1. Will
Treasury bondholders run our government?
Follow-up questions:
a. Will they run it better than we did?
b. Do they run it already, as if by an invisible hand? I
often ask myself, WWBD? And then I ask whether that’s close to what we’re
doing. For U.S. states, a good first
approximation.
Inspired by Arnold Kling’s Econ Journal Watch essay on the long run fiscal situation.
2. Do
waves and droughts of innovation partly drive short-run fluctuations?
Yglesias,
Delong,
and Smith
all offered commentary.
3. Why did
the stock market collapse occur weeks after the Lehman bankruptcy?
My partial explanation: Anticipated regime worsening, a guess that our politics and institutions were taking a turn for the worse. Someday textual analysis of media chatter during
the Eight Days’ Descent (weekdays, 9/1-9/10) will test whether I was on to
something.
READER COMMENTS
roystgnr
Sep 15 2012 at 4:12pm
If we maintained a steady-state debt, then the long-term effect would be to push up both tax rates on income and interest rates on wealth: a perpetual wealth transfer from new money to old money. This seems too pat to be entirely accidental.
On the other hand, who in their right mind would imagine that it was politically feasable to throw away the Schelling point of “try to stay out of debt” and somehow end up at a steady-state without proceeding all the way to “increase debt whenever it provides a short-term political benefit until the exponential increase blows up on us”?
roystgnr
Sep 15 2012 at 4:22pm
This sentence is untrue:
“if these investors think your government is going to repay, your government is probably going to repay.”
Do they also correctly think that Pets.com profits are going to skyrocket and that people will happily spend the majority of their income financing the interest payments on incredibly overpriced houses? Investors have an uncanny ability of convincing themselves that it doesn’t matter what the underlying value of an asset is, so long as they can sell that asset at a higher price to a bigger sucker later.
Does anyone really still buy a T-bill in the belief that the US federal government is going to balance its budget, run a surplus, and then pay back that T-bill with tax dollars? Or do people just expect each $100 invested in T-bills to be repaid after the government sells $200 in newer T-bills later? If it’s the latter, then this just seems like the “bigger sucker theory” in action again. If it’s the former, then is there any way I can bet against these stupid people without my expected gains being eaten by inflation, confiscation, and/or counterparty risk?
MikeDC
Sep 16 2012 at 6:49pm
In principle there’s no reason the government couldn’t continuously roll over some amount of debt. big companies do it all the time.
I think that confuses the issue we should be focusing on which is the magnitude of the debt and long term ability of the government to run on the trajectory it’s on.
[broken url fixed. Please check your links before posting! –Econlib Ed.]
Sisyphus
Sep 17 2012 at 7:25pm
IIRC, Scott Sumner has suggested that the Fed’s imposition of interest on reserves at the Fed accounts for the market’s movements in that same period. Any thoughts on to what contribution TARP’s passage and interest rates on reserves might each have had to the drop in GDP and the S&P500?
Comments are closed.