the hat and make the USA the place to go for flying cars or personal spacecraft or something... and get slapped down with a 20 year patent lawsuit.

Exactly.  I have notebooks full of ideas that never got anywhere because of regulations and patents.  Our system allows trivial things to be patented, and they are only tested for triviality if someone has the funds to take the patent holder to court.  Where patents can't keep out competition, regulations abound.

[OC19850520]

If printing money does not cause inflation, then why does the government bother with budgets at all? They could just print up money and spend it on whatever they like. They could simply print up 10 million dollars for every citizen, hand it out, and then we could all retire and live in luxury.

Something like zimbabwe dollars? If printed 10 million dollars for every citizen, we could use one hundred bills as toilet-paper

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as long as you take their good old greenbacks as long they can go deeper into debt. but someday nobody accepts their worthless fiat dollars anymore...

That will never ever happen.  As long as US taxes are payable in US dollars, there will be a market in dollars.

That's the point, there won't be a whole lot of international demand for dollars. Zimbabwe money's worth something in Zimbabwe but outside Zimbabwe its only real value is an example of what happens when things go wrong.

Agreed. I was just scrolling down the page wondering why no one had mentioned Zimbabwe. It used to be the 'breadbasket of Africa', now it is a basket case.

Internally the US govt might get away with printing money but at some point other countries won't value their debased currencies and will demand their own fiat or bitcoins for their goods.
...

And lose their best customer?
Zimbabwe's about double the population of NYC with GDP per capita ~100 times lower.  I frankly don't even know if they have an air force, prob'ly not much of a navy (Flagship must be trailered to a foreign boat landing on a dunker trailer with expired plates), and certainly no nukes.
You must agree it doesn't scale well

[waltermot321]

If printing money does not cause inflation, then why does the government bother with budgets at all? They could just print up money and spend it on whatever they like. They could simply print up 10 million dollars for every citizen, hand it out, and then we could all retire and live in luxury.

Something like zimbabwe dollars? If printed 10 million dollars for every citizen, we could use one hundred bills as toilet-paper

At one point toilet-paper is more expansive then printing zimbabwe dollar, they could use toilet-paper as a currency