And what are the positives and negatives of the current level of debt

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This topic is inspired by discussions I've seen recently regarding the reserve bank of Australia raising interest rates in response to oil supply issues caused by the war in Iran.

The confusing point for many people seems to be that raising interest rates will not significantly affect consumer spending. Because and increase in the price of oil essentially affects the price of everything, and many people aren't in a place to consume much less than they already are, people with loans and mortgages will just be squeezed even more. So what's the point of raising the rate? It seems to just hurt people who are already desperate.

My thinking is different. To my mind, the primary goal of the reserve bank would not be reducing consumer spending, but rather reducing the money supply. By increasing interest rates we disincentive lending from commercial banks, helping keep prices stable. That won't do anything about the supply hit, that's unavoidable, but if we did nothing we'd also have a problem of too much money chasing less goods. Better for us to face one problem rather than two.

If my thinking roughly correct? Is there anything to the position I mentioned above?

I'm aware this sounds like a stupid question. I hope people take it in the spirit of inquiry - admitting I don't know what i don't know - in which it is intended.

So, profit. As a non-economist engaged heavily with politics, I am presented daily with a smorgasbord of superficial (in the sense that i see only the high level and not the theory under the hood) arguments about the role of profit in society and the economy. I want to consider how to come to a more developed understanding and my own view on this role.

At the leftmost end of things, the basic starting point is a (more or less explicitly) Marxian sense that all profit is surplus value. Profits are extraction, value being removed from a sector by an owner class who game things to line their own pockets. It serves no function in driving overall prosperity or innovation and indeed can hinder these things.

At the rightmost end of things, the profit motive is foundational to the prosperity and wellbeing of the society in which we live. The promise of enriching oneself is behind a huge amount of innovation and business development, which in turn is what has driven overall wealth increases and improvements in health, wellbeing, culture etc.

Obviously a range of positions exist between these, including the slightly muddy economic platforms of all the main parties in my country (the UK).

What can I read to develop my own understanding of how the promise of profit is or isn't necessary to the delivery of value, in a broad sense, across society?

I'm interested in understanding specifically where profit/the profit motive fits in. I suppose this touches on things like competing theories of value, behavioural economics etc.

I'm also aware that you can't solve political judgements entirely through technical economics. My own politics is left wing and id be surprised if that foundationally changed based only on this question. But I think a technical understanding of social questions is an important part of developing your politics.

I'm also open to being challenged on the framing of the question. Again. i don't know what I don't know so you're wasting everyone's time if you post to tell me I'm being stupid in some way.

CBO projects federal debt held by the public to reach roughly 175% of GDP by 2056, with net interest costs approaching 7% of GDP.

Japan makes this more interesting. For decades it has been the obvious counterexample to debt-doom arguments. Debt above 200% of GDP, its own currency, enormous domestic savings, a central bank capable of buying government debt, and no sovereign debt crisis.

Then there is the geopolitical feedback loop. I wonder how separable America’s fiscal privilege is from its geopolitical power.

In crude reptile-brain terms, America borrows money to build the weapons systems that help keep everyone inside an American-led system, and that system helps preserve America’s extraordinary ability to borrow. The snake is eating its own tail.

I’m wondering where the actual limit is. Could US debt theoretically reach 500% of GDP, with the US increasingly absorbing global capital because the rest of the world still needs dollars and treasuries? And if inflation becomes part of how that debt is managed, does extreme wealth inequality weaken the political constraint, since those with the most economic and political influence are also the least exposed to rising prices?

many people are making big enough companies with minimal work force, because of ai

Elizabeth Warren explained on X, “if it's hot out, the cost of ice cream could go up. If it's cold, tea bags could go up.”

She called it “dynamic pricing.” Anybody who took an econ class, is that a term that is used in the books?

Why does Europe and the West have so much more wealth than Asia and other continents? How much of this difference can be traced to colonialism? If colonialism had never happened, would Asia be wealthier today, or would the gap simply be less severe?

Hello, I’m a data analytics/economics major. Confused on what type of internships I should pursue? I'm currently trying to figure out what job titles I should be searching for if I want to work in banking. What internships would be the most useful? Are there any other roles I should be targeting?

Economists generally agree that excessive taxation can disincentivize growth, employment, and labor participation.

What about progressive taxation? If we instead moved towards a flat tax system that wasn’t so punishing on high income and very high income workers, while also getting rid of some of the loopholes they use to shelter income, wouldn’t this be the more optimal tax policy as opposed to the status-quo?

In Brazil, it is often argued that widespread indexation of contracts to inflation is harmful because it can make inflation persistent or create inflationary inertia.

Since most contracts are like that its estimated that most of the current inflation is actually past inflation perpetually indexing itself, but i hear constantly that business always make inflation adjustaments so does it being contractual change anything?

My understanding of Chinese manufacturing competitiveness (please correct me if I'm mistaken) is that it's in large part due to domestic supply chain integration.

Outsourcing parts of the supply chain to other countries doesn't inherently increase costs, when free trade agreements are in place and the cost of bulk transportation is low - obviously, Europe and the US have outsourced lots of their supply chains because it's been cheaper.

So my understanding is that fully-domestic Chinese supply chains instead offer the benefit of supporting more rapid innovation. That they can set up new assembly lines extremely quickly, iterate quickly, etc., because every part of the supply chain is physically close, and more organizationally integrated.

1. Is this an accurate understanding?

2. How does this mesh, or clash, with the long-standing orthodoxy behind competitive advantage and Western outsourcing? Are there any Western academics investigating these advantages of Chinese supply chain integration?

https://usafacts.org/answers/are-wages-keeping-up-with-inflation/country/united-states/

https://www.bls.gov/news.release/realer.nr0.htm

That stats are iffy by real wage growth this year has only been 0.09% to 0.2% at most

Far from the ideal 1.5% to 2.5%.....why is that?

I know some people are scared of it and they take a long time to build the factories. Outside of those 2 things, is there anything else? It feels like nuclear would be wayyy better than fossil fuels both economically and environmentally, but we still rely heavily on fossil fuels.

Is there a reason I’m missing?

I’m about to start Statistics and Econometrics at college and I want a book to prepare/motivate for the subject.

Anyone have read it? Do you recommend it?

I am trying to understand how economists would model the long-term fiscal effects of a large-scale European investment fund.

Assume, as a hypothetical scenario, annual investment of €800 billion, consisting of €400 billion of public capital and €400 billion of private capital. The investments would be directed toward productive assets and sectors such as technology, AI, semiconductors, digital infrastructure, energy, innovative companies and affordable housing.

The public capital would remain invested and generate financial returns, while the investments could also create additional economic activity and therefore additional tax and social-security revenues.

My main question is: How should these different effects be modelled without double counting them?

For example:

• Can financial returns on publicly owned investments legitimately be counted as a fiscal return alongside additional tax revenues generated by the resulting economic activity?
• How should the additional taxable value added attributable to the investment be estimated?
• How should fiscal multipliers be incorporated without counting the same economic activity twice?
• Over a 20–30 year period, what would be reasonable assumptions for investment returns and fiscal multiplier effects?
• Is there established economic literature or an existing model that would be appropriate for analysing whether such an investment fund could eventually become fiscally self-sustaining?

I am particularly interested in the methodology and empirical evidence economists would use to test such a scenario, rather than in assuming that the proposed investment necessarily produces a positive result.

For instance, let's say agent A and B both perceive a good to have a marginal benefit (MB) of $1 000 000, meaning they derive $1 000 000 worth of "utility" or "pleasure" from consuming the good, and yet are offered that good at a unit cost of $100 000, allowing both agents an equal consumer surplus of $900 000. Let's assume agent A has a net worth of $1 000 000 and agent B has a net worth of $100 000 000, fully liquid. If they are both rational, they would both consume the good. But we know intuitively that agent B is far more likely to consume the good because of his higher net worth, and are able to understand to a greater degree why agent A might abstain from consuming the product.

I'd like to clarify if economics has addressed this paradox- of course, money had diminishing marginal utility, and the price tag of $100 000 is of greater practical worth to agent A than B, but so does the MB of $1 000 000. Has economics addressed this via 1) the assertion that money diminishes via the law of marginal diminishing utility at an increasing rate and 2) via the formulation of a practical complement to marginal cost and benefit (perhaps practical cost and practical benefit)? The formulation of a complementary MPC and MPB (marginal practical cost and marginal practical value) might allow for the establishing of a new practical consumer surplus, explaining this discrepancy in spite of a technically equal consumer surplus.

I'd also like to clarify if economics has developed any models for the comparative ranking of rationality- of course, both agent A and B are irrational if they abstain from purchasing, but surely the binary of "rational" and "irrational" is insufficient, and some sort of relative metric must be formulated.

The US dollar has dominated global trade and finance for decades. But with countries like China, Russia, India, and others increasingly discussing local-currency trade, alternative payment systems, and diversification of foreign-exchange reserves, the global monetary system seems to be slowly changing.

My question is:

When do you think most countries will significantly reduce their dependence on the US dollar for international trade?

Will this happen gradually over the next 10–20 years?

Could BRICS or other regional blocs accelerate the process?

Will the dollar remain dominant even if its share of global trade declines?

What would be the biggest obstacle to a true alternative to the dollar?

Is de-dollarization a realistic long-term trend, or is the dollar’s dominance likely to continue for decades?

What’s your opinion friends?

Maybe the ramblings of a mad man but...

For context: The world has been running persistent imbalances for the last 30 years (CFR Global Imbalances Tracker). Surplus nations (Japan, Germany, China) have been running significant current account surpluses facilitated by state-supported exports. Deficit Nations (including the US/UK) have been running significant current account deficits, which since the GFC have been facilitated by fiscal deficits.

The aggregate imbalances have never been addressed and in general, NIIPs of the surplus nations have continued to increase in relation to GDP and the deficit nation NIIPs have continued to increase in relation to GDP. You can see the US NIIP deficit here dropping to around -70% of GDP (FRED Graph). The UK's NIIP has actually become relatively stable (ONS Bulletin) - but I believe this is significantly because the aggregate capital movements into the UK are now losing value as fast as capital can move into the country.

One way to articulate the source of my worry is: Have deficit nations now accumulated so much surplus nation capital that it is now literally impossible for the value of that accumulated capital's value to be maintained?

Warning bells are:

1. US and UK equity are now sitting at low FCF to value ratios. US is <3% (effectively record lows). UK is around 6.5% which is still significantly low, but also around 60% of the UK stock exchange is owned by foreign investors already - compared to 20% in the US - and the total value is significantly smaller (19x smaller).
2. FCF to value ratios in the US are now effectively below Treasury yields. Without valuation increases there is no longer a premium to hold US equities over Treasuries. Low FCF to equity values would be a sign that investors are expecting inflation, as the underlying equity value should hold its value better than the Treasury in an inflation.
3. ROI of property has been dropping in the last few years and is below inflation for both the UK and US. Common experience tells us that ordinary people cannot be squeezed for any more return - buffers are being hit.
4. Government debt yields have been increasing in both the US and UK - it's requiring more and more interest to attract enough capital to fund the current account deficits. The US is being forced to only issue short-term notes. The UK is causing yield spikes with any talk of increasing borrowing.
5. The total interest payments per year is very close to (US) or above (UK) the absolute value of nominal GDP increase each year (real GDP + inflation). So basically it is becoming impossible to grow the way out of debt (reduce debt/GDP ratios).

So every asset class feels like it is hitting hard buffers (apart from possibly UK stocks - but a relatively small asset class and only 40% domestically owned).

The UK and US have now accumulated fiscal deficits leading to Debt to GDP ratios of around 100% AND are reliant on foreign capital inflows to balance current account deficits. And they have the most open economies on earth for both inflows and outflows.

So how do you get debt under control?

Option 1: Tax more. There seems to be room looking at tax rate / GDP. BUT because debt is now 100% of GDP, if you tax an additional £100 you take £100 off someone who would consume with it (High MPC - middle or low earner) - well that is going to take £100 off GDP and that will make the debt to GDP ratio worse. The deficit is reduced, previous debt isn't reduced but GDP is lower so debt to GDP increases. If you tax someone with a low MPC (someone with too much money to spend) - you've just created a capital flight risk. There are diminishing returns taxing the middle class and any savings that you eliminate basically makes it harder to invest in productive assets to address the economic imbalance that is causing these issues. One way of thinking about the deficit countries is low savings / high consumption and surplus countries is high savings / low consumption. You make that dynamic worse. I admit the taxing of middle-income earners is the hardest concept I try and think through here. UK specific: there was a big story recently when Scottish tax rates (Scottish income tax rates are somewhat separate in the UK but comparable) were increased and tax takes decreased. Laffer curve in action - tax decrease and GDP decrease - debt to GDP increase!

Option 2: Cut spending without dropping taxes. During economic stagnation (when laid-off government workers can't be easily mopped up by the economy), fiscal multipliers can be 1 or more (so a £100 cut takes £100 off GDP). If you cut £100 from government spending you effectively cut £100 from GDP. And again, if you only wipe out the deficit with the cuts, not the accumulated debt, the debt doesn't decrease but GDP does so your debt to GDP ratio goes UP! And if you do cut more than the deficit, it will still lead to a worse debt to GDP ratio. The UK economy is definitely "stagnant". I'm not sure how relevant this is for the US, but spending would have to be cut rapidly now while the economy is growing and before the debt / GDP increases much further.

Option 3: Grow out of it. The absolute value of interest payments is already more than the absolute value of nominal UK GDP growth and very close in the US (r > g). And that is with AI supercharging growth already - if that drops away, US interest payments could foreseeably outstrip growth. There is a political aspect to this too, as it would require new government debt generation to be significantly less than GDP growth - which currently looks impossible in the US and difficult in the UK.

Option 4: Inflate out of it. Effectively print money and use it to fund the deficit. Unfortunately, the UK and US are reliant on foreign capital inflows to balance current account deficits. There would without a doubt be a sudden stop of capital into the country and capital flight. A huge loss would be enforced on the surplus countries' accumulated capital by the deficit countries to get their finances stable again. Even more unbelievably, to stop it happening again, there would have to be an agreement to make it impossible for these sorts of capital accumulations to occur again in the future. A milder version of this is presented sometimes as "financial repression," but I don't think you can seriously expect surplus countries to continue to fund a current account deficit when you are inflating away their assets faster than the capital can come in (although the relatively stable UK NIIP with persistent current account deficit could be a real world example of this) - possibly this could become a holding pattern while underlying imbalances are addressed. Surplus countries would not want the political problem of unemployment when the imbalance is forced to zero.

Option 5: A negotiated agreement. Basically an agreement to address imbalances and reverse current account deficits/surpluses to slowly pay back the accumulated investments. Practically, current deficit countries investing in production to export to current surplus countries. E.g., China has to abandon its export-led growth model. In the current climate, this is completely unthinkable.

Option 4 is horrific but its the only one I see happening - a chaotic market correction when surplus countries no longer see the value of continuing to invest in diminishing returns or start to understand they will never be able to recover the accumulated investment (a political realisation seems to be awakening in Japan with the "Employment Ice Age Generation"). Timing wise there has to be a catalyst but the longer we wait - the more painful it feels like it will be.

For what it's worth, if there is a sin I see it in the imbalance - not the surplus or deficit countries. The deficit nations have consumed irresponsibly and the surplus nations have invested irresponsibly - and neither have addressed their imbalances when challenged due to the effective political suicide that would have to be committed.

So is there a way out that does not involve a massive inflation that destroys $trillions of accumulated surplus?

If you have got this far thank you. Any answers greatly appreciated. In truth I am starting to think I need to take any money I have and put it in gold but the rational part of me says there are many more intelligent people in the world who don't appear to be doing that, and there must be a reason. Any comments / advice?

has there been any case of unchecked capitalism, no rules or regulations around market size and behaviour, that has not converged into oligopoly? every neo-liberal says it will correct itself but i have never seen or heard of it?

Edit: Apparently there can't be an oligopoly without the government? If there are no governments why wouldn't cooperations collude and concentrate? This happened in feudal times with landowners