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KRUGMAN: This Is The Chart That Debunks What Everyone Says About The National Debt
TBI ^ | Joe Weisenthal

Posted on 11/25/2012 2:35:18 PM PST by blam

KRUGMAN: This Is The Chart That Debunks What Everyone Says About The National Debt

Joe Weisenthal
Nov. 25, 2012, 11:05 AM

Paul Krugman posts a simple chart that makes a profound point.

It compares the yield on UK debt vs. US debt.

What should stand out for you, instantly, is that the two countries borrow at virtually identical rates, and have for years.

What this should show to people is that much of the popular stories that people tell about sovereign debt is a myth.

Countries that borrow in their own currencies and can "print" at will don't have default risk, so their borrowing costs are an expression of expectations of future interest rates and growth. The US has been notably profligate since the crisis. The UK (under Cameron) has been prematurely austere. The upshot: it hasn't mattered much on the yield front.

The fact that the UK borrows so cheaply also undermines the idea that somehow the US' reserve currency status is a big game changer — it's not.

If you want to get cute, you can throw in German, Japanese, and Australian rates, too, all of which have moved similarly, and all of which have pursued different monetary/fiscal approaches.

Trying to tell a good story about why this or that country has low borrowing costs tends to become difficult.

That being said... as Krugman acknowledges, each of these countries has seen interesting currency fluctuations, the more realistic avenue for global markets to express their "vote" on a country's policy.

(Excerpt) Read more at businessinsider.com ...


TOPICS: News/Current Events
KEYWORDS: debt; debtcrisis; economy; interestrates; investing; uscrisis

1 posted on 11/25/2012 2:35:23 PM PST by blam
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To: Kartographer
How The Doomers Got It Wrong
2 posted on 11/25/2012 2:37:55 PM PST by blam
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To: blam

Inflation is a form of default. They are repaying government debt with dollars that are worth less than the dollars they borrowed.


3 posted on 11/25/2012 2:38:26 PM PST by SeeSharp
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To: blam

Why would anyone believe a thing Krugman writes?


4 posted on 11/25/2012 2:41:50 PM PST by GeronL (http://asspos.blogspot.com)
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To: blam

Yes! Let’s look to failing euro countries as our model. Lets throw in Japan, who have been in a stagnant economy for two decades. He sure made his case!


5 posted on 11/25/2012 2:44:43 PM PST by ilgipper (Obama supporters are comprised of the uninformed & the ill-informed)
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To: blam
Countries that borrow in their own currencies and can "print" at will don't have default risk

Hey! That's great news!!!

... ummmmmmm ... is there any risk for hyperinflation?

6 posted on 11/25/2012 2:46:43 PM PST by ClearCase_guy (Global Warming is a religion, and I don't want to be taxed to pay for a faith that is not mine.)
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To: SeeSharp

“Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method, they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. . . . Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. . . . (It) does it in a manner which not one man in a million is able to diagnose.”

John Maynard Keynes observation in “The Economic Consequences of the Peace” (1920)


7 posted on 11/25/2012 2:50:01 PM PST by TurboZamboni (Looting the future to bribe the present)
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To: blam

Almost all nations use the USD as their reserve currencies. That means that, to the extent their central banks have USD reserves, the value of their currencies and the risks associated with each nation’s sovereign debt is based on that of the USD and on US sovereign debt. Most nations central banks hold US in the form of US Treasury debt.

Therefore, the correspondence between the interest rates paid on the sovereign debt of the US and other nations simply does not prove what Krugman claims.


8 posted on 11/25/2012 2:50:20 PM PST by sourcery (If true=false, then there would be no constraints on what is possible. Hence, the world exists.)
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To: blam

Uh, huh. Funny, I seem to recall a similar saying about housing prices never going down. Some things appear true until, suddenly, they’re not true anymore. Then there is a day of reckoning—sometimes a big one.

The fact that these Government are borrowing MORE than ever and the interest rates keep going DOWN should intuitively tell you something is very wrong.


9 posted on 11/25/2012 2:51:08 PM PST by rbg81
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To: blam

Well, one chart would explain it all, wouldn’t it? I have a chart showing that men are taller than women. Do I get a Nobel Prize?


10 posted on 11/25/2012 2:51:30 PM PST by blueunicorn6 ("A crack shot and a good dancer")
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To: sourcery

Correction: Most nations’ central banks hold USD in the form of US Treasury debt.


11 posted on 11/25/2012 2:52:17 PM PST by sourcery (If true=false, then there would be no constraints on what is possible. Hence, the world exists.)
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To: GeronL
Stock Market Last Push Higher Before the Big Collapse?

"This is why I’ve been warning that 2008 was just the warm-up. What is coming will be far far worse."

12 posted on 11/25/2012 2:55:34 PM PST by blam
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To: blam

Recovery?
Really?
With a real unemployment rate of more than 10%
Lowest job participation in years?
GDP of almost zero (if you subtract gubmint spending)?
Unfunded liabilities of more dollars than exist on the earth?

I could dream for a minute that money printing won’t turn us into Zimbabwe. Yes, obviously we are trying to inflate away our debt but what good is a dollar worth less than nothing?

Is this article satire?


13 posted on 11/25/2012 2:55:59 PM PST by vanilla swirl (searching for something meaningful to say)
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To: blam

If Krugman is correct that “debt doesn’t matter” then let us take that to an extreme. Have the Fed fund the entire federal budget. Already the Fed funds about half of it, so this isn’t a large stretch.

With the Fed funding the full federal budget there is no need for any income taxes.

That should please Krugman, yes?! Certainly our economy would grow rapidly without those pesky taxes.


14 posted on 11/25/2012 2:56:36 PM PST by Southack (Media Bias means that Castro won't be punished for Cuban war crimes against Black Angolans in Africa)
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To: blam

In fact Krugman does not discuss the benifits to our economy if we had a lower debt rate.

Anyone can talk about being able to maintaining high credit card debt ...

... lost is the discussion about how much improved everything would be without those debts.


15 posted on 11/25/2012 2:58:25 PM PST by teppe (... for my God ... for my Family ... for my Country)
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To: blam

In fact Krugman does not discuss the benifits to our economy if we had a lower debt rate.

Anyone can talk about being able to maintaining high credit card debt ...

... lost is the discussion about how much improved everything would be without those debts.


16 posted on 11/25/2012 2:58:39 PM PST by teppe (... for my God ... for my Family ... for my Country)
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To: blam

Don’t all these countries track similarly because this has been an ongoing “global” economic meltdown?
I mean, “global” means everybody, doesn’t it?


17 posted on 11/25/2012 3:00:23 PM PST by Lancey Howard
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To: Southack

but then,it wouldn’t be “fair” to let all people keep all the money they earn, would it?

Rich people are just selfish with their own money anyway, government can better “invest” it.

sarc


18 posted on 11/25/2012 3:01:20 PM PST by silverleaf (Age Takes a Toll: Please Have Exact Change)
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Self-ping. Thanks blam.


19 posted on 11/25/2012 3:02:51 PM PST by SunkenCiv (https://secure.freerepublic.com/donate/)
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To: blam

When you find yourself in a hole, the best thing to do is get a bigger shovel...


20 posted on 11/25/2012 3:07:34 PM PST by Mudtiger
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To: blam
Countries that borrow in their own currencies and can "print" at will don't have default risk, so their borrowing costs are an expression of expectations of future interest rates and growth.

This is the poorest economic logic I have seen in a long time. Getting paid with devalued currency is a default risk.

21 posted on 11/25/2012 3:08:55 PM PST by Lysander (vices are not crimes.)
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To: TurboZamboni

That excellent essay was written just after Keynes abandoned the Versailles conference in disgust. This was some years before Keynes went over to the dark side. The John Maynard Keynes of the 1930’s would never have said or written anything like that.


22 posted on 11/25/2012 3:12:35 PM PST by SeeSharp
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To: blam

Can you explain this to me like I am an 8 year old? Confusing. :)


23 posted on 11/25/2012 3:12:35 PM PST by SoFloFreeper
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To: blueunicorn6

“I have a chart showing that men are taller than women. Do I get a Nobel Prize?”

Careful there...remember an imbecile p-resident got one just by elected 4 years ago. I’d settle for a Cracker Jack prize than a Nobel.


24 posted on 11/25/2012 3:13:42 PM PST by max americana (Make the world a better place by punching a liberal in the face)
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To: blam

What is missing from this and virtually every single analysis of our finances is : China.

China sells us billions and billions (and billions) more than we sell China.

There are two reasons for that.

First off, back when we could have changed that, we were more concerned with getting access to China.

Now we have been given limited access, while China has full access to our markets. We have been sold a bill of goods, and a lot of people on our side are also to blame.

It is time to close our markets to sales more than are bought from American sources.

If a country wants to sell to America, let them jolly well buy from America equally.

Equally.

However if a country is only selling, then we should stop buying.

For real.


25 posted on 11/25/2012 3:15:05 PM PST by Cringing Negativism Network
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To: blam

Krugman has a chart. I feel so much better


26 posted on 11/25/2012 3:21:04 PM PST by slumber1 (Don't taze me bro!)
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To: blam
The biggest thing the doomers got wrong pre-2009 was that they correctly predicted that China would stop buying our treasury bonds, but incorrectly predicted that no one else would step in and purchase them. In fact, the federal reserve is now the top buyer of bonds, in a policy move that is basically illegal from what I understand, and impossible to predict pre-2009. They also did not predict that accounting rules would be changed to allow life to go on like it has in a balance sheet impaired state.

This doesn't mean, however, that those problems were fixed, it just means the can was kicked down the road a bit longer than doomers thought it could be. We still are accumulating debt and will within a decade or so be unable to make payments on it. This will cause another crisis.

Personally, my biggest lesson of the last few years is to never underestimate the inertia of the normalcy bias of the American people. This country is being held up by duct tape and an oblivious public that doesn't see it is out on a ledge.

My personal prediction is that the least painful choice going forward would be to default to the debt held by the federal reserve, renounce the charter of the federal reserve bank, and then the treasury will print money directly. The federal reserve doesn't have an army, and Obama can demonize anyone pretty well. It will be the least painful choice at the time the choice needs to be made.

Of course, having the treasury just print money at the rate we are spending will be the actual kick off of the strong inflation that will really hurt us. But nobody will have appeared to have made that choice, it will just be an "accident."

27 posted on 11/25/2012 3:22:38 PM PST by Vince Ferrer
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To: blam; SeeSharp; GeronL; ilgipper; TurboZamboni; sourcery; ClearCase_guy

The fact most other countries behave similarly just postpones the day of reckoning. They see the specter of theirs and all national debt entering a marketplace without buyers. They are frightened when imagining a devastated U.S. economy, because feeding the insatiable desires of U.S. consumers has been a mainstay of their prosperity.

Remember that when the Bretton Woods agreement came apart in the early 70’s, we began the time when the world operated without a precious metal standard. Only within the period of my working career has the world been adrift. Not only has this issue never been resolved, but it has never been addressed.

I imagine something like the final scene in “The Good, The Bad, and The Ugly”. The G-20 members stand in a circle with open graves behind them. Each contemplates how to successfully outdraw the other nineteen members and survive the resulting mayhem, which Lee Van Cleef’s character did not. The only thing needed now is a typical expression of human frailty to commence the cascade to catastrophe.


28 posted on 11/25/2012 3:23:20 PM PST by Retain Mike
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29 posted on 11/25/2012 3:27:19 PM PST by onyx (FREE REPUBLIC IS HERE TO STAY! DONATE MONTHLY! IF YOU WANT ON SARAH PALIN''S PING LIST, LET ME KNOW)
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To: sourcery

Interesting point.

Lets just hope countries just don’t try to trade in other currencies or adopt new standards (B.R.I.C.S). Anyone heard of such instances.


30 posted on 11/25/2012 3:37:28 PM PST by Kolath
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To: blam
The Marxist must jack-off to Zimbabwe's economical outlook if showing just one chart eases everyone's fears. How can this fool be taken seriously with any rational human being?

I suppose an individual stricken with inoperable cancer is cured by dying in a car crash in this foolish one eyed idiot among bigger fools' minds. I mean artificially f’ing up the currency is great for the future and the economy; a noble prize winner can't be insane, can they?

31 posted on 11/25/2012 3:38:48 PM PST by rollo tomasi (Working hard to pay for deadbeats and corrupt politicians.)
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To: blueunicorn6

“I have a chart showing that men are taller than women. Do I get a Nobel Prize?”
Sure, why not? They can just keep making more... In fact, they should give them out with every Obamaphone.


32 posted on 11/25/2012 3:39:23 PM PST by outofsalt ("If History teaches us anything it's that history rarely teaches us anything")
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To: rbg81
Some things appear true until, suddenly, they’re not true anymore.

I used to tell my Forecasting classes, "A trend is a trend until it bends. And it doesn't give you any advanced warning."

33 posted on 11/25/2012 4:31:09 PM PST by JoeFromSidney ( New book: RESISTANCE TO TYRANNY. Buy from Amazon.)
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To: Retain Mike

It has been addressed only by Austrian economics believers, like Deltlev Schlichter. “The Collapse Of Paper Money”.


34 posted on 11/25/2012 4:37:35 PM PST by Amberdawn
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To: blam
You are seriously citing Paul Krugman on FR in the positive?

It is OBVIOUS why other countries' debt tracks ours, and it does not involve the idiot "let us print and be merry, and we will never die" conclusion Krugman makes. It is because the dollar was, until recently, the world's sole reserve currency. Every good worldwide (most importantly petroleum) could be priced directly in dollars.

It is mutually-assured economic destruction. Except now, China, Russia, and others have begun to use a different reserve currency (their own, or gold) in trade.

35 posted on 11/25/2012 4:39:01 PM PST by backwoods-engineer ("Remember: Evil exists because good men don't kill the gov officials committing it." -- K. Hoffmann)
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To: blam

Of course sovereign debtors won’t default. Default would do slightly more violence to such debtors than hyper-inflation would so they will always inflate their way out of debt rather than default.

Krugman chooses a simple argument to defend; one that no one is making. The threat isn’t default but hyper-inflation. He’s got no defense for that one.


36 posted on 11/25/2012 4:42:24 PM PST by muir_redwoods (Don't fire until you see the blue of their helmets)
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To: blam

Krugman is a raving lunatic.


37 posted on 11/25/2012 4:45:55 PM PST by FreeAtlanta (bahits.com)
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To: Southack

Debt doesn’t matter, as long as a Democrat is President.


38 posted on 11/25/2012 4:56:55 PM PST by Kickass Conservative (As the Chinese say, erections have consequences...)
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To: blam

Also;..... http://www.youtube.com/watch?feature=player_embedded&v=fEqkphVOkHc#t=5s


39 posted on 11/25/2012 4:59:12 PM PST by hosepipe (This propaganda has been edited to include some fully orbed hyperbole..)
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To: blam
There is a simple explanation for the chart which is the Fed.

The Fed is buying up mortgage debt to "keep rates low". Ignore for a moment that their policy is insane and will only make the economy worse and distorts the mortgage market sustaining an unsustainable bubble. The real reason they are doing that is to keep rates on treasuries low so that the politicians of both parties can keep borrowing and spending (albeit D more than R). The low yield on treasuries causes demand in other sovereign debt markets which forces their rates down. So not only do our politicians benefit from the Fed's insanity, but European politicians as well.

A second and more serious problem with the Fed's low rates is that they loan money at essentially zero interest and proclaim that they want to weaken the dollar. The carry traders borrow at that low rate, invest in "guaranteed" sovereign debt like Britain, and hope to repay the loans with cheaper dollars. The ploy works until it unwinds with the dollar rapidly strengthening against the foreign currency and the investors bailing out of those foreign bonds driving their prices down, a double whammy. Japan has been doing this to the rest of the world for 20 odd years adding fuel to bubbles and worsening the subsequent crashes (e.g. the 2008 worldwide crash was made much worse by the skyrocketing yen).

40 posted on 11/25/2012 5:14:50 PM PST by palmer (Jim, please bill me 50 cents for this completely useless post)
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To: blam

Krugman’s like the economists in the Soviet Union who told everyone that the capitalist countries were doing worse! Look at the charts! The charts I just drew with my magic marker pen!

This man is a joke, a communist, and a laughing stock to most people. Didn’t he offer financial advice to ENRON at one point? I wish only the worst for him.


41 posted on 11/25/2012 5:20:14 PM PST by Viennacon
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To: SeeSharp
They are repaying government debt with dollars that are worth less than the dollars they borrowed.

Farmers here in the late '70s were encouraged to borrow heavily for equipment, partly because the price of equipment was going up fast, and because allegedly the money they paid back would be easier to come by.

Well, that didn't quite work that way, and many of them were stuck by the mid '80s so badly they lost the farm...

42 posted on 11/25/2012 5:27:56 PM PST by Smokin' Joe (How often God must weep at humans' folly. Stand fast. God knows what He is doing)
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To: Smokin' Joe
...and because allegedly the money they paid back would be easier to come by...
Well, that didn't quite work that way, and many of them were stuck by the mid '80s so badly they lost the farm...

Reagan's Fed chairman, Paul Volcker, put the breaks on the expansion of the money supply in 1982.

43 posted on 11/25/2012 5:38:22 PM PST by SeeSharp
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To: SeeSharp
Reagan's Fed chairman, Paul Volcker, put the breaks on the expansion of the money supply in 1982.

I imagine the bankers who urged the loans knew that would happen sooner or later. (Not everyone went for it, and the careful were generally rewarded by keeping their farms).

By '86, not only were ag prices in the toilet, but the oil patch (where many farmers went to work to make extra money) was dead--as in 2 rigs drilling in an area that now has nearly 200.

Many lost everything, auctioned off at fire-sale prices.

44 posted on 11/25/2012 5:58:05 PM PST by Smokin' Joe (How often God must weep at humans' folly. Stand fast. God knows what He is doing)
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To: Viennacon

This is clearly the answer for everything. Poverty? Just print some money and give it out. Credit card debt? Print money! Why have a budget at all? Just spend what you want, and at the end of each fiscal year just print as much money as you need to cover what you spent. It’s easy. In fact, why waste time and effort printing money when we could just start using monopoly money?


45 posted on 11/25/2012 6:04:27 PM PST by pieceofthepuzzle
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To: blam
Countries that borrow in their own currencies and can "print" at will don't have default risk,...

Countries that print at will, don't keep being able to borrow in their own currencies. Lenders aren't idiots like Krugman.

46 posted on 11/25/2012 6:55:38 PM PST by SampleMan (Feral Humans are the refuse of socialism.)
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To: Amberdawn

Thank you for noting his book. I should have known such a blanket statement would call forth at least one thoughtful response.

This current crop of political leaders and central bankers of major countries do seem fixated on the concept of boundlessly increasing their money supplies. I feel certain people like Deltlev Schlichter and our owner Milton Freedman would now be publically pilloried in the media by discovering such rumors as they engaged in sex with small boys decades ago.


47 posted on 11/25/2012 9:40:38 PM PST by Retain Mike
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