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the "need" for inflation

Just did some quick back of the envelope calculations on the national debt. Scary stuff.

Current federal government debt -- all the money we've borrowed since Day 1 -- is $14.3 trillion. That debt is now growing quickly. We're running an annual deficit of $1.4 trillion which gets added to the existing debt... because we're spending over $3.5 trillion but only bringing in about $2.1 trillion in tax receipts.

Yet right now, because of super-low interest rates, we are only paying $275 billion a year in interest on this massive debt. Even in NOMINAL terms these interest payments are the lowest amount we've paid since 1990. Link. It works out to about a 1.9% interest rate overall. Wow.

However... "from 1971 until 2010 the United States' average interest rate was 6.45 percent reaching an historical high of 20.00 percent in March of 1980 and a record low of 0.25 percent in December of 2008." Link.

If we were at a historical average interest rate of 6.45%... even at the current debt levels... that is $922 billion A YEAR in interest. That is almost half the money the government collects every year in taxes.

When you factor in the continual growth in the overall debt, which makes the interest owed even higher, these numbers just get more and more mind-numbing.

I cannot see any possible way out of this problem other than inflation or default. Since our debts are all denominated in dollars, and our government gets to decide how many dollars exist, I am betting on inflation. There really is no other option out there.

Gold prices may actually be cheap, all things considered. During the inflation of the 1970s gold prices went up over 23x from absolute bottom to absolute top. The current bull market run is only about 6x.
"Men who had never shown any ability to make or increase fortunes for themselves abounded in brilliant plans for creating and increasing wealth for the country at large." Fiat Money Inflation in France, Andrew Dickson White (1912)

Comments

  • BearBear Posts: 18,954 ✭✭
    Verrryyyy Inttteeerrreeesssttiiinnnngggggg!
    There once was a place called
    Camelotimage
  • jmski52jmski52 Posts: 22,301 ✭✭✭✭✭
    Numbers-wise, that pretty much sums it up. What's every bit as troubling, if not more so - is the mentality that has developed over the past 30-40 years that government or "someone" owes people "something" for doing exactly nothing. This includes alot of help from the "humanistic" political types who depend on dependancy to get elected.

    Put me in the "downsize government/eliminate lobbyists" and "simplify/equalize the tax code" camp. That's for starters.
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • derrybderryb Posts: 36,110 ✭✭✭✭✭
    Devaluing the currency is a form of default. We have already been "defaulting."

    The decline from democracy to tyranny is both a natural and inevitable one.



  • << <i>......
    I cannot see any possible way out of this problem other than inflation or default. ....... >>



    Inflation would end the housing crisis as the same house would finally be 'worth' the enormous number of dollars that it has collateralised. People 'upside down' no longer would be. Young people would qualify more easily to purchase.
    We've been seeing the trauma caused by defaults in the housing market. It is certainly not pretty but thankfully it's not as universal as it might be.
    My bet is on inflation. It's less obvious, more 'hidden'. The advertising media continue to tell us that there isn't any while blithely ignoring the rising prices and shrinking packages. Have you calculated how much more you are paying for gasoline than you did x years ago? Hell, it now costs me more per month for the meter reading charge than I actually use in electricity!
    Many, many perfect transactions with other members. Ask please.
  • Steve27Steve27 Posts: 13,267 ✭✭✭
    There are three ways out other than inflation or default, grow the economy, spend less, or increase taxes. By keeping interest rates low, the Fed is doing its part to grow the economy; however, there has been only limited success. Thus, you can expect both reduced spending and increased taxes in the future. Personally, I would close or greatly reduce WWII era military bases in Germany, Great Britain, Japan, South Korea, and I'm sure there are a few others. I would also increase the capital gains taxes, so that when guys like Bill Gates, Warren Buffet, and Mark Zuckerberg say their for higher taxes, they would actually have to pay them.
    "It's far easier to fight for principles, than to live up to them." Adlai Stevenson
  • They are attempting to figure out a way to do it without it getting into the hands of serfs. The worst of all worlds and evil
    political games.

    Done with the citizens of this country in mind, I agree it's probably the only way out. We're back to pre depression times as far as any safety net otherwise.
  • cohodkcohodk Posts: 18,549 ✭✭✭✭✭
    Inflation would end the housing crisis as the same house would finally be 'worth' the enormous number of dollars that it has collateralised. People 'upside down' no longer would be. Young people would qualify more easily to purchase


    Rising real estate prices, as well as general goods inflation, without commensurate wage increases, would not help anyone qualify for a loan. At this point, inflation without wage growth, is probably more damaging than deflation.

    Inflation, at this point is in the hands of Congress. They need to create jobs through a massive public works program such as we've had in the past with the TVA and Interstate Highway programs. But Congress and the American people want austerity, not larger govt or more spending.
    Excuses are tools of the ignorant

    Knowledge is the enemy of fear

  • konsolekonsole Posts: 788 ✭✭✭
    How can we even rely on the debt amount being told to us? What double check is there to make sure that the number being reported is correct? If there is no double check then whats stopping the Fed and the treasury from misreporting the number? Whats stopping the Fed from printing another Trillion while saying they did no such thing?
  • mhammermanmhammerman Posts: 3,769 ✭✭✭
    "They need to create jobs through a massive public works program such as we've had in the past with the TVA and Interstate Highway programs. But Congress and the American people want austerity, not larger govt or more spending."

    The American people want, and will have, austerity. The public works programs are sorely needed for both employment and for our rotting in place infrastructure. These public works programs are no longer something we would like to have, they are imminently and immediately necessary but the states and federal gov are without the funds to promote this effort. The only answer is to raise taxes on users (people that drive on the highways and bridges) by increasing taxes on gasoline. People are going to howl like they are getting poked with a sharp stick but if we can't increase our revenue by hundreds of millions of dollars a day then we are doomed to third world status. While everyone still has that 50's mentality of the best and brightest population in the world, the reality of today speaks a different story of the fate we as a nation are stareing right in the face. This is a project we must start on right now.

    Our national power grid is also in dire need of immediate repairs and upgrades as it is mostly what we had in place in the 50's. There are three power grids in the US, The Western Interconnection, the Eastern Interconnection, and the Texas grid or ERCOT. The Western and Eastern are redundant but the Texas grid is self contained. Most of the power grid relies on coal fired equipment to generate electricity. While coal is very plentiful, the low efficiency and high environmental cost makes it a poor choice in view of our absolute and total dependency on a constant and dependable power supply. It is a weird anomalie that people will pay a hundred dollars for dsl and high speed internet, all based on a 1950 power grid but they cry and scream when the power provider wants to raise rates for efficiency upgrades or modernization projects. Updating and modernizing the power grid is a big big job and absolutely necessary right now. It's not like people are kicking the can down the road on this issue , they are just looking at it and walking on by. A national tax to update the grid should absolutely be in the cards right now.

    We just got a preview of the movie about adding fees. The city needed to add a fee to the water bills to pay for drainage projects that will reduce flooding and upgrade the woefully outdated drainage and water delivery system. After the roll out of the new fee and some adjustments, it looks like most residents will be paying about $5 a month for a considerable upgrade in our drainage system in a city that typically floods every year. Rather than support the effort and willingly contribute to the effort that benefits everyone that lives here, the opposition lined up attorneys, called in the courts, had little children on TV and weeping mothers and fixed income geezers...it was just a complete circus over $5 a month. Just imagine a $3 tax on a gallon of gas or an extra $3 on your electric bill...jezus, they will get the supreme court in on that and start having recall elections. These people have lived too good for too long for too little, time to pay up or freeze in the dark.
  • jmski52jmski52 Posts: 22,301 ✭✭✭✭✭
    ................and the exceptionally low levels of the Fed Funds rate are expected to remain low for an extended period....................

    just rolled off the tongue of the bearded banker of the elites........................
    Q: Are You Printing Money? Bernanke: Not Literally

    I knew it would happen.
  • StewStew Posts: 1,002
    I have a weird idea
    How about taking away the charter of the Federal Reserve Bank and put the responsibility for Issuing our money on the Treasury Department and Congress
    I don't see how it could be any worse than borrowing Trillions from one Bank Federal Reserve and just giving it to other banks that they think
    are "Too Big to Fail" at least we would not be paying interest on our own money like we are now.
    We are after all a Sovereign Nation, shouldn't our Government be in control of printing our currency. Not a private For Profit Bank?
    I am by no means a financial wizard or anything like that. Just seems like a common sense approach.
  • "inflation" is the exact same thing as a tax increase. The difference is congress doesn't have to vote on it.
  • derrybderryb Posts: 36,110 ✭✭✭✭✭


    << <i>I have a weird idea
    How about taking away the charter of the Federal Reserve Bank and put the responsibility for Issuing our money on the Treasury Department and Congress >>



    What happens to those that try

    The decline from democracy to tyranny is both a natural and inevitable one.

  • rawteam1rawteam1 Posts: 2,472 ✭✭✭
    how does "inflation" automatically assume that real estate will go up in price/value.......

    it doesnt... it wont...
    keceph `anah


  • << <i>how does "inflation" automatically assume that real estate will go up in price/value.......

    it doesnt... it wont... >>



    It certainly will not go up in 'value' by my estimation. A house is a house, good shelter and a happy home.
    However, the taxes are now greater in dollar amount than was the original purchase price of the house and impoverished but still happy home. But the purchase price of the h+hh is now 20-30 times greater. Same house, same happy home, enormously larger number.
    Inflation.
    ----
    It does. It historically has. It's the only way for our rulers to continue to live opulently at our expense. And they ain't gonna give it up.
    Bet on it.
    ----
    Chunky Bars no longer cost a nickel. And they ain't terribly big anymore.
    Many, many perfect transactions with other members. Ask please.
  • BaleyBaley Posts: 22,658 ✭✭✭✭✭
    << how does "inflation" automatically assume that real estate will go up in price/value.......

    it doesnt... it wont... >>


    "real estate" aggregate asset value is not guaranteed to increase with inflation, any more than "stock market" aggregate or total (lumping excellent with poor companies in an index) is guaranteed to rise in a strongly price-inflationary environment.

    However, I would certainly expect "choice" properties and stocks to at least keep pace with inflation over longer term horizons

    with choice assets and skills spread around the asset class and job function spectra, one can profit in any reasonably likely scenario

    Liberty: Parent of Science & Industry

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