You never know

[Thomas Hoog]

Just a quote:
"Inflation is like toothpaste. Once she is out of the tube, you will not get them there, ", former Bundesbank president Karl Otto Pohl once said.

[Kshartle]

In any fiat currency arrangement, the government is ALWAYS constrained by inflation.
...
You might say "but those stupid monetary policies are precursors to other bad things" or "the stupid monetary policies are canaries in the coal mine", and that may be true, but PP investors are already protected against whatever bad things might follow from stupid monetary policies, so what's the point in worrying about that, especially before it has even happened, and especially considering that the cause and effect relationship between inflation and stupid monetary policies over the last 30 years has been questionable at best.

I would not say that govt is constraint by inflation, govt creates inflation because it profits from it.

I have a fire insurance on my home, but that does not mean that I am careless about fire in the house. Yes, I am "protected" against total loss if a fire happens, but if I can avoid that fire then I will surely do so.

If the government inflates the money supply to the point where people reject the paper it will have inflated itself out of existance. It won't be able to pay police or tax collectors or the army if they won't take the paper. It will have to display it's true colors as just a gang of theives by going out and stealing other people's tangible property rather than just their income and purchasing power through taxes and printing. It will be toast.

[frommi]

If the government inflates the money supply to the point where people reject the paper it will have inflated itself out of existance. It won't be able to pay police or tax collectors or the army if they won't take the paper. It will have to display it's true colors as just a gang of theives by going out and stealing other people's tangible property rather than just their income and purchasing power through taxes and printing. It will be toast.

Before that happens the FED will simply raise the short term rate in huge steps as Volcker did, regardless of what it does to the economy. There comes a point where it is the only way to act because too much inflation will hurt the economy, too. You americans are the masters of inflation, so why do you worry so much about that?
I am more worried about deflation if the FED stops its QE programs, because deflation is much harder to stop. Japan is a good example of how long that can last without a pretty big afford on money printing.

[Libertarian666]

If the government inflates the money supply to the point where people reject the paper it will have inflated itself out of existance. It won't be able to pay police or tax collectors or the army if they won't take the paper. It will have to display it's true colors as just a gang of theives by going out and stealing other people's tangible property rather than just their income and purchasing power through taxes and printing. It will be toast.

Before that happens the FED will simply raise the short term rate in huge steps as Volcker did, regardless of what it does to the economy. There comes a point where it is the only way to act because too much inflation will hurt the economy, too. You americans are the masters of inflation, so why do you worry so much about that?
I am more worried about deflation if the FED stops its QE programs, because deflation is much harder to stop. Japan is a good example of how long that can last without a pretty big afford on money printing.

The Fed will never do that again. The US is now a giant debtor, which it wasn't in 1980, so the increase in interest rates would blow an even more gigantic hole in the budget.

They are trapped.

[frommi]

That is from the gold forum:

The constraint is inflation, not the government's ability to pay. They control the currency; of course they can pay! The question is what the dollars they pay are worth.

How? They will kill the economy with higher taxes. Don`t you think they will accept a reasonable level of inflation (<4-5%?) to get rid of the debt that way? You can`t really tell me that you think the FED is independend. (on paper perhaps, but in reality they are not)

Wait, we're talking about higher taxes now? I'm saying they're just going to borrow even more money to pay off their obligations. Raising taxes is too toxic. Nobody in this country cares enough about reducing the deficit or debt that they're willing to pay higher taxes. Nobody.

Of course the Fed isn't really independent. They're joined at the hip to the Treasury. If interest rates rise significantly (which the Fed is going to try to stop) then the government will meet the increases costs of borrowing by simply borrowing more, and the buyers will be the exact same people buying now: the primary dealers, foreign central banks, the Fed, and, to a lesser extent, people like us. The result will eventually be some amount of higher inflation, not an email from the Treasury saying, "welp, looks like we can't afford the interest payments. Time to close up shop."

They are not trapped, i think Pointedstick had a really simple solution for that, they will just borrow more money. Look at Japan`s debt, the US has plenty of room to reach that level. 

[Libertarian666]

That is from the gold forum:

How? They will kill the economy with higher taxes. Don`t you think they will accept a reasonable level of inflation (<4-5%?) to get rid of the debt that way? You can`t really tell me that you think the FED is independend. (on paper perhaps, but in reality they are not)

Wait, we're talking about higher taxes now? I'm saying they're just going to borrow even more money to pay off their obligations. Raising taxes is too toxic. Nobody in this country cares enough about reducing the deficit or debt that they're willing to pay higher taxes. Nobody.

Of course the Fed isn't really independent. They're joined at the hip to the Treasury. If interest rates rise significantly (which the Fed is going to try to stop) then the government will meet the increases costs of borrowing by simply borrowing more, and the buyers will be the exact same people buying now: the primary dealers, foreign central banks, the Fed, and, to a lesser extent, people like us. The result will eventually be some amount of higher inflation, not an email from the Treasury saying, "welp, looks like we can't afford the interest payments. Time to close up shop."

They are not trapped, i think Pointedstick had a really simple solution for that, they will just borrow more money. Look at Japan`s debt, the US has plenty of room to reach that level. 

That is exactly how they are trapped: their only way forward is printing more money.

[Kshartle]

That is from the gold forum:

How? They will kill the economy with higher taxes. Don`t you think they will accept a reasonable level of inflation (<4-5%?) to get rid of the debt that way? You can`t really tell me that you think the FED is independend. (on paper perhaps, but in reality they are not)

Wait, we're talking about higher taxes now? I'm saying they're just going to borrow even more money to pay off their obligations. Raising taxes is too toxic. Nobody in this country cares enough about reducing the deficit or debt that they're willing to pay higher taxes. Nobody.

Of course the Fed isn't really independent. They're joined at the hip to the Treasury. If interest rates rise significantly (which the Fed is going to try to stop) then the government will meet the increases costs of borrowing by simply borrowing more, and the buyers will be the exact same people buying now: the primary dealers, foreign central banks, the Fed, and, to a lesser extent, people like us. The result will eventually be some amount of higher inflation, not an email from the Treasury saying, "welp, looks like we can't afford the interest payments. Time to close up shop."

They are not trapped, i think Pointedstick had a really simple solution for that, they will just borrow more money. Look at Japan`s debt, the US has plenty of room to reach that level. 

Who are they going to borrow it from and at what rate? This is not a solution. You might as well say don't worry aliens might come down and start buying treasuries.  Eventually there will be a debt level and interest rate level that consumes all tax reciepts if the current policies never change. This will be a result of people refusing to accept the growing inflation loss. Yellen is a big fan of negative rates. We know they are negative right now (real terms). what if she tacks on a couple % more. There will be a reaction. Bond prices will drop. Then again the government has to print print print just to avoid default and keep the lights on.

The only simple solution is default now, or cut off all new dependants and/or sell lots of assets or some combo. They can't keep going at this pace. They have to roll over trillions every year. All it will take is higher rates to expose how fragile they are. Best to not wait around for that exposure it will be too late to save your $$$$.

Or I could be completely wrong in my analysis and welcome objections.

[Mdraf]

And how is that debt level working out for Japan?

[Kshartle]

And how is that debt level working out for Japan?

Robust economy with soaring growth, the jewel of the orient, they have a clear path to paying it off, the people are good for it. They are no doubt thanking the government for preventing the price of stuff they want from dropping.

[Kshartle]

And how is that debt level working out for Japan?

Robust economy with soaring growth, the jewel of the orient, they have a clear path to paying it off, the people are good for it. They are no doubt thanking the government for preventing the price of stuff they want from dropping.

As a bonus by devaluing the Yen they get to export more stuff and import less so they have lots of work to do to get the same amount of stuff. That way they aren't bored with all that free time. You don't want the Japanese getting bored.

[frommi]

As a bonus by devaluing the Yen they get to export more stuff and import less so they have lots of work to do to get the same amount of stuff. That way they aren't bored with all that free time. You don't want the Japanese getting bored.

And where is the difference to the US? 
US companies profit massively from a weak US dollar as they have in the past. And because of that foreigners are investing in the US and make the dollar more valuable. And here comes the balance.

[Kshartle]

As a bonus by devaluing the Yen they get to export more stuff and import less so they have lots of work to do to get the same amount of stuff. That way they aren't bored with all that free time. You don't want the Japanese getting bored.

And where is the difference to the US? 
US companies profit massively from a weak US dollar as they have in the past. And because of that foreigners are investing in the US and make the dollar more valuable. And here comes the balance.

Why is our trade balance negative if US exporters win? Ohhhhhhh that's right! Importers lose. And we import more than we export.

[Kshartle]

As a bonus by devaluing the Yen they get to export more stuff and import less so they have lots of work to do to get the same amount of stuff. That way they aren't bored with all that free time. You don't want the Japanese getting bored.

And where is the difference to the US? 
US companies profit massively from a weak US dollar as they have in the past. And because of that foreigners are investing in the US and make the dollar more valuable. And here comes the balance.

Printing money is not magical. It cannot create additional prosperity or benefits or why not just print quadrillions?

It is a negative. Weak currencies go hand in hand with weak economies. Stong currencies with strong economies.

[frommi]

Printing money is not magical. It cannot create additional prosperity or benefits or why not just print quadrillions?

It is a negative. Weak currencies go hand in hand with weak economies. Stong currencies with strong economies.

And hear i fully agree with you. The question is what comes first, the weak/strong economy or the weak/strong currency?
It`s a cycle of ups and downs, the economy is weak, the dollar falls, the economy recovers because of more exports and cheaper production, the dollar strengthens. The economy gets expensive internationally and production is moved abroad, the economy gets weaker, as does the currency. These cycles work everday over the whole world, except in the EU where we have given up national currencies. So if you start to say that the € will get bust in the next 20 years i am with you. 

But what has that to do with debt? Very little.