This weekly roundup thread is intended for all culture war posts. 'Culture war' is vaguely defined, but it basically means controversial issues that fall along set tribal lines. Arguments over culture war issues generate a lot of heat and little light, and few deeply entrenched people ever change their minds. This thread is for voicing opinions and analyzing the state of the discussion while trying to optimize for light over heat.
Optimistically, we think that engaging with people you disagree with is worth your time, and so is being nice! Pessimistically, there are many dynamics that can lead discussions on Culture War topics to become unproductive. There's a human tendency to divide along tribal lines, praising your ingroup and vilifying your outgroup - and if you think you find it easy to criticize your ingroup, then it may be that your outgroup is not who you think it is. Extremists with opposing positions can feed off each other, highlighting each other's worst points to justify their own angry rhetoric, which becomes in turn a new example of bad behavior for the other side to highlight.
We would like to avoid these negative dynamics. Accordingly, we ask that you do not use this thread for waging the Culture War. Examples of waging the Culture War:
-
Shaming.
-
Attempting to 'build consensus' or enforce ideological conformity.
-
Making sweeping generalizations to vilify a group you dislike.
-
Recruiting for a cause.
-
Posting links that could be summarized as 'Boo outgroup!' Basically, if your content is 'Can you believe what Those People did this week?' then you should either refrain from posting, or do some very patient work to contextualize and/or steel-man the relevant viewpoint.
In general, you should argue to understand, not to win. This thread is not territory to be claimed by one group or another; indeed, the aim is to have many different viewpoints represented here. Thus, we also ask that you follow some guidelines:
-
Speak plainly. Avoid sarcasm and mockery. When disagreeing with someone, state your objections explicitly.
-
Be as precise and charitable as you can. Don't paraphrase unflatteringly.
-
Don't imply that someone said something they did not say, even if you think it follows from what they said.
-
Write like everyone is reading and you want them to be included in the discussion.
On an ad hoc basis, the mods will try to compile a list of the best posts/comments from the previous week, posted in Quality Contribution threads and archived at /r/TheThread. You may nominate a comment for this list by clicking on 'report' at the bottom of the post and typing 'Actually a quality contribution' as the report reason.
Jump in the discussion.
No email address required.
Notes -
It strengthens the value of the currency, so states can print more money to finance their deficits. If your foreign assets are growing, then you have more room to borrow and print, compared to if your foreign assets are shrinking.
From wikipedia:
Raising interest rates is obviously a threat to government deficits!
The US is not in much danger currently since it has a lot of foreign assets and a valuable currency, plus people are buying US bonds which used to have a fairly low interest rate, so outflows were/are fairly low. Nevertheless current account deficits are a threat to the long-term stability of the $US. Someone has to buy all those dollars and it would be helpful if there were more exports for them to buy with those dollars. Furthermore, fiscal prudence never goes out of fashion, that should be a key lesson of 2008.
Hmm what someone wrote there sounds like some kind of narrative argument based around fixed exchange rates, but not very relevant in the world of floating currencies. Like when Soros 'Broke the Bank of England', he was specifically targeting their policy peg, and eventually forced them to abandon it and let it float.
As for net-exporting in order to have a stronger currency, that's kind of a self-correcting system with floating exchanges. Countries that want to keep a current account surplus (in order to target export-led demand growth) have to continually buy up foreign reserves and leave them untouched in bank accounts, in order to devalue their own currency to keep their exports competitive, like Japan and then China have done. And the countries on the receiving end like the US have foreign countries intentionally 'saving' in our currency like this, basically benefit for free (as long as we don't succumb to a fear of big numbers from the required government deficit, as the previous FRED graph showed in red, in order for green & blue to both be positive).
But I would say it's still unclear just how exchange rates are at all enabling or making space for borrowing or printing domestically. There just isn't a mechanism there. For the interest rate, the government raising their own interest rate can increase the deficit, but monetary policy can't exactly discipline fiscal policy in any way. The government has the power to levy taxes, has its own currency, and has its own central bank, so I'd think the debt that's gone up for centuries should be able to continue at pace without any economic armageddon.
If you print money, then each dollar is going to be less valuable. Increasing the supply of something reduces its price. Say the US printed $50 trillion tomorrow. The value of the USD would fall compared to foreign currencies because each dollar would be worth less (and because the rest of the world would think the Fed was off their heads). Inflation applies to buying things from other countries too. Or if you're currency is plunging, you don't have much room to lower interest rates.
Only so long as the USD is perceived to be valuable. What happens when they stop buying US bonds because they know that the only thing backing US bonds is more US bonds to be printed in future years? Interest rates on US bonds will have to rise, borrowing will be more constrained. Massive deficit spending sucks capital out of the rest of the economy, it's not a good thing.
Look at how much govt revenue the US is spending just on paying interest. It's verging towards the territory of the dodgy countries like Angola, rather than the safe countries like Australia or Norway: https://tradingeconomics.com/country-list/interest-payments-percent-of-revenue-wb-data.html
Oh inflation, yeah that will continue and definitely feeds into exchange rates when different from other currencies. In the story about how people thought $100 million was too much government debt in the early 1800s, then $2-3 billion sounded crazy after the civil war, then $20 billion, $1 trillion, $30 trillion, etc., that's obviously also underscoring that over time inflation changes the value of a single dollar. All the prices just have to adjust, which can be annoying and unpleasant but not apocalyptic, especially if the inflation is fairly low/constant over short time frames.
Although more accurately the identity is MV≡PQ where all parts can be independent, bringing in quantity of goods sold and especially velocity, which both can't simply be assumed to be fixed. So if the $50 trillion is issued (and counted in whatever monetary aggregate you want to use) but it just sits in an account, then you can say that M went way up and V went way down, with the price level unaffected.
If the hypothetical is that the government actually pushes out $50 trillion in spending tomorrow, it would massively juice GDP and also a ton would come back in taxes, but yeah the price level would adjust well upward from that kind of shock (with some short-term chaos) and the exchange rate would move accordingly (or more). The question for importing though (and the economy in general) isn't what a single dollar can buy, but what all the dollars can buy. And as for americans themselves, some may wish to say 'this isn't worth the paper it's printed on anymore', but they still have to pay taxes every year payable only in USD, and pretty soon in this hypothetical, the median annual income tax bill might go from ~$15k to $100k+.
There just isn't evidence that inflation or national debt are disastrous powder kegs waiting to explode. On the other hand, every time the national debt was significantly reduced, it ended with our only depressions. Which makes sense, because the government debt is simultaneously the non-government net savings, and things get dicey when you drain the savings from the private sector and force up private debt:
That's the 'bond vigilantes' threat story, but it's just not a relevant factor in the real world of governments that issue their own currency and have their own central banks. Even with the self-imposed legal constraint that the Fed can't directly buy treasury bonds at auction or let the treasury's reserve account go negative/overdraft, they still effectively make sure that every single treasury auction goes off without a hitch at the policy rate (even 0% forever if they want). The NYFed manages primary dealer commercial banks who are tasked with this, in order to circumvent the law against 'direct' central bank funding.
Yeah I think it's crazy as well, although mainly because I find the argument compelling that they're currently wrong about whether low rates are inflationary / high rates are disinflationary, and that there's good evidence that it's the reverse (so all those years of 0% interest but they couldn't get inflation up to target 2%, and now years of inflation sparked by supply chain issues that stubbornly won't come down no matter how high they raise rates). Precisely because the government is a massive net payer of interest, so raising rates increases government spending, which we would expect to be expansionary not contractionary.
I'd agree with a policy of just setting the FFR at 0-1% and leaving it there, because it's just not a cleanly useful policy lever, and we shouldn't otherwise have any goal of the government subsidizing risk-free savings by choosing to pay interest.
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link
More options
Context Copy link