First, let’s go to the actual beginning of this conversation. On Tuesday at 0943 you wrote;
Spekkio and you are both avoiding the actual question.
Programs that millions of Americans depend on and care about may be feeling a squeeze from interest costs on our high and rising national debt.
www.pgpf.org
How is it sustainable for us to be paying $870 billion this year on interest, twice that a decade from now, with no end to the ballooning in sight? And those are extremely conservative estimates that assume no recession, no wars, low interest rates, continued GDP growth, etc. Mathematically, how does that not end in either hyperinflation a la the Weimar Republic, or extremely dramatic cuts to the budget to get to a surplus for awhile and pay out down?
Saying, "well, people are still buying the debt" doesn't mean anything in the long run. To steal Jamie Dimon's analogy, it's like driving towards a cliff and saying, "well, we haven't fallen off yet!"
Let’s us first attack your unsupported assumption…”with no end in sight…” Says, other than you, who? As evidence you posted a very accurate study (but likely didn’t read it) that concludes with the following…
” Looking ahead, lawmakers should chart a more stable, sustainable path for the federal budget that would alleviate the growing interest burden and help ensure that there is room in the budget for national priorities.”
Who, other than you, says they will not? This post is the foundation of everything else you cling to in the debate…your assumptions.
Now, on to the Weimar Republic. At first I asked what China, or anyone would do if the debt bomb exploded. You answered by restating the Weimar issue and asking for the math. Now, I think I see what you are thinking, so I offered the actual mathematical solutions to explain how how modern monetary exchange systems work…you tell us you are clever so maybe you get the math. You didn’t.
Knowing you couldn’t argue against the hard fact of mathematics you changed your tack again and asked for a child’s explanation of how it works. I gave you one that, to be honest, I didn’t invent - it is from a Harvard economics class to get freshmen to understand the difference between “fixed currency” like the Weimar Republic and/or your family budget AND how government fiscal policy works.
You responded…
Yeah, I guess I'll just stick with trusting the Fed chairman, Dimon, Dalio, etc., and stop trying to figure out how your teepee with different length sticks would stand up.
The only part of your analogy that made sense was that our leaders will have to do something to fix our debt burden. I found that funny, because it's exactly what I said before.. and their options are to print dollars to pay the debt (like the Weimar Republic I cited), creating hyperinflation, or dramatically cut spending and raise taxes, greatly shrinking our economy and sending the world into a depression.
Now we are getting to the base of the problem…it is what you said before BUT you failed to acknowledge the actual, real, hard math that tells us there are other options beyond, to quote you exactly, “print dollars to pay the debt (like the Weimar Republic I cited), creating hyperinflation, or dramatically cut spending and raise taxes, greatly shrinking our economy and sending the world into a depression.” The options are explained in the math but more simply in the sticks…governments no longer live on “fixed currencies,” we operate in a global system.
Now that I see this logic roadblock I note…
Except you are fundamentally (economically) wrong about what happened to the Weimar Republic and why the current situation is vastly different. To start with, the Germans were wracked with war reparation payments and those payments (in kind and in cash) were linked to gold. As gold prices shifted the Germans found themselves paying continuously higher prices to provision the mark thus redefining its currency downward. That kind of neoclassical global financing was done away with after the Bretton Woods conference after WWII.
THIS…this is the point where you decide to defend your assumptions, not the facts. I opened with a point that discusses a republic that lived a few short years and you countered with…wait for it… “The Germans eliminated the gold standard prior to the war. “ SO WHAT? The German government of 1914 did not exist in 1919 when the Weimar Republic was hit with war reparations. This is what historians call a “chronological error of fact.” One thing does not relate in any way to another. To make matters worse you posted an NPR article (again that you did not read) that basically agreed with what I wrote!
At this point you jump forward in time (first back…then forward) and post this…
Yes, and then the Germans negotiated a work around, where the Allies accepted repayment in their own currencies. Which is why I said previously that the Germans "chose to repay their reparations by printing marks to buy foreign currency they could then use to pay the debt." This is common knowledge. Read the Wikipedia for crying out loud.
en.m.wikipedia.org
Full circle…that is not what happened to the Weimar Republic. You post a Wiki article (but once more didn’t actually read it. What of the French occupation of the Ruhr? How did the Weimar Republic get ahold of the currencies of other nations to pay their debt?
You fail, continuously, to, respond to that. Here are the essential historical facts…
Once reparations were decided upon two avenues of discussion arose out of the war reparations question. The first is ‘the budgetary problem’, questioning whether Germany was fundamentally capable of paying the monetary sums demanded for reparations. The second is ‘the transfer problem,’ which reflects a concern over the conversion of the German money to foreign currency for payment to the Allies.
The Dawes Committee divided the payment of German reparations into two parts - into the Budgetary Problem of extracting the necessary sums of money out of the pockets of the German people and paying them into the account of the Agent-General, and the Transfer Problem of converting the German money so received into foreign currency - thus the rate of gold. After the French took control of the Rhur Germany lost any capacity to produce their way out of the debt they owed. A famous German economist, Helferrich, noted in a book titled “Geld” (Money) that the driving force of the post-war inflation originated from German workers attempting to maintain living standards at pre-war levels despite the destruction of German capital (the French occupation of the Ruhr) the drastic decline in labour productivity, and Allied reparations. As Helferrich noted, this resulted “in race between wages and prices such as we have witnessed in the last few years. The social and political position of Labour was sufficiently strong to enforce higher wages notwithstanding the fact that less work was being done. As the profits of capital had shrunk to a minimum, the higher wages could only be paid if higher prices could be obtained for the products. But higher prices raised the cost of living and brought about fresh demands for higher wages, which in turn led to a further rise in prices.” (Pg 597)
By 1924 the Weimar government changed course and raised interest rates or simply banned lending. Wages were lowered and certain workers laid off to cool down the economy thus gradually reducing the hyperinflation. This should sound familiar…it is what the fed has been doing for months now (except laying off workers…that should happen naturally in the next several months). It was the Great Depression - a global issue - that ended the Weimar Republic because now too many people were unemployed and deflation control policies were now unsustainable.
You ask us to trust Chairmam Powell…I do…but he would not be amused by your shifting and meaningless defense of your assumptions.