28 May 19
What would happen to the US debt if interest rates were to hit 15 percent? With enough debt it is in the government's best interest to keep rates low.
I started the thread specifically because people have argued that businesses could not do business eithout the government's money, therefore Christians should not be allowed free exercise of religion if they want to open a business.
28 May 19
@eladar said===What would happen to the US debt if interest rates were to hit 15 percent? With enough debt it is in the government's best interest to keep rates low. ===
What would happen to the US debt if interest rates were to hit 15 percent? With enough debt it is in the government's best interest to keep rates low.
I started the thread specifically because people have argued that businesses could not do business eithout the government's money, therefore Christians should not be allowed free exercise of religion if they want to open a business.
That is actually a very good and very scary question. Forget 15%, but let's say even 10% or even 7 or 8. If interest rates skyrocketed, we might find ourselves having to pay half of federal revenues to service the debt or maybe 75% of the federal revenues. Or maybe all of it.
That would force the government to either:
1. impose enormous tax hikes
2. float enormous amounts of currency, thereby devaluing the dollar and causing runaway inflation, or
3. defaulting on its obligations
Any one of these options could be cataclysmic.
Ironically, the ones who would be hurt most by options 2 or 3 are the ones who hold dollars, including and especially Chinese business interests. Thus, the Chinese can't afford runaway interest rates. Since high interest rates are often thought to be a byproduct of protectionism and trade wars, this is one important card that Trump has in his deck in his trade negotiations with China (though I'm not sure Trump himself is sophisticated enough to understand it).
28 May 19
@sh76 saidSince the Chinese are perfectly aware that either runaway inflation and/or default would be ruinous for the US economy the threat of either is not a useful tool in Trump's one-sided trade war.
===What would happen to the US debt if interest rates were to hit 15 percent? With enough debt it is in the government's best interest to keep rates low. ===
That is actually a very good and very scary question. Forget 15%, but let's say even 10% or even 7 or 8. If interest rates skyrocketed, we might find ourselves having to pay half of federal revenues to service the debt o ...[text shortened]... egotiations with China (though I'm not sure Trump himself is sophisticated enough to understand it).
28 May 19
@eladar saidThe U.S. government would default on its debt before interest rates reach 15%.
What would happen to the US debt if interest rates were to hit 15 percent? With enough debt it is in the government's best interest to keep rates low.
I started the thread specifically because people have argued that businesses could not do business eithout the government's money, therefore Christians should not be allowed free exercise of religion if they want to open a business.
28 May 19
@kazetnagorra saidNot for a while; most Treasury notes and bills are sold with a set interest rate paid until the instrument matures. Thus, only new notes and Bills would pay the higher rate thus taking some time for the increase in interest payments to show a big jump.
The U.S. government would default on its debt before interest rates reach 15%.
28 May 19
@no1marauder saidI don't know that high inflation necessarily has to be cataclysmic for the United States, as long as wages keep pace. The rich would be hurt (since their currency and bonds would be devalued), but it might not be that terrible for the rest of us.
Since the Chinese are perfectly aware that either runaway inflation and/or default would be ruinous for the US economy the threat of either is not a useful tool in Trump's one-sided trade war.
28 May 19
@eladar saidThe Fed doesn't have complete control over interest rates.
Of course it is also pissible the US government would actually become responsible with money.
Nah, that is never going to happen. Much easier is to make sure the Fed keeps rates low.
28 May 19
@sh76 saidWages have barely kept pace with low inflation, what makes you think they would have any chance of keeping pace with high inflation?
I don't know that high inflation necessarily has to be cataclysmic for the United States, as long as wages keep pace. The rich would be hurt (since their currency and bonds would be devalued), but it might not be that terrible for the rest of us.
The point is moot anyway; the rich run the economic and political system in the US and are not going to let anything as damaging to them as high inflation exist. Volcker threw the economy into near-depression in the early 1980's to brake moderate inflation; imagine what policymakers would do to the working class to brake high inflation.
29 May 19
@eladar saidThe Fed does, obviously, but if the money supply suddenly got tight and banks stopped lending to every Tom, Dick and Harry who asked for money, interest rates would naturally rise (along with many other possible stimuli). Supply and demand works with interest in credit just as it does in most other industries. Yes, the Fed has some influence, but not complete control.
@sh76
Who sets the prime interest rate?
29 May 19
@sh76 saidWhich is why the Fed controls the amount of reserves a bank is required to keep back. By adjusting the reserves the Fed helps control the amount of money being used.
The Fed does, obviously, but if the money supply suddenly got tight and banks stopped lending to every Tom, Dick and Harry who asked for money, interest rates would naturally rise (along with many other possible stimuli). Supply and demand works with interest in credit just as it does in most other industries. Yes, the Fed has some influence, but not complete control.
True once the reserve requirement hits zero this mechanism no longer work.
29 May 19
2 edits
@no1marauder saidBecause wage growth is well correlated with inflation.
Wages have barely kept pace with low inflation, what makes you think they would have any chance of keeping pace with high inflation?
https://www.stlouisfed.org/on-the-economy/2015/november/relationship-between-wage-growth-inflation
I don't have the numbers to input, but that graph looks like a correlation coefficient of about .7
31 May 19
@sh76 saidA floating currency has disadvantages. A strong currency relative to others can increase the trade deficit.
Okay, here's the reason we don't have the gold standard:
Being able to float currency allows the government to ease pressure on credit and financial markets and do what is necessary to, for example, stop a Depression from developing.
Does the government abuse this power? Absolutely.
But the remedy for that is to force the government to act wisely, not to strip it of the power to pull an emergency safety valve when necessary to prevent enormous amounts of suffering.
Since our fiat currency can be inflated to prevent deflation there is no excuse for bank bailouts anymore. The last big bank bailout was a scam. They didn't lend money out enough to prevent a contraction of the money supply. We could have let them fail and replace them later while increasing the money supply. The result would have been the same.
Government is mostly bought off. It works in the interest of the few. Socialism for the rich, capitalism for the poor.