When has austerity ever worked?

[Dont Taz Me Bro]

Republican high tide lifts all yachts.

Strange how that's exactly what's happened under a Democratic president for the last seven years.

 

[Dovahkiin]

1.) Elaborate.

I am in over my head but..........There was X amount of money in supply. FED added ~$4T buying GOVT debt? and maybe stocks to prop up market? They did not earn this money, they manufactured it. Nothing was created, no work? How come nothing bad happened? This was a 4X increase in money?

Banks create money from thin air all the time, most of it is simply offset by a matching asset, so the rate is very slow, but it does happen. The fed simply credits accounts, not a problem at all. How do you think we get dollars as an asset?

You're delusional or ignorant if you think debasing the currency is "not a problem."

Please show me evidence for the "debasing."

 

[Dovahkiin]

Republican high tide lifts all yachts.

Strange how that's exactly what's happened under a Democratic president for the last seven years.

Both parties continue to buy into neoliberal/neoclassical nonsense. I don't see any moral issue with inequality, but it's negatively affecting economies around the world.

 

[bripat9643]

Cutting government, what you call "austerity," has worked every time it has been tried. A famous example is in 1921 when Calving Coolidge cut government spending by 50%. He also cut the top marginal rate from 95% to 25%. The result was what historians call "the roaring 20s."

You mean a period built on spending higher then pre war levels, a build up in private sector debt, and the crash that followed?

What part of "cut spending by 50%" didn't you understand?

Look at pre war spending.

So any time spending was lower in the past then it is currently, that's not "austerity?"

You don't understand, a massive build up in private sector debt came with the austerity.

You're dodging the question. You tried to claim that anytime there was lower spending in the past than now, it's not austerity. You don't want to admit that because it proves your theory is horseshit. All of the countries accused of "austerity" had lower spending in the past then during their so-called "austerity" period. In fact, they had higher spending than the year before every year since the end of WW II.

 

[Expat-UK]

Austerity is a factor of Conservatism. As a ex-pat UK resident, I see the suffering it is causing this side of the pond every day as the majority Conservative Party of the UK cuts more and more public spending. In many countries there would be riots, the British are so passive with their stiff-upper-lip attitude they just grin and bear it, knowing that next time they can elect somebody different with the view that "hey, we f***ed up, but we can fix it next time".
To be clear, austerity in the UK has increased, not decreased the budget deficit; has nowhere near met the growth targets set in over 5 years; has caused more loss of major high-quality industries such as high-grade steel production; has placed more families below the poverty line; has caused serious underfunding to their health service to the point of near collapse; the list goes on.
America must not make the same mistakes. It's not all about corporations, the people matter far more.

 

[Dovahkiin]

Banks create money from thin air all the time, most of it is simply offset by a matching asset, so the rate is very slow, but it does happen. The fed simply credits accounts, not a problem at all. How do you think we get dollars as an asset?

more lost? Only FED RESERVE can manufacture money correct? not Banks like B of A? They can only use deposits on hand? Are you saying banks can lend out more than they have on deposit?

No, banks can create money. The fed can credit accounts and give the domestic private sector financial assets. Yes, banks do indeed lend out more then they have on deposit. Here is a story to help explain it:

A farmer in a small town goes into the general store to buy some seed. He has no money, but tells the store owner he will pay for the seed when his crops come in. The owner agrees, and accepts an I.O.U. for $10. Money (or something like it) has just been created. (If you can't accept dollars in a hypothetical, call it 10 hours of labor that the farmer has promised.)



The store owner wants to buy some whiskey. The bar owner also knows the farmer, and accepts his I.O.U. as payment for $10 worth of booze. Now the farmer owes the bartender, who can present the I.O.U. and demand payment from the farmer.



Now, add in a bank. A bank acts as a third-party agent for I.O.U.s, granting credit and accepting deposits (other I.O.U.s) from various people (who may not know each other well enough to happily accept personal I.O.U.s). So instead of the farmer asking the store owner to accept his personal I.O.U., the farmer can instead go to the bank and take out a loan for $10. The bank gets a promissory note from the farmer (his promise to repay, plus interest), and the farmer gets a $10 deposit in the bank, which he can use to pay the store owner for seed. And since he is now holding rock-solid bank I.O.U.s, the store owner is much more likely to accept the I.O.U. in payment, whether he knows the farmer or not. If the farmer welshes on his loan, the store owner still keeps his money; the bank would take the loss.



The farmer buys his seed, and the store owner takes the bank I.O.U. to the bank, where they open up an account for him. Farmer owes the bank $10+, and the bank owes the store owner $10. And the store owner now has $10 which he can spend. This is how banks create money out of thin air - somebody comes in for a $1000 loan, and the bank "expands its balance sheet" by creating matching assets and liabilities; borrower gets a $1000 deposit to spend, and a $1000+ debt to repay; bank gets a $1000+ promissory note (its asset), and it marks up borrower's account by $1000 (the bank's liability).



These dollars (or bank credits, whatever you want to call them) are not permanent. They are extinguished as the loan is paid off. When borrower makes a $100 payment to the bank, his account is marked down, and the bank also marks its asset (promissory note) down $100. No net gain or loss to either party, but there are now $100 fewer dollars in existence. (In reality, there are thousands of loans being created every day, and thousands more being paid down, so the number of bank-created dollars stays fairly steady, with slow growth.) Most of the dollars we have in our bank accounts are the product of somebody else's outstanding loan.



Now the town gets bigger, and a second bank opens up the same way the first bank did. But what happens when the two banks's customers do business with each other? Well, they just add up the net interbank transactions and settle up at the end of the day. If Bank A's depositors transfer a net of $1500 to Bank B's depositors, then Bank A will owe Bank B $1500; Bank B will have marked up its depositors' accounts by $1500, and Bank A will have marked down its depositors' accounts by $1500. It all nets out to zero.



To make settling up easier for the banks, they created settlement accounts; Bank A creates an account for Bank B with, say, a $10,000 balance, and Bank B does the same for Bank A. Everything is equal, and no money had to change hands; Bank A owes Bank B $10,000, and Bank B owes Bank A $10,000. Now when it's time to settle up, the banks can simply mark those settlement accounts up or down; the total will always be $20,000.




Today, these settlement accounts are reserve accounts. Banks have reserve accounts that remain at the Fed, and they settle up by having their reserve accounts marked up or down; the level of reserves does not change with these transactions.

 

[bripat9643]

1.) Elaborate.

I am in over my head but..........There was X amount of money in supply. FED added ~$4T buying GOVT debt? and maybe stocks to prop up market? They did not earn this money, they manufactured it. Nothing was created, no work? How come nothing bad happened? This was a 4X increase in money?

Banks create money from thin air all the time, most of it is simply offset by a matching asset, so the rate is very slow, but it does happen. The fed simply credits accounts, not a problem at all. How do you think we get dollars as an asset?

You're delusional or ignorant if you think debasing the currency is "not a problem."

Please show me evidence for the "debasing."

4X increase in money. You even admitted that the Federal Reserve creates money simply by creating credits in someone's account.

 

[Dovahkiin]

You mean a period built on spending higher then pre war levels, a build up in private sector debt, and the crash that followed?

What part of "cut spending by 50%" didn't you understand?

Look at pre war spending.

So any time spending was lower in the past then it is currently, that's not "austerity?"

You don't understand, a massive build up in private sector debt came with the austerity.

You're dodging the question. You tried to claim that anytime there was lower spending in the past than now, it's not austerity. You don't want to admit that because it proves your theory is horseshit. All of the countries accused of "austerity" had lower spending in the past then during their so-called "austerity" period. In fact, they had higher spending than the year before every year since the end of WW II.

Austerity usually refers to spending cuts when the country isn't doing to well. Anyways, you ignore my point on private sector debt.

 

[Dovahkiin]

1.) Elaborate.

I am in over my head but..........There was X amount of money in supply. FED added ~$4T buying GOVT debt? and maybe stocks to prop up market? They did not earn this money, they manufactured it. Nothing was created, no work? How come nothing bad happened? This was a 4X increase in money?

Banks create money from thin air all the time, most of it is simply offset by a matching asset, so the rate is very slow, but it does happen. The fed simply credits accounts, not a problem at all. How do you think we get dollars as an asset?

You're delusional or ignorant if you think debasing the currency is "not a problem."

Please show me evidence for the "debasing."

4X increase in money. You even admitted that the Federal Reserve creates money simply by creating credits in someone's account.

Where is the debasing? Bonds are still in demand, in fact, we're always swapping excess reserves for bonds/notes.

 

[bripat9643]

What part of "cut spending by 50%" didn't you understand?

Look at pre war spending.

So any time spending was lower in the past then it is currently, that's not "austerity?"

You don't understand, a massive build up in private sector debt came with the austerity.

You're dodging the question. You tried to claim that anytime there was lower spending in the past than now, it's not austerity. You don't want to admit that because it proves your theory is horseshit. All of the countries accused of "austerity" had lower spending in the past then during their so-called "austerity" period. In fact, they had higher spending than the year before every year since the end of WW II.

Austerity usually refers to spending cuts when the country isn't doing to well. Anyways, you ignore my point on private sector debt.

But according to you, if the spending isn't cut to the point where it's lower than all previous years, then it's not austerity. At least, that's what you were trying to put over on us about the post WW I spending cuts, or is there some other rule we are supposed to consider?

 

[Dovahkiin]

1.) Elaborate.

I am in over my head but..........There was X amount of money in supply. FED added ~$4T buying GOVT debt? and maybe stocks to prop up market? They did not earn this money, they manufactured it. Nothing was created, no work? How come nothing bad happened? This was a 4X increase in money?

Read this as well:
https://www.kreditopferhilfe.net/docs/S_and_P__Repeat_After_Me_8_14_13.pdf

Many talk as if banks can "lend out" their reserves, raising concerns that massive excess reserves created by QE could fuel runaway credit creation and inflation in the future. But banks cannot lend their reserves directly to commercial borrowers, so this concern is misplaced. • Banks do need to hold reserves (as a liquidity buffer) against their deposits, and banks create deposits when they lend. But normally banks are not reserve constrained, so excess reserves do not loosen a reserve constraint. • Banks in aggregate can reduce their reserves only to the extent that they initiate new lending and the bank deposits created as a result flow into the economy as new banknotes as the public demands more of them. • QE does aim to ease financial conditions and spur more bank lending than otherwise would have occurred, but the mechanisms by which this happens are much more subtle and indirect than commonly implied. • If the excess reserves created by QE were to be associated with too much credit creation, central banks could readily extinguish them

 

[Dovahkiin]

Look at pre war spending.

So any time spending was lower in the past then it is currently, that's not "austerity?"

You don't understand, a massive build up in private sector debt came with the austerity.

You're dodging the question. You tried to claim that anytime there was lower spending in the past than now, it's not austerity. You don't want to admit that because it proves your theory is horseshit. All of the countries accused of "austerity" had lower spending in the past then during their so-called "austerity" period. In fact, they had higher spending than the year before every year since the end of WW II.

Austerity usually refers to spending cuts when the country isn't doing to well. Anyways, you ignore my point on private sector debt.

But according to you, if the spending isn't cut to the point where it's lower than all previous years, then it's not austerity, or is there some other rule we are supposed to consider?

Where did I say that?

 

[bripat9643]

I am in over my head but..........There was X amount of money in supply. FED added ~$4T buying GOVT debt? and maybe stocks to prop up market? They did not earn this money, they manufactured it. Nothing was created, no work? How come nothing bad happened? This was a 4X increase in money?

Banks create money from thin air all the time, most of it is simply offset by a matching asset, so the rate is very slow, but it does happen. The fed simply credits accounts, not a problem at all. How do you think we get dollars as an asset?

You're delusional or ignorant if you think debasing the currency is "not a problem."

Please show me evidence for the "debasing."

4X increase in money. You even admitted that the Federal Reserve creates money simply by creating credits in someone's account.

Where is the debasing? Bonds are still in demand, in fact, we're always swapping excess reserves for bonds/notes.

Creating money out of thin air is debasing the currency. The demand for bonds is irrelevant. How does one determine when "reserves" are in "excess?"

 

[bripat9643]

So any time spending was lower in the past then it is currently, that's not "austerity?"

You don't understand, a massive build up in private sector debt came with the austerity.

You're dodging the question. You tried to claim that anytime there was lower spending in the past than now, it's not austerity. You don't want to admit that because it proves your theory is horseshit. All of the countries accused of "austerity" had lower spending in the past then during their so-called "austerity" period. In fact, they had higher spending than the year before every year since the end of WW II.

Austerity usually refers to spending cuts when the country isn't doing to well. Anyways, you ignore my point on private sector debt.

But according to you, if the spending isn't cut to the point where it's lower than all previous years, then it's not austerity, or is there some other rule we are supposed to consider?

Where did I say that?

You said it when you asked me to consider the spending level prior to WW I to determine whether the spending level in 1923 was "austere."

 

[Dovahkiin]

Banks create money from thin air all the time, most of it is simply offset by a matching asset, so the rate is very slow, but it does happen. The fed simply credits accounts, not a problem at all. How do you think we get dollars as an asset?

You're delusional or ignorant if you think debasing the currency is "not a problem."

Please show me evidence for the "debasing."

4X increase in money. You even admitted that the Federal Reserve creates money simply by creating credits in someone's account.

Where is the debasing? Bonds are still in demand, in fact, we're always swapping excess reserves for bonds/notes.

Creating money out of thin air is debasing the currency. The demand for bonds is irrelevant. How does one determine when "reserves" are in "excess?"

Where do you think money comes from? Are you aware that people are saying we're at a risk of deflation? The demand for bonds is entirely relevant. Look into the overnight interest rate and get back to me.
Soft Curency Economics paper

 

[Dovahkiin]

You don't understand, a massive build up in private sector debt came with the austerity.

You're dodging the question. You tried to claim that anytime there was lower spending in the past than now, it's not austerity. You don't want to admit that because it proves your theory is horseshit. All of the countries accused of "austerity" had lower spending in the past then during their so-called "austerity" period. In fact, they had higher spending than the year before every year since the end of WW II.

Austerity usually refers to spending cuts when the country isn't doing to well. Anyways, you ignore my point on private sector debt.

But according to you, if the spending isn't cut to the point where it's lower than all previous years, then it's not austerity, or is there some other rule we are supposed to consider?

Where did I say that?

You said it when you asked me to consider the spending level prior to WW I to determine whether the spending level in 1923 was "austere."

The spending level in ww1 was lower then the spending afterwards. However, the massive cuts done for virtually no reason led to a build up in private sector debt, leading up to...

 

[OKTexas]

I will wait for an answer.

1923

Absolute nonsense.
Let's examine the period in question, along with some other simple facts:
We first realize this:
6. 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.
Think big deficits cause recessions

Well ain't that something? It's odd that everytime we do debt reduction/run a surplus, a depression/recession follows. The link I've supplied backs this up. Now, when have we ever experienced a depression/recession due to large deficits? I will wait for an answer.
Anyways, back to the period in question:
A massive increase in private sector debt can indeed lead to growth, it's not sustainable though. This can be observed when looking at history, although I implore you to look to the massive private sector debt increase once clinton shrunk deficits/ran the surplus, and the build up to the crash in 07-08 due to bush running small deficits and the way the private sector continued to ramp up debt/take insane risks. When the private sector doesn't have access to dollars as pure assets from another sector, the only way for the private sector to acquire dollars is through loans. Money is debt after all.

Actually I got my date wrong, I was thinking of the depression of 1920-21. If you notice it's not even mentioned in your link

The Calvin Coolidge Approach to Saving America from Debt and Insanity: Just Say No!

 

[Dovahkiin]

I will wait for an answer.

1923

Absolute nonsense.
Let's examine the period in question, along with some other simple facts:
We first realize this:
6. 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.
Think big deficits cause recessions

Well ain't that something? It's odd that everytime we do debt reduction/run a surplus, a depression/recession follows. The link I've supplied backs this up. Now, when have we ever experienced a depression/recession due to large deficits? I will wait for an answer.
Anyways, back to the period in question:
A massive increase in private sector debt can indeed lead to growth, it's not sustainable though. This can be observed when looking at history, although I implore you to look to the massive private sector debt increase once clinton shrunk deficits/ran the surplus, and the build up to the crash in 07-08 due to bush running small deficits and the way the private sector continued to ramp up debt/take insane risks. When the private sector doesn't have access to dollars as pure assets from another sector, the only way for the private sector to acquire dollars is through loans. Money is debt after all.

Actually I got my date wrong, I was thinking of the depression of 1920-21. If you notice it's not even mentioned in your link

The Calvin Coolidge Approach to Saving America from Debt and Insanity: Just Say No!

Oh dear god.
Social Democracy for the 21st Century: A Post Keynesian Perspective: The US Recession of 1920–1921
Coolidge didn't take office until August in 1923.

 

[OKTexas]

I will wait for an answer.

1923

Absolute nonsense.
Let's examine the period in question, along with some other simple facts:
We first realize this:
6. 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.
Think big deficits cause recessions

Well ain't that something? It's odd that everytime we do debt reduction/run a surplus, a depression/recession follows. The link I've supplied backs this up. Now, when have we ever experienced a depression/recession due to large deficits? I will wait for an answer.
Anyways, back to the period in question:
A massive increase in private sector debt can indeed lead to growth, it's not sustainable though. This can be observed when looking at history, although I implore you to look to the massive private sector debt increase once clinton shrunk deficits/ran the surplus, and the build up to the crash in 07-08 due to bush running small deficits and the way the private sector continued to ramp up debt/take insane risks. When the private sector doesn't have access to dollars as pure assets from another sector, the only way for the private sector to acquire dollars is through loans. Money is debt after all.

Actually I got my date wrong, I was thinking of the depression of 1920-21. If you notice it's not even mentioned in your link

The Calvin Coolidge Approach to Saving America from Debt and Insanity: Just Say No!

Oh dear god.
Social Democracy for the 21st Century: A Post Keynesian Perspective: The US Recession of 1920–1921
Coolidge didn't take office until August in 1923.

Had you bothered to actually read the link I provided, it credits both Harding and Coolidge.