It almost feels as though economics discussion is made complicated on purpose. Almost none of the comments and article mean anything practical to me. A country issues debt to itself? In money it can print?
Here's the crux:
The US goes into 'debt', to pay for something. Where did the money (resources) come from?
- it printed it itself -> that isn't debt, just 'money creation'
- someone else -> it is debt, owed to another entity
You can't pay your groceries by taking a loan from yourself, you either have the money or you don't
> It almost feels as though economics discussion is made complicated on purpose
Mostly because finance as much as financiers desperately want it to be a science it isn’t. For the most part they’re guessing in the dark and presenting it like hard science, using baselines that are very generic and seeing if their associated metrics change all the while speaking in cryptic language.
Good example is Greenspan’s one number to rule them all.
In general I’ve noticed the same behavior in life too, whenever people start speaking in overly complex ways they’re usually (though not always) masking incompetence in the subject matter.
This article in general felt more like a forced down your throat PSA than anything else. Don’t worry it’s not foreign countries owning your future, it’s your own retirements at work for you. Your country working for you. There’s a name for that, propaganda.
The article didn’t really explain anything about debt, it just used government publications to recite to you how the government segregated the owners of US treasuries. Same as when an analyst will tell you what kind of institutions own AAPL. Hint: the same.
I appreciate your comments and agreeable insight about needless complexity, but I'm tempted to read this as "I don't understand it either, so they must be idiots".
I agree it could be better presented, but a sibling comment actually presents this in a way that makes more sense than OP, but without disparaging the whole field.
Tbh, it's also because it's much more a political compromise than it is a solution to a scientific problem. It's complex because of competing interests disguised ideologies (and occasional actual ideologies), not because the science is hard.
Economics or more broadly, finance has its own vocabulary to describe concepts, just like tech, law, medicine or any other discipline. There is always domain knowledge in any field that is required for reasonable understanding.
A country's central bank (The Fed) is not the same as the country (U.S.A.), or more specifically, the government of a country (PoTUS, Congress, ...Treasury).
The central bank is an entity, like a company is an entity, that is lending to the Government, which is often more than one specific entity. The Public.
It can be confusing in the same way that explaining how BGP is used to route TCP packets, across an IP network, with an AES representation of some data that can be used to store value.
That said, money !== resources.
The Fed does issue money which is exactly just 'money creation'. But... It issues bonds to show that other entities will hold the other side, or a 'loan' of the money just created.
That's exactly the same as the arguments made by proponents of the gold standard, and it's just as wrong now as it was then. Crypto is an alternative to investing in gold, not an alternative currency. It has all the same market dynamics.
Crypto is far too broad a term to use and say it's the same as Gold.
In many ways it worse (PoW for Bitcoin), in some its better (banking for the bankless). However you can have Crypto that has an inflationary mechanism that's codified (can still be gamed), none the less it can be inline with modern monetary schemes.
I believe this is why any arguments comparing finance at a national budget level to finance at a home budget level are incorrect. Money works completely differently at both levels.
This is why microeconomics and macroeconomics are different but related disciplines.
By way of analogy, think of the first as physics and the second chemistry (the study of emergent phenomena from the more fundamental relationships). But less rigorous than physics/chemistry, at least so far.
My favourite how different the "home budget" and a national economy works is if you want to save some money for a trip you just stop spending a bit and keep the extra money in a savings account until needed. If an economy did that then the economy will contract, reducing peoples spending power and income.
It's like you're saving for you holidays and your hourly rate goes down because of it.
In Sweden, much of the national "debt" is between the government and the central bank. It could all be erased by decree and no one would be affected. The national debt number truly does not matter.
> You can't pay your groceries by taking a loan from yourself,
The flip side is that by doing so they increase the amount of money in the market, decreasing it's value. So anyone holding that currency is less rich. In net effect it is spending money by reducing the value of that money.
If you invest it (e.g. in long lasting infrastructure) it’s generally worth it. If you borrow to meet current obligations it’s generally not. (“Generally” is the kicker).
There are other good reasons to borrow from a macroeconomic perspective (e.g. a liquidity crisis). In such a case you hope the side effects are less than the primary effects. This case is like the doctors’ Hippocrateic Oath: yes, first do no harm, but sometimes you have to cut a hole in the patient to heal them.
It’s not particularly inflationary. If you remove $100bn of government bonds from circulation and replace it with $100bn newly printed cash, private sector net worth stays the same.
Hardly stays the same. That $100 billion cash is going to be spent somewhere, that increases money supply across the market, private sector now has more money but the actual resources produced has not changed that much.
No, erasing all that debt world not affect the amount of money in circulation. It would only affect the balance sheets of the two institutions. (The money is already in circulation)
It punishes people who save money in unproductive ways, such as stuffing it in a mattress. We want to encourage people to invest their savings productively, benefiting them and the economy. The middle class are generally very good at this, putting capital into pensions (which are invested), tax efficient savings schemes, shares and property.
This is correct. The middle class owns little in cash, but owe a lot in debt. Inflation eats a little of the former, and significantly lowers the burden of servicing the latter.
Inflation isn't the thing they need to worry about. What they need to worry about is making sure their particular job's wage inflation is keeping up with the average.
Putting your money under a mattress is not responsible, putting it on an investment which will accrue interest is, and imagine what. That interest will compound not only from inflation but ensuring good gains
It's almost as if national income accounting is nothing like household accounting, and money is nothing but paper backed by a military and a police force.
Agreed, but its not just backed by the military and police. Its backed by all the people interacting in the economy, both domestically and internationally. Nobody is going up to people and saying "take this job and add to the GDP or we'll shoot you". Its a large scale symbiotic system (with many faults) that almost everyone wants to be a part of.
Imagine an economist reading the manga website infrastructure post that was on the front page of HN yesterday. Would they maybe be confused? And think it is an overly complicated approach to serving webpages with comics on them?
I think there is an important difference between “this is needlessly complicated” and “I don’t understand this yet.”
Nations are very large things, and national governments have powers and responsibilities that are different from the individuals and organizations within them. So, it is logical that government finances don’t work the same way as the personal and business finances we are used to in every day life.
That doesn’t mean government finances are optimal or perfect. But I think it’s reasonable to expect that it will take some effort to understand it as it exists today.
> So, it is logical that government finances don’t work the same way as the personal and business finances we are used to in every day life.
In other words when you need a bailout because you made some stupid financial decisions due to greed the govt wont bail you out but if you are a too big to fail institution and have friends in high places, the govt will bail you out even though you made some reckless decisions, you just have to tell everyone that its very complicated.
A lot of debt is “money creation”. When you buy something on a credit card where does that money come from? Even when you write a check you buy something without handing over cash — the money is still in your bank account for a little while.
Fiscal policy is what the government does. Governments sell bonds to raise money, this is what "government debt" is, a bunch of bonds each for a fixed period (usually between 1 and 30 years), pay interest each year and then repay the collateral when they expire.
Monetary policy is what central banks do, and includes quantitative easing (QE) which is often referred to as "money printing". Monetary policy also includes setting interest rates, managing the supply of physical currency and acting as a clearing house for bank operations.
The two are separate things but get conflated a lot in discussion - including on here - which makes the whole thing way more confusing than it could be. These Bank of England pamphlets on money in the modern economy are the clearest layman's overviews of the monetary policy side of things I've found:
There are two forms of money in the US economy. There is hard currency which the US does prints and ends up in banks as reserves (if you print it, you go to jail). There is also interest bearing form of money called the US treasury bond. The US prints and spends (though most of the printing is digital) and then sells bonds to convert some of that non-interest bearing money into interest bearing money. It doesn't have do the latter but it does because ... tradition? Also useful for large institutions to have a safe interest bearing asset. Economy likes that sort of thing.
What I don't understand about those, is like... you can basically just make the "minimum payment" for 12 months straight? So if you spend 15k in that timeframe, you basically free up 15k in capital that can be invested? It's like a 0% loan.
The US doesn't go into debt to pay for things, it goes into debt voluntarily to play-act that it is using a commodity rather than fiat currency. Or perhaps out of political inertia since it once did use such a currency.
Pointing this simple fact out (hello, Modern Monetary Theory) gets very serious people very mad, though.
Here's the trick: the vaporous debt money becomes real when the oligarchs and people that matter use it to get paid real money, for whatever business dealings with the country, money which they then put in a real bank. When they avoid taxes, the theft becomes complete.
It is interesting how accounting does the opposite - even quite complicated situations quickly become dry and boring.
The complexity of economic discussion is 100% politics. Nearly everyone in the debate is looking for justifications as to why they & theirs should get more stuff and not have to do anything for it.
Here's the crux: The US goes into 'debt', to pay for something. Where did the money (resources) come from?
- it printed it itself -> that isn't debt, just 'money creation'
- someone else -> it is debt, owed to another entity
You can't pay your groceries by taking a loan from yourself, you either have the money or you don't