[ExI] Deficit spending and never admitting you were wrong

[Dylan Distasio]

On Wed, May 27, 2020 at 1:35 PM John Clark via extropy-chat <
extropy-chat at lists.extropy.org> wrote:

> On Wed, May 27, 2020 at 9:18 AM Dylan Distasio via extropy-chat <
> extropy-chat at lists.extropy.org> wrote:
>
>
>> > *You're assuming there will always be buyers at good prices when they
>> [bonds] need to unwind.*
>>
>
> I'm assuming inflation won't be a serious problem in the immediate future,
> it's a reasonable assumption because bonds have never been more expensive
> or yields lower than they are right now, and there has never been a less
> appropriate time to worry about inflation than right now. In fact inflation
> hasn't been a serious problem in 40 years, but since that time there have
> been several recessions and at least one Great Recession; if we're lucky
> we're in another Great Recession right now, but if we insist on following
> ideological policies that have already been empirically proven not to work
> then we're at the start of something much much worse than just a Great
> Recession.
>

They won't be unwinding the balance sheet when we are in a recession.  The
expectation is rates WILL be higher once the economy recovers;how much
higher is an open question.   We're getting into the Fed workings in this
thread and I'm not sure if you actually have an interest in that side of
things, as it's not the same thing as deficit spending.   I'd just point
out that unwinding the Fed's balance sheet when QE ends is tricky under the
best of scenarios; even the Fed acknowledges that.


>
>
> *> The Fed is bound by the rules of its charter.  THEY cannot create
>> government bonds.   *
>>
>
> But the Fed can buy bonds and that increases the money supply by
> turning bonds into cash.
>

Yes, but my original point is when they go to unwind that balance sheet,
they can't create more bonds than they have to sell, so they may be left
holding the bag on some portion of it if bond values fall in the interim.
 For example, if they create $1000 in money supply by buying 10 bonds that
are currently priced at 100, and bonds have fallen to 80 when they need to
sell, they will be left with $200 on their balance sheet that they don't
have an easy way of removing.   My point is that the Fed can create as much
money as they want, but removing it is not as straightforward if the prices
of the bonds that they hold have fallen in the meantime.


>
>
>> *> If you're talking about the US Treasury which you likely are based on
>> your response above, that's another story entirely.   The distinction
>> however is important. [...]   Brent's question was about the Fed printing
>> money and expanding THEIR balance sheet, at least that's the way it was
>> worded.   I was pointing out the Fed does not print money to finance US
>> deficits.   There is an important distinction there. *
>>
>
> But you never say why the distinction is important. I think the important
> thing is that the Fed can credit banks with deposits out of thin air which
> is equivalent to printing money, and they have not been shy about doing so
> when they judge it's wise. Of course that alone is not enough, you need the
> Federal Government to issue bonds and spend that newly created money on
> things like unemployment benefits and health care for 40 million Americans
>  families. Unfortunately for that to work you need a POTUS who is not an
> imbecile and a legislature that is not full rigid ideologues and
> presentential flunkies.
>

The distinction is important because the Fed increasing the money supply is
a completely separate operation from financing deficits.   The Treasury
will (has) auction bonds to cover the $2 trillion CV-19 stimulus.   The Fed
(outside of their own actions to add additional stimulus) has nothing to do
with financing a deficit.   My point is that the Fed could have done no QE
(not giving an opinion on whether that was the right call) / money supply
expansion, and the Treasury could still provide stimulus by auctioning
bonds to cover the shortfall.  It may or may not be of interest to you, but
factually, it's important to understand the difference between the two.
Money supply does not have to increase to fund a deficit created by the
CARES stimulus.   I'm not arguing with you here, just pointing out how the
two are related and separate.


>
>
> >> interest rates are currently low. Ridiculously low! The yield on a 2
>>> year treasury bill is only 0.19%, the lowest in history. And the average 30
>>> year fixed rate mortgage is 3.23%, also the lowest in history. The deficit
>>> hawks are like a doctor refusing to feed a 70 pound starving man because
>>> he's worried about the dangers of obesity.
>>>
>>
>> > *Demand is there until it isn't. *
>>
>
> And rich people's heads are connected to their shoulders until they
> aren't.
>
> > *Additionally, I'm surprised you continue to lament the death of
>> libertarians on this list in the age of Trump when you appear to be far
>> from one yourself. *
>>
>
> Unlike Trump supporters I'm still strongly in favor of Free Trade. I see
> nothing inherently evil in corporate monopolies especially high tech ones,
> but I do see something inherently evil in tariffs. I like bitcoin and
> encryption in general. I think women should have the right to do what they
> want with their bodies and everybody should have the right to end their
> life if they choose to. I think all drugs should be legal and gambling and
> prostitution too.
>

In the interest of pointing out where our beliefs do and do not intersect,
I see nothing evil in tariffs whatsoever, and am fully in favor of free
trade INTRA-nation state.  I am no longer in favor of unrestrained trade
amongst nation states, especially when others don't play by the rules.

That said, I am a fan of cryptocurrencies and a huge supporter of strong
encryption.   I also think women should be able to do whatever they want
with their own bodies, along with everyone else including ending their own.

I also think all drugs, gambling, and prostitution should be legal.

See, besides an interest in transhumanism, telescopes, and traversing the
universe, we actually do have some other things in common!
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