Government debt

[Rshermr]

Uh, I have seen this argument before. I know you have also. It is tragic that people simply believe that since we have debt, we must have a problem. Since the debt is getting bigger, we must have a bigger problem. And though they are not sure when or to whom, there must be a day when they (OR THEIR CHILDREN!!!) are going to have to repay their portion. If it were not so sad, it would be funny.
What is really interesting, to me, at least, is that though you are being polite and trying to explain the facts to them, they get mad at YOU. Not at those who convinced them of their misunderstanding. But YOU, and you are simply trying to explain.

But you really can not help a person with a closed mind, and a lack of understanding. Ignorance is bliss.

After reading this I looked at Forbes and their article is similar. So why the panic over the debt. Politics?

No, The United States Will Not Go Into A Debt Crisis, Not Now, Not Ever - Forbes

I see a massive problem: ignorance about monetary operations. You'd be amazed how many people don't understand how floating exchange regimes work vs. fixed exchange regimes. We're talking concepts such as tax and borrow and even how interest rates are determined. Members of Congress all the way up the ladder to 1600 Pennsylvania Avenue really don't have a clue about how the system operates. My colleagues and I cringe on a daily basis.

What I would appreciate is a crib notes version, if that were possible, of some of the concepts you mentioned above. I understand, but do not work with it on a daily basis. So I am always having to dig into my old mind to remember how best to explain. You are crisp on the issues. Which I find very refreshing. (I spent my years working with ibm mainframes, but no one is much interested these days in talking about zos and top secret type alphabet soup!! nor am I, for that matter.)
There are a lot of folks out there who could use the education, should they actually want the truth.

 

[Norman]

I now understand, that you are proponents of the MMT. Why not just start a new thread on it. You must realize that it's not the most common theory around and thus people here don't follow.

 

[Kimura]

I now understand, that you are proponents of the MMT. Why not just start a new thread on it. You must realize that it's not the most common theory around and thus people here don't follow.

Yeah, I've already stated I view macro from the MMT side of things. It sort of clicked being on the bond side of things for the better part of thirteen years. I think every econ and finance major should intern at a bond desk or at the FED in some staffing capacity. What I've described is widely known by FED staffers, the primary dealers, the FOMC staffers, bond desks, etc. It gets lost once you hit the managerial and policy level government.

 

[EdwardBaiamonte]

Members of Congress all the way up the ladder to 1600 Pennsylvania Avenue really don't have a clue about how the system operates. My colleagues and I cringe on a daily basis.

it seems many people, especially Republicans, have more than a clue about how debt is usually bad for families and governments. Its merely common sense.

 

[Kimura]

Members of Congress all the way up the ladder to 1600 Pennsylvania Avenue really don't have a clue about how the system operates. My colleagues and I cringe on a daily basis.

it seems many people, especially Republicans, have more than a clue about how debt is usually bad for families and governments. Its merely common sense.

Yeah, real geniuses like Paul Ryan and Rand "I hire neo-confederates" Paul.

 

[EdwardBaiamonte]

Members of Congress all the way up the ladder to 1600 Pennsylvania Avenue really don't have a clue about how the system operates. My colleagues and I cringe on a daily basis.

it seems many people, especially Republicans, have more than a clue about how debt is usually bad for families and governments. Its merely common sense.

Yeah, real geniuses like Paul Ryan and Rand "I hire neo-confederates" Paul.

subject was debt, do you lack IQ to discuss it? Is that why you always change the subject? Ever see a libertarian run the way you have to? What does that tell you?

 

[Kimura]

it seems many people, especially Republicans, have more than a clue about how debt is usually bad for families and governments. Its merely common sense.

Yeah, real geniuses like Paul Ryan and Rand "I hire neo-confederates" Paul.

subject was debt, do you lack IQ to discuss it? Is that why you always change the subject? Ever see a libertarian run the way you have to? What does that tell you?

Yes, they're also clueless about US public debt and what it entails for a currency issuer like the United Stats.

 

[Rshermr]

it seems many people, especially Republicans, have more than a clue about how debt is usually bad for families and governments. Its merely common sense.

Yeah, real geniuses like Paul Ryan and Rand "I hire neo-confederates" Paul.

subject was debt, do you lack IQ to discuss it? Is that why you always change the subject? Ever see a libertarian run the way you have to? What does that tell you?

And there is ed, the champion con tool, making more stupid statements. No one can beat Ed at stupid statements. But then, ed is retarded. Probably a congenital idiot. So it is not his fault. Just plain bad luck.

 

[Norman]

Yeah, real geniuses like Paul Ryan and Rand "I hire neo-confederates" Paul.

subject was debt, do you lack IQ to discuss it? Is that why you always change the subject? Ever see a libertarian run the way you have to? What does that tell you?

Yes, they're also clueless about US public debt and what it entails for a currency issuer like the United Stats.

The assesment that the debt entails either inflation or taxation to remove aggregate demand is correct. And it is absurd to think that the inflation or taxation won't have any impact on economic growth.

In addition, it's problematic to an American's standard of living that previously consumer goods have flown into America and boosted the American standard of living. However, in the future goods are going to flow out of US, which is especially problematic as the previously inflowing goods were used to fuel consumer spending and not to investment which could expand the productive capacity of an economy. The declining investment and wrong allocation of capital in general is IMO the problem here.

I understand you from an accounting perspective. But as far as real economy goes I think your conclusion is completely offbase.


Anyway I wish someone starts a thread on MMT here, then these topics won't have to be ruined with all the theory behind it. I have many problems with the theory as presented by Mosler (Who by the way as far I know describes himself as "extreme libertarian", which makes this political BS here quite funny).

 

[Kimura]

subject was debt, do you lack IQ to discuss it? Is that why you always change the subject? Ever see a libertarian run the way you have to? What does that tell you?

Yes, they're also clueless about US public debt and what it entails for a currency issuer like the United Stats.

The assesment that the debt entails either inflation or taxation to remove aggregate demand is correct. And it is absurd to think that the inflation or taxation won't have any impact on economic growth.

In addition, it's problematic to an American's standard of living that previously consumer goods have flown into America and boosted the American standard of living. However, in the future goods are going to flow out of US, which is especially problematic as the previously inflowing goods were used to fuel consumer spending and not to investment which could expand the productive capacity of an economy. The declining investment and wrong allocation of capital in general is IMO the problem here.

I understand you from an accounting perspective. But as far as real economy goes I think your conclusion is completely offbase.


Anyway I wish someone starts a thread on MMT here, then these topics won't have to be ruined with all the theory behind it. I have many problems with the theory as presented by Mosler (Who by the way as far I know describes himself as "extreme libertarian", which makes this political BS here quite funny).

My point was that money is essentially created by the very act of government spending. There are also banks loans which create deposits. Taxes basically create an environment where we must obtain the national unit of account to pay our taxes, thus creating a demand for dollars. Taxes also regulate aggregate demand so that we don’t end up with more net spending than total available goods which increases prices and results in inflation. If the government doesn't spend, we won't have any money to tax so to speak. Ultimately, a government that borrows its own currency cannot default on its debt. This whole process is accomplished by adding interest to bank accounts of bond holders.

In terms of our standard of living, trade deficits improve the standard of living for Americans. We have to realize that imports are tangible benefits and exports have tangible costs. Any jobs lost in this process are the result of taxes being too high for a certain level of government spending, not due to our imports at the end of the day.

Basically, at the end of the day, working to produce real goods and services to export, so some other group can consume, has no net economic benefit. It only has an economic benefit if we can import the real goods and services produced by others. The wealth of any nation is all it produces and decides to keep, plus all net imports, minus all net exports.

The United States can use fiscal policy to reach full employment and maintain our domestic output. We can do this with more tax cuts and government spending, even if the foreign sector, whether it’s China, Japan, or South Korea send us real goods and services that affect our domestic industries that previously produced those goods and services. All we have to do keep aggregate demand high enough so that we can purchase both what the foreign sector desires to sell us and the real goods and services we produce domestically at full employment. Sure, jobs may be lost in some industries, but with the correct fiscal policy, we will always have the appropriate amount of aggregate demand to employ any and all those willing to work, mostly producing real goods and services for both public and private consumption.

Yeah, Warren Mosler is one of the more well-known MMT proponents out there. However, there’s many more MMT economists, such as Stephanie Kelton, Randall Wray, William K Black, Michael Hudson, Steve Keen, Scott Fullwiler, James Kenneth Galbraith, et al.

 

[editec]

Yes, they're also clueless about US public debt and what it entails for a currency issuer like the United Stats.

The assesment that the debt entails either inflation or taxation to remove aggregate demand is correct. And it is absurd to think that the inflation or taxation won't have any impact on economic growth.

In addition, it's problematic to an American's standard of living that previously consumer goods have flown into America and boosted the American standard of living. However, in the future goods are going to flow out of US, which is especially problematic as the previously inflowing goods were used to fuel consumer spending and not to investment which could expand the productive capacity of an economy. The declining investment and wrong allocation of capital in general is IMO the problem here.

I understand you from an accounting perspective. But as far as real economy goes I think your conclusion is completely offbase.


Anyway I wish someone starts a thread on MMT here, then these topics won't have to be ruined with all the theory behind it. I have many problems with the theory as presented by Mosler (Who by the way as far I know describes himself as "extreme libertarian", which makes this political BS here quite funny).

My point was that money is essentially created by the very act of government spending. There are also banks loans which create deposits.

What is the normal range percentage of new dollars created by government spending versus dollars created by private market borrowing? Is that ratio va consideration when currency markets determine currency exchange rates?

Taxes basically create an environment where we must obtain the national unit of account to pay our taxes, thus creating a demand for dollars. Taxes also regulate aggregate demand so that we don’t end up with more net spending than total available goods which increases prices and results in inflation.

Can you direct us to any time in US history when reduced taxes led to CPI inflation? Inflation of asset pricing (bubbles), yes, that I believe, but consumer consumption leading to inflation? When has that ever really happened?

If the government doesn't spend, we won't have any money to tax so to speak. Ultimately, a government that borrows its own currency cannot default on its debt.

Understood

This whole process is accomplished by adding interest to bank accounts of bond holders.

huh?

In terms of our standard of living, trade deficits improve the standard of living for Americans.

Nonsense... (actually it's more classist economics than nonsense economics) trade deficits improves the standard of living of consumer class in a nation but at the (usually much more) personal expense of the working class of the nation.

We have to realize that imports are tangible benefits and exports have tangible costs. Any jobs lost in this process are the result of taxes being too high for a certain level of government spending, not due to our imports at the end of the day.

I have no idea what the above means. Can you clarify that for us?

Basically, at the end of the day, working to produce real goods and services to export, so some other group can consume, has no net economic benefit. It only has an economic benefit if we can import the real goods and services produced by others. The wealth of any nation is all it produces and decides to keep, plus all net imports, minus all net exports.

Yup...that's looking at the economy as a WHOLE and not looking at the effect of the policies on the people. Once again let me point out that you valuation is ONLY measuring the benefits to a specfiic CLASS (the still consuming class) .

The United States can use fiscal policy to reach full employment and maintain our domestic output. We can do this with more tax cuts and government spending, even if the foreign sector, whether it’s China, Japan, or South Korea send us real goods and services that affect our domestic industries that previously produced those goods and services.

Again...note how what happens to the workers is NOT important to your analysis?

All we have to do keep aggregate demand high enough so that we can purchase both what the foreign sector desires to sell us and the real goods and services we produce domestically at full employment. Sure, jobs may be lost in some industries, but with the correct fiscal policy, we will always have the appropriate amount of aggregate demand to employ any and all those willing to work, mostly producing real goods and services for both public and private consumption.

Well that's the theory, except fo t th elast 50 years that has not the case

Yeah, Warren Mosler is one of the more well-known MMT proponents out there. However, there’s many more MMT economists, such as Stephanie Kelton, Randall Wray, William K Black, Michael Hudson, Steve Keen, Scott Fullwiler, James Kenneth Galbraith, et al.

Note here \please that you and I are in accord about the general use of monetary policy to pull us out of this recession?

But as you elected to also become an apologist for wholesale and blind free trade policies?

I just thought I'd point out that this is the FLAW of the MACRO economists POV.

GDP does not measure human suffering or happiness.

Until the science of macroeconomics starts ALSO thinking in HUMAN terms (rather than aggregate turns and to hell with the human consequences) it will essantially FAIL to serve mankind very well.

 

[Kimura]

What is the normal range percentage of new dollars created by government spending versus dollars created by private market borrowing? Is that ratio va consideration when currency markets determine currency exchange rates?

Are you referring to bank loans? I just want some clarification.

Can you direct us to any time in US history when reduced taxes led to CPI inflation? Inflation of asset pricing (bubbles), yes, that I believe, but consumer consumption leading to inflation? When has that ever really happened?

You should look back in the thread. I should have elaborated some more, given the context and confusion it may have created.

We’ve been discussing budget deficits left and right on here. I’ve been painstakingly trying to explain how the only risk faced by the US isn’t insolvency but inflation. However, with that being said, inflation is a risk through any type of government spending, whether it be consumption, investment, government spending, even exports. Any part of overall aggregate demand could tip the economy to the point where we have inflation. It’s not always government spending that’s the culprit.

At the end of the day, budget deficits could be too small or too large. The goal of government should be make sure we get it right where we can employ any and all productive capacity.

For the sake of argument, let’s say we have a scenario where we’ve redlined the economy and we have an inflationary problem. We then decide the government should spend more on a public works project or something related to public policy. At this point, as I’m sure you’d agree, we would need a tax increase to offset any impact from additional government spending.

huh?

I should have elaborated. Basically, spending for the federal government isn’t operationally limited by revenues, which means we don’t have a solvency risk as some like to imply. The government can make always make payments in its own currency, regardless of tax receipts or the size of the deficits.

I was also trying to make the point that paying interest to holders of US government securities is fairly simple and poses no financial strain. It’s a matter of shifting funds back and forth between reserve accounts and US Treasuries.

Nonsense... (actually it's more classist economics than nonsense economics) trade deficits improves the standard of living of consumer class in a nation but at the (usually much more) personal expense of the working class of the nation.

Again...note how what happens to the workers is NOT important to your analysis?

First of all, I tend to side with the working class and middle class, coming from a working class family myself.

The current trade deficit is simply a result of the foreign sector (rest of the world) desire to save in US financial assets. The only way this can happen is for them to export to the United States and hold US financial assets, such as stocks, mutual funds, securities, cash, etc. Foreigners compete with one another in US markets selling at the absolute lowest prices, including suppressing their domestic wages and consumption to remain competitive. In the event they no longer desire to hold US financial assets, they can purchase real goods and services from Americans or decide not sell us real goods and services, in which case the sectoral balances will change, probably favoring a more even trade position. This won’t cause any type of financial strain; it will simply mean changes in foreign currency markets.

Personally, I don’t understand this progressive fascination with factories and manufacturing in the 21st century. Am I the only one who has read Karl Marx and Charles Dickens? I do wish trade was fair for many reasons, including regulatory and humanitarian reasons. In my mind, for example, free trade does mean we have multinationals in control of regulatory, tax, tariff and spending policy, which is insane, so we agree on many things.

Note here \please that you and I are in accord about the general use of monetary policy to pull us out of this recession?

But as you elected to also become an apologist for wholesale and blind free trade policies?

I just thought I'd point out that this is the FLAW of the MACRO economists POV.

GDP does not measure human suffering or happiness.

Until the science of macroeconomics starts ALSO thinking in HUMAN terms (rather than aggregate turns and to hell with the human consequences) it will essantially FAIL to serve mankind very well.

I think the Job Guarantee and readopting full employment as a national policy is the way to go. The trade deficit has many benefits associated with it. This isn’t a jobs issue. If we have sufficient aggregate demand to purchases real goods and services from foreigners and our own full employment output, that’s a start in the right direction. In my opinion, a rational fiscal policy would increase our output, overall employment, and our standard of living, regardless of the trade gap down the road.