The World According to Nick
My take on Software, Technology, Politics, and anything else I feel like talking about.
Tuesday, December 06, 2005

Anyone? Bueller? Anyone? Anyone? 

It's discussions like this one at Asymmetrical Information that make me believe that economics really is the study of voodoo:

Firstly, government debt is similar to personal debt in many ways but different in one critical one -- government debt can be rolled over into the far future in a way personal debt cannot. If I lend someone a $1M to be paid back in 100 years, I actually don't care about the principal since in NPV terms its essentially zero -- but I do care very much about interest payments. This is why the ability to finance debt (and therefore the interest rate) is more important than the actual size of the debt outstanding. While many commentors in the thread don't seem to have confidence that the US can make good its obligations, there are clearly lots of people who do -- as evidenced by the extremely low rates interest rates they ask for to in exchange for buying the debt.

Since governments can roll debt over for as long as they exist, they essentially never need to pay debt back -- they just need to make their interest obligations (whatever those might be) -- and can keep rolling the debt over.

This is why I really have stopped trying to understand macroeconomics. I don't think my logical engineering brain is capable of wrapping around the concepts. It reminds me of a time in a statistics class in college where my professor tried to tell us that in some circumstances, 5 is really close to infinity.


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Name: Nick
Home: Wauwatosa, WI, United States

I'm a Software Consultant in the Milwaukee area. Among various geeky pursuits, I'm also an amateur triathlete, and enjoy rock climbing. I also like to think I'm a political pundit.

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