Re: Is anyone's business affected by politics?
I have been scolded for sounding like a politician, so I will try to sound more professorial.
Since I don't see a smiley face I will ASSume you are being serious. The technical term for printing money to pay off our sovereign debt is called "monetizing" the debt, and we already do. Ever since President Nixon took us off the gold standard the US currency has been allowed to float in value relative to real assets like precious metals (gold, silver, etc). At the time President Nixon floated the dollar Gold was selling for roughly $35 per oz. Gold is currently selling for around $1200-1300 oz. This is a more than a 30x change (lower) in the purchasing power of the dollar, but occurring gradually over several decades has not scared the world away from using the dollar as a "reserve" currency, which is trusted to preserve value (at least in the short term) and is acceptable for international business transactions.
Economists and central bankers consider a little inflation (a couple percent) a good thing, actually they consider deflation such a bad thing that they target slight inflation to provide a margin of safety away from deflation. Deflation causes consumers to expect prices to drop in the future so common sense dictates that they will profit from delaying spending until later. This can have a cascading effect through the economy causing economic contraction (recession, depression, unemployment, etc bad things).
The debt/credit bubble that collapsed in 2007 put huge deflationary pressure on all the world economies, that we are still working to deal with. This deflationary stress has given the US fed license to print money without causing huge short term inflation and they have. The US central bankers have targeted inflating the value of real assets (like houses and stocks) to make consumers feel better about the economy and return to previous spending patterns. The fed after dropping interest rates to near zero started playing a shell game with debt where the fed is buying US sovereign debt almost as fast as they can print it to keep the interest on that debt low (this is like us as individuals lending money to ourselves to prove how good of a credit risk we are). Despite all this virtual money printing, they haven't seen the velocity of the money supply speed up, evidence of overheating economic activity and problematic inflation. So they are still pedal to the metal. Bernanke wanted to start unwinding his historic amounts of economic accommodation before his term ended, the market called that "tapering". The fed doesn't call it by name, but when they telegraphed that they would begin tapering soon, the stock market swooned, so they reversed themselves at the last minute. While it might be considered political to criticize replacing Bernanke before he unwinds this huge monetary engineering experiment he has created (changing horses mid stream, yadda yadda). Janet Yellin his replacement is considered to be a more of the same, accommodative to the money supply, at least for now.
So short answer yes we could monetize our huge debt but that would risk the dollar losing it's reserve currency status, which would have huge negative repercussions, as all the dollars hidden in all the mattresses around the world, get sold to convert into whatever becomes the new world reserve currency driving the value of the dollar dramatically lower. It is in the US interest to keep these marginal dollars in the (figurative) mattresses.
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Regarding sovereign debt as a percentage of GDP. We enjoy the luxury of far more borrowing power than most countries (while we shouldn't risk this). Japan sovereign debt is closer to 200% of their GDP and haven't collapsed (yet), while they have been fighting off a persistent deflation that started in the '90s. Closer to home Puerto Rice has recently been noted for it's growing debt problems. At 85% of GDP the debt is not high by international standards but they are a US territory so they can't print money or even declare bankruptcy (like Detroit did). You will hearing more about them in the coming months.
JR
I have been scolded for sounding like a politician, so I will try to sound more professorial.
Since I don't see a smiley face I will ASSume you are being serious. The technical term for printing money to pay off our sovereign debt is called "monetizing" the debt, and we already do. Ever since President Nixon took us off the gold standard the US currency has been allowed to float in value relative to real assets like precious metals (gold, silver, etc). At the time President Nixon floated the dollar Gold was selling for roughly $35 per oz. Gold is currently selling for around $1200-1300 oz. This is a more than a 30x change (lower) in the purchasing power of the dollar, but occurring gradually over several decades has not scared the world away from using the dollar as a "reserve" currency, which is trusted to preserve value (at least in the short term) and is acceptable for international business transactions.
Economists and central bankers consider a little inflation (a couple percent) a good thing, actually they consider deflation such a bad thing that they target slight inflation to provide a margin of safety away from deflation. Deflation causes consumers to expect prices to drop in the future so common sense dictates that they will profit from delaying spending until later. This can have a cascading effect through the economy causing economic contraction (recession, depression, unemployment, etc bad things).
The debt/credit bubble that collapsed in 2007 put huge deflationary pressure on all the world economies, that we are still working to deal with. This deflationary stress has given the US fed license to print money without causing huge short term inflation and they have. The US central bankers have targeted inflating the value of real assets (like houses and stocks) to make consumers feel better about the economy and return to previous spending patterns. The fed after dropping interest rates to near zero started playing a shell game with debt where the fed is buying US sovereign debt almost as fast as they can print it to keep the interest on that debt low (this is like us as individuals lending money to ourselves to prove how good of a credit risk we are). Despite all this virtual money printing, they haven't seen the velocity of the money supply speed up, evidence of overheating economic activity and problematic inflation. So they are still pedal to the metal. Bernanke wanted to start unwinding his historic amounts of economic accommodation before his term ended, the market called that "tapering". The fed doesn't call it by name, but when they telegraphed that they would begin tapering soon, the stock market swooned, so they reversed themselves at the last minute. While it might be considered political to criticize replacing Bernanke before he unwinds this huge monetary engineering experiment he has created (changing horses mid stream, yadda yadda). Janet Yellin his replacement is considered to be a more of the same, accommodative to the money supply, at least for now.
So short answer yes we could monetize our huge debt but that would risk the dollar losing it's reserve currency status, which would have huge negative repercussions, as all the dollars hidden in all the mattresses around the world, get sold to convert into whatever becomes the new world reserve currency driving the value of the dollar dramatically lower. It is in the US interest to keep these marginal dollars in the (figurative) mattresses.
=====
Regarding sovereign debt as a percentage of GDP. We enjoy the luxury of far more borrowing power than most countries (while we shouldn't risk this). Japan sovereign debt is closer to 200% of their GDP and haven't collapsed (yet), while they have been fighting off a persistent deflation that started in the '90s. Closer to home Puerto Rice has recently been noted for it's growing debt problems. At 85% of GDP the debt is not high by international standards but they are a US territory so they can't print money or even declare bankruptcy (like Detroit did). You will hearing more about them in the coming months.
JR
~:-(~:sad:.
