This gets into a different tangent where tech is both destroying value while concentrating new value through disruption. Cathy Wood alluded to this in some of her speeches where her thesis is that the disruption away from old money value stocks is "bad" deflationary, while the efficiency gains from new tech money is "good" deflationary in the sense that the efficiencies are passed onto its customer, for example cheaper transaction rates or mobile convenience from fintechs like Square as opposed to writing a check. The problem is that network effects usually favor concentration of technology, so the value is tightly held, for example MFAANG companies, so it becomes almost its own entity away from Main Street. Traditional Main Street ways to generate value would be like wanting to own a small business, applying for a loan to set up shop, then spending that loan on capital to make that shop successful. All of that takes risk, where a historically traditional 5%+ loan would generate enough returns even if the shop folds in 5 years. With a lower rate, the risk is then elevated for lenders. So instead of bankss lending 100k for 5 loan applications, they're just buying T-bonds and using it as collateral for repo market which may pass it on to loans to big money "credible borrowers". We now have gig economies, which offsets entreprenurial risk in a way, but also means most of the capital gains is concentrated to the platform owner. It could be Uber, food delivery, app store, or even ebay storefront. This all seems tangential to the debt issue, but is still inherently related as tech and globalization are drivers in our account deficits and growing wealth inequality among Americans. It also makes inflationary/deflationary arguments murky and technical.
Lenders can charge higher rates for business loans (and they do), and there's a lot of P2P lending for smaller businesses now as well. Point taken on the concentration of wealth, but with international trade think about the effect MFAANG has on smaller countries. At least in the USA they create a lot of good jobs/tax revenue.
There is value generated but it's still net deflationary as we're not getting a 1:1 exchange from blue collar jerbs lost (rust belt, coal, "Carrier"-like factory work, underemployed Walmart grunts) to high paying good jerbs like programmers, infuencers, social justice spac peddlers. It's that flyover state portion of the economy that we constantly ignore (admittedly I did as well before researching) that continues to bite us in the ass. There are more of them that the "good" disruption is displacing. I saw someone remark that we have twice the manufacturing capacity than we did in the 80s but with only a quarter of the workers. So there's definitely bifurcation in the labor market...haves/have nots.
since Invisible Fan has been unwilling / unable / avoiding to describe what a normal US balance sheet would look like, i'll take a stab at. one that has the combination of assets / debts capable of growing the gdp towards full employment, meeting its financial obligations what is not normal is the level of asset / debt that leads to economic depression / shrinkage, such as it was during the respective last yr of the W and Trump presidencies since the passage of the Biden $1.9 Trillion recovery bill, BoA has done extensive research forecasting the GDP growth for 2021 and 2022, BoA has increased its 2021 US GDP growth estimate to 6.5% from 6.0% as it has become "more convinced" that the consumer will get out and spend this year. The bank also sees heightened economic growth extending into next year, bumping its 2022 GDP growth estimate to 5.0% from 4.5%. note to Invisible Fan, the US economy has not grown this fast since the birth of the Silicon Valley in the early Clinton Admin. its balance sheet is the antithesis of being damaged as conveniently claimed by you
Usa doesn't exist in a vacuum, and this type of deflationary innovation is necessary to keep ahead, economy would be a lot worse without it. If usa mega caps loses their edge, tencent/baidu/smic/baba would be more than happy happy to step in. In Singapore I already see increasing competition - some companies choosing ali cloud over aws. In ecommerce, China backed ventures have totally beaten Amazon here as well. What would usa trade deficit look like without all that manufacturing automation?
Don't get me wrong, I'm totally for American innovation. imo, turning back the clock like whatever Peter Navaro wanted will cause more American harm than good. It's just that the drivers we've held as progress, free markets (with ultra efficient supply chains) and revolutionary technology are causing societal imbalances. A lot of our welfare and stim spending is for people getting left behind. The amount of money spent on stimulus or QE worldwide and the returns the public gained from those policies since 08 is pretty sobering...and that's not going to stop anytime soon. This tech issue isn't domestic either. If China's chip and compute capacity falls in line with Moore's law, a lot of their service jobs will also become obsolete. How our leaders grasp and attempt to transition to that kind of new economy is crucial in terms of social stability. It's a very tall order since we don't know what changes to expect, and like you alluded to, is counterproductive to contain or hold back. But we do know these leaps in tech innovation are happening faster and faster compared to whatever we've witnessed in the last 40 years. As for our trade deficit, it is always an issue because of Triffin's Dilemma. I'm not sure if any policyholder is actively solving that issue, but understanding how the global economy works in cycles will likely help form and guide your own macro thesis.
@Invisible Fan sounds like u think current monetary policy is necessary If not what would you have the US do instead? Bear in mind you can't control what China/japan/germany do with their rates/printing.
Obviously I'd want a system where I can make millions of dollars. Outside that, the best I can do is try to figure it out as far as my limits go and make less risky decisions.
Listened to a Bloomberg podcast that suggested we have entered a new cycle where monetary policy is less effective. Monetary policy was king and all powerful during the rampant inflation of the 70s and Volcker jacking rates way up to combat it. It worked and monetary policy's power was assumed. It kept working under Greenspan but was starting to become less effective. Fast forward to 2008 and beyond, perhaps globalization and technology (cheaper data and no more peak oil) has been an outsized influence in keeping interest down and making monetary less effective. Post 2008 we had near zero interest rates domestically, ZIRP internationally, and QE that barely led to a wiggle. I believe MMT, like Keynesian, is just a new twist on fiscal policy used to describe new conditions. Deficits do matter, but maybe not as much as we thought. What you spend the money on is what is most important.
All interesting stuff but I am still lost. I just don't see any country calling in our debt because it would harm them as much as us. That's in the near future things can change.
Yup, this is why we actually need to create inflation. We need to create market conditions for the federal reserve to raise interest rates. We're in liquidity trap territory with 0% interest rates. This is why government spending and deficits aren't necessarily bad right now (especially if it is smart discretionary spending like infrastructure spending). Inflation hawks don't acknowledge the opposite side of the coin. Too little inflation creates the situation Japan has where they have to deficit spend continuously to generate any inflation and without inflation people don't spend money (since their money inherently increases in value to deflationary pressures). Historically, the Fed rationalized increasing interest rates under the assumption that GDP over 4% would always result in inflationary pressures. Greenspan screwed that up in the 90s by not increasing rates when we passed 4% (and was proven right that inflation didn't go up). That was nice at the time but the problem is that he legitimized keeping interest rates low and juicing the economy. Now we're stuck with the result where we are addicted to keeping interest rates low so we desperately need real inflationary pressures to push the Fed to get us out of this mess. If we don't fix this, we'll end up like Japan where the central bank where we're stuck with quantitative easing indefinitely because we're stuck with 0% interest rates forever.
to that end, the stimulus checks and Fed's buying of marketable securities are all tools from the economic toolbox used to grow the economy at a much faster pace towards building inflationary pressure meaningless rhetoric, no? you do understand that they're tools used to grow the economy at a faster pace, no? invalid comparison, The Japanese economy is an export-driven; the US is much less dependent on exports
Deficits don't matter much as long as the USD is the world's currency the Fed can just keep printing money to fund our debt. This is why the US has stop China and whoever else from being top dog economically. If the USD lost its hegemony as the world's currency, we'd be super screwed as our magical money printing press would no longer bail us out and our debts would come due.
I don’t think we’re in a long enough period to call this hyperinflation (nor did I genuinely expect inflation we see now is the “healthy” growth related variety) but yes, deficits do matter. Those junk collateral + mbs March 2020 purchases likely marinated the markets a little too long and now a lot of bad money has to unravel…like cheap low rate secondary houses people, foreigners, hedge funds, companies,and your mom bought. Deficits just mean we have less wiggle room and can’t raise rates beyond a level that policymakers in the past could set. So when the credit stops flowing, we expect the government to print more checks to helicopter down angry voters? Is that to beat uncontrolled inflation/stagflation down or to punt even more indebtedness to future generations for a very short term burst… There’s a three-four week old interview with MMTy Promises guru Stephanie Kelton on Bloomberg that I have to listen to. I need to hear how she squirms or whether to shitcan anything the interviewer does in the future.
This is all a little high brow for someone who took the bare minimum of ECON classes to graduate. Per some of what @Invisible Fan is talking about, I think we need to redefine the role work plays in society especially with increasing automation/remote work etc. Why are we basing our work schedules off of a model for making Model-Ts? It's also funny to me that we still have a lot of mftg jobs available...people just don't seem to want them. Which, as someone who gets **** from extended family for going to college, is very funny to me.
you seem to think that spending/rasing interest rates are done by the same people. spending is controlled by Congress; but the monetary policies are controlled by an independent body, the Fed. Since 1977, the Federal Reserve has operated under a mandate from Congress to "promote effectively the goals of maximum employment, stable prices, and moderate long term interest rates". there is no mentioning of fiscal spending. the ratio is important, but it is just one branch to a tree in a forest of economies. Debt to GDP Ratio by Country 2023 the US. at 128%, has the 12th largest ratio. since the 1990s, Japan's ratio has been hovering ~~250%; it is still alive and kicking back in 2000, in his best-selling book "the coming demise of the Chinese economy", Gordon Chang predicted that China can't sustain the large debt load. since then, China had more than tripled its debt, and its economy had grown more than 8 times.
