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As long as people argue from the idea that the intertemporal budget constraint is a real constraint, you'll be working with one arm tied behind your back. http://traderscrucible.com/2011/04/29/chapter-2-in-which-the-traders-crucible-slays-the-intertemporal-government-budget-constraint-and-mr-rowe-demonstrates-his-worth/ The government budget constraint is non-scientific. We cannot observe if we're holding it or not. We might be constrained by potential inflation, but there is no relationship between inflation and the potential for default, because we cannot default.
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Hi Nick, "But if the growth rate of the economy exceeds r, it's possible for the growth rates of G, T, and B to exceed r, so the Present Values are all infinite. That's when things get weird. Essentially, the economy is in a Ponzi zone." Now is the time to go to Moslers website and really understand the monetary operations of the fed and treasury. Now. First, understand how the fed and treasury work, why debt = money. Then read Warren's "the natural rate of interest is zero." We choose the interest rate we pay on the debt. If you doubt me, see Perry Merhlings post about how the fed pegged interest rates throughout the WWII. http://ineteconomics.org/blog/money-view/the-new-federal-reserve#comments You are so close! Welcome. When you get here, you'll find all your old skills will actually increase in value, and there is much work to do. And remember to pass the map to Brad Delong!
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Dec 14, 2010