Comments on: It Ain’t What People Don’t Know that Gets Them into Trouble; It’s What They Know That Ain’t So

By: Vincent Cate

Vincent Cate — Wed, 27 Feb 2013 09:49:56 +0000

You must compare the US now to Germany, the Confederacy, or Zimbabwe before their hyperinflations started. Clearly once hyperinflation has started things are far more disfunctional.

I was wrong, the last two months have not been bad. The two months before that were. The first 4 months of this fiscal year have a deficit of only 290 billion compared to 340 billion for the first 4 months of the last fiscal year. So things are a bit better and they are predicting a deficit under $1 trillion for this fiscal year.

If the deficit really does go down then things are not spiralling out of control. However, I think we may have a next recession, and a bond panic. If there is another recession then taxes go down and spending goes up from here. Most of the debt is short term, so if interest rates go up the interest payments go up fast. So a recession and bond panic could make the deficit really go up. Also, when the interest rates are going up the Fed will be losing money on its bond purchases and so will stop giving the Treasury money. The Fed gave the Treasury about $89 billion last year. So these 3 things together could make the deficit much worse very easily. Time will tell.

http://www.businessinsider.com/us-budget-surplus-january-2013-2013-2

http://www.nytimes.com/2013/01/11/business/economy/feds-2012-profit-was-88-9-billion.html?_r=0

By: David Glasner

David Glasner — Wed, 27 Feb 2013 03:45:45 +0000

The US never had a budget till the 1970s. The budget is just a plan, it is economically irrelevant; it’s a political statement. I could be wrong, but I thought that the Treasury actually ran a surplus in January. At any rate, if you think the US is in the same league as the Confederacy in 1865, Germany in 1923 and 1945-48, and Zimbabwe, I am afraid that your grip on reality is just a bit shaky. However, I do agree that watching the current cast of characters carry on does not exactly bolster one’s confidence in the future of the Republic.

By: Vincent Cate

Vincent Cate — Wed, 27 Feb 2013 03:30:47 +0000

The US has not passed a budget the whole time Obama has been in office. The last couple months they spent about twice what they got in taxes. The US is disfunctional in the key way that those other governments were disfunctional, spending is way over income.

By: David Glasner

David Glasner — Wed, 27 Feb 2013 01:54:40 +0000

Vincent, I see your point. All I meant was that the kind of disfunctional government or political situation that led to hyperinflation in the Confederacy when it was clear that the South was going to lose the war, in Germany after WWI and WW2, and in Zimbabwe don’t yet seem to obtain in the US, but who knows? Maybe our time is running out.

By: Vincent Cate

Vincent Cate — Tue, 26 Feb 2013 14:55:17 +0000

It seems illogical to say “the conditions leading to hyperinflation do not exist in the USA” when you don’t have a theory as to what the conditions leading to hyperinflation are.

By: David Glasner

David Glasner — Mon, 25 Feb 2013 17:50:38 +0000

Vincent, I haven’t studied hyperinflations, so I don’t have a theory of what causes them. I can think of a number of possibilities, including loss of confidence in the ability of the state/government to maintain its sovereignty and enforce the payment of taxes. The size of the government’s debt may be one factor that affects expectations of the government to maintain its sovereignty, so there may be some common ground here. But I don’t have a well developed theory of the causes of hyperinflations.

By: Vincent Cate

Vincent Cate — Fri, 22 Feb 2013 01:36:17 +0000

David, I think the conditions that lead to hyperinflation are debt over 80% of GNP and deficit over 40% of spending. These are extreme but the US has these. If you don’t think these are the conditions that lead to hyperinflation, what do you think the conditions are?

It is not a simple slippery slope. A little inflation does not automatically result in higher and higher inflation. The key is the debt and deficit so that money printing gets out of control . Any government without large debt and deficit can stop printing money. Hyperinflation is a tipping point, death spiral, or positive feedback loop. It is clearly true that once hyperinflation starts it is very hard to stop.

By: David Glasner

David Glasner — Thu, 21 Feb 2013 19:17:55 +0000

Vincent, Thanks for the clarification. I am used to hearing arguments that sound like there’s slippery slope, so that once you get a little bit of inflation you are ultimately going to get to hyperinflation. I think that the conditions that lead to hyperinflation are generally pretty extreme, and don’t exist in the US. The US is not Zimbabwe, not even Greece.

Tas, I don’t think we have to worry about 1933 either, but, according to Dr. Stelzer, Mrs. Merkel thinks it is relevant.

By: Robert Waldmann, WADR, Maybe You Really Should Calm Down | Fifth Estate

Robert Waldmann, WADR, Maybe You Really Should Calm Down | Fifth Estate — Mon, 18 Feb 2013 13:28:07 +0000

[...] to this recent post of mine, Robert Waldmann wrote a post of his ownwith a title alluding to an earlier post of [...]

By: Robert Waldmann, WADR, Maybe You Really Should Calm Down « Uneasy Money

Robert Waldmann, WADR, Maybe You Really Should Calm Down « Uneasy Money — Sun, 17 Feb 2013 21:54:58 +0000

[...] to this recent post of mine, Robert Waldmann wrote a post of his own with a title alluding to an earlier post of mine [...]