Canadian Explains U.S. Debt Crisis

[EdwardBaiamonte]

Your glorious supply siders based their whole theory off of Keynes.
Arthur Laffer even admitted taking the idea from Keynes

of course as a liberal you will be very very brainless!!

Laffer: The supply-side approach stands in sharp contrast to economic theories that held sway from the 1930s through the 1970s which were preoccupied with boosting demand, ideas most closely associated with economist John Maynard Keynes and his publication of The General Theory.

 

[EdwardBaiamonte]

However, back on planet earth, if we analyze the supply-side Reagan era,

Of course as a liberal you will be totally brain dead, totally!! Reagan raised taxes 5 times!!!!!!!! How is such perfect ignorance possible?????

 

[EdwardBaiamonte]

First of all, consumers create demand, and without consumers, businesses goes nowhere.

too stupid by a factor of 1000 !!!!

OMG!!!!demand is always sufficient!!! People are born demanding things like air, food, clothing, shelter, water as a necessity of survival. Giving them credit for breathing is a disgustingly low standard that only an deadly uber stupid liberal could imagine.

Life on this planet changed when Republicans invented or supplied a plow to till or bucket to carry water. Those rare geniuses supplied life on this planet and need to be encouraged in every conceivable way.

Consumer demand we can take for granted like the air we breath. Millions of people can look at a field and demand wheat for millions of years (and they did) but the Republican supply-sider who finally came along to make the field supply wheat literally saved milions and millions of lives from starvation and made millions and millions of new lives possible.


Similiarly, every human being had a limitless demand for computer power, but it was not until Gates and Jobs came along with the supply that the demand could be met!!!

Now even a liberal can understand what Republican supply-side economics is.

 

[Kimura]

Your glorious supply siders based their whole theory off of Keynes.
Arthur Laffer even admitted taking the idea from Keynes

of course as a liberal you will be very very brainless!!

Laffer: The supply-side approach stands in sharp contrast to economic theories that held sway from the 1930s through the 1970s which were preoccupied with boosting demand, ideas most closely associated with economist John Maynard Keynes and his publication of The General Theory.

Yeah, that's called bullshit, because I just explained to you where Art Laffer got his ideas from. Everybody with a background in finance, at least in my circles, knows the bar story. Art Laffer, back in the 1970s, was in a bar with Jude Wanninski, a decent reporter for the Wall Street Journal before it became a Murdoch rag. Laffer then proceeds to draw a graph on a cocktail napkin that purportedly shows that, if you cut taxes, government revenues actually increase and the economy booms. This sounds Keynesian because that's exactly what it is. Like I said in my previous post, Art Laffer admitted this was the case, because said tax cuts which support aggregate demand are the same as spending increases from a fiscal standpoint.

 

[Kimura]

However, back on planet earth, if we analyze the supply-side Reagan era,

Of course as a liberal you will be totally brain dead, totally!! Reagan raised taxes 5 times!!!!!!!! How is such perfect ignorance possible?????

I'm not a liberal, try again, Einstein. By the way, have you ever taken anything even resembling an economics or accounting class in you life?

 

[Norman]

My point is, the deficit reflects the net savings of the private sector. .

so what???????? does this make deficits a good thing??? Should we run a 10trillion deficit each year????? Do you have any idea what you are saying??

Deficts can be a good thing, because they create net financial assets. If you want the government sector to run a budget surplus, then the domestic private sector will have to run a deficit, which is what happened during the Clinton Administration. This caused the domestic private sector to borrow in order to fund consumption, which helped to create the housing bubble among other things.

The deficit equals the total net increase in the holdings (financial assets of the US) of the American people, such as households, firms, etc., which is referred to as the non-government sector. In other words, the deficit equals an increase in the total aggregate savings for all of us down to the last penny.

Sure, government spending can cause inflation, that's not what I'm saying. We have an unemployment glut which needs to be solved. We could literally increase the debt significantly, because there's a ton of excess capacity, excess labor and low industrial output. If we were at full employment and the economy was at full capacity, then I'd be worried about inflation, but we're nowhere near that happening on our current path.

This is classic example of one of those posts that try to analyze things in a stupid way. Kinda like doctor explaining why cancer can be beneficial because it increases white blood cell production, with few fancy words thrown in.

The deficit does not merely reflect increase in savings in the private sector, and if it did it I would argue that it would not be a good thing that they were used to finance consumption (which is what the govt mostly does). The problem is that the deficit is made possible not merely with private sector's savings but with printed money and savings of the chinese people. In other words the trade deficit and inflation(which means decrease in savings of the private sector).

Trade deficit is not good or bad. It just means you are using resources that you don't have and must pay them back later. However, if trade deficit is used to finance consumption you are going to get bleaker times in the future. And that is where you are at. US with the lead of the government and FED is spending all the money, and then the trade deficit that results is invested back into the USA to... finance even more government spending.

And then the government promises even more benefits, which means people think they are wealther and, will most likely run to the mall to buy some more chinese products. To finance this the FED has to step in and lower interest rates, and people will abandon even more savings and instead burrow money to finance some more consumption.

This won't continue forever to be sure. At some point the world will wake up. Maybe the lesson that everybody already knows will be remembered again. You can't spend and burrow yourself into prosperity.

 

[EdwardBaiamonte]

You can't spend and burrow yourself into prosperity.

yes we got from the stone age to here as Republican supply siders invented new stuff, not as libturds legislated, regulated, taxed borrowed and spent money.

Libturd government can't make economic growth happen only Republicasn supply sider capitalist can do that!!

 

[C_Clayton_Jones]

Canadian Explains U.S. Debt Crisis

That’s quite a trick considering there’s no ‘crisis.’

What’s critical is getting Americans back to work and ensuring the continued recovery of the economy. Once the economy has recovered and Americans are back to work, we can address the debt; as to indeed address it too soon might actually jeopardize economic recovery.

 

[C_Clayton_Jones]

Yes. There is no US Debt crisis. It's all make-believe.

Correct.

The ‘crisis’ is a partisan contrivance by the right, predicated on conservative fiscal dogma, not facts.

 

[EdwardBaiamonte]

That’s quite a trick considering there’s no ‘crisis.’

$140,000 per family in America is no crisis??? So maybe $280 per family would be no crisis too??. Why not explain or admit as a liberal you lack the IQ to do so? Did you think the Girl Scouts were going to pay back the money?

Most families struggle to pay for one house, but now thanks to libturd government they have, in effect, 2 houses to pay for, one of which they don't even get to use!! No crisis??? Pure liberal stupidity.

 

[Kimura]

so what???????? does this make deficits a good thing??? Should we run a 10trillion deficit each year????? Do you have any idea what you are saying??

Deficts can be a good thing, because they create net financial assets. If you want the government sector to run a budget surplus, then the domestic private sector will have to run a deficit, which is what happened during the Clinton Administration. This caused the domestic private sector to borrow in order to fund consumption, which helped to create the housing bubble among other things.

The deficit equals the total net increase in the holdings (financial assets of the US) of the American people, such as households, firms, etc., which is referred to as the non-government sector. In other words, the deficit equals an increase in the total aggregate savings for all of us down to the last penny.

Sure, government spending can cause inflation, that's not what I'm saying. We have an unemployment glut which needs to be solved. We could literally increase the debt significantly, because there's a ton of excess capacity, excess labor and low industrial output. If we were at full employment and the economy was at full capacity, then I'd be worried about inflation, but we're nowhere near that happening on our current path.

This is classic example of one of those posts that try to analyze things in a stupid way. Kinda like doctor explaining why cancer can be beneficial because it increases white blood cell production, with few fancy words thrown in.

The deficit does not merely reflect increase in savings in the private sector, and if it did it I would argue that it would not be a good thing that they were used to finance consumption (which is what the govt mostly does). The problem is that the deficit is made possible not merely with private sector's savings but with printed money and savings of the chinese people. In other words the trade deficit and inflation(which means decrease in savings of the private sector).

Trade deficit is not good or bad. It just means you are using resources that you don't have and must pay them back later. However, if trade deficit is used to finance consumption you are going to get bleaker times in the future. And that is where you are at. US with the lead of the government and FED is spending all the money, and then the trade deficit that results is invested back into the USA to... finance even more government spending.

And then the government promises even more benefits, which means people think they are wealther and, will most likely run to the mall to buy some more chinese products. To finance this the FED has to step in and lower interest rates, and people will abandon even more savings and instead burrow money to finance some more consumption.

This won't continue forever to be sure. At some point the world will wake up. Maybe the lesson that everybody already knows will be remembered again. You can't spend and burrow yourself into prosperity.

The US isn't dependent on China, Japan, OPEC countries or anyone else to 'finance consumption'. All government spending is by its very nature 'money printing' because there's an increase in reserve balances. In point of fact, the government creates money ex nihilo under a fiat system. The value of your dollar in your pocket is the product of seigniorage, production, taxes, regulation and laws.

Oh yeah, so what would happen if the US ceases to be the world's currency? Nothing. It's a non-issue. The only way for the rest of the world to get rid of dollar holdings is to exchange said dollars for real goods and services produced by Americans. For example, every foreigner that possesses said dollars, would have to hand their dollars back over to Americans who worked to produce the real goods and services which they would have to purchase. The is only feasible way for the rest of the world to reach zero dollar holdings. So if an Irishman exchanged his dollars with a South Korean, that wouldn't work, because the world would still posses said dollars, and they would simply be changing hands. The 3 trillion or so held by foreigners would be the hugest shopping spree in the history of the world. Our 500 billion dollar trade deficit would would vanish and we'd have a 3 trillion dollar trade surplus.

On the other side the coin, China, Japan and the OPEC countries, which have historically run huge surpluses with the US, would simply have deficits of a similar proportion, that's about it, plain and simple. Americans would get dollars and foreigners would get the real goods and services produced by Americans, such as technology, software, cloths, medicine, automobiles, motorcycles, planes, a very large chunk of the US produces. The problem is, retards like Peter Schiff, Jim Rogers and the doomsday crowd hasn't thought this one through.

 

[Kimura]

That’s quite a trick considering there’s no ‘crisis.’

$140,000 per family in America is no crisis??? So maybe $280 per family would be no crisis too??. Why not explain or admit as a liberal you lack the IQ to do so? Did you think the Girl Scouts were going to pay back the money?

Most families struggle to pay for one house, but now thanks to libturd government they have, in effect, 2 houses to pay for, one of which they don't even get to use!! No crisis??? Pure liberal stupidity.

When it comes to the 'national debt', the pubic at large is being misled and brainwashed. It reminds me of those retarded debt clocks we see everywhere. They also allegedly display the 'share' of the debt owed by everyone: you, me, the guy down the block, etc. The reason these clocks seems scary, as they tick away, is that they're supposed to scare you, because it's propaganda. The total 'US debt' is roughly 16.3 trillion, it's really inconsequential whatever the number may be at this point.

By the way, I always find it hilarious how the US has a debt clock and not an asset clock. It's pretty simple: for every liability, there is a corresponding asset. This is double-entry accounting, all very basic stuff. For example, walk into your local bank and apply for a loan. Sure, the banker will definitely want to know your total liabilities, but he'll also want to see your assets and income. All of this this debt talk is nothing more than a scare tactic and rather nonsensical.

Moreover, the actual 'debt' of the government is an asset of the non-government sector. Who's the non-government sector? That's all of us, the public at large. The US has a 'debt' of 16 trillion, all this means is that over the last 234 years the government has spent 16 trillion more dollars than it's taken away from us in taxes. Those dollars are an asset, and if you disagree with me, I'd be happy to take your checking and savings account off your hands. Therefore, when we have a discussion about the 'debt', it's not about what we owe, but rather about what we own, at least far as the public should be concerned. This is all double-entry accounting, plain and simple.

Lastly, and more to the point, the United States is obligated to pay all its debts as they come do. The US national debt can never become a burden for future generations because the US literally has an unlimited credit card to obtain new debt at interest rates of its own choosing, or, if the US so chooses, it can create all the money it needs to pay off any debt subject to the limit, without needing to incur any new debt, unless the US government makes the moronic decision of taxing more than it spends.

 

[EdwardBaiamonte]

The US national debt can never become a burden for future generations because the US literally has an unlimited credit card to obtain new debt at interest rates of its own choosing, or, if the US so chooses, it can create all the money it needs .

so then we should elect candidates who don't tax us at all, but instead use the credit card or "create" money. We have been such fools to put up with taxaction all these years!!


A liberal will be too stupid for words!! And now all have to agree. A liberal is like a Nazi. He's a totally illiterate liberal and totally free to make up anything at all as he goes along.

 

[Norman]

Deficts can be a good thing, because they create net financial assets. If you want the government sector to run a budget surplus, then the domestic private sector will have to run a deficit, which is what happened during the Clinton Administration. This caused the domestic private sector to borrow in order to fund consumption, which helped to create the housing bubble among other things.

The deficit equals the total net increase in the holdings (financial assets of the US) of the American people, such as households, firms, etc., which is referred to as the non-government sector. In other words, the deficit equals an increase in the total aggregate savings for all of us down to the last penny.

Sure, government spending can cause inflation, that's not what I'm saying. We have an unemployment glut which needs to be solved. We could literally increase the debt significantly, because there's a ton of excess capacity, excess labor and low industrial output. If we were at full employment and the economy was at full capacity, then I'd be worried about inflation, but we're nowhere near that happening on our current path.

This is classic example of one of those posts that try to analyze things in a stupid way. Kinda like doctor explaining why cancer can be beneficial because it increases white blood cell production, with few fancy words thrown in.

The deficit does not merely reflect increase in savings in the private sector, and if it did it I would argue that it would not be a good thing that they were used to finance consumption (which is what the govt mostly does). The problem is that the deficit is made possible not merely with private sector's savings but with printed money and savings of the chinese people. In other words the trade deficit and inflation(which means decrease in savings of the private sector).

Trade deficit is not good or bad. It just means you are using resources that you don't have and must pay them back later. However, if trade deficit is used to finance consumption you are going to get bleaker times in the future. And that is where you are at. US with the lead of the government and FED is spending all the money, and then the trade deficit that results is invested back into the USA to... finance even more government spending.

And then the government promises even more benefits, which means people think they are wealther and, will most likely run to the mall to buy some more chinese products. To finance this the FED has to step in and lower interest rates, and people will abandon even more savings and instead burrow money to finance some more consumption.

This won't continue forever to be sure. At some point the world will wake up. Maybe the lesson that everybody already knows will be remembered again. You can't spend and burrow yourself into prosperity.

The US isn't dependent on China, Japan, OPEC countries or anyone else to 'finance consumption'. All government spending is by its very nature 'money printing' because there's an increase in reserve balances. In point of fact, the government creates money ex nihilo under a fiat system. The value of your dollar in your pocket is the product of seigniorage, production, taxes, regulation and laws.

Oh yeah, so what would happen if the US ceases to be the world's currency? Nothing. It's a non-issue. The only way for the rest of the world to get rid of dollar holdings is to exchange said dollars for real goods and services produced by Americans. For example, every foreigner that possesses said dollars, would have to hand their dollars back over to Americans who worked to produce the real goods and services which they would have to purchase. The is only feasible way for the rest of the world to reach zero dollar holdings. So if an Irishman exchanged his dollars with a South Korean, that wouldn't work, because the world would still posses said dollars, and they would simply be changing hands. The 3 trillion or so held by foreigners would be the hugest shopping spree in the history of the world. Our 500 billion dollar trade deficit would would vanish and we'd have a 3 trillion dollar trade surplus.

On the other side the coin, China, Japan and the OPEC countries, which have historically run huge surpluses with the US, would simply have deficits of a similar proportion, that's about it, plain and simple. Americans would get dollars and foreigners would get the real goods and services produced by Americans, such as technology, software, cloths, medicine, automobiles, motorcycles, planes, a very large chunk of the US produces. The problem is, retards like Peter Schiff, Jim Rogers and the doomsday crowd hasn't thought this one through.

So you see no problem in trillions of dollars coming back to USA, and as significant amount of goods flowing out?

Well, it IS going to decrease standard of living significantly. Instead of financing consumption on foreign credit, you will not only be getting products from them, you will have to produce things for them. Of course, this is not even counting the huge shifts in the structure of economy that would have to take place and lead to a recession. If this change of flows happened in short period of time (which like all bubbles - I think it would), there are going to be even more problems.

What will the FED do, if dollars are flowing in (inflationary), goods flowing out (more inflation) and the government can't get more debt as no one wants dollars. It's either a banktrupcy, or hyperinflation. Of course neither of those is really a problem at all.

I bet you tell a guy who has financed his luxorious lifestyle with a million dollar debt that it's "No problem" when the money runs out and you have to start paying it back. No change of lifestyle... Same ole good.


Anyway no one knows what will happen for sure, but that said, I think these facts are worriesome.

 

[EdwardBaiamonte]

I bet you tell a guy who has financed his luxorious lifestyle with a million dollar debt that it's "No problem" when the money runs out and you have to start paying it back. No change of lifestyle... Same ole good.

he's a 100% brain dead, free lunch liberal and thats exactly what he would say.

 

[Kimura]

The US national debt can never become a burden for future generations because the US literally has an unlimited credit card to obtain new debt at interest rates of its own choosing, or, if the US so chooses, it can create all the money it needs .

so then we should elect candidates who don't tax us at all, but instead use the credit card or "create" money. We have been such fools to put up with taxaction all these years!!


A liberal will be too stupid for words!! And now all have to agree. A liberal is like a Nazi. He's a totally illiterate liberal and totally free to make up anything at all as he goes along.

Taxes simply serve to regulate aggregate demand. If all things remained equal, then taxes would constantly have to rise with spending to control inflation. If the US government kept spending without taxing, you would eventually see inflation. Deficits and inflate don't always correlate so to speak. For example, we could have a very high savings rate, because if people are saving and not buying goods and services, we could see deflation.

Secondly, and perhaps equally as critical, taxes create demand for the currency.

 

[EdwardBaiamonte]

Taxes simply serve to regulate aggregate demand.

of course as liberal you're too stupid for words. Taxes just change who spends the money but have little or nothing to do with aggregate demand

If all things remained equal, then taxes would constantly have to rise with spending to control inflation.

again too stupid for words. Inflation is a function of the quanity of money printed or put into circulation by the Federal Reserve. Taxes have nothing to do with it.

If the US government kept spending without taxing, you would eventually see inflation.

only if the Fed agreed to print the money to make the spending and inflation impossible. THe Fed is independent so they don't have to do what the President and Congress say. Over your head???????

Deficits and inflate don't always correlate so to speak. For example, we could have a very high savings rate, because if people are saving and not buying goods and services, we could see deflation.

Secondly, and perhaps equally as critical, taxes create demand for the currency.

idiotic gibberish from a libturd fool who has never taken econ 101!!!

 

[Kimura]

This is classic example of one of those posts that try to analyze things in a stupid way. Kinda like doctor explaining why cancer can be beneficial because it increases white blood cell production, with few fancy words thrown in.

The deficit does not merely reflect increase in savings in the private sector, and if it did it I would argue that it would not be a good thing that they were used to finance consumption (which is what the govt mostly does). The problem is that the deficit is made possible not merely with private sector's savings but with printed money and savings of the chinese people. In other words the trade deficit and inflation(which means decrease in savings of the private sector).

Trade deficit is not good or bad. It just means you are using resources that you don't have and must pay them back later. However, if trade deficit is used to finance consumption you are going to get bleaker times in the future. And that is where you are at. US with the lead of the government and FED is spending all the money, and then the trade deficit that results is invested back into the USA to... finance even more government spending.

And then the government promises even more benefits, which means people think they are wealther and, will most likely run to the mall to buy some more chinese products. To finance this the FED has to step in and lower interest rates, and people will abandon even more savings and instead burrow money to finance some more consumption.

This won't continue forever to be sure. At some point the world will wake up. Maybe the lesson that everybody already knows will be remembered again. You can't spend and burrow yourself into prosperity.

The US isn't dependent on China, Japan, OPEC countries or anyone else to 'finance consumption'. All government spending is by its very nature 'money printing' because there's an increase in reserve balances. In point of fact, the government creates money ex nihilo under a fiat system. The value of your dollar in your pocket is the product of seigniorage, production, taxes, regulation and laws.

Oh yeah, so what would happen if the US ceases to be the world's currency? Nothing. It's a non-issue. The only way for the rest of the world to get rid of dollar holdings is to exchange said dollars for real goods and services produced by Americans. For example, every foreigner that possesses said dollars, would have to hand their dollars back over to Americans who worked to produce the real goods and services which they would have to purchase. The is only feasible way for the rest of the world to reach zero dollar holdings. So if an Irishman exchanged his dollars with a South Korean, that wouldn't work, because the world would still posses said dollars, and they would simply be changing hands. The 3 trillion or so held by foreigners would be the hugest shopping spree in the history of the world. Our 500 billion dollar trade deficit would would vanish and we'd have a 3 trillion dollar trade surplus.

On the other side the coin, China, Japan and the OPEC countries, which have historically run huge surpluses with the US, would simply have deficits of a similar proportion, that's about it, plain and simple. Americans would get dollars and foreigners would get the real goods and services produced by Americans, such as technology, software, cloths, medicine, automobiles, motorcycles, planes, a very large chunk of the US produces. The problem is, retards like Peter Schiff, Jim Rogers and the doomsday crowd hasn't thought this one through.

So you see no problem in trillions of dollars coming back to USA, and as significant amount of goods flowing out?

What problems? We receive dollars, they receive goods and services, which will create a massive trade surplus in our scenario.

Well, it IS going to decrease standard of living significantly. Instead of financing consumption on foreign credit, you will not only be getting products from them, you will have to produce things for them. Of course, this is not even counting the huge shifts in the structure of economy that would have to take place and lead to a recession. If this change of flows happened in short period of time (which like all bubbles - I think it would), there are going to be even more problems.

It wouldn't affect the standard of living one bit. It will actually cause firms to hire in certain sectors of the economy. For the second time, foreign credit doesn't fund consumption, that makes zero sense. We do not borrow from China to finance our consumption: ANY type of 'borrowing' that finances an import from China is accomplished by an American consumer at an American bank.

What will the FED do, if dollars are flowing in (inflationary), goods flowing out (more inflation) and the government can't get more debt as no one wants dollars. It's either a banktrupcy, or hyperinflation. Of course neither of those is really a problem at all.

Inflation isn't caused by an increase in the money supply. As long as there is a tandem increase in the supply of money and goods and services, inflation isn't a problem. The Quantity Theory of Money (MV=PQ) identity is rife with inconsistencies which even Milton Friedman admitted was very problematic. The aforementioned equation basically tells us that the total quantity of money is equal to the total amount of nominal output. It really tells us nothing special, nor can it accurately gauge inflation. For example, we have record deficits, yet prices have been stable or falling, because the velocity of money is extremely low while the quantity is high. We also have a TON of excess labor and excess capacity. As a matter of fact, there's a chance that the more the government spends/prints money, prices could even decrease and fall if people don't want to spend. This is where the Monetarists and Austrians are out of touch with reality, they simply refuse to grasp these basic concepts. These people act as if we're still on a gold standard, it's pretty insane and delusional in my opinion. I'll just keep making money betting against their calls.

I bet you tell a guy who has financed his luxorious lifestyle with a million dollar debt that it's "No problem" when the money runs out and you have to start paying it back. No change of lifestyle... Same ole good.


Anyway no one knows what will happen for sure, but that said, I think these facts are worriesome.

Again, for a second time, you can't compare the finances of a household to that of a sovereign government which issues its own currency. We have to operate with a fixed amount of dollars, the government does not as the issuer of the currency. Households can’t legally issue their own currency and require that Americans use that currency to pay taxes. The supply of dollars for the government is a matter of decision, plain and simple.

 

[EdwardBaiamonte]

Again, for a second time, you can't compare the finances of a household to that of a sovereign government which issues its own currency.

too stupid!!! the comparison is identical. There is no free lunch!! Can you ask your father who said that and what it means????

If a house runs out of money it can cut back and live within its means, or steal money from its neighbors.

If governemnt runs out of money it can cut back and live with its means or steal the money from us through taxaction or money printing.

Still over your head?????????

 

[Kimura]

Taxes simply serve to regulate aggregate demand.

of course as liberal you're too stupid for words. Taxes just change who spends the money but have little or nothing to do with aggregate demand

If all things remained equal, then taxes would constantly have to rise with spending to control inflation.

again too stupid for words. Inflation is a function of the quanity of money printed or put into circulation by the Federal Reserve. Taxes have nothing to do with it.

If the US government kept spending without taxing, you would eventually see inflation.

only if the Fed agreed to print the money to make the spending and inflation impossible. THe Fed is independent so they don't have to do what the President and Congress say. Over your head???????

Deficits and inflate don't always correlate so to speak. For example, we could have a very high savings rate, because if people are saving and not buying goods and services, we could see deflation.

Secondly, and perhaps equally as critical, taxes create demand for the currency.

idiotic gibberish from a libturd fool who has never taken econ 101!!!

Monetarists and Austrians look at government deficit spending as 'money printing', which it most definitely is, as is all government spending, and they claim this will create inflation. And to prove their case, some of the clever ones, will throw out the (MV=PQ) identity, AKA the Quantity Theory of Money. This concept states that there's a direct and immediate relationship between the quantity of money in the economy and the level of prices of goods and services. This was a pretty important deal when Milton Friedman was around, he made it extremely popular and got the FED started on the targeting the money supply, which was ultimately a failure for various reasons. Friedman even admitted the whole concept had major flaws and he wouldn't use it as some concrete metric.

What is MV=PQ? (M) is the supply of money, (V) is the velocity (how many instances the money changes hands in the economy), (P) is the price level, and (Q) is the total amount of real goods and services sold or produced. These people claim that raising M (money supply) will automatically increase the right hand side of the equation and that somehow empirically proves that inflation is just one dollar bill down the road.

For example, let's say I go to Best Buy six times today and I spend $100 dollars each time. If you plug that into the left side of the equation (V is six, I went to Best Buy six times today, I spent $100, that's the money supply). This tells us $600 dollars worth of stuff has been sold. If I go seven times today, and I have $100 dollars, then $700 dollars worth of stuff has been sold. Holy Shit! I'm utterly flabbergasted! These people point to the increasing right hand side of the equation, then proceed to tell us that's proof of rising prices. What they forget is that there's four parts of this equation : M, V, P and Q, none of which are constant. (M) could increase, but V (the number of times I go to Best Buy) can go down. What if I have $200 dollars and I go twice? Only $400 dollars worth of products have been sold. Also, a variable on the right hand side of the equation could change, such as the quantity. We could theoretically have an increase of something, so the output will increase and prices may actually decrease in that instance. This equation isn't a crystal ball, nor does it provide any axioms, all it tells us is the total amount of money spent equals the total amount of nominal output.