the entire "cut the deficit" argument is based on the crazy claim that interest rates are too high

[unblock]

the whole rationalization behind cutting the federal deficit is that presumably a big deficit means the government has to sell lots of treasuries in order to finance its extra debt and that drives interest rates up and thereby "crowds out" private investment.




seriously? people honestly look at 4% 30-year bonds and say that's too high?
people look at 10-year notes and say 3% is too much?

just about any interest rate you care to look out except credit cards is at or near historical lows.


some businesses are sitting on piles of cash, doing nothing because there IS nothing worthwhile to do given the lack of DEMAND because consumers are in debt and unemployed.
other businesses are just trying to pay down their debt and struggling because of the lack of DEMAND beause consumers are in debt and unemployed.

anyone who claims we need lower taxes, lower interest rates, less regulation, or any other form of SUPPLY stimulus is BLIND AND DEAF to what's going on in the actual economy.

the economy is screaming for DEMAND stimulus. cutting the deficit, cutting interest rates, none of that will do any good at all.

we need to INCREASE the deficit and get the economy moving, get the middle class into jobs and out of debt and THEN worry about inflation and balanced budgets, if that's even a problem.

[daylan b]

1. No.

It's that you can't keep spending more than you make forever.

[girl gone mad]

3. That may be true of households and also of local and state governments.

Sovereign fiat currency regimes function very differently, though.

[daylan b]

6. So you are ready to pay $20 for a loaf of bread?

Because that's the result of the "function" you speak of.

[unblock]

8. how funny, toss out the hyperinflation boogeyman in a near-deflationary economy

you are living in a fantasy land if you think hyperinflation is a serious risk. long term debt is at 4%.

FOUR PERCENT.

the market says that it is not remotely worried about inflation for a long time.



if and when the economy gains serious steam (highly dependent, imho, on getting middle class households' financial situation fixed) THEN inflation MIGHT become a problem and at that point a large federal deficit might compound the problem. but at that point, tax revenues will be higher, unemployment related spending will be lower, and so on, so the deficit might not be as big a problem even without doing much directly about it. in any event THEN would be the time to address that problem.

why are we worried about fantasy problems from the future instead of serious, real problems from today?

[daylan b]

9. Because...

...not focusing on the 'fantasy problems of the future' is exactly what got us in this damned mess in the first place.

BTW, if you can't make your point without calling legitimate economic concerns 'boogeymen' and 'fantasy problems', please be courteous and just tell me so I don't waste my time discussing issues with somebody who is incapable of doing so rationally.

[BzaDem]

15. "is exactly what got us in this damned mess in the first place"

No, it isn't. The mess we are in now is entirely different than the mess the hyperinflation mongers are worried about. Under these circumstances (with huge excess capacity and high unemployment, and the lack of a supply shock overseas), more stimulus now simply will not produce one bit of inflation. (Just look at how the Fed has ballooned its balance sheet by almost 2 trillion. And yet no inflation in 2 years.)

Inflation will occur once aggregate demand exceeds aggregate supply, and right now, there is a HUGE gap between the two.

Yes, we will have to tackle our long term debt later on, since our deficit as a percentage of GDP will start growing in 2015 or so. This is primarily a function of our extremely inefficient healthcare system. But just because that has to be dealt with later does NOT mean we should avoid massive stimulus right now to boost aggregate demand. We do NOT have a short term deficit problem.

[unblock]

16. well i did use words such as "crazy" and "blind and deaf" in my o.p.

so i think i did give fair warning :)

besides, use of words and phrases you might find harsh has nothing to do with whether or not the discussion is rational.

the fact is that today's deficits have virtually no risk of causing serious inflation, let alone hyperinflation, right now. the notion that they do is based on a highly simplistic view of what causes hyperinflation, one that ignores the actual economy and the structures and forces within it and reduces everything away to focus exclusively on just one of many factors, federal deficits.

the biggest driver of inflation has nearly always involved a strong labor market as a backdrop. with businesses unable to cut wages and/or personnel, costs remain high and the pressure to raise prices continues throughout the economy. workers demand higher wages to keep up and the cycle continues.

but the labor market has been incredibly weakened structurally since the last serious bout of inflation in the early reagan years. now, businesses can much more readily close plants, reduce hours, lay off workers, off shore work, and so on. and workers are not in a position to demand increases, for the most part. even should the economy boom, labor unions are weak and the ability of workers to do their part in an inflationary spiral is dubious at best.


i'm not suggesting that deficits should be ignored forever. they should be maintained responsibly and reduced where possible when the economy is in a position to do so. but that's a problem for another day. the REAL problem, hear and now, is NOT ENOUGH spending on helping the weak spot in our economy, namely the unemployed and over-indebted middle class. fix that and the economy will boom. then we can worry about growth-driving inflation. "a quality problem" as they say.

[Hawkowl]

13. Not inevitable

Inflation depends on more than just the quantity of borrowing. M * V = P * T or M*V/T = P, where M is the money supply (generated by the Fed and to a lesser extent government borrowing); V is the velocity of money (how fast is a dollar spent and re-spent and re-spent etc in a given time frame) and T is an index of expenditures.

See right now the Velocity of money had fallen right off a cliff. One dollar borrowed essentially is spent once and disappears so the Fed has resorted to an ever increasing money supply to try and "pump up the pressure" of the economy, but it hasn't worked. Cash is being hoarded not spent, so inflation is impossible (Inflation being too many ever increasing dollars chasing too few goods. We have the increasing dollars but they refuse to chase!)

So increasing the deficit in a depression doesn't seem to be contributing to inflation--it seems that it is simply slowing the rate of DEFLATION. Deflation is a much, much bigger bugaboo to fight. Why? Because every day you don't spend your dollar it is worth a little more the next day.

I really think, and many others are beginning to agree, that we have fallen into the classic liquidity trap theorized by Keynes. In this case, monetary policy is impotent and the only choice we have is to have the government spend STUPENDOUSLY to revive confidence and prime the pump of the economy.

However, there is no reason to simply borrow all the necessary funds. If the wealthiest fat cats are sitting on and hoarding "their" money to the detriment of society, it would behoove society to tax this money away and inject it into the economy producing real goods and services.

[girl gone mad]

17. hyperinflation requires a very specific set of economic circumstances.

Unless and until demand grows faster than the real capacity of the economy there will be no generalized inflation. The size of the public debt ratio is irrelevant when assessing the risk of inflation.

We would have to reach full employment before we could even begin to take the threat of inflation seriously. We are nowhere near that point.

If we reach full employment and excess money supply causes inflationary pressures, the federal government can increase taxation to pull money back out of the economy.

[unblock]

5. first, if one of the things you make is money, then yes you can.

the only really relevant metric is debt as a percent of gdp, and if this is modest, then get be maintained forever, or at least for very long periods, as has been the case quite often in u.s. history.

second, the timing of when to reduce debt is huge. why is it that republican never seem to call for increased taxes and budget surpluses when economic times are good so that we can pay for the deficits we have to run when times are not so good? simple, it's because the deficit argument is a canard, they're only interested in restricting spending because a democrat is in charge. they love deficits when a republican is in the white house.

[daylan b]

7. First, if you want to start printing Monopoly money, then see my above post.

Yes, the relevant metric of debt as a percentage of GDP. By that standard, the deficit for 2010 is the highest in over half a century.

On your second point, you’d need to ask them. The fact that Bush did it doesn’t make it okay.

[Hydra]

40. It's all monopoly money

But the difference here is, we have underutilized labor. That being the case, we're not going to have inflation until everyone is back in the pool and the Fed keeps the borrowing interest level artificially low(housing bubble).

[Odin2005]

28. Simplistic Libertarian gobbly-gok.

[On the Road]

2. That's Not the Argument

But I do agree that putting deficit reduction first is a little premature. By about a year.

Grow out of it like Clinton did, wind down the two wars over time, and by the end of the decade the budget will be in surplus again.

[girl gone mad]

4. Unless the private sector dramatically reverses course..

a budget surplus will put us in a deep recession.

[On the Road]

11. It Would Now

just like Andrew Jackson plunged the country into a depression by paying off the national debt.

But at the end of a period of growth, like the like 90s, it wouldn't have any more effect than it did then.

[Art_from_Ark]

52. Andrew Jackson plunged the country into a depression

by insisting that government loans (often made to land speculators) be paid back in specie, which was difficult to obtain because a lot of it had been sucked out of circulation by flim-flam artists posing as bankers.

[sandnsea]

10. "spending money like drunken sailors"

Carol Mosley Braun was saying that back in 2004. DU cheered her.

Now spending and tax cuts aren't a problem?

Do people seriously not see their own hypocrisy?

[DJ13]

14. We werent teetering on the edge of a depression in 04

Different times require different strategies.

I will agree that if the issue had been dealt with in 04 we would be better off today.

But we would still need to spend right now no matter what.

[sandnsea]

23. And nobody said we aren't going to keep spending

Well, except for a few liars on the left who do nothing but distort everything Obama is trying to do.

The point is, if spending was out of control in 2004 - THE EXACT SAME SPENDING is out of control now. BAD spending and BAD tax cuts remain -- BAD.

Why would you not want it addressed? You did in 2004.

[unblock]

32. i want smart spending, but i do want a BIG deficit, now

back in 2004 the spending was just plain crazy irresponsible, it racked up the debt for no good reason (except for shrub's cronies). then i wanted a smaller deficit because the economy was in fair shape and didn't need a huge deficit to stimulate it, and certainly not the kind of stimulus shrub was offering.

today i want a huge deficit because the economy needs serious spending to support the unemployed and the middle class. nevermind any altruism or empathy or whatever; the economy is suffering from a lack of demand and government support for these people is the best way to solve that problem.

i agree that the budget needs to be seriously revamped, there's a lot of bad stuff in there from shrub's era and before.

[sandnsea]

37. Then you support Obama's plan

Are you going to make a post about it?

[unblock]

45. er, uh, you want me to hijack my own thread?

republicans have been calling for the deficit to be slashed since the day obama won the election, using any excuse the could fill up airtime with.

i start an op bashing these stupid republican arguments and this leads you to question my loyalty to obama?

[sandnsea]

48. Because your OP is wrong

Cutting the deficit is not just a stupid republican argument. There is unnecessary spending, starting with the F-35. There isn't a thing in the world wrong with a commission to get to the things that need to be cut.

[DJ13]

33. Obama is sending mixed signals, so if people are confused its his fault

On one hand he tells the EU at the G20 meeting to continue their own stimulus, while just a couple months before that he forms his own deficit commission to find areas to cut spending.

His Treasury Secretary says more stimulus is needed, then Obama says nothing about wanting more stimulus in various speeches immediately afterwards.

His economic team (and he himself) are all over the map on what needs to be done in resurrecting the economy, which serves to confuse and worry people, maybe needlessly...... maybe not.

[sandnsea]

35. That is just a load of bullshit, complete and total

He has very clearly said we need a jobs bill, unemployment extension, more money for states and cities and teachers, is promoting alternative energy projects, etc.

How could you have missed it?

And he said spending would freeze next year, and they would look for means to cut the deficit. Means like cutting the F-35 and other military projects. Are you saying we need to do that spending just to "resurrect the economy"?

[Name removed]

41. Deleted message

Message removed by moderator. Click here to review the message board rules.

[sandnsea]

42. You don't want the Democratic President to succeed?

How about you stick to politics, the economy and the country. You know, the reason you pretend to be here.

[DJ13]

46. I want him to be a good President for the majority of people

I think he's failing on that score at this time (as I said earlier, theres still time).

His stimulus was trickle down aimed almost solely at the top of our income groups at a time when it was the bottom of our economy that needed the stimulus if we were going to actually deal with the situation.

And the bottom needs the help even more now, but he still doesnt seem to grasp that.

You do no one any good by pretending everything is fine, its not.

[sandnsea]

47. And you skipped everything I said

And so, the unemployment extensions, $25 weekly benefit, COBRA subsidy, $400 refundable tax credit, student loan reductions and increased Pell Grants, billions for city and state employees, small business loans, billions in alternative energy investments, billions to retrofit homes for energy savings, Kash for Klunkers, $8,000 free down payment,

I'm sure I haven't remembered everything.

What the hell do you call all of that? And if it was worthless peanuts, then why is everybody freaking out because the Senate won't renew it?

[unblock]

18. the federal government should run deficits when the economy is in trouble

and run balanced budgets and surpluses (if need be to keep the debt as a percent of gdp in line) when the economy is strong.

if a "household budget" methphor is needed, the idea is to borrow when you need, and pay it back when you can. you don't try to pay down your debts when you are short on cash, that only makes the situation worse.


the problem with the deficits in 2004 is that the spending was not there to stimulate a weak economy with the idea that we'd get back to a balanced budget or a surplus when the economy was strong. the economy was already in decent shape, that would have been a better time to have a budget closer to balanced.

[sandnsea]

25. And it is, and it will

It's not as if they're just going to cut the budget in half and turn off the spigot.

And, in a household budget, when you're short on cash the very first thing you do is look for ways to cut spending. And if you know you're going to be short on cash for a while, yes paying off the most expensive debt as quickly as possible is a good idea.

The mindless bashing has got to stop.

[girl gone mad]

19. I've learned so much about monetary systems since 2004.

I actually understand why Cheney said "deficits don't matter" (he was right and wrong - they do matter - but they aren't always bad).

The problem in my view was that Bush was running deficits to fund wars and tax cuts for the rich, both very detrimental to the broad economy.

[unblock]

21. cheney, of course, was speaking purely politically, not economically.

he meant that deficits are politically irrelevant now that republicans are in control and any talk of deficits only interferes with their ability to run things the way they want. he would give a crap about whether or not they harmed the economy.

economically, you're right. deficits are far more complex than a simply good/bad. the same deficit that triggers hyperinflation in one year might be completely irrelevant in a different year.

moreover, WHAT you spend money on matters as well. if the only goal is to stimulate the economy, then spending on investment makes sense if the economy is supply- and capital-starved; giving money to consumers/workers makes sense if the economy is demand-starved. get it backwards and you've just thrown money away.

[tkmorris]

27. "DU" is not a defined entity

Sure there were a few that cheered her for saying that. They were a minority. Even threads with 200 replies, everyone expressing the same view, only has 200 people. The vast majority of "DU" never checked in at all.

If you try very hard you might find a member of DU that cheered her then, and are saying the opposite now. I doubt it but you might. If you succeed, THAT person is a hypocrite. And a Carol Mosley-Braun fan.

[DCBob]

12. Here's the "argument"..

[unblock]

22. oh noes! charts!

kidding aside, i appreciate that the debt has skyrocketed and i'm certainly not thrilled with shrub putting us in this mess. his deficits were stupid and pointless (unless the point was to funnel federal money to his cronies and contributors -- well, i guess that WAS the point).

but that hasn't correlated with inflation for quite some time, and with other aspects of the economy being what they are, it's hard to see those forces coming together for quite some time. you have to imagine many present and stubborn problems being solved first in order to serious inflation to be a concern. most notably, the high unemployment.


i should note that no less a conservative than david frum has actually called for inflation to help us out of our debt. no, seriously:

http://marketplace.publicradio.org/display/web/2010/07/07/rediscovering-the-positives-of-inflation-frum-commentary/

his idea is to spend now and solve our problems with a little inflation and then solve the inflation problem later.

[DCBob]

54. You cannot ignore what those charts are plainly saying.. we have a problem.. a very big problem..

The data is spiking and its worse that anytime since ww2 and it shows no sign of stopping. We are already spending tons of money and is there is no later. The problem of unemployment will seem trivial when the crisis of our debt swamps us.

[izzybeans]

20. I think there are two things happening here.

I think Obama is banking on the luck of the draw, like Clinton got in the 90s (thankfully it happened then) with the internet boom. We are still working out how the internet will transform our economy and social life. The 90s were the gold rush. Obama is hoping for a new rush. If you listen to his economic speeches, he keeps showing up at places we never hear about from the news (e.g. today he was an electric truck manufacturer that sells to distribution companies). The second, is that private businesses operate on the same irrationalities as individuals whom would make a run on the bank if they were afraid of their money disappearing. Everyone who is still employed knows about these piles of cash, and they also know how self-perpetuating this hoarding is terms of depressing profitability. We hear about it everytime our boss gives us the newspeak for our layoffs and cutbacks have made us X% under budget for this year. Have you ever asked where that savings comes from? You never get a straight answer. Imagine this one action concatenating out until it hits every employer. It spreads like a panic or virus. It is self-perpetuating. So it is not government spending crowding out anything; its irrational investment on the part of businesses. If you really followed so-called 'market logic' during an economic downturn. If you are a strong company then it is time to start buying, doubling-down, making investments. Instead they play cautious, sit back, lay off, etc. And the downturn becomes worse and self-created.

[Statistical]

24. That isn't the argument being made.

I think the whole deficit monster is over hyped and way too early but your OP is simply wrong.

"people honestly look at 4% 30-year bonds and say that's too high?"
No. Nobody (except you) is saying this.

"people look at 10-year notes and say 3% is too much?"
NO. Nobody is saying this either (except you).

[unblock]

29. for better or for worse, cnbc is on all day at work, and yes i do hear this a lot

not in those exact words, of course. they talk about treasury borrowing crowding out private investment or causing market distortions or driving yields up (on a day when there happens to be a large jump, then they drop this argument the next day when rates fluctuate the opposite direction).

but yes, they do get all bent out of shape over deficits based on arguments that all boil down to the idea that interest rates would be lower were it not for the big federal borrowing.

you kinda have to feel sorry for them, because they learned this religion back when it made more sense. 30 years age, sure, this argument made sense. actually, a lot of times it makes sense. but not now. unfortunately, many republicans and business types are stuck in a single way of thinking and learned that deficits are bad because they make interest rates high and they just can't give up the argument even when interest rates are low.

[girl gone mad]

30. Actually, it's exactly the argument being made by the deficit terrorists.

Austerians reason that the national debt is going to keep growing rapidly and that advanced economies can no longer grow their way out of this debt. They believe that due to this increasing debt, federal interest costs will increase dramatically, which will create other effects, such as driving interest rates up more generally including consumer and government interest rates.

[Statistical]

31. "federal interest costs WILL increase dramatically"

Now THAT is the argument being made however that is not what the OP indicated.

Nobody is saying CURRENT rates are high. Nobody. Anywhere.
The "claim" is that the run away deficit will LEAD to higher interest rate IN THE FUTURE.

Thanks for making the point for me. :)

Anyways I think the deficit is an issue for the FUTURE. Like when unemployment is back below <6% and GDP has grown for 4 or more qtrs at 3%+ rate.

The deficit whores are about 2-3 years too early. Hell we have risk of deflation right now (which is a whole another nightmare).

[girl gone mad]

34. They have been making this argument for years.

In fact, with respect to Japan, they've made the same argument for decades.

The inflation they swore was right around the corner has yet to materialize.

[Statistical]

36. I never said they didn't my point was nobody except the OP is saying 3% on 10yr T-bill is "high".

Nobody that is simply something imagined by the OP.

I am not saying deficit whores don't exist. They do. They are closely aligned with the gold bugs. I am simply saying the argument outlined in the OP isn't being made.

The argument that is being made is the one you cited in your post.

[unblock]

38. except that 4% 30-year debt itself a prediction of future interest rates

if people seriously worried about high interest rates in the future while interest rates were low today, then you would see a much steeper yield curve, with 30-year debt much higher then 4%, because the current 30-year rate has expectations of future interest rates built in to it.

people are saying that the expectation of higher interest rates in the future are causing CURRENT long-term rates to be higher than they otherwise would be because of the large deficits. and that is their argument for dealing with the problem today as opposed to waiting until it's a real problem. certainly you can find this argument on cnbc, lately i haven't gone a day without hearing this argument at least once or twice.

[Statistical]

43. Please provide a cite or link.

I have NEVER heard that argument made, maybe just pure luck that I never had the channel on when it was being made. The risk is forward looking not current. Nobody can make a rational argument that 4% on AAA rated paper is holding back economic expansion. Nobody is going to risk looking like an ass making such a clownish statement. It isn't just long date t-bonds which are "cheap" it is all high grade corporate debt.

As far as the 30yr predictive capabilities in a normal economy maybe however with a slight to quality and away from risk the yield of 30yr is depressed simply due to supply and demand. Something if you watch weekly auctions the treasury is quietly taking advantage of (redeeming short term notes and issuing long term bonds, essentially locking in large portion of debts interest rate). Given the fed has crushed the short end of the yield curve what should someone with a lot of conservative money (think pension, annuity, life insurance) do? Put money in real estate? Mortgage backed securities? Junk Bonds in a recession? Stocks with the volatility we have right now? Maybe buy in at the top of the gold bubble? Collect less than inflation on a 1 year note? Collect 0.5% real on a 10 year TIPS?

There is no good place to stick it except the long bond. With 30r bond you at least have the hope that the govt will tackle deficits before it is too late and inflation gives you a negative real rate of return for next couple decades. Thus a lot of money flowing into longer dated treasuries. When the economy turns around you likely will see a lot flow out and if the federal govt isn't ready to tackle deficit we could see supply outstrip demand and a spike in rates. At that point it would kill an economic expansion. Nobody is going to want to try and build a factor and compete with a 8% or 9% T-bond.

[dkf]

51. The scary thing is if the timing of the increases will be determined by bond vigilantes.

Right now we are benefiting because the scares in the economy are leading people to run to the safety of treasuries. When that circumstance is over and people decide to put their money elsewhere that is when we have to be concerned.

Lately we have had some situations were certain corporates were experiencing better rates than the supposed risk free treasuries. Not good.

[Statistical]

56. Yeah the losss of spread between treasuries and AAA corporates is a troubling omen.

It could just be inefficiencies in the market but it could be that at least some investors find more safety in AAA corporates.

Now granted there are very few AAA corporates left.
* Automatic Data Processing (NYSE:ADP)
* Johnson & Johnson (NYSE:JNJ)
* Microsoft (NASDAQ:MSFT)
* ExxonMobil (NYSE:XOM)

IS the risk of a Microsoft default worse than the US Treasury? Microsoft certainly has a better balance sheet and much more stable income statement.

[Odin2005]

26. As a % of GDP our debt is actually a lot lower than many other developed countries.

The debt is a RW boogeyman used as an excuse to cut social programs.

[sandnsea]

39. For the US, historically, it's getting high

And we do have social security and medicare to pay, in terms of paying back the FICA people paid in. I Want Mine Back.

http://www.usgovernmentspending.com/federal_deficit_chart.html

[jtuck004]

44. A household budget is constrained by debt. Sovereign currency, at least U.S.

sovereign currency, is not so constrained.

here's why...

So we can use our deficit to our advantage and scale factories up, get our energy under control, fund some big R&D, employ 15 million people immediately instead of just giving unemployment checks out.

We have 31 million (and growing) unemployed and underemployed people. Millions who are no longer paying taxes on 50 or 80K a year jobs, now paying taxes on only 20K a year. Hard to bring down a deficit like that. Except for those who believe the start-up fairy is going to bring us some gold, there is no evidence of anything like the ARPA investment that turned into the Internet, China taking the lead in Solar and alternative energy with over 40 billion being invested in maglev trains, with new plants coming online to create silicon for chips and solar panels, our percent of the lithium battery manufacturing laughable, our dependence on foreign oil putting us at a strategic disadvantage for food and transportation.

Inflation is not a problem, interest on bonds is crappy, and the ratio of GDP to my phone number is quite good (pick any ratio you like - the GDP will be better when we invest in our country). We are in a great position to use our ability to manage the deficit to our advantage.

btw, China has over 2 Trillion U.S. dollars in reserves and they are looking for more. I wonder if we should take things in hand so we can put ourselves in a better position when they decide to use it? Cutting SSI and Medicare, or whatever means are chosen, to pay down the deficit makes their reserves that much stronger. Is that what we want?

[Kringle]

49. Greek interest rates, 10 percent,for 10 year bonds

http://www.bloomberg.com/apps/quote?ticker=GGGB10YR%3AIND

[BzaDem]

50. So what? Greece cannot control its currency, so it faces massive deflation and recession.

Bond traders see that.

The U.S., on the other hand, does control its currency. It can inject currency to increase demand at a time of deflation and recession, and mop up currency to prevent high inflation. You cannot reasonably compare a country that doesn't control monetary policy with a country that does.

[Kringle]

53. Greece can't manage its own affairs

OK for the world, because Greece is small


you don't want the world to have
to bail out the US

[BzaDem]

55. And for the reasons I mentioned, the world will not have to bail out the US

because the US won't need to be bailed out.

[Statistical]

57. The US ability to control inflation is not without cost.

When fed funds rate hit 18% what do you think yield on 30 year bond was at auction..... yup >16%. In 1981 some bond investors locked in 16% interest rates for 30 years. We (taxpayers) will finally stop paying that off in 2011.

Now if you were a treasury bond holder with a coupon rate of say 3% at the time new T-bonds were hitting market with a rate of 16% what do you think happened to your bond? Yup you lost 90% of face value (or you held on an earned a NEGATIVE 9% real return).

So bond investors understand the open market actions of the fed aren't free. Thus rates will rise on the RISK of inflation to hedge any potential future losses.

Right now our economy has far too much idle capacity for inflation to take hold but if the economy ever does turn the corner inflation and very high interest on national debt is a real risk

[BzaDem]

58. When did I say otherwise?

Of course inflation can be an issue, and if we let it get out of control there could be significant cost to bringing it under control.

(Though the 70s-80s is a poor example. Much of that was caused by an overseas supply shock (oil), which has little to do with the current case.)

The point is that we are nothing like Greece. We have monetary policy. Monetary policy can be used to boost demand when needed and reduce demand when needed to avoid inflation. Greece does not have this.

[girl gone mad]

59. We're not Greece.

Greece has no control over their currency. They are fiscally restrained by the Maastricht straitjacket. Not a good analogy.