RE: Time Value of Money

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jacobtothe 6 days ago

I also have strong opinions about lending to the government. They can only repay the loan by taxation or inflation. Plunder is not an honest way to gain wealth, whether directly or by proxy. When I was a librarian, I justified my job by recognizing that government had usurped and monopolized a service the community still needed, but government bonds are straight-up piracy.

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diegoloco 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?

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3 votes

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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3 votes

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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hurtlocker 6 days ago

I think government bonds are not inherently good or bad. I think the way they are structured today is pretty close to piracy.

Selling "low" interest bonds and inflating the currency just ruins people who live paycheck to paycheck and makes poverty worse imo.

It also keeps interest rates artificially low which is only good for business until they need to raise interest rates. On net I think it is worse for everyone involved. Fiat as it exists today is relatively new and I think it becomes more obvious by the day it is not all sunshine and rainbows.

I am not sure what the answer is. If everyone woke up tomorrow and stopped buying government bonds I am fairly convinced everything would collapse and society would turn into Mad Max or Fallout or something 😅

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jacobtothe 6 days ago (edited)

I think if fiat money collapsed, we would see a fairly swift resumption of silver as commodity money, but I live fairly close to the Idaho panhandle silver country where mining and mounting are already established and rural people already tend to think libertarian-leaning ways about money and trade. Urban centers reliant upon government largesse might well collapse.

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1 vote

hurtlocker 6 days ago

Urban centers reliant upon government largesse might well collapse.

Yea for sure. Urban Centers are very not natural and propping them up creates a lot of downstream consequences. That is why food is so bad in the US because they need to pump it with preservatives to get it to last so long. Weird times we live in but it is nice to see people start to realize there are better ways to live.

I am more libertarian leaning myself but there are not a whole lot of good options when it comes to politics. We are not going to fix the political system anytime soon. Guessing when/if we get some younger people in politics things will get a little better but who knows lol

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hurtlocker 6 days ago

You leave good comments. I only upvote members with the TradFi-Curator account (It is not a normal curation project because I just fund it myself and do not pay any APR and DO NOT upvote delegators)

I actually upvoted you with it on accident just cause your comments are good and I assumed you were a member lol. Let me know if you want me to add you as a member and I will get that done today.

Cheers!

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jacobtothe 6 days ago (edited)

I don't tend to engage with much in the finance sphere, and tend to write primarily about fiat money versus precious metals, not stocks and bonds, but if you think any of that would fit the community, I'd consider joining. I'm working on a followup to a post I wrote last year about silver and the US dollar.

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hurtlocker 6 days ago

Members can just comment, they do not need to post by any means.

I don't tend to engage with much in the finance sphere

I think you have engaged quite a bit so I think you would be a good fit. You fall under into the "Comment Content Creator" description imo 😊

I'm working on a followup to a post I wrote last year about silver and the US dollar

If you can point to the post I will read it and let you know if it works here. (We had a member write about BITO which is a bitcoin futures based ETF and that was a good fit to post in here)

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jacobtothe 6 days ago

I edited the comment with a hyperlink.

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hurtlocker 6 days ago

Yea that post would be a good fit to post in TradFi community!

When I say no precious metals content, I just don’t want people to post “look at what silver I bought today” or “look at the price of silver” type of content.

What you posted is more about macroeconomic trends.

A little heavy on the Trump thoughts but that’s just me personally. I guess what people think of Trump is relevant but I’m not sure we will ever know the “truth” about politics or war because history is written by the winners.

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jacobtothe 6 days ago

In my defense, that post was a conglomeration of trades, and when writing about topics I intend to be evergreen, I try to limit references to current administrations to tying theory to present conditions.

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1 vote

hurtlocker 6 days ago

Yea I probably should have not mentioned the Trump thing. I think you should write what you want. I wasn't trying to say anything good or bad. I did say personally. I probably should have kept it to myself LOL 😅

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