IMF: U.S. Debt Very Concerning

[Pksimon2007]

How does it mean one is "responsible with money"?

Please be specific.

as I said it means inflows equal outflows so you are not constantly drowning in debtt

I've never heard anyone say that an equal inflow and outflow of money to a business meant the business was responsible, and that anything else was irresponsible.

That's a new one.

dear, we're talking mostly about governments here, and balanced budgets.

- Do you normally call 53-year-old married men "dear"?

Oh, I see - we're talking about GOVERNMENTS.

But you're saying that their income and outflow must be equal.

Why?

Who is it that creates money?

Let me ask this another way.

If we want the private sector as a whole to make a profit - that is to grow, we assume that its real growth is somehow monetized.

The private sector must have a surplus, then. It must have a net inflow of money, a flow of money to itself that is greater than its outflow.

If money must net flow IN to the private sector, then it must net flow OUT of somewhere else.

From whence must it flow?

you seem confused!!. Money from the govt flows into the private sector as needed to avoid inflation and deflation.

- If you think that, then you can get the concept.

A responsible government provides the private sector of its country the money it needs to operate, and to monetize growth in real wealth.

That means there has to be a net outflow, usually, of money from the government to the private sector.

That is, government usually has to run deficits.

We count accumulated deficits as debt - even though it's really not borrowing (for a government which issues its own money, like the US). It's the issue of new money, and LaGarde is an idiot to be worried about that.

Greece is a different story. Greece gave up its sovereignty with respect to money when it joined the Eurozone.

It now must borrow from a foreign central bank in order to run deficits. It must have foreign permission to do its job.

That foreign entity is unwilling to give such permission, so Greece has been crippled.

 

[EdwardBaiamonte]

You're childish and would prefer to troll the moment you realize that you're outmatched on the issues.
.

dear, if outmatched present best example for whole world to see or admit to being a liar.

 

[Pksimon2007]

- Yet oddly, the IMF is selling a conservative program: austerity.

Your statement doesn't seem to make much sense once we apply a little logic to it, now, does it?

dear, the IMF, in effect, make welfare loans to poor countries which liberals love. When the crippling welfare loans don't get paid back the IMF puts pressure on to reform rather than throwing good money after bad. Now do you understand?

- How about we focus on the economics of this?

Is it responsible of a business to have equal income and outflows, and no other outcome is responsible?

So is it irresponsible for companies to have greater inflow than outflow?

my understanding is that IMF loans mostly to countries for development??

- Yes - they're selling DEBT.

- Let that sink in.

yes IMF makes loans. And your point is????????????

- Well, by your standard, the IMF lures countries which have trouble into more debt, right?

Is that "responsible"?

 

[Pksimon2007]

- A budget is a spending plan, not a balance sheet.

.

yes and you want a budget in which inflows equal outflows so you are not constantly drowning in debt

- Well you just admitted you DON'T want that.

You just admitted that the government MUST provide a net flow of money to the private sector.

So now you contradict yourself.

Pick a position, only one.

 

[EdwardBaiamonte]

That is, government usually has to run deficits.

.

dear, it seems you've got monetary policy and fiscal policy confused. Do you understand?

 

[Pksimon2007]

You're childish and would prefer to troll the moment you realize that you're outmatched on the issues.
.

dear, if outmatched present best example for whole world to see or admit to being a liar.

- You're just outmatched. I haven't seen you lie. Yet.

But I'm pretty sure I'm about to.

Rather than choosing to learn from this experience, I'm sensing you're about to go full-on troll mode.

 

[Pksimon2007]

That is, government usually has to run deficits.

.

dear, it seems you've got monetary policy and fiscal policy confused. Do you understand?

- No, I think those ar just buzzwords to you.

Government spending creates money. That's fiscal policy, but it creates money.

Central banks create reserves, not the sort of money we use. That's monetary policy, but it's not the creation of money. They only create reserves.

Money, in the sense the private sector finds it useful, is primarily cash and bank deposits. Those are created by government (though cash is distributed by banks, via the central bank - but distribution of cash isn't monetary policy. It doesn't create money, it just converts existing money into a physical form.)

 

[EdwardBaiamonte]

- Well, by your standard, the IMF lures countries which have trouble into more debt, right?

Is that "responsible"?

no but its the liberal way. More and more welfare is the entire liberal program both at home and abroad

 

[Pksimon2007]

- Well, by your standard, the IMF lures countries which have trouble into more debt, right?

Is that "responsible"?

no but its the liberal way. More and more welfare is the entire liberal program both at home and abroad

- And the discussion is over as you go full-on troll.

Have a good night. If you develop any economic arguments or want to know something economic, I'll happily respond.

But I will not go down the rabbit hole where you are going to hide.

 

[EdwardBaiamonte]

Government spending creates money. That's fiscal policy, but it creates money.

no, money is created only by the Fed

 

[EdwardBaiamonte]

- Well, by your standard, the IMF lures countries which have trouble into more debt, right?

Is that "responsible"?

no but its the liberal way. More and more welfare is the entire liberal program both at home and abroad

- And the discussion is over as you go full-on troll.

Have a good night. If you develop any economic arguments or want to know something economic, I'll happily respond.

But I will not go down the rabbit hole where you are going to hide.

translation: I can see I was going to lose debate so I'm running away before it gets too embarrassing

Let me know if ever you see a conservative running away. What does that teach you??

 

[EdwardBaiamonte]

. If you develop any economic arguments or want to know something economic, I'll happily respond.

dear, I merely copy conservative economic ideas, i don't develop them . If you can confute a central conservative economic idea I'd love a good laugh. How will you learn if you are afraid to try??

 

[Pksimon2007]

Government spending creates money. That's fiscal policy, but it creates money.

no money is created only by the Fed

- Not even close. The Fed can only create reserves, which are a scoring system for interbank payments.

What you and I think of as "money" is created as a result of government deficit spending. The Fed cannot do that.

Banks can also create bank deposits based on them issuing loans to borrowers. We call that "endogenous money creation". It looks, talks, and walks like money, but it is not a private sector net financial asset, because it is offset by a debt created by the bank in the borrower's name.

Government's issue of money IS a net financial asset to the private sector.

 

[Pksimon2007]

. If you develop any economic arguments or want to know something economic, I'll happily respond.

dear, I merely copy conservative economic ideas, i don't develop them . If you can confute a central conservative economic idea I'd love a good laugh. How will you learn if you are afraid to try??

- Confute?

Is that like "refudiate"?

 

[EdwardBaiamonte]

Central banks create reserves, not the sort of money we use. That's monetary policy, but it's not the creation of money. They only create reserves.

dear, most importantly the Fed determines the amount of reserves for the purpose of determining and controling the amount of money "we use". Do you understand now??

 

[Pksimon2007]

I can help you understand reserves, Edward. A friend of mine wrote a little description that I think lays it out well.

"
Settlement Funds
==================

Ah, reserves! Created by the Fed to manipulate the money supply. They're just cash, right? Uhm, no.

The name is perhaps a major source of confusion, because a reserve is conceived of as some sort of backup plan, something set aside in case of an emergency, or the "good stuff in the back room" that only the best customers get.

In accounting, a reserve is an acknowledgement of a contingent liability designed to prevent us from being caught short if that liability arises.

Reserve balances "on deposit at the Fed" don't serve any of those functions: none of them.

If your bank fails, its depositors will never see a dime of "reserves". If a bank gets into trouble, it cannot withdraw "reserves" to pay creditors. A bank cannot lend "reserves" to customers, or buy Wall Street assets with them.

What we oddly call reserves (in this context) are what are called, in most countries, "settlement funds".

All central banks provide or oversee the interbank payments system in their country, which is the system that transfers deposit liabilities from one bank to another when customers write checks or use their ATM cards.

We all use double-entry bookkeeping, so the method for clearing payments between banks is essentially the same in all modern economies.

If there are two banks in a system, each of which cashes checks from the other, then each transaction creates an obligation by one bank to pay the other. If we were very inefficient, we could send a courier from one bank to the other every time a check was deposited, to return the check to the bank on which it was drawn, and to return with a sack of cash in the amount of the check.

If we're thinking a little more efficiently, we can agree to send one courier at the end of each day, with all the checks accepted that day, and we can total up the checks deposited by each bank on the accounts of the other, then compare the totals. We will subtract the smaller amount of checks from the larger, and whichever bank had cashed the smaller amount of checks would owe one "net" amount of money to the other bank. That “deficit” bank can send a courier with a small sack of cash to settle the net amount - even though we may have cashed millions of dollars' worth of each other's checks that day, the net amount owed by the deficit bank to the “surplus” bank might be very, very small.

Now if we're being even MORE efficient, we can agree that each of us would open a checking account at the other's bank - so one bank opens a checking account in the other, and vice versa - rather than having to send our courier with the sack with the net amount of cash every day, we just have the deficit bank create a deposit for the net in the account of the surplus bank. At the end of the next day, if yesterday’s deficit bank is now the surplus bank, it can just reduce the “funds” the other bank has “on deposit” with it. If that bank’s surplus is greater than the balance in the deficit bank’s account, the new deficit bank can simply create a balance in the surplus bank’s account to make things add up.

Notice that each of these banks now has funds “on deposit” with the other bank, but neither bank has actually made a deposit in the other bank. The deficit bank simply creates a deposit “out of thin air!” for the surplus bank as a method to keep score between them.

We are now using these two checking accounts to settle our affairs every day, so no money is actually changing hands between us at all, unless one of us becomes so severely deficit to the other that we agree we probably ought to settle the net in cash. But in the main, neither of us ever expects to withdraw those settlement funds so that we can lend them to anyone, or to do anything else with them. They are simply there as a scorekeeping mechanism so that we can process each others' payments. That’s pretty efficient.

Of course there are always more than two banks, so all banks have to do this with all other banks if they are going to all be able to accept each others’ checks. We could do this - have every bank create an account with every other bank for the purposes of settlement. That's certainly better than having bicycle couriers transferring sacks of checks and sacks of cash every day, but we can still see more obvious efficiencies to be had.

What if we created a banker's bank, and ALL of us opened an account with that bank? Then, rather than each bank having to have an account with every other bank in order to settle payments, it would only need ONE account, with the "central" bank.

Well, this is great! Now what we do is hire a bookkeeper (call him a clearinghouse), and we report every day to him with the number of checks we have received in deposit from accounts drawn on other banks.

We don't even care WHICH banks those checks are drawn on. As long as every bank honestly reports the total value of all checks it has cashed (which they have an incentive to do - they wouldn't under-report, because thry would short themselves, and they wouldn't over-report, because they have to provide the cancelled checks as evidence), then all we have to do is report ONE net number for all our checking transactions. We can tell the clearinghouse how many checks we accepted from all other banks today, and we can tell them how many of our canceled checks we received from all other banks, and - voila! We know instantly what we owe to "all other banks" or what "all other banks" owe to us. It’s just one net number, and it’s a lot smaller than the number of transactions we processed throughout the day.

Once the clearinghouse has a tally of every bank's net, it simply hands the list to the central bank, which begins the merry work of either reducing or increasing the settlement fund account balance of every bank in the system by the amount reported by the clearinghouse. The central bank doesn’t care who owes what to whom. All they care about is the net amount. They aren’t “transferring” a balance from bank “A” to bank “B”, they’re just going down the clearinghouse list and creating one transaction for each bank. Every surplus bank is going to receive settlement funds (or *ahem* “reserves”), and every deficit bank is going to lose them. No money is getting transferred. The central bank is simply creating or reducing deposit balances by following the list the clearinghouse provides – one lump sum addition or subtraction to each bank’s balance. The net result is exactly the same as if every bank had sent a courier with cash every time another bank accepted the deposit of one of their checks. It’s just a LOT more efficient.

There's no reason for any bank, under normal clearing, to exchange anything like cash. Now we can see that what we have done is set up a completely different system of money which has very little to do with the bank deposits of all of those bank customers. Settlement funds aren’t being used to protect depositors, or to pay them, or to make loans. We are only keeping score of the net effect of all transactions between banks. What we're really doing here is creating a sort of "mirror" at the central bank of what's going on at our actual banks. It's essentially a complete, duplicate model of our banking system - like one of those WWII strategy boards, where admirals smoking cigars have lackeys push wooden ship models around a plexiglass sea to keep track of the action in the real theater.

Our system of settlements is the plexiglass sea, and reserves are the wooden ships we push around to keep track of which banks are on the attack, and which are hunkering down for a long night of defense.

This is what reserves are. You can't put wooden ship models into battle, nor can banks lend reserves. They exist to aid in scorekeeping, so that we can create and reduce scores as needed to keep track of what's going on without actually having to send couriers around every bank with sacks of checks and cash."

~ Laura E. Teller

 

[EdwardBaiamonte]

- Confute?

Is that like "refudiate"?

dear, instead of being a perfect dummy look it up!!! Dah!!!

 

[Pksimon2007]

Central banks create reserves, not the sort of money we use. That's monetary policy, but it's not the creation of money. They only create reserves.

dear, most importantly the Fed determines the amount of reserves for the purpose of determining and controling the amount of money "we use". Do you understand now??

- That's incorrect. The Fed - generally - sets the price of reserves. Only during QE has the Fed ever set the quantity of reserves. Traditionally, it set the price of reserves via the fed funds rate (I can explain how that works, if you need me to).

You're relying on a myth called the "money multiplier", which pretends that the amount of loans banks can make depends on the quantity of reserves.

That is a myth believed by many economists, but it's completely false.

I can help you understand that, too.

 

[Pksimon2007]

- Confute?

Is that like "refudiate"?

dear, instead of being a perfect dummy look it up!!! Dah!!!

- Why look it up when I could write the book?

 

[EdwardBaiamonte]

I can help you understand reserves, Edward. A friend of mine wrote a little description that I think lays it out well.

too stupid!! I laid it out perfectly in 20 words or so above. If you think its inaccurate please say exactly why or just admit to being a typical liberal.