Inflation

[Eagler]

Ok fed do your thing and raise those rates before the dollar is totally worthless..

5% is a good starting point imo...sorry about the 40 trillion your irresponsible governing has created...

Eagler

[CptTrips]

Ok fed do your thing and raise those rates before the dollar is totally worthless..

Well I bet Warsh is looking up the definition of "Pyric Victory".

Unfortunately the inflation we are seeing now will be unresponsive to rate changes at it's core.

- oil supply problems
- shipping disruptions
- crop failures (fertilizer shortages and diesel prices)

Raising rates won’t produce more oil or wheat; it just suppresses demand.
That combined with the untamed energy inflation increases the risk of Recession without any trade-off benefit.

He is screwed. 
If he raises on top of the oil energy inflation it won't help: Stagflation, Demand Crash\Deflationary Spiral\Recession\Depression.
If he lowers rates, he puts the spurs to the already blossoming energy inflation:  Weimar Inflation.

His best bet is just sit and wait it out for 2 years, but then he will look weak and indecisive during the crisis.  Deer in the headlights.

There are some jobs that just aren't worth having.

[Eagler]

Regardless the rate has to be raised to keep the globe buying our unsustainable debt...

Eagler

[Busher]

Regardless the rate has to be raised to keep the globe buying our unsustainable debt...

Eagler

There are limits to everyone's credit rating.

[Eagler]

There are limits to everyone's credit rating.

And many know that it seems...

https://www.thestreet.com/crypto/markets/china-japan-uae-india-sell-billions-in-u-s-treasuries

Eagler

[CptTrips]

Regardless the rate has to be raised to keep the globe buying our unsustainable debt...

Eagler

Maybe "Transient" wasn't a policy error.
Fed is under no legal constraint to make truthful statements.
That is their "Soft Power".  They can say anything they want to say if they think it will lead to behavior changes they want.
I wouldn't put it past the Fed to run hotter than normal to inflate aways some debt. 
It's a dangerous balancing act.  You don't want to go too far.
But I think the Fed feels much more confident facing inflation than deflation.
Inflation worries them, but deflation scares them.  Most of their tools are optimized against inflation.

Yes — inflation can reduce (“inflate away”) a national debt, but it usually cannot magically erase it without serious side effects. It works best under specific conditions.

The key is that most government debt is denominated in nominal dollars. If the value of each dollar falls, the old debt becomes easier to repay with newer, cheaper dollars.

A simplified example:

Government debt today: $30 trillion
Economy (GDP): $30 trillion
Debt-to-GDP ratio: 100%

Suppose over 10 years:

Prices and wages double from inflation
GDP measured in dollars doubles to $60 trillion
Old debt stays around $30 trillion

Now:

Debt-to-GDP ratio = 50%

The debt did not disappear, but its burden shrank dramatically.

This has happened historically.

After WWII: a successful example

After World War II, the United States had debt around 120% of GDP.

It fell over the following decades due to a combination of:

strong economic growth
moderate inflation
financial controls that kept interest rates low
budget discipline at times

The government did not literally pay off all the WWII debt. The economy grew around it.

Why not just print money and erase everything?

Because lenders adapt.

1. New debt gets more expensive

If investors expect 8% inflation, they demand higher interest rates.

Instead of:

"I'll lend the government money at 3%"

they say:

"I need 10%, because my dollars will be worth less."

Then interest payments explode.

2. Much debt rolls over

Governments constantly refinance. The U.S. debt is not one giant 30-year mortgage. A large portion matures within a few years.

Inflation helps most with old fixed-rate debt. It helps much less when you must issue new debt at inflation-adjusted rates.

3. Some payments rise with inflation

For the U.S.:

Social Security benefits adjust with inflation
many government costs rise
salaries, contracts, medical costs rise

So inflation reduces old liabilities but increases future ones.

4. Too much inflation destroys trust

A country that abuses inflation risks:

investors avoiding its bonds
currency falling
capital leaving
citizens fleeing into real assets

Extreme cases lead to things like Hyperinflation in the Weimar Republic.

The "sweet spot" governments sometimes aim for

A government with large debt often benefits from:

inflation: 3–5%
economic growth: strong
interest rates: below inflation

Economists call this negative real interest rates:

Real rate ≈ interest rate − inflation

Example:

Government borrows at 3%
Inflation is 5%
Real borrowing cost ≈ −2%

The lender is slowly losing purchasing power.

The catch for today's U.S.

Inflating away debt is harder than after WWII because:

debt is already large
demographics are older
entitlement spending grows with inflation
markets react faster
the Federal Reserve System is expected to fight high inflation

So the realistic outcome is not “evaporate the debt,” but quietly shrink the debt burden over decades if nominal growth stays above borrowing costs.

A common historical pattern is: countries rarely pay huge debts down — they outgrow them.

[Busher]

If what I read is correct, the concern should be the quantity of debt held overseas by Japan, the UK and China. The stats I read suggest they these three large creditors hold about 9 trillion of the total liability. But it also said that China is rapidly reducing it's holdings of US debt.

[CptTrips]

If what I read is correct, the concern should be the quantity of debt held overseas by Japan, the UK and China. The stats I read suggest they these three large creditors hold about 9 trillion of the total liability. But it also said that China is rapidly reducing it's holdings of US debt.

But all non-US held treasuries only add up to about 25-33% combined.  Around 3/4s of treasuries are held by other Americans.

China is reducing debt and decoupling from our financial system in preparations for sanctions when they invade Taiwan in '27.

[Captain Virgil Hilts]

 


Inflation is caused by government debt, and government spending, flooding the economy with money that is worth less because of the debt.

But, by all means, ignore the smartest economists on the planet, and in history. Go ahead, raise the interest rates, it's worked so well every other time.


 

[Eagler]

Inflation is caused by government debt, and government spending, flooding the economy with money that is worth less because of the debt.

But, by all means, ignore the smartest economists on the planet, and in history. Go ahead, raise the interest rates, it's worked so well every other time.


 

You have to do something to stop the money printing...

Higher interest rates lower costs as everything is bought on credit these days..

Living within one's own means regardless if you are an individual or government is the 1st step but that step is so far down the inflation/useless dollar ladder you can't even see it anymore..

Anyone else here have zero credit debt of any kind, everything paid in full at the end of every month..anyone...

Eagler

[rabbidrabbit]

Inflation is caused by government debt, and government spending, flooding the economy with money that is worth less because of the debt.

To be a bit more precise... Inflation is the increase in goods and services.  It is one of the effects of debasement of currency by dilution by increasing it's supply vs hard assets.  So inflation isn't necessarily caused by government debt.  It's caused by "printing money" through debasement to fund the debt.  You can debase the currency by increasing supply for other reasons too.

[Captain Virgil Hilts]

You have to do something to stop the money printing...

Higher interest rates lower costs as everything is bought on credit these days..

Living within one's own means regardless if you are an individual or government is the 1st step but that step is so far down the inflation/useless dollar ladder you can't even see it anymore..

Anyone else here have zero credit debt of any kind, everything paid in full at the end of every month..anyone...

Eagler

 

The government does not give a damn about the interest rate, and will continue to spend money it does not have and cannot obtain in the form of tax/tariff/fee/regulation revenue. As such, it will print and/or "borrow" money ad infinitum. They have never failed to raise the "debt ceiling".

The absolute fact is that no government intervention, and especially not that by the unConstitutional Federal Reserve central bank we were warned about by Jefferson and others, has EVER been a positive influence on the economy.

Go ahead, raise the interest rate. The ONLY effect it will have is to punish the working middle class. It will put housing out of reach, and put people out of work. I'm sure that is an acceptable "solution" to you, as you obviously do not study economics, or, for that matter, anything other than how to create thinly veiled political threads.