[vertak]

Regarding inflation:

Ray Dalio has a bit in his latest book Changing World Order where he points out what nations/empires in the past have done when faced with similar situations that the US now finds itself in. When debt is high, and country fundamentals are decreasing (like internal stability, and global share of economic output) countries can either buckle down and take the austerity measures required to increase output + decrease the debt… or they can print more money to pay off the debt which leads to inflation. They almost always choose to print money.

Get rdy for some events that haven’t happened in earnest for around 80 years.

[anm89]

It's also worth pointing out that austerity would probably fail miserably given the specifics of our situation. The time for Austerity was maybe circa 2004 or 2011 when debt to gdp was half of what it is now. We are WAY past that point.

We are massively overleveraged, both externally and internally. If we just tighten our belt, we are going to cause a massive debt default deleveraging. Austerity works when a single sector is slightly over leveraged and just needs to shift numbers around for a year or two to make the math work. That's not even close where we are at. Every single sector of the US economy is massively overleveraged. There is no playing with the math. We either grow the pie (roughly, GDP) or the system needs to get massively overhauled. There is no "beautiful deleveraging" in Ray Dalio terms.

Through that lens, the choice is either inflate or massive systemic failure. It's not hard to see which direction we are heading if you do buy that premise.

[zby]

Dalio has gathered quite a lot of data - but he fails to discuss one difference between those past empires and USA. In the past money was based on gold and debasing the currency was quite easy to spot. With pure fiat money there is no such clear measure to tell that it is inflated.

[didericis]

I’m still reading that book, but he describes pure fiat as response to that kind of dynamic (people noticing the value of the debt being reduced relative to hard money and it being harder to sell). I believe he cited a couple other examples of pure fiat/lack of gold or hard asset convertibility, but don’t remember what they are. This wikipedia article mentions some examples: https://en.wikipedia.org/wiki/Fiat_money

[ur-whale]

> With pure fiat money there is no such clear measure to tell that it is inflated.

Especially if you read HN, where many people believe and will try to explain why currency debasement is a completely outdated idea, generally not applicable in our modern financial system.

[lumost]

I’ve been in a company heading for the layoff more than once. The final sign that it’s coming is a strange ossification of goals and thinking around ideas that more or less amount to “focus on every other data point other than the ones we’re failing at”.

[anm89]

I think he is quite aware of this distinction and definitely brings it up in various ways.

[pjc50]

There's another unprecedented option: what is the right level of debt when interest rates are negative?

[anm89]

For the debtor or the creditor? For the creditor the right level is 0 or short. Maybe if you are close to retirement and you strongly value stability over growth it has a role. There is some nuance here for large complicated portfolios but for most people the answer is don't be holding treasuries, don't be a creditor.

For the debtor the answer may be, as much as possible. If I can get at 3% loan with 7% interest that is the deal of the century. I'm getting a negative real risk premium on a return yielding asset.

Right now treasuries are reward free risk. A mortgage is low risk high reward.

[jonahbenton]

MMT says nope. Japan also.