tag:blogger.com,1999:blog-582368152716771238.post85498799254878816..comments2024-03-29T04:41:56.077-05:00Comments on The Grumpy Economist: The Fed and the Debt LimitJohn H. Cochranehttp://www.blogger.com/profile/04842601651429471525noreply@blogger.comBlogger29125tag:blogger.com,1999:blog-582368152716771238.post-74892729999858274192023-02-09T14:55:32.735-06:002023-02-09T14:55:32.735-06:00"Trillion, $100 Trillion, makes no difference..."Trillion, $100 Trillion, makes no difference how long you want to eliminate debt ceiling problem for."<br /><br />You see the debt ceiling issue as a "problem". I see it as an opportunity for Democrats to create a lasting governing majority.<br /><br />Which would you feel better about?<br /><br />A $100 Trillion coin and Democrats losing a majority of elections going forward (lasting Repugs majority in Congress)?<br /><br />Tax breaks sold by Treasury and Democrats winning a majority of elections going forward (lasting Repubs minority in Congress)?<br /><br />"War is a moral contest, and they're won in the temples before they're ever fought." - Sun Tzu.<br /><br />Want to be on the winning side or the losing side of this "moral contest"?Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-27173460823673568042023-02-09T11:58:33.191-06:002023-02-09T11:58:33.191-06:00Selling tax breaks is a financing option in the fa...Selling tax breaks is a financing option in the face of government deficits. One way to finance deficits is to sell bonds. Another is to sell tax breaks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-49672313903765464232023-02-09T11:32:24.125-06:002023-02-09T11:32:24.125-06:00The question you need to ask yourself is should Bi...The question you need to ask yourself is should Biden / Yellen successfully sell tax breaks, why would any person in their right mind vote Republican ever again? For a never ending string of wars - um, no thanks.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-71034742055325708782023-02-08T11:57:11.672-06:002023-02-08T11:57:11.672-06:00Selling tax breaks is a tax cut which requires Con...Selling tax breaks is a tax cut which requires Congressional approval. $100 Trillion coin does not. Trillion, $100 Trillion, makes no difference other than how long you want to eliminate debt ceiling problem for. DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-67293234606807944912023-02-08T08:43:22.792-06:002023-02-08T08:43:22.792-06:00A program like Social Security has some advantages...A program like Social Security has some advantages (and disadvantages) that your average run of the mill government bonds do not.<br /><br />Advantages:<br /><br />1. With a few exceptions, the government's liability to the beneficiary dies when the beneficiary dies. Contrast that with government bonds that are an inheritable asset or can be sold in the open market to a younger individual.<br /><br />2. Enrollment and returns on investment for Social Security are contingent on the beneficiary working and paying taxes up until retirement age. No such effort is required to receive interest payments on government bonds.<br /><br />3. Regarding "runs", it is impossible for anyone to try to obtain ALL of their accrued Social Security benefits at once. It is possible for all bond holders to try to sell all of their bonds into the market at once.<br /><br />Disadvantages:<br />1. Enrollment in the Social Security system is mandated upon individuals by the Federal Government.<br /><br />2. Returns on investment in the Social Security system are not available until after retirement.<br /><br />So take the advantages of Social Security, eliminate the disadvantages and apply the result to the rest of government finance.<br /><br />This:<br />https://musingsandrumblings.blogspot.com/2019/09/the-case-for-equity-sold-by-u.html<br /><br />The "progressive" arm of the Democratic Party (if there ever was such a thing) left the party long ago and that departure was spearheaded in part by Larry Summers.<br /><br />"Free Lunch" Larry Summers was part of the Treasury department under Rubin (eventually becoming Treasury Secretary) when TIPs and I-Bonds were introduced.<br /><br />"Free Lunch" Larry Summers was Director of National Economic Council under the Obama Administration when the bank bailouts were initiated.<br /><br />And nothing you have said has convinced me that has changed - the "Free Lunch" crowd has totally enveloped the Democratic Party.<br /><br />Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-81093360997885435192023-02-08T07:38:56.955-06:002023-02-08T07:38:56.955-06:00A smart Democrat would realize that Treasury can s...A smart Democrat would realize that Treasury can sell tax breaks instead of bonds thereby lowering taxes AND reducing the federal debt leaving the "Rebugs" nothing to run on in the next or any other election.<br /><br />Want to see Democratic control of Congress for any extended period of time (for instance 1959-1981)? Do that.<br /><br />"War is a moral contest, and they're won in the temples before they're ever fought." - Sun Tzu.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-55900890462933434822023-02-08T06:55:20.332-06:002023-02-08T06:55:20.332-06:00Haven't seen one reason why $1 Trillion is the...Haven't seen one reason why $1 Trillion is the right number or $100 Trillion, or $1 Quintillion.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-56600141852655423462023-02-07T16:32:41.547-06:002023-02-07T16:32:41.547-06:00Haven't seen one reason not to issue the $100 ...Haven't seen one reason not to issue the $100 Trillion Platinum Coin. Other than "it feels funny". Total nonsense. Biden should issue it now, and let the Rebugs move on to grooming scares.DoDealshttps://www.blogger.com/profile/03771077157351067426noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75494861820761233702023-02-04T10:53:01.993-06:002023-02-04T10:53:01.993-06:00Larry Summers believes in free lunches - he was pa...Larry Summers believes in free lunches - he was part of the Treasury department under Rubin (eventually becoming Treasury Secretary) when TIPs and I-Bonds were introduced.<br /><br />He was Director of National Economic Council under the Obama Administration when the bank bailouts were initiated.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-26666828839236883012023-02-04T10:48:48.466-06:002023-02-04T10:48:48.466-06:00Wall Street believes in free lunches - see bailout...Wall Street believes in free lunches - see bailouts.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-62306577666477247032023-02-04T10:45:42.181-06:002023-02-04T10:45:42.181-06:00John seems to think otherwise with inflation index...John seems to think otherwise with inflation indexed bonds.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-75415353255365439182023-02-03T21:23:51.873-06:002023-02-03T21:23:51.873-06:00The Fed I suppose (sort of) does this already vis ...The Fed I suppose (sort of) does this already vis a vis the standing repo facility. The more elegant solution would be to purchase any maturing bonds or stripped coupons at par.<br /><br />This all sounds easy in writing but in reality the operation complexities with doing something like this would be massive.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-11559121696240126132023-02-02T11:00:18.768-06:002023-02-02T11:00:18.768-06:00"... issuing interest-only debt is even more ..."... issuing interest-only debt is even more clever. The debt limit only counts principal, not market value, so interest only debt doesn't count!" -- JHC.<br /><br />Nice try! Won't wash. Have you ever wondered why only the principal is used to determine the U.S. debt? Could it be because the discount rate on the stream of coupons and future payment of principal equals the coupon rate of the debt issued? If so, then the concept that the coupon payments on a perpetuity issued by the U.S. Treasury don't count towards the accounting value of U.S. debt issued as perpetuities. <br /><br />But there is a contradiction, which can be seen in the following list:<br /><br />Term debt: PV = FV ---> implies that the discount rate = coupon rate.<br /><br />Perpetual debt: PV = 0 ---> implies that the discount rate = infinity.<br /><br />Yet, the perpetual debt is issued for a lump sum, say $1, by the Treasury at auction, resulting in a measurable yield rate, say r%/yr. The perpetuity pays a coupon payment (semi-annual) is c$/yr. Ergo, PV = c$/yr ÷ r%/yr = c$/r% × 100%/% = $1. This resolves the contradiction.<br /><br />Bottom-line: "There's no free lunch." Perpetuities will add to the U.S. government debt and counted towards the debt limit threshold.<br /><br /><br />Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-68106159689734961802023-02-02T10:32:17.291-06:002023-02-02T10:32:17.291-06:00A satirical red herring was circulated once for th...A satirical red herring was circulated once for the LBO of IBM.<br />The capitalization included perpetual zero coupon notes.<br />Chuckles ensued.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-7533654212927186032023-02-02T10:28:56.032-06:002023-02-02T10:28:56.032-06:00Don't forget Social Security.
14th Amendment ...Don't forget Social Security. <br />14th Amendment includes "pensions" not just debt.<br />So Principal, Interest and Social Security.<br />I promise if SS checks are delayed it will be unsettling.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-5527240087646904392023-02-02T03:02:32.625-06:002023-02-02T03:02:32.625-06:00Fish,
A program like Social Security has some adv...Fish,<br /><br />A program like Social Security has some advantages (and disadvantages) that your average run of the mill government bonds do not.<br /><br />Advantages:<br /><br />1. With a few exceptions, the government's liability to the beneficiary dies when the beneficiary dies. Contrast that with government bonds that are an inheritable asset or can be sold in the open market to a younger individual.<br /><br />2. Enrollment and returns on investment for Social Security are contingent on the beneficiary working and paying taxes up until retirement age. No such effort is required to receive interest payments on government bonds.<br /><br />3. Regarding "runs", it is impossible for anyone to try to obtain ALL of their accrued Social Security benefits at once. It is possible for all bond holders to try to sell all of their bonds into the market at once.<br /><br />Disadvantages:<br />1. Enrollment in the Social Security system is mandated upon individuals by the Federal Government.<br /><br />2. Returns on investment in the Social Security system are not available until after retirement.<br /><br />So take the advantages of Social Security, eliminate the disadvantages and you end up with something like this:<br /><br />https://musingsandrumblings.blogspot.com/2019/09/the-case-for-equity-sold-by-u.htmlAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-16548215687302953132023-02-02T02:21:57.206-06:002023-02-02T02:21:57.206-06:00"The Run problem is real. What's terrible..."The Run problem is real. What's terrible about runs is that funds are distributed in first-come-first-serve basis rather than pro-rata, like equity."<br /><br />Okay, so have government switch from debt financing to equity financing.<br /><br />This:<br />https://musingsandrumblings.blogspot.com/2019/09/the-case-for-equity-sold-by-u.html<br /><br />"I would propose that, at least, the Treasury should make a law/policy that if they can't pay all of their required payments, they will all be impacted pro-rata. That includes entitlements like social security, medicare, and interest payments."<br /><br />No need to make a new law / policy. Equity financing is already legally recognized and is available to the US Treasury under Article II, Section III of the US Constitution.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-4634017804668825982023-02-01T21:26:53.816-06:002023-02-01T21:26:53.816-06:00Stop making sense, Dr. Cochrane. Ha.
Maybe you s...Stop making sense, Dr. Cochrane. Ha. <br /><br />Maybe you should be running the Fed. :D And the Treasury. Mykel G. Larsonhttps://www.blogger.com/profile/17128735421035292909noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-22165229030400249092023-02-01T19:47:38.664-06:002023-02-01T19:47:38.664-06:00This has been tried in Europe when the sovereign d...This has been tried in Europe when the sovereign defaulted on his fixed term debts. Perpetuities were issued in exchange for the defaulted securities on the same premise that you cite in advocating for this course of action. All such legerdemain strategies ultimately fail for the same reason: Unsound fiscal management.<br /><br />If patriotism is the last refuge of a scoundrel, then perpetuities are a second-best refuge for the spend-thrift debtor.Old Eagle Eyehttps://www.blogger.com/profile/05270080708077871311noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-21534975235562437052023-02-01T16:12:07.455-06:002023-02-01T16:12:07.455-06:00so deficit and debt are only of interest when a de...so deficit and debt are only of interest when a democrat is president and the debt servicing ratio is falling?<br />you yanks have very strange habits that make no sense at allNot Trampishttps://www.blogger.com/profile/12738633092867411422noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-91539163188173870792023-02-01T15:35:24.285-06:002023-02-01T15:35:24.285-06:00The "Run" problem is real. What's te...The "Run" problem is real. What's terrible about runs is that funds are distributed in first-come-first-serve basis rather than pro-rata, like equity. <br /><br />I would propose that, at least, the Treasury should make a law/policy that if they can't pay all of their required payments, they will all be impacted pro-rata. That includes entitlements like social security, medicare, and interest payments. <br /><br />What we will see when such a policy is made, is that suddenly people voting for entitlements will care a lot more about government solvency, because the chance of not receiveing full reimbursement would be severe. <br /><br />At the same time, people don't need to worry that suddenty the government won't make ANY payments on either interest or social security, and the won't gain anything by running to cash out fast either. <br /><br />This would completely avoid the possibility of a "run" on government funds. Fish Goldsteinhttps://www.blogger.com/profile/13864053986442147618noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-50336435773253959132023-02-01T15:35:20.573-06:002023-02-01T15:35:20.573-06:00Interesting to see what the arguments will be rega...Interesting to see what the arguments will be regarding the negotiations over debt limit based on Powell 25bp target increase in FFR and commenting of inflation receding. How much due to the Fed vs markets adjusting from Covid causing disequilibrium between supply and demandAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-439592993054612062023-02-01T15:22:34.425-06:002023-02-01T15:22:34.425-06:00Another advantage of the interest only debt (at le...Another advantage of the interest only debt (at least in the form of fixed rate perpetuities) is that you eliminate interest rate risk associated with the need to roll over treasury debt as it comes due. (I believe you have made this point previously!)<br /><br />The reason not to do that is it may signal a lack of commitment to spending control, but I'm not sure there is really much of a signal now...DWAndersonhttps://www.blogger.com/profile/11912588081258797990noreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-8899722126727260202023-02-01T15:06:08.035-06:002023-02-01T15:06:08.035-06:00There is this thing called risk absorbing equity (...There is this thing called risk absorbing equity (something that Geithner, Bernanke, and Paulson seemed to forget about).<br /><br />This:<br />https://musingsandrumblings.blogspot.com/2019/09/the-case-for-equity-sold-by-u.html<br /><br />No Fed involvement required.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-582368152716771238.post-80165750773307779492023-02-01T11:50:15.834-06:002023-02-01T11:50:15.834-06:00Not really a hostage taking scenario. More of a s...Not really a hostage taking scenario. More of a staring contest - who will blink first?Anonymousnoreply@blogger.com