Comments on: The almighty bond market: Niall Ferguson’s concerns about the US deficit explained http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/ for students and teachers of Economics Thu, 09 Feb 2012 09:13:55 +0000 hourly 1 http://wordpress.org/?v=3.3.1 By: Mike Fladlien http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-15433 Mike Fladlien Mon, 01 Aug 2011 12:35:27 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-15433 Hi, Great post as always. I was wondering about the link to the Ascent of Money. It does not show up on my browser, and I was wondering if you'd post it or send me the link. Best, Hi, Great post as always. I was wondering about the link to the Ascent of Money. It does not show up on my browser, and I was wondering if you'd post it or send me the link. Best,

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]]> By: axel http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-9913 axel Tue, 26 Jan 2010 20:54:18 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-9913 I agree with what Bjorn says and i think that the US government might just be waiting for inflation to lessen their debts, and then pay them back later. i think the government should, after they have come out of the depression, pay back their debts to clear off a lot before no other countries will lend them money.because if that was to happen then then the US would maybe fall into another depression. I agree with what Bjorn says and i think that the US government might just be waiting for inflation to lessen their debts, and then pay them back later. i think the government should, after they have come out of the depression, pay back their debts to clear off a lot before no other countries will lend them money.because if that was to happen then then the US would maybe fall into another depression.

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]]> By: Bjorn Borgers http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-9905 Bjorn Borgers Tue, 26 Jan 2010 00:33:15 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-9905 Hey Bjorn, I completely agree with what you say. I like the term "tax on teenagers". Since the US is choosing to consume more today (even beyond their income) , and invest less for the future, it is the teenagers of today who will be paying the price in the future. What I find remarkable is that this is no new concept. In an effort to let as many people as possible live the "american dream" the loans became easy to come by... but at the cost of future consumption. It is slightly shortsighted of current government officials to keep shifting the problem by constantly taking large loans to finance these self created problems. At a certain point, they must shift back consumption to account for all of the "over" consumption they have done during the years. And if they don't do this, soon enough, other countries may not be will to lend the US any money anymore. Hey Bjorn, I completely agree with what you say. I like the term "tax on teenagers". Since the US is choosing to consume more today (even beyond their income) , and invest less for the future, it is the teenagers of today who will be paying the price in the future. What I find remarkable is that this is no new concept. In an effort to let as many people as possible live the "american dream" the loans became easy to come by… but at the cost of future consumption. It is slightly shortsighted of current government officials to keep shifting the problem by constantly taking large loans to finance these self created problems. At a certain point, they must shift back consumption to account for all of the "over" consumption they have done during the years. And if they don't do this, soon enough, other countries may not be will to lend the US any money anymore.

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]]> By: online stock trading http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-9738 online stock trading Mon, 11 Jan 2010 10:11:36 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-9738 Hey, great blog...but I don’t understand how to add your site in my rss reader. Can you Help me, please :) I'm Out! :) Hey, great blog…but I don’t understand how to add your site in my rss reader. Can you Help me, please :)

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]]> By: Bjorn Kvaale http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-8895 Bjorn Kvaale Wed, 04 Nov 2009 02:28:23 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-8895 The US budget deficit is so big this year due to the huge stimulus packages, which have only been put into effect this year. Also, the economy is not as strong as it was last year, which could also effect the huge budget deficit. Investors could lose faith in the government bonds if the U.S. dollar deflates to a huge extent or the budget deficit becomes so great that the interest rates for the government bonds are enormous. If the government becomes bankrupt, this would definitely make the investors lose faith. The budget deficit is basically a "tax on teenagers" because the teenagers are the future of the country. They will have to suffer the consequences of the budget deficit in the next decades to come. This could include less job opportunities or in general less opportunities for the next generation of the working class. The US budget deficit is so big this year due to the huge stimulus packages, which have only been put into effect this year. Also, the economy is not as strong as it was last year, which could also effect the huge budget deficit.

Investors could lose faith in the government bonds if the U.S. dollar deflates to a huge extent or the budget deficit becomes so great that the interest rates for the government bonds are enormous. If the government becomes bankrupt, this would definitely make the investors lose faith.

The budget deficit is basically a "tax on teenagers" because the teenagers are the future of the country. They will have to suffer the consequences of the budget deficit in the next decades to come. This could include less job opportunities or in general less opportunities for the next generation of the working class.

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]]> By: Finlay Small http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-8184 Finlay Small Thu, 04 Jun 2009 15:50:44 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-8184 The reason for the huge increase of the budget deficit is due to a few reason as Simon said. Due to the economic problems the US is facing the government sees fit to increase spending in order to increase AD. Due to a fall in C and I as the Keynesian theory says in order to push AD back out the government must increase spending. This is what the US government has done with the $800 billion dollar fiscal stimulus. The aim of the stimulus package is to result in the multiplier effect which should push AD back out. I doubt very highly that investors will lose faith in the US government to the extent that the government will have to file for bankruptcy and default on their loans, however there might be a possibility that it comes very close. But I would say that other countries such as china would gain more by helping the US then letting them become bankrupt. The video above stated that the tools we are using at the moment, are not helping the economy and that new "economic revolution" might bring new theories and solutions to the recession we're in. It seems that neither Keynesian or the Classical view would be helping us in this current situation therefore their must be a balance possibly between the two. The reason for the huge increase of the budget deficit is due to a few reason as Simon said. Due to the economic problems the US is facing the government sees fit to increase spending in order to increase AD. Due to a fall in C and I as the Keynesian theory says in order to push AD back out the government must increase spending. This is what the US government has done with the $800 billion dollar fiscal stimulus. The aim of the stimulus package is to result in the multiplier effect which should push AD back out.

I doubt very highly that investors will lose faith in the US government to the extent that the government will have to file for bankruptcy and default on their loans, however there might be a possibility that it comes very close. But I would say that other countries such as china would gain more by helping the US then letting them become bankrupt.

The video above stated that the tools we are using at the moment, are not helping the economy and that new "economic revolution" might bring new theories and solutions to the recession we're in. It seems that neither Keynesian or the Classical view would be helping us in this current situation therefore their must be a balance possibly between the two.

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]]> By: Simon Strong http://welkerswikinomics.com/blog/2009/06/10/the-almighty-bond-market-niall-fergusons-concerns-about-the-us-deficit-explained/comment-page-1/#comment-8165 Simon Strong Thu, 04 Jun 2009 01:30:53 +0000 http://welkerswikinomics.com/blog/?p=1026#comment-8165 The US Government has the incredibly large budget deficit this year of $1.9 trillion for a few reasons, but mainly because it's increase it's spending significantly. The Government has decided that because C and I have decreased they must increase G to keep AD high and hopefully implement the Multiplier Effect (through the $800 billion fiscal policy). The Government is spending a lot of money and (I believe/I'm guessing) cutting taxes too, by increasing their outgoings (spending) and decreasing their incomes (taxes) the deficit between the two will naturally grow; in this case to $1.9 trillion. Government bonds are one way that the Central Bank of a country can control the amount of money and Interest Rates that are seen in that country. Government Bonds are basically IOU's that the Government gives to investors in those bonds. If the US government increases the number of bonds available (making them cheaper and more appealing to citizens) then more people will buy them. When more people buy the Bonds (which cannot be spent in stores etc) then there is less money in circulation, thus less money for households and firms. I think it's unlikely at this moment that firms will completely lose all faith in US Government bonds because the US Government is very stable. It is unlikely at this moment in time that the US government will collapse/become bankrupt; making the bonds worthless. However if Ferguson's fears that Obama's Government doesn't balance it's budget properly leading to a massive drop in value of it's Government Bond's then I feel it wouldn't take much more to nudge investors of US Government bonds into fear of US bonds and direct them to more stable Government Bonds. The current Government deficit is likely to become a "teenager tax" because of the vast scale of it. By racking up trillions of dollars of debt the US Government will have to pay it back at some point. But until the economy begins to recover and starts showing signs of adequate health the US Government cannot start paying back the amounts they might like to. This could take years, and even then paying off the debts will take even more years, thus meaning that the younger generations of today will be paying back the debts when they are older, wiser, and tax payers. The US Government has the incredibly large budget deficit this year of $1.9 trillion for a few reasons, but mainly because it's increase it's spending significantly. The Government has decided that because C and I have decreased they must increase G to keep AD high and hopefully implement the Multiplier Effect (through the $800 billion fiscal policy). The Government is spending a lot of money and (I believe/I'm guessing) cutting taxes too, by increasing their outgoings (spending) and decreasing their incomes (taxes) the deficit between the two will naturally grow; in this case to $1.9 trillion.

Government bonds are one way that the Central Bank of a country can control the amount of money and Interest Rates that are seen in that country. Government Bonds are basically IOU's that the Government gives to investors in those bonds. If the US government increases the number of bonds available (making them cheaper and more appealing to citizens) then more people will buy them. When more people buy the Bonds (which cannot be spent in stores etc) then there is less money in circulation, thus less money for households and firms.

I think it's unlikely at this moment that firms will completely lose all faith in US Government bonds because the US Government is very stable. It is unlikely at this moment in time that the US government will collapse/become bankrupt; making the bonds worthless. However if Ferguson's fears that Obama's Government doesn't balance it's budget properly leading to a massive drop in value of it's Government Bond's then I feel it wouldn't take much more to nudge investors of US Government bonds into fear of US bonds and direct them to more stable Government Bonds.

The current Government deficit is likely to become a "teenager tax" because of the vast scale of it. By racking up trillions of dollars of debt the US Government will have to pay it back at some point. But until the economy begins to recover and starts showing signs of adequate health the US Government cannot start paying back the amounts they might like to. This could take years, and even then paying off the debts will take even more years, thus meaning that the younger generations of today will be paying back the debts when they are older, wiser, and tax payers.

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