We Have Crossed the Line Debt Hawks Warned Us About for Decades

[Zorro]

The debt of the United States now exceeds the size of its gross domestic product. That was considered a doomsday scenario that would wreck the economy. So far, that hasn’t happened.

Economists and deficit hawks have warned for decades that the United States was borrowing too much money. The federal debt was ballooning so fast, they said, that economic ruin was inevitable: Interest rates would skyrocket, taxes would rise and inflation would probably run wild.

The death spiral could be triggered once the debt surpassed the size of the U.S. economy — a turning point that was probably still years in the future.

It actually happened much sooner: sometime before the end of June.

The coronavirus pandemic, and the economic collapse that followed, unleashed a historic run of government borrowing: trillions of dollars for stimulus payments, unemployment insurance expansions, and loans to prop up small businesses and to keep big companies afloat.

But the economy hasn’t drowned in the flood of red ink — and there’s a growing sense that the country could take on even more without any serious consequences.

https://www.nytimes.com/2020/08/21/business/economy/national-debt-coronavirus-stimulus.html

[Laelth]

1. So long as oil is traded in USD, we can print as many dollars as we like.

So long as the USD is the world’s reserve currency (and it is so because oil is traded ONLY in USD), every other nation on the planet will buy our USD as fast as we can print them.

If you are a tin-pot dictator of a small country, for example, and there is either a massive increase in demand for oil or a massive decrease in the supply of oil, what are you going to do? You’re going to buy it on the open market and provide it to your people. If you don’t, your country descends into chaos, after which you and your political party will be destroyed. Because you must have reserves of USD in order to avoid such a calamity, you buy USD when you can. Every nation on Earth (other than the USA) keeps reserves of USD in order to regulate unexpected fluctuations in the energy market.

This is the ultimate source of our global power.

-Laelth

[SWBTATTReg]

2. Debt is cheap, that's why there is so much. Why do you think that people are moaning about the

low interest rates received on their passbook savings accounts, bonds, etc., and one can't seem to find a decent return on any dividend paying stocks? One day this will turn around, and those issuing the debt will demand a higher price for the use of their funds, but until then, beware of taking on too much debt, it will come back to bite one in the proverbial a&& when interest rates go back up.

[Wellstone ruled]

3. The real danger

lurking out there is Wall Street and what is called the Markets. Appears we are at 71%+ over valued at this point. And that my friends could be our real October Surprise. We have all the legs of 1929 in place,No Regulations,No Enforceable Oversight,and the biggee,herd investing with cheap money. And the worst part,a President that could care less about the Nation only cares about himself. 1929 redux.

[malthaussen]

4. The current voodoo economics in which the world is indulging perplexes me...

... since, stripped of all the pretenses, it amounts to central banks just printing money on an unprecedented scale. That they can do this while holding interest rates to nearly non-existent (and even ruminating about negative interest rates, by all that's holy), while experiencing no inflation goes against just about every rule one learns in Economics 101.

More and more, it becomes clear that economic theory bears little relation to how things work in the real world, and as for the stock market -- it is a self-referential delusion that totally reflects the adage "the value of a thing is what it will bring."

I've been expecting the bubble to burst for decades, so obviously I'm not clued into how things really work. Be that as it may, it seems increasingly absurd to think that treasured economic indicies (unemployment, inflation, Dow Jones) have anything at all to do with the way economies work in the real world.

-- Mal