Guaranteeing more than half of financial sector liabilities is impressive. But most of us don’t know how large financial sector liabilities are. GDP is about $17 Trillion. $43 Trillion is a lot.
This is only financial system guarantees. It doesn’t include, for example, the federal debt. It doesn’t include student loans, small business loan guarantees, direct loan guarantees to businesses, the ex-im bank and so on and so forth. It doesn’t include non-financial but likely bailouts like auto companies, states and local governments, their pensions, and so on.
He cites analysis from the Richmond Fed.
Not to worry, of course. Debt is just something we owe to ourselves.
Not there isn’t plenty of reason to worry, but I don’t anticipate the federal government bailing out bankrupt cities and states or their pension systems.
Why not? I don’t anticipate bailouts of every city and state by the federal government, but I strongly expect some.
I think, eventually, the Federal Reserve will buy all the bad state and local debt in a future QE during a crisis.
I don’t think the failure are going to come all at once during a crisis. And in any other scenario, the handling of bailouts is going to be highly partisan There’s no way Republicans in Congress are going to vote for a bailout of the pension systems in Chicago or Illinois (the most obvious near-term candidates). In Michigan, it was a very tough sell for the Republicans in Lansing to kick in even just a couple hundred million to the Detroit bankruptcy workout to avoid the DIA art sales.
Ah, but you think a vote against it will actually matter?
Comparing stocks and flows, a lot is relative. Does bring to mind that should one of our TBTF institutions does fail, we will just be left with a fewer, even larger, TBTF institutions.
What part of “fiat money” don’t you understand? All federal obligations will be paid unto the last digital farthing. There might be some complications.
Yeah, I often repeat the Greenspan line that “we can guarantee a payment, but we can’t guarantee buying power.”
Have a nice day??
“Not to worry, of course. Debt is just something we owe to ourselves.”
Slightly over-simplified, of course.
Debts are commutative obligations we have amongst ourselves. They are not necessarily reciprocal, balanced or equivalent.
A owes B (x amount); B owes D (x+ y); B owes J (y); C owes A (y-x); D & J owe C (x) – in the failures of obligations fragmentations occur, economically and socially.
He’s referring to Krugman’s statement.
“…emphasizes one of my favorite points: no, debt does not mean that we’re stealing from future generations. Globally, and for the most part even within countries, a rise in debt isn’t an indication that we’re living beyond our means, because as Fatas puts it, one person’s debt is another person’s asset; or as I equivalently put it, debt is money we owe to ourselves — an obviously true statement that, I have discovered, has the power to induce blinding rage in many people.”
http://krugman.blogs.nytimes.com/2015/02/06/debt-is-money-we-owe-to-ourselves/
one person’s debt is another person’s asset
This assumes that the borrowing is for a productive enterprise that will generate a return beyond the borrowing costs.
Around my parts, this borrowed money goes for drugs and booze.
Oh well. I expect one day Congress will announce a one time tax that equals the face value of Treasury instruments. Let the recycling begin!