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Old 10-14-2018, 07:45 AM
 
Location: Proxima Centauri
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Back when I was in grad school, finance professors warned about monetizing the debt. Aside from being inflationary does anyone know what further ramifications there would be?
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Old 10-14-2018, 03:26 PM
 
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Quote:
Originally Posted by Tonyafd View Post
Back when I was in grad school, finance professors warned about monetizing the debt. Aside from being inflationary does anyone know what further ramifications there would be?
That's what you get when finance types get into economics...........I'll circle back for more later.
1). We've been monetizing debt since WWII. If was it was a big problem we would have found out by now.
2). We've monetized debt at an unusual clip since ~2009......if doing so was inflationary per se we would have seen that years ago.
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Old 10-14-2018, 06:56 PM
 
Location: Aurora Denveralis
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Originally Posted by EDS_ View Post
That's what you get when finance types get into economics...
Economics is half accounting (which should be as rigid as concrete) and half theory (which changes with the wind, the phase of the moon, fashion and bouts of lunacy). The problem is that economists are trained to believe theory is as rigid and absolute as accounting.
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Old 10-15-2018, 08:23 PM
 
8,272 posts, read 3,452,461 times
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Quote:
Originally Posted by Tonyafd View Post
Back when I was in grad school, finance professors warned about monetizing the debt. Aside from being inflationary does anyone know what further ramifications there would be?
It could be very beneficial to the middle class if done in their best interests. Like to fund national HC, massive infrastructure repair or win a war.
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Old 10-15-2018, 08:56 PM
 
Location: Paranoid State
12,662 posts, read 9,420,097 times
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Quote:
Originally Posted by Tonyafd View Post
Back when I was in grad school, finance professors warned about monetizing the debt. Aside from being inflationary does anyone know what further ramifications there would be?
They worry -- or implied threat -- is that buyers of US Treasuries would stop being buyers, as monetizing the debt can be inflationary. However, a cold economic analysis shows that wouldn't happen. What would happen is that inflation expectations would be priced into the debt during its auction in the first place. It's all about Rational Expectations.
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Old 10-15-2018, 09:00 PM
 
Location: Paranoid State
12,662 posts, read 9,420,097 times
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Originally Posted by Quietude View Post
Economics is half accounting (which should be as rigid as concrete) and half theory (which changes with the wind, the phase of the moon, fashion and bouts of lunacy). The problem is that economists are trained to believe theory is as rigid and absolute as accounting.
That's quite an accomplishment. None of your three assertions are true.
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Old 10-16-2018, 03:30 PM
 
Location: Silicon Valley
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Well, from what I've read, if money ceases to be a scarce resource, people will no longer work for it.



In some countries, you can't buy everything with the local currency. You can only buy small things with it. The currency is no longer convertible into very valuable items. To give perspective, imagine that for normal eating out and buying local items, you could spend dollars, but for imported goods, you needed to use Euro and if you wanted to buy land....people would only sell in gold.



It does exist currently. It's not a made up tale.



Right now, we have an amazing convertibility of the dollar. You can basically buy anything with the dollar....pretty much anywhere. If the government were to begin monetizing lots of dollars, people would begin to look to store their value in alternative means. At risk is a tipping point. Before the tipping point...it may seem like it doesn't matter much...and it doesn't. However, once countries decide they want to stop trading in dollars and use something else...all of those dollars are going to seek value in any way they can. If it comes quickly, that's when you'll see the inflation.



For example, if China decides it's done holding treasuries, it might start trying to buy up US farmland....at any rate it can get. Or it might start buying resources...again at any rate it can get. Suddenly these dollars are coming back and pushing prices up. Anything they can get is good for the seller, because they no longer believe the dollar will hold its value. As other dollar holders see this, they too will want to get value before their value gets eaten away.



At the same time, the world economy keeps expanding. There are more world participants that want dollars, there's more trade etc. All of that means that there's increasing demand for dollars. So long as we keep our supply roughly inline with that, things are good. That's the Fed's job. If we start monetizing to build a wish list of projects, the Fed won't be able to do its job....or at least not that well.



Hence, that's why we don't want to risk large monetizations. However, if it makes you feel better, know that the Fed returns the interest it collects (less expenses) to the US Government each year.
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Old 10-16-2018, 09:00 PM
 
Location: Ohio
17,986 posts, read 13,233,625 times
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Quote:
Originally Posted by Tonyafd View Post
Back when I was in grad school, finance professors warned about monetizing the debt. Aside from being inflationary does anyone know what further ramifications there would be?
Um, the purpose of monetizing government debt is so that it doesn't become inflationary.

If you had $22 TRILLION floating around your economy, your minimum wage would be $17,000/hour instead of $7.25/hour.

So long as foreign States are willing to buy your debt, you have no problems.
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Old 10-16-2018, 11:02 PM
 
Location: Myrtle Creek, Oregon
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Originally Posted by artillery77 View Post
However, if it makes you feel better, know that the Fed returns the interest it collects (less expenses) to the US Government each year.
Bond rates are going up because the Fed is (slowly) unwinding the QE monetization. The big bond rate push is because the Fed is no longer buying treasuries, so they have to boost returns to attract buyers.
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Old 10-16-2018, 11:10 PM
 
Location: midvalley Oregon and Eastside seattle area
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How does one "monetize debt"?
Honest question.

Never mind. I googled and wiki.

Last edited by leastprime; 10-16-2018 at 11:19 PM..
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