Interesting how an uneducated mind can be strongly influenced by its initial material. The text I took no qualms raking EMH over the coals. I always thought it was a fringe concept that wasn't taken seriously by most economists for all this time.

After reading more on it, it looks like it was taken pretty seriously. shrug

Obviously we're just gonna default in the end. Sure if people are dumb enough to give negative interest or zero, and boy is that dumb, then do it ofc. There are just some absurd products out there like low interest 100 year gov bonds, you have to be incredibly stupid to get one of those. Then again I laughed out loud at Warren Buffett for buying Pilot J, he's in for a surprise when automated trucks won't stop for food. What do I know.

Uh the feds don't have trillions of assets for all that debt, tax revenues which is 3 something T a year and falling now.

The main catalyst for the economy recovery when bank debt was bought out by the gov't oh and auto makers. Some revisionist history going on over here.

This is incredible nonsense.

This a problem for someone like me. I do not know if this website has a political agenda. It's just a click on Drudge. Tomorrow there might be a click to an article in complete opposition. There's disagreement itt. What the heck do I make out of all of this?

http://thehill.com/opinion/campaign/...e-federal-debt

A couple points about debt. Debt is often measured as a % of GDP to get an idea of how good/bad it is. Here's a link of all the countries by debt, so we're not too out of line compared to how other countries operate, which is generally a good sign that we're not doing something horribly wrong.

Let's say your target debt ratio is debt= 100% GDP, and GDP grows by 2.5%/yr, of course your absolute debt amounts will just grow forever. It's not 100% clear what is optimal debt levels. However, if you think about it another way...if inflation is 2%, and you can get loans at 2.25%, that's really like a 0.25% loan. Then if your growth rate is 2.5%, then you're sort of "making money" on the loans.

All the websites have a political agenda. Articles like this are mostly useless. Like it could be a problem, or it might not be. They haven't really laid out the relevant facts. What is the optimal debt level that we should be targeting? Since they don't say it, they're just pandering, because maybe we don't have enough debt and they're just saying "republicans are adding more debt than Obama!". I personally think our debt levels are too high, but I'm not basing it on much really, I'm just an armchair economist. I feel like China knows what they're doing financially, and they have a reasonable amount less debt than we do.

It's pretty simple to think about: debt is systemic risk. If you save money, spend within your means, you have no risk. If you owe people the value of your yearly GDP and then some, you have substantial risk.

- Risk that people will be disinclined to lend to you at some point when you need it
- Risk that others will own your capital, effectively moving you more toward serfdom
- Risk of hyperinflation during economic shocks
- Risk of malinvestment and waste.
- Risk of loss of confidence and liquidity
- Risk that others will shift allegiance and power to more wealth, stable nations

A large national debt adds all of these risks and more. There is no reason to take on any of these risks - it is possible to live within one's means, to save without debt and still have a robust economy at full production. A persistent narrative pushed by politicians and the commentator class is that debt is good and enables growth. I think it probably doesn't - when you add up malinvestment, correction shocks (2008), loss of prestige and confidence in a competitive environment, I think debt is -EV.

Take the trillions spent in Iraq. This was financed by debt. You could call this a tremendous malinvestment, a pure destruction of wealth. If an Iraq War levy of $20,000 for every working individual had to be collected, support for that war would plummet. See how debt creates malinvestment against the interests of the workers?

Take the shifting of factories to China, and Obama's allowance of their horrendously anti-free-trade policies of forced technology transfer, which has bled trillions of long-term wealth out of the US. Would that be allowed if the extreme loss of wealth couldn't be papered over by debt?

I think the disagreement is not so much about whether debt adds risk, it's about the degree and likelihood of the bill coming due, and whether debt is a net positive that aids growth or a net negative that ultimately causes harmful malinvestment.

It is probably more likely than not that the bill won't become due any time soon - the US is strong and healthy and talented at making stuff.

It is probably more likely than not that debt is a net negative to the US, all things considered. If the government cut back student and unemployed welfare, for example, more people would work and the young would be forced to work and be more productive; the current huge amounts of useless fat in the college system would be cut. More would would study science and programming which pay well and are economic growth multipliers, rather than useless degrees like humanities, which are economic growth decreasers. That change would cause substantial economic growth. If the trillions in Iraq went toward infrastructure and research instead, that would cause substantial economic growth. Etc.

What obvious reasons?

What? Only the debtor can call callable bonds. Not to mention that US Treasuries are not callable.

Issuing more debt than what the treasury market expects will put downward pressure on bond prices due to supply/demand and higher inflation expectations, so interest rates will rise. This is a likely reason why bonds abruptly sold off starting the day after Trump was elected. In Economics, this is known as the crowding out effect.

The us federal deficit is 700ish billion... the federal revenue is 3.2trillion. The us GDP is growing at about 2%. You really think this is sustainable? You really think that 700ish billion is justified by stimulating 2% growth? It's nice to talk in abstraction but when you see the numbers it just shows how irresponsible the policies are. At some point this is going to have to be a real conversation. The path we're on will lead to either default (unlikely), increase money supply to fund policy and debt which will lead to rapid inflation (likely), or increase in taxes/decrease spending (not likely).

People are either too stupid (i don't believe) or intentionally minipulative when they say the deficit is justifiable by stimulating growth because any 3rd grade math student would know you need double digit growth for that to justify a 1.3xish spending to revenue in order to reach an equilibrium at some point in time. Assuming spending continues to increase and interest is >0.

This doesn't even touch on the trillions of underfunded liabilities the government currently has for social security and Medicare

+1 this. One of my saddest regret in life is not discovering how awesome Warren Buffet is as an investor and person sooner. Him and Charles Munger give out so many free advice on how to be a great investor and what to look for in stocks. Every company top management that works for them seem to understand that Buffett doesn't care about short term variance and always want the company max. long term growth in a ethical way.

I don't argue about this anymore. If you think EMH is right I pity you but I'm not going to waste time talking to you about it. It's like arguing about whether or not 1+1=2 for me at this point.

I also don't argue with Anarcho Capitalists, communists, and other people in thrall to other comically bad ideologies. To me all of these people have the same intellectual value as members of ISIS... If they were critical thinkers with something to contribute to the conversation this wouldn't be the conversation we would have.

I'm not sure where you get that 2% number from (this year only?) since the market as a whole has been growing at 7% pretty consistently for over 50 years. The S&P has returned 10% each year for the past 100 years. That's huge with compound interest.

No one is buying up this debt because they expect the US to lose.

+1

The fact that you cite the market as a point of contrast to a GDP number shows your vote on the later is at best noise...

I have bolded your mistake.

https://goo.gl/images/MFBHyc

The bail out had to happen whether we like it or not.

Saying the money stimulated any growth is dishonest.

And I guess since we are on that topic, the bailout actually ended up being a profit for the US gov't, plus the gov't never shipped $700M.

https://projects.propublica.org/bailout/

And an article from 2012:

http://www.politifact.com/new-hampsh...-federal-bail/

The Emergency Economic Stabilization Act, which created the TARP, initially offered up to $700 billion to banks, auto companies, insurance agencies and mortgage lenders, among other groups. In 2010, Congress amended the law to limit the spending to $475 billion.

But, of those the totals, the bank payments that the president referenced are only a portion. Of the $466 billion distributed, about $245.2 billion have gone to banks, both national and local. And, as of Oct. 18, the day of the president’s speech, the government had taken back about $266.7 billion, according to the treasury count-- about $21.5 billion more than the initial investment.

Who's arguing? I'm genuinely curious, because most people who dismiss it usually misinterpret it. Last, it's a theoretical framework, not intended to be perfect, just like Black Scholes or Newtonian gravity.

You'd think that in the 8 or 11 years here on 2p2, one would the discover the multi-quote or edit button.

Of course with inefficient markets strategies in exploiting inefficiencies available.

Aswath Damodaran on Market Effeciency


Trading is all about exploiting inefficiency. This from MrBaseball sums it up methinks:

Quote:

A lot of what I do involves new or different types of contracts that are basically niche contracts. My biggest skill is the ability to think outside of the box and invent new strategies. The downside is eventually the big boys catch on and the trade dies or gets arbed out of profitability. The markets constantly evolve and and what used to work will dry up at some point.

The markets are in a perpetual cycle of finding and eliminating inefficiencies.

That is one way to look at it. But a much better word for is liquidity.

conversation is all over the place.

anyway back to ops question, and to simplify my first post.

Japan is waaaay worse than any other country but it doesnt seem to have hurt them. central bank printing money to buy assets (bonds), government has no plan to pay it back, and is not paying to coupon.

a few years ago everyone was panicking about debt levels. well euro zone was in shambles and people were comparing US debt to greece and starting to worry what the tipping point is. Now people are comparing US debt to Japan and thinking hmmmm maybe a bit more.


on a tangent,

Greece is ****ed no matter what. they dont have a central bank and they dont have an exchange rate to correct unemployment. ****ed. unemployed people dont pay taxes. ****ed. The only approach they can employ is austerity and bailouts.

this is the same situation municipal and state governments face. no central bank, no exchange rate to correct unemployment and rising debt is disaster.

but if you have a central bank and inflation is low...there are lots of things the central bank could do, quite prudently, and those strategies are evolving.I'm not too worried about any low inflation country adding debt right now. in fact i suspect the eventual strategy will be higher interest rates to reduce household/municipal/state debt with the central bank printing money and monetizing debt to add the money supply that higher rates took away.

???? Why are you talking about market cap of sp500? This has nothing to do with GDP of the US.... you're talking about international companies most of which don't create any if much US tax revenue. This is a discussion about the sustainability of a grossly underfunded budget. The us gross domestic product has continued to grow at around 2% over inflation (which is currently very low) for a while now

Where do you get this idea from? Japan hasn't grown in 20 years.

While the euro is a big part of the problem, it's not the root cause. The root cause is that Greek culture is sick and socialist. But yes, a big part is the euro. Currency devaluation is essentially market created protectionism, and the Greeks are too incompetent to compete with the efficiencies of Germany, so without protectionism, their economy goes down the toilet.

Right, but the root cause is still cultural/structural/competence relative to what the market desires and values.

Let's go further than countries/states/municipalities and imagine that every person had their own central bank with their own currency, freely floating. What would happen? People with highly market valued skills and attributes would have more valuable currency, allowing them to disproportionately buy more of the labor output of the lower skilled. People with low skills, like Mexican immigrants in US as happens in reality, would devalue their personal currency and receive less buying power per unit of work.

It works that way on the state/national level as well. The core problem is that people, towns, cities, municipalities, states, countries, want more than they can produce what others want. There are only two long term solutions to this:

1. Improve skills and working hours; foster economic development
2. Consume less

And there is a short term solution to this too:

3. Buy things on debt until the whole thing collapses and you become increasingly externally controlled and partial serfs with lower levels of wealth/consumption.

The US, despite its world-beating skills, is a very high level consumer that exceeds even its skills. China has stepped in to provide (3) and grow its power and wealth in the process, at the expense of the US economy and long term global peace and stability.

Apart from (2), consuming less, there are only two outs for the US here:

- Reign in China's vast theft of its wealth, such that the US can earn far more money from the fruits of its innovation
- Lead the way on innovation such as robotics and software, such that so much wealth is created that debt can be paid back.

Trump is taking the first steps to doing the first, and the second looks promising imo. I think robotics will solve a lot of wealth problems, particularly around care of the elderly, construction, etc.
You're not getting to the root cause though. I'm not sure central banks can fix this root cause. Many suburbs of Chicago or Detroit, for example, would never become competent or happy regardless of whether they had their own central bank. It's a question of competence and culture, and central banking is at best a very very blunt instrument.