alt Hacker News> It's an emergency at this point
Eh, it's an issue. We should solve it now. (We should have solved it ten years ago.) But we have a little time.
Emergency will be stagflation. Crisis would be if the Treasury couldn't sell debt.
> the old method of raising interest rates to cool inflation isn't effective anymore with this sort of fiscal deficit, because it increases the interest payments
There is no evidence of this. There might have been in Japan (in the 1980s). But Americans don't save as much as the Japanese, and the concavity of the wealth effect means that those who do don't tend to spend much more when their interest income rises.
Replies
We have a little time, yes, but politicians aren’t exactly running to fix the issue. Far from it, they’re avoiding this and kicking the can down the road
[dead]
I just don't see much political appetite for austerity/entitlement cuts/more taxes, so I don't think we're going to fix this in any orderly way.
I guess the thing that worries me most about this is how this interacts with the USD's reserve currency status - that's historically absorbed a lot of the govt's deficits and suppressed inflation. I don't see many good alternatives to it in the set of global currencies, but there's been a lot of central bank buying of gold, and I could imagine a basket of other hard capital goods maybe functioning that way. And we're seeing more rmb-denominated trade.
>There is no evidence of this. There was in Japan. But Americans don't save as much as the Japanese, and the concavity of the wealth effect means that those who do don't tend to spend much more when their interest income rises.
I believe it tends to get sunk into asset inflation? Real estate/housing being one of those, and one of the biggest inflation drivers. Also of populist unrest. Agree that it doesn't push up labor prices as much because of the distribution effect you're talking about.