RE: Time Value of Money

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RE: Time Value of Money

diegoloco in TradFi • 6 days ago

Country risk is applied to government bonds. Higher risk means higher yields are demanded.
Governments generally overspend and issue bonds to finance spending and investments. Sometimes these bonds are used to pay interest on existing debt or to meet upcoming maturities. They can also be issued in foreign currency to obtain foreign exchange to mitigate a balance of payments imbalance.
The idea that it's best to avoid a deficit, as the president of Argentina seems to think, is absurd. What would he do if a deep recession hit? To balance the budget, would he close hospitals or lay off members of the armed forces?

6 days ago in TradFi by diegoloco

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jacobtothe 6 days ago

Credit expansion is the chief cause of recessions, not the cure. Long-term stability requires savings, not debt. Inflating the money supply erodes value from savers and transfers it to borrowers and lenders instead. If we want to fix the systemic problems of global economies, we need less government manipulation and more market transparency instead.

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diegoloco 6 days ago

Capitalism involves two things: first, economic cycles, and second, the system adjusts itself periodically through major crises.

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jacobtothe 6 days ago

"Capitalism" as you use the term appears to be an undefined bogeyman rather than a concrete principle or defined economic system. There is nothing about private property or market pricing which necessitates a boom/bust business cycle or other crises. However, there is a significant correlation between credit expansion (fractional reserve lending and government debt alike) and cycles of malinvestment followed by a correction.

When government sets prices for debt, it works like any other price control, shifting how people forecast their investments and business ventures. To borrow an analogy, it's like an architect building a house with an inflated forecast of brick availability. The market process of prices will signal the architect of current stocks, and brick producers of current demand, allowing both to work toward an equilibrium. Government inflation and interest rate manipulation instead cloud reality as long as possible, forcing the architect and builders to change at the last minute, perhaps not realizing the reality until suddenly supply is gone altogether.

This even literally happens with the "skyscraper curse," a cycle where people begin massive construction projects when artificially low interest rates signal high savings rates in the economy, which would normally suggest latent demand for business expansion. However, by the time the new record-setting towers reach their "topping out" phase, the absence of real savings tends to be revealed, and demand for the project evaporates. Hell, I was working as a draftsman for an architectural firm building the biggest tower in a small town, which topped out in 2008.

This cycle is a consequence of government policy, not market volatility. "Greed" and "capitalism" don't offer any real explanatory power, but economic intervention does. Hyperinflation is a phenomenon of central bank failure, not market failure. The cure for the crisis is not a new bunch of bureaucrats trying to run society.

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