Can someone tell me when the national deficit will start affecting people?

[Rod1]

In the aftermath of the GFC, there was a rush to safe assets.

Agreed, not to mention with Japan and EU running negative yield bonds. Thats why the US had super-low interest bonds.

See above. And what regulations force pension funds to hold negative debt?

Now those institutional investors are holding negative yielding bonds they paid premiums for and...cannot sell them. Not because they will lock in a loss, but because they are forbidden by regulation to sell them in many countries. Basel III and Solvency IImake it next to impossible for signatories to those accords to dump bad government debt onto the market.

Pension funds in Denmark, for instance, are forbidden by regulations to sell government negative yielding bonds. No one wants them anyway.

For the most part, those so-called NIRP (negative interest rate policy) and ZIRP (zero interest rate policy) government bonds are sort of exempt from the current free-fall in bond prices. These instruments were created by regulatory force to get the market to fund governments that were on the verge of insolvency after the housing and derivatives bubble burst in 2008-09. Now many institutional investors that funded the governments of Europe are left holding the bag. Eventually, something's got to give. A lot of that capital invested is for life insurance policies and public employee pensions. Where this money will come from remains a mystery.

https://www.forbes.com/sites/kenrap...europes-negative-interest-bonds/#28d91ac71b12

It's obviously more complicated than you realize if you just think that there are regulations that keep rates down (for example, in comparing through nations, you have to take into account expected FX changes and central-bank moves, which in turn means predicting economic moves).

It obviously more complicated than a simple product, but it is still subject to market forces. People are looking to protect their money and treasury bonds are just one tool in the shed.

The gov't still isn't providing enough debt to meet demand, though it's closer to doing that now than it has been in recent years. What's the thinking behind your view that I'm overestimating the demand?

That doesnt changes the fact that as more debt is issued while demand remains constant, interests rates will raise and hence the viability of the debt.

Yeah, foreign demand isn't much of a factor here.

It strikes me that you're repeating the old "bond vigilantes" argument that was popular in some circles before being falsified.

Its just one factor, the amount of debt held by private entities skyrocketed in the 2010s.

I dont see how is it controversial to claim that creditors of US debt are limited, lets see a breakdown of who holds the public debt.

Here's the breakdown of holders of the public debt as of December 2016:

• Foreign - $6.004 trillion.
• Federal Reserve - $2.465 trillion.
• Mutual funds - $1.671 trillion.
• State and local government, including their pension funds - $905 billion.
• Private pension funds - $553 billion.
• Banks - $663 billion.
• Insurance companies - $347 billion.
• U.S. savings bonds - $166 billion.

Out of those only the Federal reserve can create money out of thin air to buy bonds.

I think you are mistaking my position, you think im arguing that creditors demand for US debt is nearing a cap.

My position is that creditor's demand for "ultra low interest" debt is nearing a cap.

From now and onwards creditos will demand bonds that are able to post a positive yield. The amount of US treasury bonds in the market is big enough to guarantee most of the world's liquidity needs.

 

[Jack V Savage]

Pension funds in Denmark, for instance, are forbidden by regulations to sell government negative yielding bonds. No one wants them anyway.

I don't know much about the Denmark bond market, but this sounds questionable to me, just extrapolating from what I know about America and about the kinds of discussions we have here.

It obviously more complicated than a simple product, but it is still subject to market forces. People are looking to protect their money and treasury bonds are just one tool in the shed.

The argument isn't "subject to market forces" vs. "not subject to market forces." It's about the nature of the forces.

That doesnt changes the fact that as more debt is issued while demand remains constant, interests rates will raise and hence the viability of the debt.

I dont see how is it controversial to claim that creditors of US debt are limited, lets see a breakdown of who holds the public debt.

I think you are mistaking my position, you think im arguing that creditors demand for US debt is nearing a cap.

My position is that creditor's demand for "ultra low interest" debt is nearing a cap.

From now and onwards creditos will demand bonds that are able to post a positive yield. The amount of US treasury bonds in the market is big enough to guarantee most of the world's liquidity needs.

Some snippage in there to get a full reply. Interest rates are trending up is a true statement. Current U.S. debt levels are unconcerning is also a true statement. The recent tax cut will likely cause problems down the road is another one.

 

[Rod1]

I don't know much about the Denmark bond market, but this sounds questionable to me, just extrapolating from what I know about America and about the kinds of discussions we have here.

Its not questionable to think that the EU will require banks to retain liquidity in Euros after the GFC, banks, pension funds and the such are forced into keeping liquidity in Euros, couple that with the EU central bank QE and you can imagine that the EU bond market to be artificially kept low for a reason.

https://www.forbes.com/sites/saraze...-coming-soon-to-a-bank-near-you/#2e9284f93023

The argument isn't "subject to market forces" vs. "not subject to market forces." It's about the nature of the forces.

When you are extrapolating the US example to the Japanese and Euro examples you are assuming conditions are similar or equal.

Some snippage in there to get a full reply. Interest rates are trending up is a true statement. Current U.S. debt levels are unconcerning is also a true statement. The recent tax cut will likely cause problems down the road is another one.

Current? yes, but running trillion dollars deficits during an economic upturn isnt what i would call sustainable.

The point i was trying to make, is that debt itself is a vicious cycle, the more debt there is the more interests you need to pay on further debt since creditors offer are limited at a particular interest level.

 

[Jack V Savage]

When you are extrapolating the US example to the Japanese and Euro examples you are assuming conditions are similar or equal.

Sure. All had very low rates as a result of the flight to safety following the GFC. Point was just that there isn't some kind of magic or some grand conspiracy keeping rates down--different local policies get credited for the low rates, but it's actually just a matter of demand.

Current? yes, but running trillion dollars deficits during an economic upturn isnt what i would call sustainable.

Absolute dollar amounts are irrelevant, but I agree that the recent cuts have brought sustainability back on the table. Was not an issue before that. Accumulated debt isn't currently an issue.

 

[Rod1]

Sure. All had very low rates as a result of the flight to safety following the GFC. Point was just that there isn't some kind of magic or some grand conspiracy keeping rates down--different local policies get credited for the low rates, but it's actually just a matter of demand.

Who talked about conspiracy? and rates down are certainly being kept down in Japan and EU through central bank intervention and regulatory measures,

Absolute dollar amounts are irrelevant, but I agree that the recent cuts have brought sustainability back on the table. Was not an issue before that. Accumulated debt isn't currently an issue.

Accumulated debt is certainly an issue when you talk about attracting private investors.

Because as you pointed out, a lot of these bonds are bought in order to weather bad economic winds as a safety measure, but also as a way for foreigns and local banks to guarantee liquidity.

Say country A has an economy of 1 trillion, in order to guarantee liquidity of its forex and as such prevent panic capital runoffs it will keep around 150 billion in liquid and semiliquid assets. Once the target amount is reached any further reserve the bank will diversify into riskier assets.

As such, for the US debt to grow, there needs to be a private accumulated growth of said bonds and that will only happen through higher yields, so the size of the debt certainly influences the interest rate through market saturation.

People fail to see that you dont only need new debt to finance the deficits, they also need new debt to finance the bonds that mature every single year.

 

[Cajun]

Not true.

If the spending leads to greater income it's a wise choice. If it doesn't it's not.

But that must be only to a point.

 

[Cajun]

Jack is right though. Bill gets the credit for a Republican Congress that never wants to spend under a Dem President but somehow Obama doesn’t get credit for passing bills limiting spending and raising taxes?

It’s one of those things where people just look at what happened and give credit to the president that was around when it happened. The debt increased under Obama so obviously he is responsible and the budget was balanced under Bill so he was responsible

And I understand even the times were different. Bill had an easier go. I think even Bill and Congress worked pretty well together. What I am not saying is that Obama didnt do some good things and I believe all presidents are a mixed bag. I have read some good (reducing the numbers especially in his last years) some bad on the decisions (bailouts, backloaded spending, right timing for obamacare (overall impact on the deficit then and now), the 1T spending bill). I believe that at times these "experts" have their own agendas. But in reality, congress was no help. I dont think the republican led congress passed a budget in his 8 years (though I may be mistaken). Obama can get some credit but we still spent a great deal on many things like military actions etc that I dont agree with if we want to do more things here and save money. I think there is a lot of frivolous spending done at the state and federal levels that is unnecessary.

 

[HIMBOB]

But that must be only to a point.

As long as your return on investment remains greater than the interest cost it's a good idea.

As you borrow more the risk of not repaying increases and the pool of money to borrow from decreases leading to higher interest rates. Both the interest rate and money supply are affected by the borrower and by economic conditions. Because of this you want to build a buffer between your rate of return and the interest cost.