How is austerity doing in Europe

[bripat9643]

The reality of the situation is that national governments very rarely run down their stock of debt from a macroeconomic standpoint.

In terms of the overall macroeconomic point of view, all tax and spending decisions by the federal government should be done in such a fashion that total net spending in our economy is good enough to produce a level of real output in which firms would be able to employ any and all available labor. The goal of government should be to make sure the level of spending is sufficient enough to employ any and all available productive capacity. Period. Done deal.

That's the Keynesian mumbo-jumbo. Too bad it's totally bogus. The empirical evidence has disproven Keynesianism multiple times.

LOL, okay.

First of all, I'm not a Keynesian, so there goes that theory. What's this empirical evidence you speak of?

You obviously are a Keynesian. You believe government borrowing creates jobs.

 

[Kimura]

The Fed's control over interest rates is illusory. Jimmy Carter believed the Fed's could control interest rates. They went up to 21% during his administration. Was that what he or the fed wanted?

It was part of Volcker's attempt to control the money supply. In other words, it was part of the FED's policy to increase interest rates. This policy was an utter failure.

In other words, the government's attempt to control interest rates was an utter failure since it led to hyper-inflation.

It was stagflation. Actually, it was cost-push inflation which resulted from oil suppliers manipulating the market.

By the way, it was the FED's policy to raise interest rates when Volker came on board.

The FED cannot control the money supply, nor have any central banks since the 1980s attempted monetary targeting.

ROFL! you are truly ignorant. About the only thing the Fed does have control over is the money supply. The Fed has been attempting to do that ever since it was created.

I'll explain to you how the real world works below.

They all came to the realization that central banks simply cannot control the money supply. All they can directly control are interest rates. Monetary policy is now accomplished by setting a short-term interest rate through liquidity management in the overnight cash markets.

It's exactly the opposite of what you claim. They all came to realize that they can control the money supply. Interest rates are what the Fed can't control. However, Bernanke seems to have forgotten that lesson. He's keeping interest rates low by debasing the currency. It's only a matter of time until those chickens come home to roost.

Really, why are interest rates at historic lows? Why has Japan had interest rates at historic lows for two decades?

The FED operates under what could be defined as a funnel system. The FED will only take action during certain time periods so to speak. In other words, the Federal Reserve sets the actual rates along the entire term structure, but will allow for some permutations within a certain metric between the IOR rate and discount rate.

Here's how it's done: the Federal Reserve sets interest rates by controlling the liquidity in the system-wide reserves. If the FED think that banks have excessive reserves for any given day, it will drain these reserves by offering bonds. The role of government bonds is to provide the Federal Reserve with the ability make sure there isn't any competitive pressure on the target interest rate. This is why when you say the government 'borrows' I want to jump out of a window.

 

[Kimura]

That's the Keynesian mumbo-jumbo. Too bad it's totally bogus. The empirical evidence has disproven Keynesianism multiple times.

LOL, okay.

First of all, I'm not a Keynesian, so there goes that theory. What's this empirical evidence you speak of?

You obviously are a Keynesian. You believe government borrowing creates jobs.

If you think that's what JM Keynes wrote about in the General Theory, you have bigger problems than debating some random dude on a message board. It would help if you understood what he actually wrote about, how some of his policies were implemented, etc. Seriously.

 

[Oldstyle]

The primary negative repercussion to carrying large amounts of debt is the interest you pay on that debt.

Anyone with a limited budget and credit cards understands that concept.

Which is all grand if the national economy were a household. It's not nor is the gov't a household. Analogies are an excellent tool, until they no longer map, part to part, process to process.

Seeing as the flow of tax receipts and expenditures, gov't debt and interest, don't map exactly to household income and expence, credit and interest, the home economics analogy doesn't function.

The mapping of elements is complete nonsense.

Exactly. The Federal Government doesn't operate like household or business. Households can't issue their own currency and require that the public use said currency to pay taxes. A household has to operate on a limited supply of dollars while the federal government's supply is limited by a matter of policy. I wish people understood the difference between currency issuer and currency user. I'd like to take a moment to thank reactionaries in the US media for turning people into frothing-at-the-mouth ignoramuses.

I'm well aware that households and governments that can print their own currencies don't operate in the same manner but THAT doesn't alter the fact that too much debt is bad for both. Can you imagine the result if households WERE able to do what government can do...simply print money to pay their debts? Anyone care to wager how long it would be before all currency would be essentially worthless? Just because a nation CAN print limitless amounts of money doesn't mean it's sound fiscal policy. The truth of the matter is that we've spent ourselves into a mountain of debt that is staggering in size. That isn't me being a "frothing at the mouth ignoramus"...that's me stating the situation that we currently face.

 

[itfitzme]

The fundamental error in the government is like a household analogy.

For an analogy to function, there must be a one to one to one correspondance between the elements of each and the processes or functionalities of each. *There also cannot be any extranious elements or processes that cause the two to diverge significaltly *umder the purpose of the analogy.

The gov't is like a household maps the following.

a) Credit card debt is mapped to the sale of bonds.
** a1) Bond interest is mapped to CC interest.
** a2) Bond repayment is mapped to CC repayment.
b) Taxes are mapped to income.
c) Gov't service is mapped to provision of HH labor.
d) Wages are mapped to tax rates.
e) Decrease in future consumption by the public due to government debt is mapped to future reduction of the household due to credit card debt.

This last item is where the analogy fails, even being disingenuous. *It maps the internal household consumption to the government external source of income. *It manages to do so, in a slight of hand trick, because the analogies overlap in using the household as an element but the functionalities of the elements are different for each.

In the HH/CC model, the source of income is the business sector. In the Gov't/Bond model, the source of income is the HH/business.

In the HH/CC model, the consumption is goods from the business sector. *In the Gov/Bond model, the consumption is HH labor and business goods.

The analogy then switches up saying that the effect of govt borrowing is to decrease HH consumption just as HH borrowing decreases HH borrowing.

The effect of govt debt would be to decrease govt consumption of HH labor and business goods, thereby reducing the govt provision of service and labor. *

The effect of HH borrowing is to reduce HH consumption of business goods with no reduction of labor provision.

Its a bad analogy because it is a dissingenuous analogy. It relies on using the HH in two seperate manners for each model, the relies on the listeners error in not distinguishing between the two.

 

[Kimura]

Which is all grand if the national economy were a household. It's not nor is the gov't a household. Analogies are an excellent tool, until they no longer map, part to part, process to process.

Seeing as the flow of tax receipts and expenditures, gov't debt and interest, don't map exactly to household income and expence, credit and interest, the home economics analogy doesn't function.

The mapping of elements is complete nonsense.

Exactly. The Federal Government doesn't operate like household or business. Households can't issue their own currency and require that the public use said currency to pay taxes. A household has to operate on a limited supply of dollars while the federal government's supply is limited by a matter of policy. I wish people understood the difference between currency issuer and currency user. I'd like to take a moment to thank reactionaries in the US media for turning people into frothing-at-the-mouth ignoramuses.

I'm well aware that households and governments that can print their own currencies don't operate in the same manner but THAT doesn't alter the fact that too much debt is bad for both. Can you imagine the result if households WERE able to do what government can do...simply print money to pay their debts? Anyone care to wager how long it would be before all currency would be essentially worthless? Just because a nation CAN print limitless amounts of money doesn't mean it's sound fiscal policy. The truth of the matter is that we've spent ourselves into a mountain of debt that is staggering in size. That isn't me being a "frothing at the mouth ignoramus"...that's me stating the situation that we currently face.

I wasn't referring to you, dude. Seriously.

My point is, that this debt argument is illogical, given all of our excess capacity, lagging aggregate demand and employment numbers. It's a trivial non-issue. It's not a mountain of debt, it simply represents the private sector's desire to save. These payments get made the same way as you or I would shift funds between our checking account and savings account. For example, China has a checking account (reserve account) over at the FED. It purchases US securities and money is shifted into a savings account (Treasuries). These payments are merely the shifting of funds back and forth between reserve accounts and Treasuries. In other words, purchasing US debt is nothing more than shifting dollars from a checking account (reserve account) to savings (Treasuries), paying off US debt entails nothing more than shifting dollars from savings (Treasuries) to checking (reserve accounts).

Also, there's more to inflation than increasing the supply of money. If we listened to actual ignoramuses like Peter Schiff or Kyle Bass, we should have all committed ritualistic suicide back in 2008.

We should ultimately get rid of bonds since they're no longer operationally necessary under a fiat system. This whole thing has been hijacked by politicians and we're seeing it played out with all this austerity talk by the moron in the White House. Conservatives should support this, it would render the 'public debt' issue a moot point. The Chinese, Saudis, Japanese and whoever could park their money into reserve accounts and that would be that. Obviously, it would require more tweaking, such as permanent overdrafts, etc., but I think you get the point.

 

[itfitzme]

Which is all grand if the national economy were a household. It's not nor is the gov't a household. Analogies are an excellent tool, until they no longer map, part to part, process to process.

Seeing as the flow of tax receipts and expenditures, gov't debt and interest, don't map exactly to household income and expence, credit and interest, the home economics analogy doesn't function.

The mapping of elements is complete nonsense.

Exactly. The Federal Government doesn't operate like household or business. Households can't issue their own currency and require that the public use said currency to pay taxes. A household has to operate on a limited supply of dollars while the federal government's supply is limited by a matter of policy. I wish people understood the difference between currency issuer and currency user. I'd like to take a moment to thank reactionaries in the US media for turning people into frothing-at-the-mouth ignoramuses.

I'm well aware that households and governments that can print their own currencies don't operate in the same manner but THAT doesn't alter the fact that too much debt is bad for both. Can you imagine the result if households WERE able to do what government can do...simply print money to pay their debts? Anyone care to wager how long it would be before all currency would be essentially worthless? Just because a nation CAN print limitless amounts of money doesn't mean it's sound fiscal policy. The truth of the matter is that we've spent ourselves into a mountain of debt that is staggering in size. That isn't me being a "frothing at the mouth ignoramus"...that's me stating the situation that we currently face.

Sorry it took so long. My response is in the lone post. I needed to think through the models in the analogy. The fault has nothing to do with whether the gov't can print money. Indeed, that's just compounding the problem with the analogy.

The govt doesn't print money to spend any more than a HH does. Banks create money. When the govt sells bonds, say to a bank, it is exactly like a HH borrowing on a CC. The bank buying the bond is "creating" the money exactly as a bank providing CC funds is "creating" money.

Now, I know, there is this whole thing floating around where the Fed is take as effectively the Gov't printing money by buying bonds on the secondary markets which allows more bonds to be purchased. And banks also repackage CC debt into CC backed securities which doesnthe same thing. And people that live in HHs work for banks and on it goes. There is a huge problem with doing analogies in econ because they are relying on either rotating the economy and remapping elements, then screwing one up. Using the economy as an analogy for itself, which is like using Mazda engine as an analogy for a Toyota engine. Or using some badly constructed analogy like a swimming pool.

They sound all great, until subjected to detailed analysis.

Though, at least a bad analogy that reaches the right conclusion is effectively better than a bad analogy that reaches the wrong conclusion.

 

[itfitzme]

Slavery, indentured servitude and child labor is NOT conducive to productivity, Jason. Some rather intelligent people figured out that the most productive labor force is one that is working to better itself...not because you chain them to a machine.

Let me understand this, Oldstyle. Are you actually saying that the south fought a war over slavery because it did not increase their productivity. Perhaps if you would just think before you made a statement. Jesus.

The South fought a war because the North invaded them.

A country can't invade itself. That's like saying Syria has invaded Syria.

 

[bripat9643]

Let me understand this, Oldstyle. Are you actually saying that the south fought a war over slavery because it did not increase their productivity. Perhaps if you would just think before you made a statement. Jesus.

The South fought a war because the North invaded them.

A country can't invade itself. That's like saying Syria has invaded Syria.

The Federal government invaded the South. That is indisputable historical fact. In those days, before Lincoln wiped his ass on the Constitution, the states were considered to be sovereign nations. Furthermore, the Southern states seceded from the union. They were no longer part of the United States.

The Federal government sent troops into sovereign territory. It invaded the Confederate States.

 

[itfitzme]

It's any overview of Modern Monetary Theory. I wasn't being obtuse, my goal was to avoid delving into accounting identities so to speak.

I know. *

**I was really specifically refering to exactly what I refered to. *Like ten year olds saying, "You're gay." *"No, you're gay." "You're gay times ten." *"You're dad's gay". .... *"You're " What's the next move? *"You're times two."?

**I just keep pushing towards accuracy and precision. *

At some point, when presenting some fundamental boundary condition like "All consumption in the future will be produced in the future" there isn't anything more to explain. *It's like saying that massive objects fall under gravitational pull. *Its not even contestable as an axiom. It just is. What else can you say? Someone says A leads to B leads to C, and you point out that C obviously doesn't exist, what can you say? What ever the reasoning was that yielded C, it needs rethinking. *I don't read minds.

I haven't found any errors on your part. *All I get is either "I don't know" or like that one, just not the best analogy.

That's really the reason I have little response to your posts. *They are either right, I don't know, some bad analogy with the right conclusion, or a "You're gay times two." *I dream of a forum where posts are a build up of fact and reason that hits an unresolved question. *

One time, in all the time I've read and replied, I was right, he was right, then I had that Ah Ha moment of it's "AND". *That's when I get just a teeny bit smarter, at the margin, one little neuron connects.

I generally respond because there is something I need to see in print. There is just something extra about the process of having to spell it out. And I am ever appreciative that others have spent the time to spell stuff out.

 

[itfitzme]

The South fought a war because the North invaded them.

A country can't invade itself. *That's like saying Syria has invaded Syria.

The Federal government invaded the South. *That is indisputable historical fact. *In those days, before Lincoln wiped his ass on the Constitution, the states were considered to be sovereign nations. *Furthermore, the Southern states seceded from the union. *They were no longer part of the United States.

The Federal government sent troops into sovereign territory. *It invaded the Confederate States.

I'm going to have to reread the Constitution of the United States where it says that states are sovereign nations. *

 

[bripat9643]

A country can't invade itself. *That's like saying Syria has invaded Syria.

The Federal government invaded the South. *That is indisputable historical fact. *In those days, before Lincoln wiped his ass on the Constitution, the states were considered to be sovereign nations. *Furthermore, the Southern states seceded from the union. *They were no longer part of the United States.

The Federal government sent troops into sovereign territory. *It invaded the Confederate States.

I'm going to have to reread the Constitution of the United States where it says that states are sovereign nations. *

Try finding the part that says states take orders from the federal government. Then read the 9th and 10th Amendments.

 

[itfitzme]

Still waiting for Kimura to explain why if debt isn't an issue we shouldn't just pile it on and make everything peaches and cream.

The reality of the situation is that national governments very rarely run down their stock of debt from a macroeconomic standpoint.*

In terms of the overall macroeconomic point of view, all tax and spending decisions by the federal government should be done in such a fashion that total net spending in our economy is good enough to produce a level of real output in which firms would be able to employ any and all available labor. The goal of government should be to make sure the level of spending is sufficient enough to employ any and all available productive capacity. Period. Done deal.

That's the Keynesian mumbo-jumbo. *Too bad it's totally bogus. *The empirical evidence has disproven Keynesianism multiple times.

Holly crap, there's a Nobel Prize in there then. *Someone is gonna go down in history along with John Nash, even Einstien. *The Albert Einstien of Economics... Who are these guys. *The text book publishers are going to make bank on all the rewrites of micro and macro economics, from into on up. *Down goes MPC... Down goes MMP... Down goes the fiscal multilpier... Down goes the CBO projection models.... Someone inform them and the IMF.

Shit.... Now I am really excited. *Do you have some links to the published papers?*

I search on*fiscal multiplier military spending - Google Search

or*

fiscal multiplier - Google Search

And I'm overwhelmed with crap papers.

In do*fiscal multiplier overthrown debunked - Google Search

and all I get are a few blogs and something called "mises.org".

 

[itfitzme]

The Federal government invaded the South. *That is indisputable historical fact. *In those days, before Lincoln wiped his ass on the Constitution, the states were considered to be sovereign nations. *Furthermore, the Southern states seceded from the union. *They were no longer part of the United States.

The Federal government sent troops into sovereign territory. *It invaded the Confederate States.

I'm going to have to reread the Constitution of the United States where it says that states are sovereign nations. *

Try finding the part that says states take orders from the federal government. *Then read the 9th and 10th Amendments.

Dammed Supreme Court with their*power to interpret the Constitution. *How did that happen?

For that matter, if states are sovreign nations, why do we even have a Constitution? *Seems awefully useless. *

 

[itfitzme]

...
We should ultimately get rid of bonds since they're no longer operationally necessary under a fiat system.*
...
.

Damn you, man... You can't blurt thing like that out and just walk away. *It leaves this big "I don't know" that causes a little permanent trickle of anxiety.

Now I'm gonna wake up tommorrow and realize I had been dreaming about that little Constitution cartoon guy, on Saturday morning along with "conjunction junction", standing on capitol hill and shooting little cartoon bond characters. *Then the little bond cartoon characters fall over, with big holes in their middle, gasping for breath before expiring and blowing away in a gust of wind. *I wake up with this uneazy feeling, like something is missing.

Damn you man....

 

[itfitzme]

The Federal government invaded the South. *That is indisputable historical fact. *In those days, before Lincoln wiped his ass on the Constitution, the states were considered to be sovereign nations. *Furthermore, the Southern states seceded from the union. *They were no longer part of the United States.

The Federal government sent troops into sovereign territory. *It invaded the Confederate States.

I'm going to have to reread the Constitution of the United States where it says that states are sovereign nations. *

Try finding the part that says states take orders from the federal government. Then read the 9th and 10th Amendments.

I found something

"This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding."

and

"No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States."

Apparently some people think this has something to do with it.

Supremacy Clause - Wikipedia, the free encyclopedia

Don't you just hate it when someone else interprets thing different then you want to? *Annoys the shit out of me.

No one asked me if I wanted to be born or in what country. You don't see my signature on the Constitution, do ya?

 

[Kimura]

...
We should ultimately get rid of bonds since they're no longer operationally necessary under a fiat system.*
...
.

Damn you, man... You can't blurt thing like that out and just walk away. *It leaves this big "I don't know" that causes a little permanent trickle of anxiety.

Now I'm gonna wake up tommorrow and realize I had been dreaming about that little Constitution cartoon guy, on Saturday morning along with "conjunction junction", standing on capitol hill and shooting little cartoon bond characters. *Then the little bond cartoon characters fall over, with big holes in their middle, gasping for breath before expiring and blowing away in a gust of wind. *I wake up with this uneazy feeling, like something is missing.

Damn you man....

Haha I apologize about the hit and run. I'll try to articulate my points a little more.

If we look at this from the federal government's point of view, there really isn't a functional difference between electronic credits, cash, bonds or treasury bills.

The US could could stop issuing bonds today if it desired to. When people froth-at-the-mouth about US public debt, they don't understand the underlying mechanics of certain operational realities of our fiat monetary system. The primary function of the US Treasury is to subtract or add net reserves in the banking system, which helps the Federal Reserve meet its target Fed Funds rate. The secondary function is give holders of US paper an ROI. Bank reserves really aren't really a great place to earn interest. I view bonds as a vestigial leftover from the dark days of the gold standard.

 

[itfitzme]

...
We should ultimately get rid of bonds since they're no longer operationally necessary under a fiat system.*
...
.

Damn you, man... You can't blurt thing like that out and just walk away. *It leaves this big "I don't know" that causes a little permanent trickle of anxiety.

Now I'm gonna wake up tommorrow and realize I had been dreaming about that little Constitution cartoon guy, on Saturday morning along with "conjunction junction", standing on capitol hill and shooting little cartoon bond characters. *Then the little bond cartoon characters fall over, with big holes in their middle, gasping for breath before expiring and blowing away in a gust of wind. *I wake up with this uneazy feeling, like something is missing.

Damn you man....

Haha I apologize about the hit and run. I'll try to articulate my points a little more.

If we look at this from the federal government's point of view, there really isn't a functional difference between electronic credits, cash, bonds or treasury bills.*

The US could could stop issuing bonds today if it desired to. When people froth-at-the-mouth about US public debt, they don't understand the underlying mechanics of certain operational realities of our fiat monetary system. *The primary function of the US Treasury is to subtract or add net reserves in the banking system, which helps the Federal Reserve meet its target Fed Funds rate. The secondary function is give holders of US paper an ROI. Bank reserves really aren't really a great place to earn interest. I view bonds as a vestigial leftover from the dark days of the gold standard.

I thought the Federal Reserve had that whole "subtract or add net reserves in the banking system" thing cover.

**The Treasury does accounting for the govt. They print species, coins and bills, but that goes directly under Fed control. *They sell bonds to cover gov't expenditures in lue of sufficient receipts. *

The Fed increases reserve bank reserves and adjusts the discount rate. *The Fed has the whole open market thing which works on the private bank reserve portfolio.

The Fed does the electronic switching from savings to checking accounts.

Now we've got the Treasury adjusting private bank reserves too? *Seems a bit of a cludge. *But if it works....

 

[Oldstyle]

Exactly. The Federal Government doesn't operate like household or business. Households can't issue their own currency and require that the public use said currency to pay taxes. A household has to operate on a limited supply of dollars while the federal government's supply is limited by a matter of policy. I wish people understood the difference between currency issuer and currency user. I'd like to take a moment to thank reactionaries in the US media for turning people into frothing-at-the-mouth ignoramuses.

I'm well aware that households and governments that can print their own currencies don't operate in the same manner but THAT doesn't alter the fact that too much debt is bad for both. Can you imagine the result if households WERE able to do what government can do...simply print money to pay their debts? Anyone care to wager how long it would be before all currency would be essentially worthless? Just because a nation CAN print limitless amounts of money doesn't mean it's sound fiscal policy. The truth of the matter is that we've spent ourselves into a mountain of debt that is staggering in size. That isn't me being a "frothing at the mouth ignoramus"...that's me stating the situation that we currently face.

I wasn't referring to you, dude. Seriously.

My point is, that this debt argument is illogical, given all of our excess capacity, lagging aggregate demand and employment numbers. It's a trivial non-issue. It's not a mountain of debt, it simply represents the private sector's desire to save. These payments get made the same way as you or I would shift funds between our checking account and savings account. For example, China has a checking account (reserve account) over at the FED. It purchases US securities and money is shifted into a savings account (Treasuries). These payments are merely the shifting of funds back and forth between reserve accounts and Treasuries. In other words, purchasing US debt is nothing more than shifting dollars from a checking account (reserve account) to savings (Treasuries), paying off US debt entails nothing more than shifting dollars from savings (Treasuries) to checking (reserve accounts).

Also, there's more to inflation than increasing the supply of money. If we listened to actual ignoramuses like Peter Schiff or Kyle Bass, we should have all committed ritualistic suicide back in 2008.

We should ultimately get rid of bonds since they're no longer operationally necessary under a fiat system. This whole thing has been hijacked by politicians and we're seeing it played out with all this austerity talk by the moron in the White House. Conservatives should support this, it would render the 'public debt' issue a moot point. The Chinese, Saudis, Japanese and whoever could park their money into reserve accounts and that would be that. Obviously, it would require more tweaking, such as permanent overdrafts, etc., but I think you get the point.

You're really making the point that our national debt is a "trivial non-issue"? I'm sorry, Kimura but to be quite frank with you...I think you've lost your mind. This notion of yours that debt isn't an issue amazes me. Somehow someone has convinced you that "creative accounting" can nullify common sense. Not only is it a mountain of debt...it is a Mt. Everest of debt...a sum that is so vast that it's hard to comprehend.

 

[Rshermr]

Still waiting for Kimura to explain why if debt isn't an issue we shouldn't just pile it on and make everything peaches and cream.

Simplistic question. Easy answer. For the same reason the doc does not suggest taking a 50 gallon barrel full of pain pills for your head ache.

So you admit that too much debt is a fiscal recipe for a trip to the ER? Ok...Mr. Easy Answer...at what point does your "remedy" become the cause of pain rather than the cure for it? Kimura feels that because he can make assets and liabilities balance on a sheet that more debt isn't an issue. Even you seem to realize that's ridiculous...

Better get your story straight, progressives...

No, me poor stupid con. What I said is that you should assume that the patient is not stupid enough to take the whole barrel. I suppose you would?
Jesus, you are ignorant.