heywood on 21/9/2023 at 17:33
Just to be clear, the inflation rate and exchange rate are different things, and when I say "a strong dollar" it refers to the exchange rate.
I think the Investopedia article is misleading if not misinformed. Suppose I live in Tafferland and our currency is Taffs and our public debt is mostly valued in USD, because we're a developing country who mostly borrowed from foreign investors. In this case, when our currency drops our debt service burden increases, the opposite of what that article says. On the other hand, suppose Tafferland is a big country and our public debt is valued in Taffs. If our currency drops, our exports become cheap, and our imports become expensive, but our debt service burden remains the same.
Besides, the USD is the most widely used reserve currency worldwide, so the strength of the dollar depends on the condition of many economies and the policies of many central banks. The US Federal Reserve doesn't have a mandate to maintain exchange rates, and they can't just de-value the USD when they want. For example, the Fed opted for maximum monetary stimulus when the pandemic hit, and the dollar only went up.
It's tempting to think we can devalue our debt by trying to maintain a high rate of growth through monetary stimulus, aka print our way out of it. There's always going to be politicians who want to run the economy hot, inflation be damned. But it doesn't work. When there's an expectation that prices will continue rising, people want to acquire things now because sooner = cheaper. Cash burns a hole in your pocket. You look at things you don't need and think "I'll never be able to buy it at that price again." Product shortages become common, which exacerbates the rush to buy. And if interest rates are kept "upside down" i.e. lower than inflation, it creates an incentive to keep borrowing and buying assets long as your credit lasts. Companies do the same thing: build now, buy now, expand now, taking advantage of cheap loans to expand to meet the rising demand. If the inflationary feedback loop isn't broken by raising interest rates, it will continue until rising private debt eventually slows demand and the asset bubbles break. When they do, the government has to take on another wave of public debt to stimulate the economy out of a recession, because the private sector is over-leveraged and can't invest anymore. Meanwhile, high inflation destroys people on fixed incomes, who become more dependent on government services.
demagogue on 21/9/2023 at 19:45
Looks like we're getting schooled in your (
https://www.youtube.com/watch?v=d0nERTFo-Sk) Austrian perspective.
The place you should study isn't the Bust.
It's the Boom that should make you feel leery.
That's the thrust of the theory.
Cipheron on 22/9/2023 at 03:50
Quote Posted by heywood
Just to be clear, the inflation rate and exchange rate are different things, and when I say "a strong dollar" it refers to the exchange rate.
I think the Investopedia article is misleading if not misinformed. Suppose I live in Tafferland and our currency is Taffs and our public debt is mostly valued in USD, because we're a developing country who mostly borrowed from foreign investors. In this case, when our currency drops our debt service burden increases, the opposite of what that article says.
The article is pretty clearly referring to debt issued in the nation's own currency so it's not saying that a non-US nation that has debt in USD can devalue their way out of debt. In fact it says that itself:
Quote:
Again, this tactic should be used with caution. As most countries around the globe have some debt outstanding in one form or another, a race-to-the-bottom currency war could be initiated. This tactic will also fail if the country in question holds a large number of foreign bonds since it will make those interest payments relatively more costly.
Countries that have their debt denominated in a currency they can print have a clear advantage. It's a big reason behind the problems in Greece: not being able to devalue the currency when they had sovereign debt problems.
Quote Posted by heywood
Besides, the USD is the most widely used reserve currency worldwide, so the strength of the dollar depends on the condition of many economies and the policies of many central banks. The US Federal Reserve doesn't have a mandate to maintain exchange rates, and they can't just de-value the USD when they want. For example, the Fed opted for maximum monetary stimulus when the pandemic hit, and the dollar only went up.
The dollar went up vs other currencies, yes. But, a massive wave of inflation followed the expansion of the money supply in 2020-2021. In real terms, the dollar is worth less now, and so is any US debt that's valued in dollars. It only maintained relative value because other nations were also money printing to avoid recession. But it lost in real value, so it has actually been devalued.
heywood on 25/9/2023 at 16:41
Inflation just means prices are going up. That's all. It's not a measure of people's incomes, or their debts, or government revenue and spending, or exchange rates.
Here in the US, this latest inflation wave started in March 2021 and peaked in June 2022. But the public debt to GDP ratio has been flat for the last two years, and household debt has increased significantly. The much bigger wave of inflation from 1979-81 didn't reduce the debt burden either. See for yourself:
(
https://ycharts.com/indicators/us_inflation_rate)
(
https://fred.stlouisfed.org/series/GFDEGDQ188S)
(
https://www.newyorkfed.org/microeconomics/hhdc.html)
You can't inflate your way out of debt. You have to grow your way out of debt. Inflation without income growth doesn't help you get out of debt, it just leaves you with a lower standard of living in material terms.
Most of Greece's public debt was and is held by foreign entities. Regardless of what currency Greece uses domestically, the government has to come up with Euros (and USD and perhaps some yen) to repay the loans. If they were still using drachmas and the value of the drachma tanked, it would only make the loan payments harder. Not to mention the domestic inflation it would cause and hesitance of other countries to invest more in the Greek economy. Like what happened to Argentina... again.
Even if most of their debt was domestically held in drachmas, it couldn't just be wiped away without an economic collapse. If the US can't do it, how is a smaller country going to do it?
EDIT: @demagogue - I think high inflation does more damage than a recession because it hurts everyone, not just people who lost their jobs or had their hours cut. It's especially damaging to the poor because most of their spending is non-discretionary and the things they buy tend to have inelastic demand, not to mention they're the first ones to exhaust their savings. During a recession, we have to carry more people on unemployment and other benefits for a while. But that's a lot easier than permanently raising the pay of all low income workers to make up for the ground they lost to inflation, without making inflation even worse. We have a bit of a homelessness crisis brewing here in the northeast and it isn't because people can't get a full time job. Some are talking rent control again. The other reason why I think inflation is worse is that once it's baked into people's planning, it creates unwanted incentives and positive feedbacks that make it hard to get rid of.
Starker on 5/10/2023 at 16:38
In other some more not news, there is this video essay in the growing genre of Elon Musk sucks:
[video=youtube;pmGOjHi-7MM]https://www.youtube.com/watch?v=pmGOjHi-7MM[/video]
ViiRaptor on 5/10/2023 at 20:49
post test
Tocky on 6/10/2023 at 00:45
Quote Posted by ViiRaptor
post test
[video=youtube_share;1L6BNRK3lhA]https://youtu.be/1L6BNRK3lhA[/video]
seriously WTF
Have you tracked Starker down? Will we have to fight you for him now?
I'll trade you half a Snickers bar for him.
Or there is always this-
[video=youtube_share;Dk8tmSttbzc]https://youtu.be/Dk8tmSttbzc[/video]
Starker on 6/10/2023 at 01:01
Quote Posted by Tocky
I'll trade you half a Snickers bar for him.
See, Mom? And you told me I would never be worth anything...
Tocky on 6/10/2023 at 01:20
Hey now, Snickers is a good candy. As a matter of fact, now that I think about it....
Azaran on 1/11/2023 at 03:42
(
https://www.popularmechanics.com/science/animals/a42708517/scientists-reincarnating-woolly-mammoth/) Company is working on reviving the woolly mammoth via genetic manipulation by 2027.
Quote:
The long-dead woolly mammoth will make its return from extinction by 2027, says Colossal, the biotech company actively working to reincarnate the ancient beast.
Last year, the Dallas-based firm scored an additional $60 million in funding to continue the, well, mammoth gene-editing work it started in 2021. If successful, not only will Colossal bring back an extinct species—one the company dubs a cold-resistant elephant—but it will also reintroduce the woolly mammoth to the same ecosystem in which it once lived in an effort to fight climate change, according to a recent Medium post.
Quote:
The woolly mammoth’s DNA is a 99.6 percent match of the Asian elephant, which leads Colossal to believe it’s well on its way toward achieving its goal. “In the minds of many, this creature is gone forever,” the company says. “But not in the minds of our scientists, nor the labs of our company. We’re already in the process of the de-extinction of the Woolly Mammoth. Our teams have collected viable DNA samples and are editing the genes that will allow this wonderful megafauna to once again thunder through the Arctic.”
Through gene editing, Colossal scientists will eventually create an embryo of a woolly mammoth. They will place the embryo in an African elephant to take advantage of its size and allow it to give birth to the new woolly mammoth. The eventual goal is to then repopulate parts of the Arctic with the new woolly mammoth and strengthen local plant life with the migration patterns and dietary habits of the beast.
