Ask an Economist
Post Reply
 
Thread Rating:
  • 0 Votes - 0 Average
  • 1
  • 2
  • 3
  • 4
  • 5
03-10-2013, 07:21 AM
Wink RE: Ask an Economist
I'm trying to understand why so many people believe that there will be some sort of global financial meltdown if the US is a little late on some interest payments. I am by no means advocating this and think it's crazy that we're even in this situation, however I don't necessarily see that the sky is falling either. I haven't heard a good explanation of what exactly will happen and why. Are our bondholders going to instantly value their investments as worthless on October 19th if we don't get our collective act together by then? Will any rational person in the global financial community believe that this will be anything more than a temporary annoyance? We're not deadbeats, I see us more like a dysfunctional household. The *cough* "adults" are fighting over money (as per usual) but this time one of them decided to hide the checkbook until they can kiss and make nice, which they inevitably do. I mean if the market was theoretically willing to loan us money for X years at about 3% on October 18th, would we have REALLY added that much additional default risk on October 19th just because a handful of our elected officials don't like playing by the rules? Would we now be at 5%? 8%? 20%??? Or perhaps has the market already factored in our dysfunction into the rates as they stand today?

Disclaimer: My only formal Economics 'learnding' consisted of a few undergrad classes I took at Ohio State a lil' over 2 decades ago as an actuarial science major. I'm a data analyst however I don't analyze economic data for a living. I keep up with things economic well enough to carry on an intelligent conversation with your average Joe, but I also recognize that my analysis of this complex problem is probably overly simplistic and amateurish. I appreciate your willingness to help me understand this topic better.

Thanks in advance for considering my rant. Huh
Find all posts by this user
Like Post Quote this message in a reply
03-10-2013, 12:40 PM
RE: Ask an Economist
(03-10-2013 07:21 AM)platypusman Wrote:  I'm trying to understand why so many people believe that there will be some sort of global financial meltdown if the US is a little late on some interest payments. I am by no means advocating this and think it's crazy that we're even in this situation, however I don't necessarily see that the sky is falling either. I haven't heard a good explanation of what exactly will happen and why. Are our bondholders going to instantly value their investments as worthless on October 19th if we don't get our collective act together by then? Will any rational person in the global financial community believe that this will be anything more than a temporary annoyance? We're not deadbeats, I see us more like a dysfunctional household. The *cough* "adults" are fighting over money (as per usual) but this time one of them decided to hide the checkbook until they can kiss and make nice, which they inevitably do. I mean if the market was theoretically willing to loan us money for X years at about 3% on October 18th, would we have REALLY added that much additional default risk on October 19th just because a handful of our elected officials don't like playing by the rules? Would we now be at 5%? 8%? 20%??? Or perhaps has the market already factored in our dysfunction into the rates as they stand today?

Disclaimer: My only formal Economics 'learnding' consisted of a few undergrad classes I took at Ohio State a lil' over 2 decades ago as an actuarial science major. I'm a data analyst however I don't analyze economic data for a living. I keep up with things economic well enough to carry on an intelligent conversation with your average Joe, but I also recognize that my analysis of this complex problem is probably overly simplistic and amateurish. I appreciate your willingness to help me understand this topic better.

Thanks in advance for considering my rant. Huh

Well, the markets are driven by greed, fear, and herd mentality.

Once a feedback loop starts (a panic, a run), it is hard to stop. I think concern is warranted.

Skepticism is not a position; it is an approach to claims.
Science is not a subject, but a method.
[Image: flagstiny%206.gif]
Visit this user's website Find all posts by this user
Like Post Quote this message in a reply
04-10-2013, 12:25 PM
RE: Ask an Economist
(03-10-2013 12:40 PM)Chas Wrote:  Well, the markets are driven by greed, fear, and herd mentality.

Once a feedback loop starts (a panic, a run), it is hard to stop. I think concern is warranted.

I'm still unclear about what would fundamentally cause a panic, however I realize that markets can be irrational so I do agree that some level of concern is indeed warranted. But I don't agree that a potentially global financial meltdown is inevitable which is the default position that many of the talking heads on TV are taking, yet I have yet to hear any of them explain why. Maybe the doom and gloom talk is mostly hyperbole and rhetoric intended for impact. And ratings. And re-elections...

I have to admit that the intellectually curious side of me is kinda hoping that we don't raise the debt limit just to see what actually happens. The other side of me that actually has feelings hopes that we don't decide to roll the dice though.
Find all posts by this user
Like Post Quote this message in a reply
04-10-2013, 03:41 PM
RE: Ask an Economist
(04-10-2013 12:25 PM)platypusman Wrote:  
(03-10-2013 12:40 PM)Chas Wrote:  Well, the markets are driven by greed, fear, and herd mentality.

Once a feedback loop starts (a panic, a run), it is hard to stop. I think concern is warranted.

I'm still unclear about what would fundamentally cause a panic, however I realize that markets can be irrational so I do agree that some level of concern is indeed warranted. But I don't agree that a potentially global financial meltdown is inevitable which is the default position that many of the talking heads on TV are taking, yet I have yet to hear any of them explain why. Maybe the doom and gloom talk is mostly hyperbole and rhetoric intended for impact. And ratings. And re-elections...

I have to admit that the intellectually curious side of me is kinda hoping that we don't raise the debt limit just to see what actually happens. The other side of me that actually has feelings hopes that we don't decide to roll the dice though.

If the talking heads are talking gloom and doom, that could itself be the snowball that starts an avalanche. Fear and herd mentality can cause a stampede (to mix some metaphors Big Grin).

Skepticism is not a position; it is an approach to claims.
Science is not a subject, but a method.
[Image: flagstiny%206.gif]
Visit this user's website Find all posts by this user
Like Post Quote this message in a reply
04-10-2013, 04:40 PM
RE: Ask an Economist
(04-10-2013 12:25 PM)platypusman Wrote:  
(03-10-2013 12:40 PM)Chas Wrote:  Well, the markets are driven by greed, fear, and herd mentality.

Once a feedback loop starts (a panic, a run), it is hard to stop. I think concern is warranted.

I'm still unclear about what would fundamentally cause a panic

Suppose Alice makes money betting on financial markets. She's good at it, and influential among other traders. Alice believes that other people will believe that the markets will go down because of X, Y, Z. So, she places bets / trades that will make her money when the market goes down... short sells, buying put options, probably other ways too. Of course, she recommends the same to all her friends and clients.

Bob knows that Alice is making trades like this in various markets. Bob is not as powerful as Alice, but he's ambitious. Bob recommends to all his small clients that they sell short and buy puts, because he wants to look good to them when Alice's bets pay off.

Now, Alice and all her colleagues, and Bob and all his colleagues, and all of Alice's and Bob's clients, and everyone those clients talk to about finance, all want to bet that the markets will tank whether they actually know anything about the markets or not. It appears to be the smart bet, and it becomes a self-fulfilling prophesy. The markets do tank, because money that might have bet that they'd go up, or used in something unrelated, is instead betting they'll go down.

Now, replace "Alice" with "George Soros," and "Bob" with "E-trade."

What causes the panic is, enough people betting enough money that they can make money from the panic, and thus making it true. Everyone else gets screwed.

I AM he who is called... cat furniture.
Find all posts by this user
Like Post Quote this message in a reply
10-10-2013, 03:40 PM
RE: Ask an Economist
Am i to understand that only 2.5 trillion dollars of our national debt is owed to foreign holders. With China and Japan holding the bulk of it. If the rest is owed to us, meaning the United States Citizen, what would happen to our economy if all but the 2.5 trillion dollars was forgiven? Is that even possible? I gather that would take a national vote? I know this is a far fetched scenerio, i just got to wondering what would happen if all of a sudden we only owed 2.5 trillion dollars.
Find all posts by this user
Like Post Quote this message in a reply
11-10-2013, 07:28 AM
RE: Ask an Economist
(10-10-2013 03:40 PM)blackatom Wrote:  Am i to understand that only 2.5 trillion dollars of our national debt is owed to foreign holders. With China and Japan holding the bulk of it. If the rest is owed to us, meaning the United States Citizen, what would happen to our economy if all but the 2.5 trillion dollars was forgiven? Is that even possible? I gather that would take a national vote? I know this is a far fetched scenerio, i just got to wondering what would happen if all of a sudden we only owed 2.5 trillion dollars.

A whole lot of retirement accounts would be gutted. Mass poverty among the retired. Armed insurrection.

Skepticism is not a position; it is an approach to claims.
Science is not a subject, but a method.
[Image: flagstiny%206.gif]
Visit this user's website Find all posts by this user
Like Post Quote this message in a reply
11-10-2013, 07:33 AM
RE: Ask an Economist
Quote:only 2.5 trillion dollars

I lol'd

[Image: 3cdac7eec8f6b059070d9df56f50a7ae.jpg]
Now with 40% more awesome.
Find all posts by this user
Like Post Quote this message in a reply
11-10-2013, 09:31 PM
RE: Ask an Economist
(11-10-2013 07:28 AM)Chas Wrote:  
(10-10-2013 03:40 PM)blackatom Wrote:  Am i to understand that only 2.5 trillion dollars of our national debt is owed to foreign holders. With China and Japan holding the bulk of it. If the rest is owed to us, meaning the United States Citizen, what would happen to our economy if all but the 2.5 trillion dollars was forgiven? Is that even possible? I gather that would take a national vote? I know this is a far fetched scenerio, i just got to wondering what would happen if all of a sudden we only owed 2.5 trillion dollars.

A whole lot of retirement accounts would be gutted. Mass poverty among the retired. Armed insurrection.

Aren't the retired covered through SS security? We are talking money that is already borrowed and gone, the money being paid out now comes from money's paid in and taxes, etc. Even if it isn't feasible, i was more interested in knowing how our economy would respond to only having 2-3 trillion in actual debt.
Find all posts by this user
Like Post Quote this message in a reply
11-10-2013, 09:33 PM
RE: Ask an Economist
(11-10-2013 07:33 AM)earmuffs Wrote:  
Quote:only 2.5 trillion dollars

I lol'd

That is total owed to foreign lenders. The rest is held by us in the form of Bonds, pensions, etc. and owed to programs like SS. American citizens and U.S. institutions owns the bulk of our nations debt.
Find all posts by this user
Like Post Quote this message in a reply
Post Reply
Forum Jump: