Debt: And If I Laugh....

[PoliticalChic]

Because eventually they will say (in Chinese) "That's enough already!" and stop lending you any more money. And then the US will have to start living within its means. I predict much wailing and nashing of teeth.

ALL Chinese dollars come from the US. They don't lend us our own fiat, nor do they have a dollar factory in Hong Kong. They obtain US $$$$ from net exports to the US which end up at the Bank of China. They then convert their US $$$$ to US Treasuries which is nothing more than a balance sheet operation, consisting of a series of debits and credits, between the Bank of China's reserve account and securities accounts at the FED.

Let's say China dumps their US Treasuries. They then exchange them for reserves at the FED. The only way to shed their dollar holdings would be to purchases real goods, services, and productive assets from Americans. The dollar may actually appreciate under such a scenario where Chinese demand for US goods and services increases.[/QUOT


It's taken some time Kimura but your explanations are starting to make sense.. I like the football stadium example and the dollar factory in Hong Kong. Funny. I'm now a double moron in PC's eyes though. I don't know if I can handle that.

Not just my eyes, IQFree.

 

[Kimura]

Because eventually they will say (in Chinese) "That's enough already!" and stop lending you any more money. And then the US will have to start living within its means. I predict much wailing and nashing of teeth.

ALL Chinese dollars come from the US. They don't lend us our own fiat, nor do they have a dollar factory in Hong Kong. They obtain US $$$$ from net exports to the US which end up at the Bank of China. They then convert their US $$$$ to US Treasuries which is nothing more than a balance sheet operation, consisting of a series of debits and credits, between the Bank of China's reserve account and securities accounts at the FED.

Let's say China dumps their US Treasuries. They then exchange them for reserves at the FED. The only way to shed their dollar holdings would be to purchases real goods, services, and productive assets from Americans. The dollar may actually appreciate under such a scenario where Chinese demand for US goods and services increases.

It's taken some time Kimura but your explanations are starting to make sense.. I like the football stadium example and the dollar factory in Hong Kong. Funny. I'm now a double moron in PC's eyes though. I don't know if I can handle that.

It boils down to fiat vs convertible currency. Many politicians, pundits, and even many economists are simply out of paradigm. They think we're still on the gold standard, not a fiat monetary arrangement.

 

[Kimura]

ALL Chinese dollars come from the US. They don't lend us our own fiat, nor do they have a dollar factory in Hong Kong. They obtain US $$$$ from net exports to the US which end up at the Bank of China. They then convert their US $$$$ to US Treasuries which is nothing more than a balance sheet operation, consisting of a series of debits and credits, between the Bank of China's reserve account and securities accounts at the FED.

Let's say China dumps their US Treasuries. They then exchange them for reserves at the FED. The only way to shed their dollar holdings would be to purchases real goods, services, and productive assets from Americans. The dollar may actually appreciate under such a scenario where Chinese demand for US goods and services increases.[/QUOT


It's taken some time Kimura but your explanations are starting to make sense.. I like the football stadium example and the dollar factory in Hong Kong. Funny. I'm now a double moron in PC's eyes though. I don't know if I can handle that.

Not just my eyes, IQFree.

What an erudite response.

 

[itfitzme]

So in your world debt equals savings. No wonder your plan for getting rich is to max out 17 credit cards.

Yeah, you should stay away from compicated subjects like economics.

 

[expat_panama]

...think of taxes as unprinting $$$$...

---except I go to jail if I don't pay the taxes and if I do pay the taxes I can't hire anyone. So whether you call it unprinting or you call it taxes, it still matters to my personal budget.

That's why I'm glad we sold the $1.3T in T-bills to China along with all the rest. Right now we're selling T-bills at just 0.7% interest. With the money I save in taxes I can put my money in a bank CD and get 1.35% interest.


So not to worry. I'll pay China's interest bill and pocket the difference.

 

[PoliticalChic]

Not just my eyes, IQFree.

What an erudite response.

Walmart wants you. They've run out of stupid.

 

[Kimura]

...think of taxes as unprinting $$$$...

---except I go to jail if I don't pay the taxes and if I do pay the taxes I can't hire anyone. So whether you call it unprinting or you call it taxes, it still matters to my personal budget.

So you can't hire anyone because you pay taxes?Hmmmm.... You may have to reevaluate your business model.

That's why I'm glad we sold the $1.3T in T-bills to China along with all the rest. Right now we're selling T-bills at just 0.7% interest. With the money I save in taxes I can put my money in a bank CD and get 1.35% interest.


So not to worry. I'll pay China's interest bill and pocket the difference.

Seriously, though, I hate regressive taxes. I'm fantasize about FICA being eliminated on a daily basis.

 

[Kimura]

What an erudite response.

Walmart wants you. They've run out of stupid.

 

[PoliticalChic]

Walmart wants you. They've run out of stupid.

I'm hurt.....you couldn't just face the truth without resorting to junior high school vulgarity?


Kinda proves my point, doesn't it.


Let's review:

1. You have proven to be totally clueless about the danger of excessive debt.

2. You pretend to know anything about the basic economic facts; clearly, you don't.

3. I feel comfortable in proclaiming you to be as confused as a cow on AstroTurf.

4. Your attempted to analogize debt as points in a football game make you sound like Professor Irwin Corey explaining the infield fly rule in Farsi while under the influence of an amyl nitrate ampule…..

a. Proof is provided by the agreement with you by a certifiable moron.

5. You resort to vulgarity when confronted with the truth.



In summary, you’d make a damn fine organ donor…

 

[expat_panama]

...you can't hire anyone because you pay taxes?

Sounds like you never hired anyone, you never pay taxes, or both. Most folks understand that In the tax paying employer world, a business will hire to expand the business until there's no more money left over after costs (like taxes). When taxes are cut then new people are hired. When taxes are hiked then people get laid off.

It's a reality that seems to be rarely understood by our non-hiring and not-taxpaying colleagues.

 

[Kimura]

I'm hurt.....you couldn't just face the truth without resorting to junior high school vulgarity?

I was trying to educate you about basic monetary operations and some basic accounting and macro concepts. You're grossly misinformed and it's getting ridiculous.

1. You have proven to be totally clueless about the danger of excessive debt.

I explained basic monetary operations to you. Money creation is a balance sheet operation. I tried explaining to you how public debts represents the total savings of the US economy. I never said the government can spend endlessly. I said the only constraint is that of inflation. And paying interest on debt boils down to shifting money from securities accounts to reserve accounts. What part of this don't you understand? Do you need more of any explanation?

2. You pretend to know anything about the basic economic facts; clearly, you don't.

So tell me, what did I say that was incorrect? Everything I told you is operational reality.

I feel comfortable in proclaiming you to be as confused as a cow on AstroTurf.

4. Your attempted to analogize debt as points in a football game make you sound like Professor Irwin Corey explaining the infield fly rule in Farsi while under the influence of an amyl nitrate ampule…..

a. Proof is provided by the agreement with you by a certifiable moron.

5. You resort to vulgarity when confronted with the truth.

Yes, like I explained to you, the federal government doesn't have or not have any dollars. Our monetary system is nothing more than a scorekeeping system. The FED is the scorekeeper for US dollar. It spends by marking up numbers in our bank accounts and taxes by marking numbers down in our bank accounts. This is implicitly known by every major bond desk across the globe.

LOL. What truth? So tell me, please, I beg you, enlighten me.

How the does the federal government hit its interest rate target?

Why do we sell bonds?

 

[Kimura]

...you can't hire anyone because you pay taxes?

Sounds like you never hired anyone, you never pay taxes, or both. Most folks understand that In the tax paying employer world, a business will hire to expand the business until there's no more money left over after costs (like taxes). When taxes are cut then new people are hired. When taxes are hiked then people get laid off.

It's a reality that seems to be rarely understood by our non-hiring and not-taxpaying colleagues.

I do hire people now. Well, I tell HR yes or no, and I pay a boatload of taxes . I do support tax cuts, especially for lower and middle income folks. I like tax cuts for small and mid-sized firms. I just think the majority of the financial sector needs to be taxed heavily because they're a bunch of rent extracting douche bags.

 

[Kimura]

At the end of the day, taxes are the thermostat on the wall. If the economy is cooling, we cut taxes to kick start aggregate demand, and if the economy is heating up, we raise taxes to prevent inflation, etc. We don't tax to take in money, balance the budget, and other such nonsense. Deficits are residual, you find out if they were large enough by counting the bodies on the unemployment line.

It also boils down to what resources we want moved from the private sector to the public sector. Some people think we need more government, some people think we less, but once we make those decisions, then there is an appropriate amount of taxes which permits for the right size deficits that allow for the right amount of net savings, to offset our pension needs and stay at full employment. These are all political decisions. Our path to prosperity is between our ears. There's no shortage of real resources in this country.

 

[oldfart]

I'm now a double moron in PC's eyes though. I don't know if I can handle that.

Eat a moonpie and that feeling will go away.

 

[Peterf]

Why should we care if the Chinese hold 1,2, or even 3 trillion in US Treasuries?

Because eventually they will say (in Chinese) "That's enough already!" and stop lending you any more money. And then the US will have to start living within its means. I predict much wailing and nashing of teeth.

ALL Chinese dollars come from the US. They don't lend us our own fiat, nor do they have a dollar factory in Hong Kong. They obtain US $$$$ from net exports to the US which end up at the Bank of China. They then convert their US $$$$ to US Treasuries which is nothing more than a balance sheet operation, consisting of a series of debits and credits, between the Bank of China's reserve account and securities accounts at the FED.

Let's say China dumps their US Treasuries. They then exchange them for reserves at the FED. The only way to shed their dollar holdings would be to purchases real goods, services, and productive assets from Americans. The dollar may actually appreciate under such a scenario where Chinese demand for US goods and services increases.

Yes, the Chinese could use their dollars to buy up and gain control of US companies. Do you think that most Americans would enjoy this process. They could also sell them to other countries (putting a lot on the market would drive down the value of the US$) or buy assets in third countries.

Maybe the Chinese might see advantge is using a few hundred dollars to buy the city of Detroit? If they sent over a couple of hundred thousand Chinese the place would be booming again in a year or two.

 

[Norman]

Why should we care if the Chinese hold 1,2, or even 3 trillion in US Treasuries?

Because eventually they will say (in Chinese) "That's enough already!" and stop lending you any more money. And then the US will have to start living within its means. I predict much wailing and nashing of teeth.

ALL Chinese dollars come from the US. They don't lend us our own fiat, nor do they have a dollar factory in Hong Kong. They obtain US $$$$ from net exports to the US which end up at the Bank of China. They then convert their US $$$$ to US Treasuries which is nothing more than a balance sheet operation, consisting of a series of debits and credits, between the Bank of China's reserve account and securities accounts at the FED.

Let's say China dumps their US Treasuries. They then exchange them for reserves at the FED. The only way to shed their dollar holdings would be to purchases real goods, services, and productive assets from Americans. The dollar may actually appreciate under such a scenario where Chinese demand for US goods and services increases.

If AD increases (due to Chinese "returning" their dollars), that means the currency will go down and the prices will hike (since chinese and americans will be competing for same goods). In real terms it means America will be selling goods to china (Loss of standards of living in USA due to less goods) and also China won't be selling goods to USA (Loss of standards of living again).


A complete catastrophe in other words. I really don't get how dollar could apperciate in such scenario. In fact the dumping of the dollar by definition subtracts from demand for dollars and thus from the dollars value.

The government debt is not THE problem here, it's the spending (on consumer goods) that's the problem...

 

[Kimura]

Because eventually they will say (in Chinese) "That's enough already!" and stop lending you any more money. And then the US will have to start living within its means. I predict much wailing and nashing of teeth.

ALL Chinese dollars come from the US. They don't lend us our own fiat, nor do they have a dollar factory in Hong Kong. They obtain US $$$$ from net exports to the US which end up at the Bank of China. They then convert their US $$$$ to US Treasuries which is nothing more than a balance sheet operation, consisting of a series of debits and credits, between the Bank of China's reserve account and securities accounts at the FED.

Let's say China dumps their US Treasuries. They then exchange them for reserves at the FED. The only way to shed their dollar holdings would be to purchases real goods, services, and productive assets from Americans. The dollar may actually appreciate under such a scenario where Chinese demand for US goods and services increases.

If AD increases (due to Chinese "returning" their dollars), that means the currency will go down and the prices will hike (since chinese and americans will be competing for same goods). In real terms it means America will be selling goods to china (Loss of standards of living in USA due to less goods) and also China won't be selling goods to USA (Loss of standards of living again).

A complete catastrophe in other words. I really don't get how dollar could apperciate in such scenario. In fact the dumping of the dollar by definition subtracts from demand for dollars and thus from the dollars value.

The government debt is not THE problem here, it's the spending (on consumer goods) that's the problem...

Doubtful. The dollar could theoretically depreciate against some other currency. This is a Hail Mary, tough. Would this increase US interest rates? Again, doubtful, since the FED sets the short-term rate, and the international search for safe, guaranteed assets in form of US securities. And the expectations of the FED policy determines rates further down the term structure.

No, if they exchange their US Treasuries those dollars end up China's reserve account, all 1.32 trillion. So yeah, they would have to spend their $$$$ on real goods and services produced by Americans. This would the have the effect of the dollar appreciating due to an increased Chinese demand for real goods and services.

However, a policy which decreases the value of the dollar does indeed result in a decreased standard of living for Americans: exports pick up steam, so Americans spend more time working to produce real goods ans services which would be consumed by the Chinese. Then imported goods become more expensive for Americans to purchase. It's definitely true that imports are a benefit and exports are a cost.

There's also some other factors involved which we can get into so you can see where I'm coming from. The whole currency depreciation problem has many moving parts. People like Paul Krugman, for example, tend to pitch it as a benefit to due to increased demand for US products, while the MMT crowd, like myself, really don't see a problem with handing over our IOUs to the Chinese for cheap products. It seems like an increase in the demand for our goods would be on par for a decrease in demand for Chinese goods under such a scenario. The Chinese have their whole economic model built around the export model, so I'm 99.99% sure they would not want to see this happen.

 

[Norman]

The government debt is not THE problem here, it's the spending (on consumer goods) that's the problem...

Doubtful. The dollar could theoretically depreciate against some other currency. This is a Hail Mary, tough. Would this increase US interest rates? Again, doubtful, since the FED sets the short-term rate, and the international search for safe, guaranteed assets in form of US securities. And the expectations of the FED policy determines rates further down the term structure.

No, if they exchange their US Treasuries those dollars end up China's reserve account, all 1.32 trillion. So yeah, they would have to spend their $$$$ on real goods and services produced by Americans. This would the have the effect of the dollar appreciating due to an increased Chinese demand for real goods and services.

However, a policy which decreases the value of the dollar does indeed result in a decreased standard of living for Americans: exports pick up steam, so Americans spend more time working to produce real goods ans services which would be consumed by the Chinese. Then imported goods become more expensive for Americans to purchase. It's definitely true that imports are a benefit and exports are a cost.

There's also some other factors involved which we can get into so you can see where I'm coming from. The whole currency depreciation problem has many moving parts. People like Paul Krugman, for example, tend to pitch it as a benefit to due to increased demand for US products, while the MMT crowd, like myself, really don't see a problem with handing over our IOUs to the Chinese for cheap products. It seems like an increase in the demand for our goods would be on par for a decrease in demand for Chinese goods under such a scenario. The Chinese have their whole economic model built around the export model, so I'm 99.99% sure they would not want to see this happen.

I still don't understand how dollar is going to apperciate if someone dumps it and doesn't want to own it. By the way China has sizeable dollar reserves as well. Just because they are export oriented right now is no guarantee of the future.


I see a problem when economy burrows money and then spends it on consumer products, that's not the recipe for prosperity, but poverty, in the long term at least.

 

[Kimura]

I still don't understand how dollar is going to apperciate if someone dumps it and doesn't want to own it. By the way China has sizeable dollar reserves as well. Just because they are export oriented right now is no guarantee of the future.

They could theoretically keep their $$$$ in reserves, but that really wouldn't do anything. If the dumped their Treasury holdings (dollar deposits in securities accounts), which is ultimately what the doomsday crowd goes on and on about, the only way to shed those dollar holdings would be to buy real goods and services from us. We'd get the $$$$$, they would get the medical technology, software, clothing, pharmaceuticals, automobiles, etc. Do you not see the increase in Chinese demand for our real goods and services resulting in dollar appreciation?

At the end of the day, when all is said and done, all we owe China is bank statement from the FED. This is what people don't understand, it can never become a financial strain in any capacity, unless credits and debits between reserve accounts and securities accounts entails more than accounting entries.

In order to solve our broader macro problem, in my opinion, the right fiscal policy will result in us having enough spending power to buy employment output domestically and real goods and services from the foreign sector. We should structure it so we can reach full employment, increase our standard of living, and increases output irrespective of the any type of trade gap. If we can do this, and do it as actual public policy, what China does would then become essentially inconsequential in a broader, international aspect with regards to the US economy on the global stage.

 

[oldfart]

They could theoretically keep their $$$$ in reserves, but that really wouldn't do anything. If the dumped their Treasury holdings (dollar deposits in securities accounts), which is ultimately what the doomsday crowd goes on and on about, the only way to shed those dollar holdings would be to buy real goods and services from us. We'd get the $$$$$, they would get the medical technology, software, clothing, pharmaceuticals, automobiles, etc. Do you not see the increase in Chinese demand for our real goods and services resulting in dollar appreciation?

At the end of the day, when all is said and done, all we owe China is bank statement from the FED. This is what people don't understand, it can never become a financial strain in any capacity, unless credits and debits between reserve accounts and securities accounts entails more than accounting entries.

In order to solve our broader macro problem, in my opinion, the right fiscal policy will result in us having enough spending power to buy employment output domestically and real goods and services from the foreign sector. We should structure it so we can reach full employment, increase our standard of living, and increases output irrespective of the any type of trade gap. If we can do this, and do it as actual public policy, what China does would then become essentially inconsequential in a broader, international aspect with regards to the US economy on the global stage.

There is a well-known principle in linear programming that a LP problem is solvable only if the number of independent variables (policy tools) is equal to or more than the number of variables in the objective function (policy goals). So if we have more goals than tools there is a pretty good chance the solution set will be empty. In practice, this dovetails with the fact that many of the equations used in macroeconomics are accounting identities, not functions. So if you try to explain everything, you have an overdetermined system.

For example, the Monetary Identity is MV=PY. If we have a theory of what determines M, P, and Y (i.e. an exogenous money supply, a theory of prices or inflation, and a theory of output), there is no need for an independent theory to explain V. If you use a theory to explain monetary velocity functionally, you have to drop one of the other theories. People are forever trying to posit a theory for each of the four and then are surprised that their system is overdetermined.

So some things just have to come out in the wash. The current balance in trade theory is one of those things that usually has to come out in the wash. It's the price we pay for having floating exchange rates. If we concentrate on domestic employment, production, price stability and growth, with variable exchange rates and comparatively free trade, there is no room for a separate theory of trade balances. Unless of course you prefer to give up a production function (theory of growth), theory of prices, or impose new trade restrictions.

The same reasoning explains why the federal deficit is another remainder term. There is no policy that can target the deficit without major impact on prices, employment, and growth. You get to pick which you want to achieve, but you can't choose them all.