Moist_Lunch_5075 t1_j6grxn0 wrote on January 30, 2023 at 5:10 AM

Hmm... an interesting scenario. Definitely worth some continued thought on my part.

My first thought is that the US government doesn't really have a short-run when it comes to capital available for military efforts. I do suspect that a world war would strain us for more than people think, but I also know that with current bond funding and a low interest rate, the US government has access to options that would have less impact on the economy, such as temporarily raiding entitlement program funds through internal bond transfers and just straight up borrowing the money directly from reserve lenders at a sweetheart interest rate.

Raising the FFR to achieve the goal without having to wait for taxes would be much more costly and probably not necessary given the rather significant bulk of military forces in the United States... in other words, we already have such a high percentage of the military production, staffing, and spend that a scenario where a modern war would require us to massively grow our military is unlikely. Even against China.

It would probably require several large nations ganging up on us with no allies to speak of... which is not likely to happen.

And a modern world war wouldn't really be fought with massive armies. Like if destroying the global economy is on the table, massive cyber warfare and nuclear war are probably also on the table... and a cyber war would require an upscaling in resources, but a nuclear war/nuclear deterrent cycle is already basically paid for... or priced in, if you will...

So that's blocker #1, and I think it's pretty significant.

Blocker #2 has to do with the cyclical nature of bond yields. Basically, if to promote bond sales, the Fed upped the FFR, driving the risk-free rate of return way up and juicing the 10-year T-bill above 10% yield (many of these calculations use the 10-year as a yardstick for the bond rate) it would drive massive demand into those bills, creating a drop in the yield.

Bond yields are decided in part by auction, which is how the 10-year rate is now lower than the FFR. Basically, the government doesn't want to just throw free yield around, so they increase the yield to move the number of bonds expected at the best yield possible at volume. As demand shoots up, competition for bond notes increases and as a result deals can be made at auction with lower yield.

That would wind up crashing the yield and that would create the equilibrium to re-open markets elsewhere our capital needs were met.

Still an interesting exercise in what happens if the risk-free rate of return were to spike suddenly and extremely... I do think you're right that such a scenario would probably cause a larger market crash as flows went to risk-free return.

ThetaGangThroweway OP t1_j6gt9q7 wrote on January 30, 2023 at 5:23 AM

Dude, you're falling into the classic trap that the last decades of fights are "the future of war. " This simply isn't so.

But a key factor of any war that is that no one has any idea what they're doing. Not you, not me, not the politicians, not the commanders, not the grunts, not the drill sergeants, not the enemy, not anyone. Any major war effort is a chaotic mess that gets better as people fix stuff, then the war ends and everyone forgets about it.

Moist_Lunch_5075 t1_j6gx942 wrote on January 30, 2023 at 6:05 AM

Re-read my comment again. I did not say that the last decades of fights are the "future of war."

What I said was that IF a world war broke out, it would be explicitly DIFFERENT from the last decades of wars in that it wouldn't be an escalation of people so much as an escalation of threat and action.

I have no idea where you got that I was ' falling into the classic trap that the last decades of fights are "the future of war. " ' but it definitely wasn't from what I wrote.

What you're not considering is that the scenario you've suggested would completely tank the global economy, hurt our allies, and crash our own economy in the process. When there are other options, they're not going to do that.

Currently there's about $20T unspent in government bond rotational funds to tap. Then there are the loans accessible to the government via the reserve. The military's expensive, but a mass mobilization can still be done with that money without crashing the economy.

Your scenario is literally one of the most destructive things a country can do to its economy. You can't just accept that they're going to do that without considering the alternatives.

What I am saying is that if we DID get to that point where "destroy the economy" is on the table, you basically have to ask how much things have changed.

Have they changed in that circumstance enough to have a nuclear exchange?

Your last paragraph says it well: War is chaos. It's unpredictable... but we're not relegated to absolute blindness. We can measure the amount of risk a country has to be at to make certain moves. The move you're suggesting is basically economic seppuku, and in a world with nukes we have to consider that once you're there, you've entered the "existential risk" space of risk.

That's what I'm getting at... not that it'd be like the last several decades, but rather it'd be drastically removed from that to an even more extreme threat than you're accounting for.

I'm actually accounting for MORE chaos allowance than you are.

ThetaGangThroweway OP t1_j6jdbt5 wrote on January 30, 2023 at 7:20 PM

Dude, it was easy to spot by what you thought "modern war" was like. What I say plagues even the Pentagon where most commanders assume the last big war plus recent tech trends equal "modern war." Also, most army commanders don't know a thing about strategic theory.

But an interesting point is that nuclear deterrence prevents major formalized governments from seeking conventional war, but there are many states that could breakup or spontaneously unify at any moment. There are also many points in history where large rogue armies sprung up overnight, and internal wars in countries where the conventional forces are either unable or unwilling to act, and extended periods when governments were defunct. You should not think all war is confined to conventional arms or insurrectionists.

Moist_Lunch_5075 t1_j6nsl4u wrote on January 31, 2023 at 5:20 PM

>You should not think all war is confined to conventional arms or insurrectionists.

You're just not paying attention to what I'm saying because you seem to want an argument rather than a discussion.

You just rephrased my entire point as if it was a retort. LOL

You literally just distilled my entire argument into one sentence and then acted like that was somehow correcting me.

Also if the scenario you're talking about happens and world powers fragment and fracture, the Fed Funds Rate's not gonna be a thing anymore. Your entire scenario depends on the continuation of the world power structure, which is the core of my point... once we hit that point where the poison pill makes sense, things have radically changed in much more significant ways.

ThetaGangThroweway OP t1_j6ojwmj wrote on January 31, 2023 at 8:08 PM

On the contrary, you're assuming there will be no war, rather a simple collapse of civilization.