USA government debt ceiling

Wed Oct 14 04:52:37 PDT 2015

2015-10-11 14:17 GMT+02:00 Zenaan Harkness <zen at freedbms.net>:

> > Counting derivatives as debt is definitely 100% misguided. They're also
>
> Futures are derivatives, and potentially very large debts (or gains).
> This is the nature of leverage - a small outlay, a much larger return
> or loss. Although the loss is not certain (of course), it is possible,
> thus...
>

If you're panscient (know the current state of the world) you could
determine the actual risk precisely. Then you multiply value * risk, and
you know the likely debt, or debt equivalent. If the gamblers are even a
bit conservative (and correct) you will likely find the debt is negative -
these derivatives will probably be positive assets. Why else have them?

Nobody's panscient, but the people that make these bets try to be. They
stake their wealth on their correct guessing. I'd say that gives them the
right incentives.

It's also quite likely that bets are both ways (one person thinks x,
another thinks y), limited in their ability to lose money (stop loss
present), etc, etc. Simply counting them as debt is /wrong/.

> > used to amplify market swings - make or lose more with less motion,
> > therefore the oversizedness is not surprising. It makes markets more
> > accurate, liquid and reliable (except f-ups get amplified too sometimes).
>
> ... that's the point ... when the gambles go the wrong way, for too
> many people, then sometimes very large entities go belly up, as the
> above article gives examples of.

The more competitive you need to be, the riskier your bets need to be. You
can abide with little risk, or fly high with intense gambles. Try not to
burn your wings.

> When this reaches a tipping point,
> there is systemic collapse as we have seen historically. Then those
> large entities ("too big to fail") can be "bailed out" by the tax
> payer, or "bailed in" (the newest legislation here in Australia, and
> possibly in US too) by simply grabbing some portion (up to 100%) of
> all depositor's deposits.
>

This is not the right thing to do.

If you remove risk, the system will not be balanced. You will create a
system that is overly risk-seeking. If you remove the penalty for taking
huge huge gambles, why not stake it? Reduce the penalty for failed bets and
you (directly) increase the amount of failed bets.

Having this advantage only apply to large corps is an even greater
disturbance in the market. Why in gods name would you give big companies
incentive to fail? Larger risks, larger profits. Countries as a whole are
running on their economic hindlegs - running because they can no longer
seem to walk.

> If the big entity insurance (bail in or bail out) cannot compensate
> adequately for the "debts", then the systemic collapse is a
> depression/ full reset, rather than just a recession.
>

Recession is when our administrative hacks are realigned with reality.
Sometimes causing so much systemic shock that it affects productivity,
which is real rather than just administrative.

If we all put our faith in a system that did not work, then we deserve the
consequences and should strife for greater resilience. Now we've just
doubled down on our faith. Very all or nothing.

> Whether one names derivatives as debt or not is immateriel - they
> amplify shit when shit happens.

Unless we give the general public a reason to be critical of financial
instruments they will not be critical of financial instruments. If there's
no care for something it goes wrong. We're moving towards "communism
without compassion" - a world where you're responsible for yourself and
your financial situation, but government makes it impossible for the sake
of national interests*. An evil system without evil actors. If we're going
to plan our economy together, collaboratively, then why do we need to be so
sneaky about it?

It'd all be fun and games if it weren't my taxes that're being used against
my best interests. Don't think there's much helping it, except paying the
least taxes possible. (And who pays more tax than he needs to, anyway?)

* eg: we have national insurance for salaries, so they may be paid despite
bankruptcy. Employees do not suffer even though their labor was bad for
society (as determined by the markets). At least, we'd know if the markets
weren't already disturbed beyond realism. This leads to companies being
less risk adverse than they should be, which leads to a disturbed market in
which a legitimate, fair, balanced, honest company cannot operate
profitably. Everyone suffers.

P.S.: there's plenty of legitimate reasons for how things are, I'm not
saying "it's done all wrong" - it's not. By most it's a best effort. This
relates to "evil system without evil actors", which I think is often the
best way to understand a systemic problem. (it also somewhat limits
paranoia)
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